Office of the Historian

874.10/10–2054: Despatch

No. 1365
The Ambassador in Egypt (Caffery) to the Department of State1

limited official use
No. 752
Cairo, October 20, 1954.

Ref:

  • CERP June 24, 1954; D–5.2
  • Subject:
  • Transmitting Copy of Memorandum of Conversations Between IBRD Officials and Members of the Egyptian Economic and Financial Missions to the United States.

There is enclosed a copy of the memorandum of conversations which were held on September 25, 1954 in Washington between IBRD officials and members of the Egyptian Economic and Financial Missions which have just visited the United States.

For the Ambassador:
Perry Ellis

First Secretary of Embassy

[Enclosure]

Conversations held with representatives of Egypt in Mr. Black’s office, September 25, 1954

There were present:

[Page 2309]

Present

  • Bank—
    • Mr. Eugene R. Black
    • Mr. F. E. Gregh
    • Mr. Joseph Rucinski
    • Mr. Dorsey Stephens
    • Mr. F. G. Bochenski
  • Egypt
    • Mr. Amin Fikry
    • Mr. Hussein Fahmy
    • Mr. El Emary
    • Dr. Zaki Saad
    • Dr. Aly Gritly
1.
Mr. Black opened the conversation by saying that he had received the day before the answer of the Egyptian Government to the Bank’s aide-mémoire of June. If this should be agreeable to the Egyptian Government, the next steps which the Bank could take would be a) to send a couple of experts to look into the Fertilizer Project and b) to send another small group of experts to study all the information available in Egypt on the Nile River and on the High Aswan Project. These two groups would then return to Washington and report to the Bank. Mr. Black then referred to the international panel which, according to his information, was to come to Egypt around the middle of November in order to investigate the German study on the High Aswan Project. He thought that the Bank also should have somebody in Egypt at that time. Mr. Black then asked whether the Egyptian representatives had any suggestions.
2.
Mr. El Emary asked what the Bank’s ideas were about the financing and whether the Bank would be willing to take over the foreign financing of the whole scheme.
3.
Mr. Black emphasized that the High Aswan Scheme, if found feasible and economically sound, will be the biggest single project ever financed by the Bank. The Bank would want to be absolutely sure that this is the right solution to the problem of a full utilization of the Nile waters. If the project is found feasible from the engineering and economic points of view, the Bank would be willing to undertake to organize the financing of the foreign exchange costs of the scheme and to participate in such financing. It is premature to discuss this question now as, at present, it is not known how much the project would cost.
4.
Mr. El Emary said that Egypt does not want to try to tap other sources for financial assistance if that can be avoided; she would prefer to regard the Bank as the only channel.
5.
Mr. Black approved of this attitude and emphasized that Egypt and the Bank have the same interests in approaching the Scheme.
Neither
Egypt nor the Bank would want to embark on this project unless it was found to be feasible and sound. Both Egypt and the Bank have got to be absolutely sure that they were doing the right thing, and would have to know all the factors important for the evaluation of the project. Mr. Black remarked that since the time of his visit to Egypt he was convinced that the High Aswan Scheme was the most intriguing and exciting project he ever came across. If Egypt so desires, the Bank is ready “to get busy” on the Scheme right away.
6.
With reference to an inquiry from one of the Egyptian delegates, Mr. Stephens asked at what stage would private financial groups be brought into the Scheme.
7.
Mr. Black answered that this would be in one of the later stages “after we set things up.” Two types of such participations have been tried in the past: in Japan, two suppliers took early maturities of the Bank loans, which means that as the loan is paid off, the suppliers are paid first. A different approach was followed for the Sui Gas project in Pakistan, where Mr. Black had talked with British banks in London before the loan was made. Six of these banks, who have branches in Pakistan, took LE 600,000 out of a total of a LE 5 million loan. Another solution considered in certain cases is that investment bankers may sell a part of the loan to the public. The Bank cannot try to interest others in the financing of a project while its study is still in the early stages; before doing so, the Bank must know that the project is good and sound. If the Bank invited private financiers to take a part of the loan, the Bank itself would take the bigger risks because it would take the longer maturities. Private groups would have to participate without the Bank’s guarantee. If the Bank is to guarantee the whole loan itself it can also take the whole loan. The Bank covers the ependiture involved in the investigation of the project. Cooperation of the Bank with private lenders in the financing of specific projects is a comparatively new development.
8.
To Dr. Saad’s question whether private lenders in these cases would charge higher rates of interest, Mr. Black replied that, on the contrary, he thought their rates would be lower because, with regard to the participation of private lenders the Bank would try “to knock off” the 1% statutory commission charge which the Bank has to make for its reserve during the first 10 years of its operations. For the amounts taken up by investors without recourse to the Bank, the Bank would not apply the 1% charge.
9.
Dr. Gritly asked what would be the effects of higher interest rates prevailing in the countries of the suppliers or in those of the private banks participating in the financing of the project.
10.
Mr. Black admitted that this was a problem and mentioned as an example the case of France where private banks might wish to participate in the financing of the Scheme but the high rates of interest prevailing in France might present a certain difficulty. If such difficulties should be found unsurmountable the Bank would then make a bigger loan itself.
11.
Dr. Gritly asked what would happen if the Bank would not be willing to lend the total amount of foreign exchange involved but, for instance, would decide to lend, say, LE 60 million out of LE 100 million; would the rest then be borrowed from private banks?
12.
Mr. Black replied that the IBRD cannot compete, according to its Statutes, with private lenders if the latter are ready to make loans on reasonable terms. He illustrated this principle with the case of Norway: the Bank was ready to lend to Norway at its current interest rate but discussed the matter with New York bankers who offered to take a part of the loan and sell it to the public at higher rates. As Norway refused to borrow on these terms, the IBRD alone financed the whole project.
13.
Mr. El Emary brought up the following point: assuming that the High Aswan Project was found feasible but very costly, was it understood that the IBRD would supply all the foreign exchange needed, regardless of what the amount might be?
14.
Mr. Black replied that he would first have to know the cost of the project and the foreign exchange component of this cost but he could not now say that the Bank would lend “regardless of what the amount would be” since this also depends on Egypt’s debt repaying capacity. He said that the Bank would lend Egypt as much as it thought the country can repay. When he offered to help Egypt in obtaining funds to cover the remaining cost, he had in mind that any remaining difference could perhaps be partly made up by grants or equity participation.
15.
A general discussion followed during which the existing cost estimates of the entire High Aswan Scheme were briefly referred to. It was emphasized that the Fertilizer Project is regarded as a part of th High Aswan Scheme and enters into the total cost estimates of the Scheme.
16.
Mr. El Emary emphasized the urgency of the Fertilizer Project in view of the necessity to utilize the power which will be available fairly soon from the existing Aswan Dam power station. Egypt would need foreign exchange for this project very soon. A brief general discussion followed on the prospects of obtaining foreign private participation in the Fertilizer Project.
17.
Before the end of the meeting, Mr. Black encouraged the Egyptian Delegates to have further conversations and exhange of views and information with the members of the Bank’s staff.
  1. A copy of the enclosed memorandum of conversations was sent to the U.S. Treasury representative in Beirut.↩
  2. Not printed.↩