162. Memorandum From the Deputy Under Secretary of State for Economic Affairs (Dillon) to the Director of the International Cooperation Administration (Smith)1

SUBJECT

  • Budgetary Support for Jordan

I refer to your memorandum of February 28, 19582 in which you question the necessity of continuing budgetary support for Jordan under the Mutual Security Program in the light of the recently announced agreement of federation between Iraq and Jordan. Specifically, you ask whether it is in the interest of the United States and within the intent of Congress to use Mutual Security Funds to help maintain governmental operations and services in Jordan, which has now become part of a federal state whose total resources appear to be adequate for the purpose. We believe it is in our interest to continue budgetary support for Jordan. The following are the principal considerations bringing us to this conclusion:

1.

United States Interests in Iraq–Jordan Merger: We believe that the federation between Iraq and Jordan is potentially a significant and favorable development with respect to United States interests in the Middle East. Properly implemented and executed, this federation can make a substantial contribution to area stability and economic development and should have a favorable effect on both long and short term problems now facing us in the area. For example, it could help check Soviet penetration and eliminate or lessen the effect of some of [Page 280]the elements of instability in Jordan. Therefore, it is in our interest that the federation be successful and that we support and assist it to the greatest possible extent.

In our approach to it at the present time, however, we must remain aware that, while the federation has been proposed, it has not been formally established and, while we have no doubt that the February 14 proclamation will be implemented, it would be premature to formulate policies on the assumption that actual federation has been established. Our separate commitments to Iraq and Jordan are, therefore, still fully in effect and must be considered to be so until formal federation gives us a basis for taking a new look at the situation. Further, our desire to see federation successfully implemented makes it desirable to continue to demonstrate, in discussions of the future, a keen United States interest and desire to render assistance to Jordan and Iraq under whatever new political arrangement they may make.

2.

Past United States Assurances: Prior to the February 14 federation agreement, we had given assurances to both the Iraqis and Jordanians of our continuing desire to assist Jordan (Deptels 1294 and 1309 to Amman3 and Deptel 1989 to Baghdad4). On February 13, we sent Deptel 1919 to Amman,5 expressing our favorable view of the proposed federation and stating that the United States was prepared, subject to constitutional requirements and the availability of funds, to consider how it could best assist in strengthening the association, with particular reference to the needs of Jordan. This, plus subsequent telegrams dealing with technical aspects of our assistance program in Jordan, has conveyed to both the Iraqis and Jordanians the clear, and correct, impression that we support the Federation proposal and to aid in its success we wished to continue economic and financial assistance to Jordan.

An indication now that the United States sought to terminate its financial assistance to Jordan would not only be considered by the Iraqis and the Jordanians to be a breach of faith but might also cause the Iraqis to reconsider their role in the new federation.

3.
Implementation of the Federation Agreement: The February 14 agreement stipulated that a new constitution would be drafted for the federation and that the necessary measures for setting up a federal government would be taken within three months. It has already become apparent that there will be considerable difficulty in working out [Page 281]specific details of the merger, particularly in the government organization and economic spheres. We believe the Iraqis should be more forthcoming in the field of financial and economic assistance to Jordan, and will urge in the strongest terms that they be so, but we must recognize that we can not expect the Iraqis to agree to a one-sided arrangement whereby Jordan obtains great economic advantages at Iraq’s expense while Iraq, by the nature of Jordan’s economic position, can expect almost none. While it is too early to forecast the final terms of the economic aspects of the federation, we are reasonably sure that they will fall far short of Iraq’s immediately assuming responsibility for Jordan’s budget. We do not think it practicable to attempt to influence these terms radically now, but rather that we should work toward a gradual assumption of Jordan’s financial burden by Iraq.
4.
Iraq’s Economic Needs: While Iraq’s economy is far stronger than Jordan’s, substantial uncommitted Iraqi funds are not available for budgetary assistance to Jordan. In the first place, Iraq is not expected to recover from the financial losses suffered as a result of the sabotage of the oil pipe lines in Syria until some time during the second quarter of this year and has, in fact, incurred an indebtedness of around $80 million as a result of loans from the Iraq Petroleum Company during 1957. Its ordinary budgets for the past two fiscal years have shown deficits which were financed by these IPC loans and a deficit of ID 3.8 million ($10.6 million) is expected in Iraq’s fiscal year 1959. In the second place, 70 percent of Iraq’s oil income is earmarked for an economic development program which authorizes expenditures of over $1 billion during the four year period April 1957 through March 1961. Any delay in the realization of the economic benefits of this program would seriously impair a promising long-term possibility for ultimate drifts of population from overcrowded Jordan to Iraq. Therefore, it would be unwise both politically and economically to urge a reduction in this development program. As you know, one of the reasons for our grant military assistance to Iraq is to permit Iraq to strengthen its defenses, and to contribute actively to collective defenses within the Baghdad Pact without diverting funds from its development program. Therefore, although we believe that Iraq can contribute more to the support of Jordan’s budget than it has in the past and we will continue to urge it to do so, we do not think it will be possible to discontinue or reduce United States budgetary assistance to Jordan during the coming Jordan fiscal year. In fact, we may well have to face [Page 282]a more serious budget support problem than in the past year, since indications are that Saudi Arabia’s financial situation is forcing a serious reconsideration of its aid to Jordan.

Douglas Dillon6
  1. Source: Department of State, Central Files, 785.5–MSP/2–2858. Secret. Drafted in NEA/NE by Parker and cleared with W/MSC, NR, NE, and NE/E.
  2. Not printed. (Ibid.)
  3. Neither printed.
  4. In telegram 1989 to Baghdad, February 1, the Department conveyed assurances to the Iraqi Government that the United States remained interested in the stability and integrity of Jordan and would continue to give sympathetic consideration to the requirements of the Jordanian Government for economic assistance. (Department of State, Central Files, 885.0087/1–2258)
  5. Document 160.
  6. Printed from a copy that bears this typed signature.