890F.51/12–2045: Telegram
The Acting Secretary of State to the Minister in Saudi Arabia (Eddy)
368. ReLegs 418 Dec. 18. Eximbank has provided Dept with draft loan agreement which is being forwarded by air pouch.52 Because full membership of new board of directors of Bank will probably not meet until after Jan 1st, agreement will probably not be acted upon until about Jan 15. However Bank has agreed that draft can be shown to King and Saudi authorities provided it is made clear that it is not a definite proposal until Board has acted, that Board may make changes in draft before approval, and that there is always possibility that Board might refuse to approve any loan.
Pending arrival of draft, you may present following summary to Saudi authorities for preliminary discussion.
Eximbank would establish line of credit totaling 25 million dollars, 5 million to be available until June 30, 1948, for public works and other useful developmental projects approved by Bank, 20 million to be available to finance acquisition and transportation to Saudi Arabia of US products and services of types listed in agreement such as cereals, sugar, motor vehicles, etc. Financing of other than US products would be only with specific approval of Bank. Before any purchase of any product is effected, Saudi Govt must inform Bank of items to be purchased and approximate purchase price to be paid, but such [Page 982] info can be provided for all proposed purchases for a calendar year or part thereof.
Twenty million for products and services to be available to extent of 11 million during calendar year 1946, 7 million during 1947, and 2 million during first 6 months of 1948, but unexpended balances of fund made available in any year can be expended in subsequent years up to June 30, 1948.
Bank will advance up to 1 million as first advance on 20 million. As invoices are received evidencing expenditure of funds, Bank will make additional advances in multiples of $100,000. Each advance to be evidenced by a promissory note of the Kingdom of Saudi Arabia. Service charge of 3 per cent per annum payable in dollars semiannually on Apr 30 and Oct 31 of each year, computed on unpaid balance of each note outstanding beginning soon as drawings are made against note. Principal represented by each note repayable commencing Oct 31, 1951, with 10 per cent repayable in 10 approximately equal semiannual instalments commencing Oct 31, 1951, 30 per cent in similar instalments commencing Oct 31, 1956, and 60 per cent in similar instalments commencing Oct 31, 1961.
Notes would be a general liability of Kingdom of Saudi Arabia, but in addition, SAG would undertake to convert or cause to be converted into dollars such amount of any oil royalties received by SAG as is required to pay principal and service charges due on notes. SAG would agree not to sell, encumber or in any manner dispose of to any third party its interest in any present or future oil concession or the royalties therefrom while any credits are outstanding without written consent of Eximbank. If SAG receives royalties in excess of the equivalent of 30 million dollars in any one year after the year 1950, it would apply one-half of the excess to prepayment of notes in inverse order of maturity.
For Legs info, last minute change from 5-year assistance program to 2½-year program necessitated by passage by Congress of bill prohibiting certain corporations, including Eximbank, from making any credits available after June 30, 1948 unless they have been granted federal charters.53 Bank is at present incorporated in District of Columbia. You may wish to explain to SAG that inability to present a 5-year program is due to a technicality, and that there is every likelihood that if SAG requires a moderate amount of assistance during last 6 months of 1948, and during years 1949 and 1950, it will be possible to arrange for such assistance. You should point out, however, that original plan called for a total of only $4,000,000 for all of 1948, $2,000,000 for 1949 and $1,000,000 for 1950, and that any additional assistance [Page 983] that may be granted will probably be in accordance with that schedule, it being the firm opinion of this Govt that with appropriate planning by SAG, no greater assistance should be necessary to accomplish balancing of Saudi budget in those years.