327. Telegram From the Department of State to the Embassy in Saudi Arabia0

808. Dhahran’s 457, 459.1FYI—Department finds most interesting King’s comments re budget and arms at Dhahran. While we appreciate King retains sovereign power [less than 1 line of source text not declassified] we have distinct apprehensions over his detailed approaches with respect governmental matters currently under actual control Faisal. From our understanding of situation, we would fear possible adverse reaction by Faisal if he should gain impression we are discussing such matters with King without his knowledge. While we agree with desirability maintaining closest friendship with King [less than 1 line of source text not declassified] we desire avoid situations in which King will seek [1 line of source text not declassified] discuss matters of which Faisal not aware. Your further comments these points would be helpful.

We appreciate it may not be possible suggest to King we do not feel in position discuss development financing with him. King should however be given absolute minimum of encouragement in any projects [Page 746]which would appear run counter efforts by Faisal and IMF stabilize Saudi finances.—End FYI.

In response King’s inquiry you may at next opportunity reply that US unable speak for World Bank, that only two US agencies in position provide development loans are Export-Import Bank and Development Loan Fund. Former provides dollar repayable loans to governments and private firms involving US exports. Saudi Arabia has in past benefitted from such loans. DLF provides loans payable in dollars or local currency for development but no funds currently available.

US naturally sympathetic desire SA develop and prepared at appropriate time discuss sound economic projects with SAG. We believe SA will be in more favorable position secure loans from international or US lending organizations, however, when financial situation stabilized and repayment on current obligations. US assisting SA in present crisis by further moratorium on military purchase payments (Deptel 772)2 and lend-lease silver problem3 remains outstanding. These problems being worked out with SAG and US hopeful present endeavors will enhance Saudi Arabian financial position and ultimate credit possibilities.

Request also, when you inform Faisal re moratorium, you also indicate King raised in passing in conversation during visit COMIDEASTFOR possible development assistance and give substance your reply to King.4

With respect question arms and ammunition at Dhahran believe you should not pursue matter further until you have had opportunity discuss with Faisal. In this connection understanding here is that General Clark mentioned only ammunition to Saudis.

FYI—Your 7495 and 7576 received. We remain inclined inform King and Faisal as indicated above. We would hesitate give King or SAG[Page 747]hope of US Government loans or other assistance which suggestion you look into matter when here might imply. Will look forward opportunity discuss these aspects in more detail when you arrive. We in general do not favor further grant or loan aid at present time. We understand from Zaki Saad he shares this view. End FYI.

Herter
  1. Source: Department of State, Central Files, 786A.00/2–2159. Secret; Priority; Limit Distribution. Drafted by Newsom, cleared in draft with Meyer and Louis E. Frechtling of W/MSC, and cleared in substance with Colonel French of Defense. Repeated to London by pouch.
  2. These telegrams, both February 21, reported a private discussion between Saud and Heath at Dhahran. Telegram 457 reported that Saud complained that the Saudi budget did not make enough provisions for development projects, would reduce the salaries of “useful” government employees, and asked Heath where and under what conditions Saudi Arabia could obtain loans for development. The King also observed that Faisal was only interested in economies and monetary reform and would resign if Saud insisted on development through foreign loans. In telegram 459, Heath reported that Saud was unaware of the agreement whereby arms and ammunition were stored at Dhahran and wanted to know who authorized it. Heath observed that Saud’s just completed and successful tour in the Hejaz, as well as the dissatisfaction in army, business, and government circles with Faisal’s economies and reforms, were encouraging the King once again to become his own prime minister. (Ibid., 786A.00/2–2159 and 786A. 56/2–2159)
  3. See footnote 4, Document 325.
  4. Reference is to the Saudi lend-lease silver debt to the United States incurred during World War II, which totaled approximately $20 million. (Memorandum from Francis T. Murphy, Chief of the Lend Lease and Surplus Property Division, to John F. Shaw, Officer in Charge of Economic Affairs, NEA/NE, January 23, 1959; Department of State, Central Files, 786A.56/1–2359)
  5. [text of footnote not declassified]
  6. In telegram 749, February 26, Heath recalled that during his discussion with King Saud in Dhahran, the King had said he needed “large sums” for development loans before he assumed the role of prime minister. In commenting to the Department, Heath did not recommend encouraging Saud “to take up the reins of government,” but he did feel that the United States must give him an answer on development loans. (Department of State, Central Files, 786A.00/2–2659)
  7. In telegram 757, February 28, Heath discussed with a member of Prime Minister Faisal’s office the Saud-Faisal relationship. The official argued that Faisal’s policies of fiscal reform [text not declassified] were in Saudi Arabia’s best interests, Faisal was not anti-American, and that although Faisal would never ask for development assistance, he would accept it if offered. (Ibid., 786A.00/2–2859)