CAB129-78 — Page 64

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Pable 65 of 324tting course (b) forward as a possible sPugio65 OF 32F assuming that the Bank would accept the risk of making a loan without additional aid being granted by the United States and/or the United Kingdom Governments. This assumption may not however be justified. Certainly at present the understanding of the Arnerican Administration appears to be that the Bank would in fact require some such joint venture, and the Administration seems to hold this view even more strongly.

We

12. If the Bank take this line, we shall be left with course (c). should have to make it clear at the outset that we cannot accept the suggestion made by the United States Administration that Her Majesty's Government should give a grant to Egypt of $100 millions to match the. grant which the United States Administration would be making. We should point out that Egypt already holds sterling balances amounting to roughly £170 millions and that under the recent Agreement we have agreed to increase the rate of release of the blocked portion of these balances over the next eight years. This in itself is a large contribution to the financing of Egypt's development programme and we cannot be expected to add to the very large amounts of sterling which she holds by making grants.

13.

If this view were accepted course (c) would be, from a financial viewpoint, unquestionably the soundest. Under this course, however, we should have to agree to broaden the basis of the Consortium by admitting American firms to it and this would undoubtedly require difficult negotiations which would take time. The United States Administration might well press that the American participation in the Consortium should be more than 25 per cent if the United Kingdom Government were not itself making any funds available by way of grant to Egypt. Not only would negotiations between Governments be necessary, but also between the various members of the Consortium which is already large. Politically, therefore, this course is open to the objection that it would lead to delay and that the Egyptians might not be willing to wait for the conclusion of the negotiations but would accept instead the Russian offer.

14. For these reasons we should certainly prefer course (b) if it is in fact practicable. We should certainly bring all the pressure we can to bear on the International Bank, not only to treat the matter as urgent, but also to simplify so far as possible the procedure required for international tender. Provided this can be done, we believe that the Egyptians will prefer to rely on aid from the Bank rather than to turn to the Russians. We have in any case a little time in hand. Even if course (a) were adopted, the Consortium would not be invited to Cairo to negotiate the contract, still less to sign one, before the beginning of December. If, therefore, we use the next month to persuade the International Bank to put to the Egyptians a reasonable proposal, we may expect to hold the position. All this, however, depends upon the assumption that the Bank would be willing to proceed without assistance from the United States Government.

15. The Chancellor of the Exchequer might take the opportunity afforded by the forthcoming visit of the Egyptian Minister of Finance to this country to explain to him Her Majesty's Government's views and to encourage him to proceed through the International Bank, It would be desirable also for us as soon as possible to inform both the German and the French Governments of our attitude and to invite them to bring similar pressure to bear on the International Bank, We should also seek confirmation from these Governments that they too found the financial Page65cofi324 (a) unacceptable, so that when Her MajPage65oferment

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