257. Memorandum of Conversation0
SUBJECT
- United States Economic Assistance to the United Arab Republic
PARTICIPANTS
- For the United Arab Republic
- H.E. Dr. Abdel Moneim Kaissouni, Minister of Economy
- H.E. Dr. Mostafa Kamel, Ambassador
- Dr. Hamid El Sayyeh, Under Secretary, Ministry of Economy
- Mr. Hassan El Abd, Commercial Counselor
- For the United States
- Mr. Phillips Talbot, Assistant Secretary, NEA
- Mr. William S. Gaud, Assistant Administrator, AID
- Mr. Howard R. Cottam, Deputy Assistant Secretary, NEA
- Mr. Randall S. Williams, Director, Near Eastern Affairs, AID
- Mr. Enoch S. Duncan, OIC, Economic Affairs, NE
- Mr. Edward Anderson, OIC, UAR/AID
Mr. Gaud noted that the subject matter of the present meeting was closely related to arrangements the UAR was negotiating with the IMF and inquired as to status of these talks.
Dr. Kaissouni said he believed the UAR side had now come to agreement with the management of the Fund and he expected to sign a letter to Managing Director Jacobsson today confirming proposals for a financial program. He hoped for early approval of the arrangements, including a standby agreement by the IMF Board, perhaps as early as April 30. There were some remaining problems. While approval of a quota increase is expected, Mr. Jacobsson was most reluctant to present a proposal to the Board which prejudged the quota increase. As things were now, therefore, standby would provide for drawings of $42.5 million over a nine-months period. There was also the problem of whether the $30 million gold collateral drawing due next January would be converted to the longer term. Dr. Kaissouni had talked with various Fund directors, including the U.S. representative, Mr. Southard. He commented that Mr. Southard had been very helpful.
Mr. Gaud said the U.S. side certainly hoped that the remaining difficulties would be resolved satisfactorily, inasmuch as the U.S. program which he would describe was based on the assumption of an appropriate program with the Fund and availability of those resources.
Since the meeting on Monday, the problem presented by the UAR side had been reviewed very carefully in terms of what the U.S. could do and a program had been discussed with and approved by Secretary Rusk. Since the UAR side had discussed project requirements as well as the current payments problem, the U.S. program proposals were addressed to both. On the basis of projects discussed and understandings as to priorities in point of time, the U.S. would be prepared to finance projects totaling $51.3 million in the coming approximately one year—or through USFY 1963. This total was composed of the Cairo West Power Plant-$31 million; the cardboard plant-$5 million; the Bagasse plant expansion-$5.3 million; and another possible $10 million for diesel locomotives. With respect to the latter, it was noted that the UAR had mentioned up to $25 million of diesel locomotives but that $10 million would meet the requirement during the next year. The $10 million [Page 644] specified would be either AID or Export-Import Bank, dependent on further consideration. The AID loans (excluding the possible financing of diesels by ExImBank) would, according to present loan policy, be for 40 years with a 3/4 per cent service charge and no interest and would carry a 10 year grace period. The U.S. willingness to finance these projects was necessarily subject to appropriation of the funds by Congress since most of these would probably not be ready for final approval before USFY 1963. The loans would of course be subject to normal AID criteria as to engineering, feasibility, etc.
It was also proposed to utilize $5 million of the outstanding loan to the Industrial Bank toward the foregoing projects since these funds had been lying idle for some time and the prospects for the Bank’s utilizing them appeared very limited. Dr. Kaissouni thought he might like to retain some of the funds for the Industrial Bank. Mr. Gaud indicated he was entirely agreeable to deferring decision on this point. It was agreed that the UAR would respond within a month.
Mr. Gaud then turned to the question of funds for the stabilization program. He recalled that it was difficult to fit emergency requirements of this nature into the pattern for which U.S. assistance funds were available. Also this had come at the end of the fiscal year when funds were limited. After careful review, however, the U.S. was prepared to loan immediately upon conclusion of arrangements with the Fund, $20 million to be used for specified types of commodities to be purchased in the United States. It was understood that the UAR would do its best to obtain further funds from other Western countries and the U.S. would do what it could to support these efforts. In addition, if contributions of other Western nations to the stabilization fund exceed $20 million, AID will in FY 1963 match the excess dollar for dollar up to $10 million, subject to availability of funds. The terms of this possible additional loan would be identical with our first $20 million loan. Mr. Gaud emphasized that for the U.S. to make all or part of the matching $10 million loan, the financial contributions of other countries would have to be new money. Diversion of existing credit commitments by other countries, such as Germany, would not be counted. It was also desirable to set a time limit on getting commitment of contributions from others. Mr. Gaud asked for Dr. Kaissouni’s views. After some discussion it was agreed that the U.S. offer of an additional loan up to $10 million would be open for four months after the agreement with the Fund had been concluded. The terms of the commodity loan would be ten years at 2–1/2 per cent with three years’ grace. This was clarified as three years’ grace plus seven years’ repayment, to total ten years. In connection with the terms, Mr. Gaud noted that emergency balance of payments assistance and support of stabilization measures could not be considered within the same criteria for terms as development type loans. He mentioned that the last [Page 645] loan of this type for a stabilization program in the area had been for five years at 5–3/4 per cent but in recognition of the economic problems of the UAR, the U.S. had endeavored to be as liberal as possible in setting the terms for this loan.
Dr. Kaissouni asked if it might not be possible to make the initial loan for $30 million with the understanding that the UAR would make maximum effort to obtain contributions from other countries. Mr. Gaud stressed that an integral part of the U.S. program was the inducement to other countries to contribute. He noted that the U.S. was greatly interested in promoting the consortium of Western nations to provide assistance.
There was some discussion of the status of the various projects. Mr. Williams noted that Westinghouse engineers left for Cairo two days earlier to prepare feasibility studies needed by AID. Their task would be expedited by maximum cooperation of the qualified authorities in Cairo. Feasibility study on the cardboard plant had been received and was now being reviewed. The U.S. had financed the first part of the Bagasse plant and familiarity with the project would facilitate feasibility study. With respect to the diesel locomotives, the application had not yet been received.
In response to Dr. Kaissouni’s question, Mr. Gaud said that while a formal letter on the U.S. intentions could be undertaken, this would be quite time-consuming, involving a formal commitment of future fiscal year funds. He believed the present expressions were sufficient. The program outlined by Mr. Gaud had been endorsed by the Secretary and by Mr. Lingle in the absence of the Administrator. Mr. Gaud proposed that work on the details of the Supporting Assistance loan be undertaken as soon as possible in order to have it ready after the Fund arrangements would be made.
Mr. Gaud also confirmed to Dr. Kaissouni the U.S. intention to proceed with development of the multi-year PL 480 arrangement and to provide an additional 400,000 tons of wheat, subject to necessary consultations, to assure continuity of UAR wheat supplies pending consideration of a multi-year arrangement. It was noted that this would make available from this time approximately 600,000 tons of wheat which should provide ample time for consideration of the longer term program.
Dr. Kaissouni reported that he had talked with Mr. Black concerning a development consortium and had received a most sympathetic and courteous response. Mr. Black had agreed to send a committee of experts, as soon as they were free of certain other duties, to study UAR development plans and consider what projects might be financed by the IBRD or IDA. Dr. Kaissouni had hoped the results of an IBRD study could be available in time for the annual Bank and Fund meeting in September [Page 646] to facilitate discussions he would undertake with Ministers of Finance of possible members of a consortium. Mr. Gaud confirmed U.S. interest in the progress of these efforts.
Addendum:
In a subsequent conversation with Dr. Kaissouni and his colleagues, Mr. Gaud stated that the U.S. might have to credit all or part of the project loan financing discussed to any commitment undertaken by us in connection with the first year or two of the consortium plan—this to depend upon when the consortium takes place.
- Source: Department of State, Central Files, 811.0086B/4–2662. Official Use Only. Drafted by Duncan.↩