224. Telegram From the Embassy in the United Arab Republic to the Department of State1
1275. Embassy telegrams 1257, 1272.2 This preliminary Embassy appraisal significance Soviet offer finance first phase High Dam. Although offer in reality not very big as it represents financing for only third of costs first phase and less than 60 percent increase over previous Soviet industrialization loan, no doubt that, if implemented, it represents major triumph both Nasser and USSR. Nasser’s prestige enhanced both UAR and area, USSR gains greater degree control UAR economy and influence on policy as well as sharing propaganda victory with Nasser. Position of West in area correspondingly weakened.
Economic consequences of decision proceed with High Dam will depend in part on terms of final agreement. If newspaper reports correct, terms generous and repayments, while only 12 years duration, do not begin until additional land cultivated. While this additional obligation adds no more than 20 percent to foreign exchange liabilities now being undertaken for industrialization, it another case Egyptian unconcern about problems which can be postponed. No note taken in press of fact that population increase expected eat up all benefits of project. Nonetheless, Embassy believes long-run foreign exchange problem less important than immediate impact of additional local expenditures on domestic economy. Embassy estimates that present industrialization program cannot be carried on through next three years without support of annual net import surplus of LE 15–20 million on top capital import requirements covered by long-term financing (Embassy despatch 202).3 In Embassy’s opinion transfer of local resources to dam project in amount of LE 15 million per year can only be accomplished if import surplus correspondingly increased, as not realistic to expect that Egyptians capable of necessary austerity to achieve it otherwise. Other alternative of gold loan by USSR not considered likely. Thus, economy, which already severely strained by foreign exchange shortage, will be subjected to additional pressures which could result in serious inflation unless large-scale additional aid obtained or monetary gold sold. Egypt increasingly in position of man very busy laying foundation for future wealth, but in meantime nearly [Page 494] starving. Doubtful Nasser fully aware seriousness current economic situation and degree High Dam project will add to problem, but question whether this would have influenced decision even if known. Kaissouni and other officials aware problem, but no indication they have least idea how to solve it. (Kaissouni in response direct question by Kennedy re local financing project during call on October 25, merely said local resources would somehow be found because UAR had no alternative but to proceed.) From these facts, Embassy concludes Nasser may still need Western help. Thus, while immediate effect High Dam offer is to damage Western prestige in area, UAR commitment to economic program beyond capacity its resources may ultimately give us increased room for maneuvering. Note also that undertaking first phase which provides only coffer dam and water diversion works without guarantee financing for balance project or agreement permitting flooding Sudan territory may put UAR in severe bind at later date. Soviets of course can be well satisfied with loan “without strings” which binds UAR to course threatening to wreck economy and improve Soviet bargaining position when next loan mandatory.
Most serious immediate danger is possible aggravation UAR–Sudan dispute over Nile waters. This dispute not in interest US and particularly important to avoid situation where competitive programs carried out in absence of agreement, one backed by USSR and one by West, although of course necessary see Sudan projects properly supported. But, while this sorry outcome might appear probable in view of announcements both countries their intention proceed without agreement, fact that Nasser indicated to Black, President IBRD, he would welcome IBRD assistance in reaching agreement with Sudan as soon as UAR announcement of High Dam program made, gives ground for hope way may still be found to achieve unified development plan for Nile Valley (Embassy telegram 1202).4
Kaissouni reiterated to Economic Counselor October 25 UAR intention proceed in accordance this understanding (Embassy telegram 1273).5
Embassy suggests therefore that most important immediate step is to press for early implementation Black–Nasser agreement.
As indicated reference telegrams press having field day interpreting significance Soviet loan in terms boasting, revenge and blackmail and as related various previous events ranging from our cancellation of Aswan Dam offer to current reports British arms sales to Israel. Now what press obviously waiting for is some indication that West has been [Page 495] thrown into hysterical paroxysm by what has happened. Embassy’s suggestion in this situation that, while we should give matter all hard thinking it deserves, we should give public impression of relative unconcern although should avoid appear to belittle High Dam project itself. In previous similar instances this has proved most effective means pricking publicity bubbles. Moreover, although Embassy not had adequate opportunity assess Egyptian motives, we would surmise that Nasser’s apprehension re Sudan’s intentions as recently expressed to Black and others may have been something more than putting on act. Thus, in Kennedy–Whitman conversation with Kaissouni referred to above, latter emphasized that basic motive economic defense against loss of water from Sudanese projects.
- Source: Department of State, Central Files, 886B.2614/10–2658. Confidential. Repeated to London, Khartoum, Moscow, Amman, Baghdad, Beirut, Jidda, Tunis, Rabat, Tripoli, and Damascus.↩
- Telegrams 1257 and 1272, October 24 and 25, respectively, reported that the Soviet decision to grant the UAR a 400-million ruble loan dominated the Cairo press. (Ibid., 886B.2614/10–2458 and 886B.2614/10–2558)↩
- Not printed.↩
- See footnote 2, supra.↩
- Telegram 1273, October 26, reported a discussion with Kaissouni on Black’s mediation of the UAR–Sudan Nile waters dispute. (Department of State, Central Files, 241.86B41/10–2658)↩