Foreign Relations of the United States, 1958–1960, Arab-Israeli Dispute; United Arab Republic; North Africa, Volume XIII

245. Memorandum From the Assistant Secretary of State for Near Eastern and South Asian Affairs (Jones) to the Secretary of State¹

Washington, September 24, 1959.

SUBJECT

• UAR Application for an IBRD Loan for Suez Canal Improvement

Background:

President Black reviewed for Under Secretary Murphy on September 17 the background of the proposed IBRD Suez Canal loan to the UAR, noting the problem created for the IBRD by the continued presence of the Inge Toft at Port Said (a copy of the memorandum of Mr. Murphy’s conversation is attached, Tab A).² Mr. Black asked whether the Department might inform UAR Minister of Economics Kaissouni during his current visit to the US (September 20–October 4) that the US has no objection to the Canal loan but realizes that the IBRD had a problem with respect to its timing and that we, therefore, considered the question of when the IBRD should formally consider the loan should be left to President Black.

IBRD Position:

Routine IBRD economic and technical reports on the Canal project have been surprisingly favorable. The IBRD would consequently be prepared to move forward on the loan now were it not for the Suez transit issue. President Black’s desire to delay formal IBRD consideration has been made known to Dr. Kaissouni and other top UAR officials. The latter have indicated willingness for the present to leave the question of timing to President Black. He now hopes it may be possible to defer consideration of the loan until early in November, after the British (October 8) and Israeli (November 3) elections.

UK Position:

The UK made clear to Dr. Kaissouni in London on September 15–17 that there is no British objection to the loan but that the possibility of positive UK support would be enhanced by UAR action on desequestration of British properties, reaffirmation of freedom of Canal transit and release of the second of two accused British spies. Since the British are aware of Mr. Black’s desire to delay formal IBRD consideration, their earlier concern relative to the timing of the British elections has disappeared.

Considerations Affecting US Position:

Granting of a Canal loan to the UAR while the Inge Toft issue remains unsettled would draw strong criticism from Israel and from its sympathizers here. While we incline to the view that neither the Israeli nor UAR positions on the transit question are wholly sound, UAR opposition to the transit of Israeli-owned cargoes on Israeli-chartered vessels appears clearly contrary to the Security Council resolutions of 1951 and 1956 as well as former UAR practice. We believe, however, there are strong reasons for the US not to oppose the loan and to vote for it when President Black calls for its formal consideration by the IBRD. These reasons include:³

1. Withholding loan will not solve transit problem: Efforts to link the Canal loan to a UAR concession on the Israel transit issue would only increase UAR intransigence on the latter question. The recent improved climate in UAR-Western relations would thus deteriorate, rendering less rather than more likely some subsequent UAR concession on the transit problem.

2. Aswan Dam history: President Nasser has not forgotten the abortive Aswan Dam negotiations in 1955–56. Failure to obtain the Canal loan might well cause him to turn to the Communist bloc for Canal financing, thus weakening, if not destroying, the UAR’s effective anti-Communist position. Moreover, the Soviets might find in the financing of Suez improvements a golden opportunity not only to secure a stake in this strategic waterway (and a claim on its tolls) but also to recover ground which International Communism has definitely lost in the Arab world during the past year.

3. Integrity of IBRD: There appears to be complete economic justification for granting the loan. Refusal by the IBRD to do so would thus serve to convince the UAR and other uncommitted nations that the IBRD is an instrument of Western policy rather than a bona fide international financial institution.

4. Western initiative for loan: When the IBRD took the initiative in suggesting to the UAR in the autumn of 1957 the possibility of IBRD assistance for Canal expansion, it was with the proviso that agreement would first be reached by the UAR on compensation to the Suez Canal Company and on financial settlements with the UK and France. With Mr. Black’s skillful help these two major problems were resolved. For the IBRD now to take action with respect to the Canal loan which would appear to attach an additional condition would no doubt exacerbate Cairo’s adverse reaction, thus undoing much of the recent progress made in improving UAR-Western relations, in which President Black has played an important role.

5. US assurance to Nasser: In connection with the initial stages of the UAR anti-Communist campaign, which seemed likely to deprive the UAR of considerable Soviet financial assistance, we assured President Nasser in April 1959 of our willingness to extend appropriate support for sound UAR loan applications before the IBRD. The Cairo press has already been critical of the alleged US role in blocking IBRD action on the loan, and the UAR will blame the US, rather than the IBRD, if it is not granted. We have welcomed recent evidence that President Nasser is concentrating on UAR economic development, for which the requested loan would provide considerable indirect assistance. Its refusal might well force delays or cancellation of some of these economic development plans, thus increasing the possibility of a return to irresponsible UAR political adventures.

6. Western need for improved Canal facilities: While the UAR would benefit from Canal improvements through increased revenue, these improvements are also highly desirable from the point of view of the major maritime nations and Western European oil consumers. Refusal to grant the loan might thus penalize world shipping interests more than the UAR.

Conclusion:

On balance, we believe it is in the US and general Western interest for the IBRD to approve a Suez Canal loan when President Black believes such action opportune. He probably cannot postpone action on this question beyond early November without provoking a serious UAR reaction and has sought firm indications of the US and UK positions as a guide. While the UAR is unlikely to give any undertaking on the specific question of Israel transit, there are indications that the UAR would, in the context of an IBRD loan, reaffirm the unilateral Egyptian Declaration of April 1957, embodying the principle of freedom of Canal transit as set forth in the Constantinople Convention of 1888. While we deplore UAR restrictions on the Israel transit question, we do not believe favorable IBRD action on the Canal loan should be contingent upon a specific commitment by the UAR on the Israel transit issue. In brief, we believe the transit issue should be dealt with primarily as a separate issue and that progress toward its eventual solution will be more likely if the IBRD loan is approved than if it is refused.

Recommendations:

1. That you inform President Black:⁴

A. That, while we hope a solution may be found to the Israel transit problem, notably the specific Inge Toft issue, the US is prepared to support the UAR loan application when it is brought before the IBRD Board without making our support conditional upon a prior UAR commitment on the Israel transit issue;

B. That we wish to leave the question of timing up to President Black but wish to call to his attention the problem created for Israel if the loan were granted prior to the Israeli elections on November 3;

C. That we plan to inform Dr. Kaissouni that the US has no objection to the Canal loan but believes that the question of timing is one for President Black to decide.

2. That you authorize us to inform Dr. Kaissouni accordingly during his Washington visit.

3. That you authorize us to inform the UK of our decision.⁵

1. Source: Department of State, Central Files, 986B.7301/9–2459. Secret. Drafted by Brewer on September 23; concurred in by Wallner, Macomber, E, and H; and transmitted through Dillon who initialed it.
2. Not attached. A copy of the memorandum of conversation is ibid., 986B.7301/9–1759. A briefing paper for the conversation is ibid., 398.14/9–1759.
3. Herter wrote some comments next to the following points: Next to point 1, he wrote: “Don’t know.” Next to points 2, 4, 5, and 6, he wrote: “Good reason.” Next to point 3, he wrote: “Best reason.”
4. On the source text at this point, Dillon wrote: “I will take care of this if you so desire.”
5. Herter initialed his approval of each of the recommendations. Next to his initials he wrote: “Approved on assumption loan will not be voted on till Nov. date. C. A. H.”