1. Memorandum From the Department of State Executive Secretary (Brubeck) to the President’s Special Assistant for National Security Affairs (Bundy)0

SUBJECT

  • Lack of Correlation Between US Aid and UAR Arms Purchases

The enclosed Background Paper1 should be helpful in answering questions recently raised in Congress and the press regarding the possible connection between our economic aid to the UAR and the latter’s capacity to purchase arms from the Soviet Bloc. The paper concludes that the manner in which U.S. assistance is extended and the UAR purchases its arms is such that the two have relatively little connection in the UAR economy. Copies are being sent to the Secretary, the Under Secretary, Mr. McGhee, Mr. Rostow, and Mr. Johnson.

The paper points out that the UAR purchases its arms on credit and that the terms and conditions on which the USSR is willing to provide arms are largely governed by political considerations. In any event, the UAR pays for its arms from the Soviet Bloc through sales of cotton which in fact it has been unable to sell in the West except at severely discounted prices. The UAR has for some time enjoyed more than ample credit and payment facilities with the Soviet Bloc while its international payments problems are concentrated in the Free World convertible currency area. Our aid to the UAR has been 75 per cent in the form of surplus food which has both increased food consumption by the UAR masses and relieved pressure on the UAR’s convertible exchange resources, the necessary food now being available generally only from Free World sources. Our recent stabilization loan is designed to meet a convertible currency crisis. In summary, the UAR’s decisions on arms have been made independently of considerations of U.S. aid; and U.S. aid is meeting needs [Page 2]which resources used to pay for arms—i.e. cotton and Soviet Bloc credits—could not be effectively mobilized to meet.

W Slater2
  1. Source: Department of State, Central Files, 811.0086B/7–762. Secret. Drafted by Duncan (NEA/NE) on July 6 and cleared by Assistant Secretary of State for Near Eastern and South Asian Affairs Phillips Talbot.
  2. Attached but not printed. The paper, entitled "Correlation Between US Aid to the UAR and UAR Arms Purchases from the Bloc,” was drafted by Duncan on June 30 and cleared in draft with AID/NESA. On July 6, Talbot forwarded copies of the paper to McGhee and Rostow. (Ibid., 811.0086B/7–662, and ibid., S/P Files: Lot 69 D 121, Egypt (UAR))
  3. Slater signed for Brubeck above Brubeck’s typed signature.