316. Telegram From the Embassy in Pakistan to the Department of State1

224. Joint Embassy/USOM message. Dillon and Smith from Langley and Killen. A. Embtel 3258;2 B. Deptel 3231.3 Subject: GOP plans for steel mill.

Recent events in Middle East have served to highlight growing concern our part US aid program here not gaining wholehearted support GOP official COM. Even prior to Middle East developments, GOP officials failed to appreciate gravity of over-all economic situation and measure of support program provided national economy. Carping complaints about delays, alleged inadequacies in volume (as compared to aid to India) and misrepresentations and half-truths in public press have failed to elicit friendly support or refutation by members official GOP family.
ME situation eliciting distinctly contrary reactions in Pakistan. Official GOP pronouncements favorable to US, following line Mirza’s comments Ankara. Yet official statements do not at all represent private views of several otherwise strongly pro-Western members of government while others non-committal and probably favor opposing view. Views of native language press largely and vigorously unfavorable. Real possibility exists latter sentiment may grow, development which in light forthcoming elections may be reflected in growing restiveness on part official GOP family. There can be no assurance that GOP orientation to West will hold in face of popular dissatisfaction official position. This situation creates most favorable climate within which to nurture dissatisfaction towards all things American, including aid program.
Important factor emerging situation here is Ghulam Faruque, Chairman PIDC. He increasingly referred to as strongest man in country and personifies both anti-American attitude and growing nationalistic neutralist tendencies. Faruque has repeatedly asserted US opposes industrialization in Pakistan (especially steel mill) and Soviet Union [Page 657] represents most friendly and probable source of needed external aid for industrial growth. We were told July 23 on dependable authority Faruque openly advocating new political alignment large land owners, to whom he promising retention of favored position in tax and political matters, with major industrialists to whom he promises sharp tax reductions. His patronage powers flowing from growing PIDC industrial complex are greatest in Pakistan. His acknowledged skills [less than 1 line of source text not declassified] have enabled him to gain confidence of President and Prime Minister. In addition to this support he openly claims ability to manipulate GOP cabinet at will, which its votes reflect. Recent cabinet position on steel mill, which casts aside valid objections of Amjad Ali and Said Hasan, is example. Unless curbed, Faruque may achieve his ambition of “king-maker” through skillful and demagogic exploitation local frustrations and flaring nationalism in this part of world.
Under these circumstances, and others not mentioned, we have reviewed steel mill issue. On basis technical data available here, cabinet decision, June 21, authorizing Faruque to proceed with Frupp–Renn process may prove economically disastrous. Approval involves $47,600,000 investment foreign exchange to produce maximum of 60,000 tons annually. Almost identical situation existed Egypt 1953 being forestalled by timely representations Harman Company, Chicago steel consultant. Findings re characteristics ore sample sent US not yet available and as things stand have little likelihood influencing GOP or Faruque decision. However, we urge fastest possible completion of tests with results cabled to us. See reference telegram A.
While he not enthusiastic re any plans for steel mill at this time, even Amjad Ali believes plant, under Faruque’s pressures, has become political “must”. He therefore feels only issue to which attention might be successfully directed is process used and source financing. He expressed hope yesterday US might still do something these respects.
While many aspects this problem unclear and controversial, we feel steel mill issue may prove crucial factor future Pakistan foreign relations. If financed by USSR, would give Soviet Union tremendous boost in popular esteem and US interests gravest injury. At same time, Faruque’s hand would be greatly strengthened, which holds little favorable promise from US viewpoint.

Although we recognize calculated risks involved and danger our position might be disregarded, I should like to tell Mirza and Prime Minister that US was prepared

To immediately initiate comprehensive appraisal by outstanding US firm of technical and economical feasibility of steel mill in Pakistan, including appraisal all known ore deposits and manufacturing processes suitable Pakistan’s ore and fuel availabilities, and
To give most serious consideration to provision of steel making facilities under DLF loan, with construction plant on “turn-key” basis, if above study shows favorable prospects for such action.

In view uncertainty re Washington attitude, we dare not do this without a clear go-ahead from Department and ICA/W. If Washington–GOP approved, engineering could be done during FY59. If project appeared feasible, funding could flow from DLF appropriation for FY60 and subsequent years.

As we see program here, any decision re magnitude of aid if based solely on past and current GOP performance should reflect bearish trends. However, if our present plans materialize, this situation may be improved. These plans call for strengthened method joint collaboration in programming and implementing aid program with resultant improvements in aid utilization. Present issue fits squarely into this pattern if carried out as proposed. We do not assert suggested action is sure to succeed. We believe it holds promise. To take no action at this point might play straight into hands of our opponents.
Please advise soonest.4
  1. Source: Department of State, Central Files, 890D.331/7–2458. Confidential; Priority.
  2. In telegram 3258, June 24, the Embassy reported that the Pakistani Cabinet had approved a steel mill project. (Ibid., 890D.331/6–2058)
  3. In telegram 3231, June 27, the Department of State informed the Embassy that the Pakistanis should be discouraged from thinking that U.S. financing would be available either for Pakistan’s proposed steel mill or the importation of ore. (Ibid., 890D.331/6–2458)
  4. Telegram 319 to Karachi, August 7, for Langley and Killen from Dillon and Smith, authorized the Ambassador to discuss the steel mill problem with Mirza and/or Noon and to explain that the United States regarded the decision to embark on a steel mill project as one in which the United States did not wish to interfere. The United States, however, would be prepared to send an ICA-financed expert team to make a study of the proposal from both the technical and economic viewpoint if Pakistan desired. The telegram also noted that the Ambassador should point out that the United States believed that the project was “extremely difficult technically and highly uneconomic.” (Ibid., 890D.331/7–2458)

    In telegram 359 from Karachi, August 14, for Dillon and Smith from Langley and Killen, the Ambassador reported that he raised the steel mill subject with Mirza on August 13. He presented the President with a detailed outline of the points suggested in telegram 319. Mirza responded that the proposed plan “made good sense” and asked for a copy. (Ibid., 890D.331/8–1458)