163. Letter From the Assistant Secretary of State for Near Eastern and South Asian Affairs (Sisco) to the Chairman of the Export-Import Bank (Kearns)1
Dear Mr. Kearns:
We are reviewing with the Department of Defense our requirements for security assistance to various NEA countries over the FY 74–78 time frame. Present projections are that Foreign Military Sales credits will become increasingly tight during this period. Several major recipients of grant military aid are expected to switch in whole or in part to credit assistance programs. The outlook for a corresponding increase in Congressional appropriations under the Foreign Military Sales Act is not encouraging. We are, therefore, facing the painful decision of how to apportion a static or even declining amount of credit money among a growing number of claimants.
After careful review, we have concluded that the most feasible option is to move Saudi Arabia from Foreign Military Sales to EXIM financing to meet its military credit needs in FY 74 and subsequent years. Saudi Arabia has used only a small amount (about $1 million) of Foreign Military Sales credit guarantee money during the past several fiscal years. We have no outstanding Saudi requests for credit assistance for projected major military programs nor any indications that the Saudis will approach us for credit during the next four years. The expected continued rapid growth of the Saudi economy, moreover, should [Page 522] provide sufficient funds for both military and civilian expenditures during this time frame.
It is, therefore, difficult to gauge Saudi requirements for military sales credits in the post-FY 73 period. It is quite possible that the Saudis will not desire any credit assistance. There are, however, two contingencies for which we believe it prudent to be prepared. As implementation of planned Saudi Arabian economic development projects goes into high gear, the Saudis may find it desirable in any given year to stretch out payments for new military hardware and services in order to avoid deferring initiation of important economic and social projects. We would also like to be able to offer credit or credit guarantee facilities if necessary to enable American suppliers to compete effectively with foreign government-subsidized arms suppliers or to arrange for payment terms convenient for the Saudis. For the above reasons, we want to preserve our ability to respond positively to Saudi Arabian credit requests should they arise during the FY 74–78 period.
I am aware that EXIM Bank feels constrained to stay within certain overall limits each year for all military credit purposes. I am also aware that EXIM policy is to avoid providing more military than commercial credits to any one foreign country. Nevertheless, requests for credits or credit guarantees for purchases of military hardware and services would give us increased flexibility to meet the military credit needs of important allies in the NEA region while remaining capable of helping the Saudis to meet any legitimate military credit requirements that may arise.
A somewhat similar situation exists for the newly independent Persian Gulf states of Bahrain, Qatar and the United Arab Emirates. Given our policy preference that sales of military equipment and services to these states be handled to the extent possible through commercial sources, EXIM would also seem to be the appropriate source for any financing required. Kuwait, the largest of the Arab Gulf states, is already eligible for EXIM military credit financing.
I urge, therefore, that you give serious consideration to the case of Saudi Arabia and let me know, were we not to request Foreign Military Sales credits for Saudi Arabia in FY 74–78, whether we could count on EXIM Bank to give favorable consideration to requests for military credits/credit guarantees from Saudi Arabia and from the three other aforementioned Gulf states even in circumstances where the Bank may not have an equivalent amount of commercial loans outstanding.
Sincerely,
- Source: National Archives, RG 59, Central Files 1970–73, DEF 12–5 NEAR E. No classification marking. Drafted on August 31 by Wrampelmeier and concurred in in PM/MAS, PM/PA, NEA/RA, NEA/ARP, E/IFD/ODF, OSD/ISA/NESA, and NEA.↩
- Printed from a copy with this typed signature and an indication that Sisco signed the original.↩