Foreign Relations of the United States, 1961–1963, Volume XVII, Near East, 1961–1962

230. Memorandum From Secretary of State Rusk to President Kennedy⁰

Washington, March 31, 1962.

SUBJECT

• Economic Action Program for the United Arab Republic

REFERENCE

• My memorandum of January 10, 1962¹

Ambassador Bowles and Dr. Mason, whose visits formed part of our proposed action program in the United Arab Republic, have now prepared reports and recommendations (enclosed for convenience in reference).² Both agree that an effort to establish a more affirmative relationship is desirable, the degree of such effort to depend upon present and future U.A.R. cooperation and performance. The following are the main lines of economic action which emerge from the Bowles and Mason written and oral reports.

1. The United States should undertake a multi-year Public Law 480 Agreement: There is unanimous agreement that this is a worthwhile step. We are already committed to holding preparatory discussions with the U.A.R. We are preparing instructions for Embassy Cairo to carry this matter forward with U.A.R. officials.

2. The United States should consider participation in an International Monetary Fund stabilization program: The two provisos which Dr. Mason attached to this proposal in discussions with the U.A.R. are (a) that the U.A.R. meet IMF terms and conditions; and (b) that other Western nations such as the United Kingdom, Italy, West Germany and Japan participate. U.A.R. drawings from the IMF could amount to $30 million but substantial additional funds would have to be provided by the U.S. and other countries to support a total program. It would be difficult for the U.S. to provide funds prior to Fiscal Year 1963.

The initiative on this matter is lodged with the U.A.R. which has yet to satisfy a number of IMF conditions for an agreement. Solving the present balance of payments crisis is probably a prerequisite to successful long-term development. We are investigating with AID the possibility of U.S. and other international assistance if and when the U.A.R. meets IMF conditions.

3. The U.S. should expand the technical assistance program. Dr. Mason has recommended that the technical assistance program be expanded and has suggested that agricultural extension and land reclamation activities might be fields in which American technicians could effectively be utilized. Conversely, he feels there is no need or desire for high-level planners since the U.A.R. has persons of considerable competence in this field. Ambassador Bowles has emphasized aid to the rural areas, referring specifically to new communities which will be created as the U.A.R. ‘s cultivated lands are increased through the Aswan Dam and other developments.

AID already has a staff of more than thirty technicians and at the present time has doubts about the advisability of any large increase in the technical assistance program. Moreover, in light of past experience and in view of the high quality of the U.A.R. agriculturists, AID is not sanguine that a rapid increase in agricultural activities is feasible or desirable. We will continue our discussions with AID as to the scope of our technical assistance in the U.A.R.

4. The U.S. should increase development lending: Dr. Mason believes that the AID projected level of $33 million development lending for FY-63 can be well utilized and might be moderately increased. AID has this question under review. Much will depend upon whether the U.A.R. is able to present suitably-documented projects fulfilling AID criteria.

Ambassador Bowles was informed in Cairo of a possible U.A.R. request for a loan of $125 million to purchase machinery for industrial development. We lack details, but given the magnitude of the amount stated and the fact that such a project would not appear to fulfill AID criteria we are not inclined to encourage the U.A.R. to pursue the matter further. The matter was not treated in Dr. Mason’s report.

5. The U.S. should endeavor to identify and assist in a worthwhile land reclamation project: Dr. Mason believes the U.A.R. ‘s Western Desert project for utilization of underground water, to which some U.S. technical assistance has already been rendered, offers a possibility for developing land less expensively than the Aswan Dam development. Dr. Mason believes we might well consider assisting in the implementation of this or some other U.A.R. land reclamation project of long-term significance. Our aid to such a project would allow the U.S. to be identified with a project having widespread public impact.

The Western Desert project is still in a pilot stage and the long-term availability of replenishable water has not yet been completely proven. We agree, however, that this project may become increasingly attractive and we will keep the matter under review. AID is also doing considerable work on the EARIS project which includes land reclamation and resettlement of farmers on reclaimed land. We are considering the relationship of this work to developments in the area to be reclaimed as a result of the Aswan Dam project.

6. At a later stage the U.S. might consider whether the consortium approach to long-term development is feasible: Dr. Mason indicated action with respect to a development consortium is not presently desirable but might be a future consideration if a step-by-step evolution of U.S.-U.A.R. relations progresses favorably and if U.A.R. economic prospects continue to be encouraging.

Whereas the above recommended lines of action pose some difficulties in implementation, we believe that in general they represent a sober, balanced approach to the situation and offer a sound basis on which to proceed. If you concur the Department will incorporate them in its policy directives for the U.A.R. and proceed toward implementation. We will keep you informed of the progress of our discussions with AID and other interested agencies on these matters.

Dean Rusk³

Enclosure⁴

SUMMARY

REPORT ON MISSION TO THE UNITED ARAB REPUBLIC

My visit, following on the heels of visits by Messrs. Bowles and McGovern, has probably created certain expectations in the UAR.

The most immediately pressing economic problem is a balance of payments difficulty arising principally from a serious crop failure last year. Shortage of foreign exchange has already forced a slowing down of development expenditures. If negotiations with the International Monetary Fund for a stabilization arrangement are successful, certain drawing rights on the Fund will become available, but these will not be large enough to relieve the difficulty without a further sharp cutback in the development program. It will certainly be expected that the U.S., presumably with others, will participate in any stabilization arrangement that is negotiated. I did not raise this question but the question was raised with me and I limited myself to the remark that no doubt the U.S. would want to be assured that arrangements satisfactory to the I.M.F. were negotiated and that other countries with important trade relations with the UAR would be willing to participate.

Information necessary to an assessment of development progress was made available and the cooperation of UAR officials was quite satisfactory. During the fiscal year 1960–61 the real national income of the UAR increased by 5.8 percent. The current year, as a result of the crop failure, will probably show only a slight increase. There seems sufficient reason to believe, barring further crop failures, and assuming foreign loans and grants at about the current rate, that the UAR can support a growth rate of four to six percent per annum, which, though short of the planned rate, is substantial. The large-scale nationalization and sequestration of last summer and fall have brought management difficulties, but they are not sufficiently serious, in my judgment, to modify this estimate. There is no real doubt in my mind that the UAR is seriously concerned with economic development and that the prospects of sustaining a satisfactory rate of growth are favorable.

The implications for U.S. economic policy are, in my view, as follows:

1. A continuation of the PL 480 program at something like the current level is essential if the UAR is to have sufficient foreign exchange to meet its reasonable development requirements. Effective planning to meet these requirements would be greatly facilitated by a multi-year program on which, I understand, there have been initial discussions.

2. DLF loans during the current year have amounted to $17 million. The planning figure now current in AID for loans to the UAR is $30 million a year. In my opinion a figure of this magnitude, or perhaps a little larger is appropriate.

3. The present small figure of $2–1/2 million for technical assistance could appropriately be doubled. There is no shortage of useful projects.

4. The development of effective economic cooperation with the UAR should proceed on a step-by-step basis with a testing at every step of the willingness to honor obligations and provide necessary information.

0. Source: Department of State, Central Files, 811.0086B/3–3162. Secret. Attached to a March 31 memorandum from Talbot to Secretary Rusk recommending that the Secretary sign the memorandum printed here. The memorandum from Rusk to Kennedy was not sent to the White House. An April 17 memorandum from Bowles to Talbot indicates that it was still under discussion as of that date. (Ibid., 811.0086B/4–1762; see Supplement, the compilation on the United Arab Republic) The two enclosures to the memorandum printed here were, however, transmitted to the White House and are in the Kennedy Library, President’s Office Files, Countries, United Arab Republic, Security—1962. The White House copy of Mason’s report does not contain the summary in the enclosure printed below.
1. Document 159.
2. The first enclosure is Dr. Mason’s undated report. The report’s summary is printed below. For the body of the report, see Supplement, the compilation on the United Arab Republic. The second enclosure is airgram A–74 from Addis Ababa, Document 195.
3. Printed from a copy that bears this typed signature.
4. Confidential. Drafted by Mason. Additional documentation concerning Mason’s mission to the United Arab Republic, including memoranda of conversations and telegraphic reports, is in Department of State, Central File 886B.00.