Washington, June 18, 1966.
The Egyptians asked us in March to negotiate a new one-year $150 million PL 480 agreement. Our present six-month deal runs out this month.
Nasser badly needs this food--and on heavily concessional terms if he can get them. His supplies will run out in October. Allowing time to ship, he must buy somewhere by early August. His economy is in worse shape than ever--reserves are all but exhausted.
Despite Nasser's need, Secretary Rusk recommends we not sign a new Title I-IV agreement now./2/ Instead, he proposes we offer to sell (probably $50 million) on CCC credit terms slightly better than those the UAR can get commercially from our competitors. We do not want to refuse to supply desperately needed food (our wheat was 60-70% of the supply in the cities last year). Besides, we want our farmers to make the sale since it is on fairly hard terms. Congress will be a lot more tolerant of CCC than of PL 480.
We do not want to give Nasser a flat "No." This is not necessary, and his violent reaction could cause us a lot of trouble. Instead, the Secretary would like to leave the door open to Title I-IV later. He would also continue Title III ($8-9 million in school lunches), the AID technical assistance program ($2 million) and the projects we support with our excess local currency.
We recommend this line with some regret./3/ We still think it is worth trying to get closer to Nasser and to avoid splitting the Middle East into US and Soviet camps. But Nasser has left us little choice. He has almost dared us publicly not to renew our agreement. He has lambasted us on Vietnam. He continues to stir things up in Yemen and South Arabia. In general, he has not picked you up on the suggestion you made to Sadat last winter to discuss our differences quietly and build a more constructive relationship.
We are not quite sure what he is up to. Our guess is that he is worried about his political base. For the first time, he has discovered plots among his junior officers and a serious assassination plot among the educated young men he thought he could count on. His stalemate in Yemen has alienated the military. So he is caught between the moderates who know the UAR must retrench to move ahead economically and his old-timers who talk a good revolution but have no idea how to develop a modern economy.
Taking the Secretary's line is taking a calculated risk. Nasser may react violently, but we think he is expecting this kind of answer so should be braced for it. Our unreadiness to agree on PL 480 now could hurt the moderate prime minister, who is pushing a sensible economic program. If he fell, his successor would probably be pro-Soviet and less sensible economically. It is equally possible, however, that mounting economic pressures will force Nasser to lean more heavily than ever on his Prime Minister as the only hope of pulling the UAR out of its economic mess.
I recommend you approve Secretary Rusk's line./4/
/1/Source: Johnson Library, National Security File, Country File, United Arab Republic, UAR Memos, Vol. IV. Secret.
/2/Rusk's June 16 memorandum is attached but not printed.
/3/A June 4 memorandum from Saunders to Rostow states that the mood at a May 25 meeting of the Interdepartmental Review Group for Near Eastern Affairs (IRG/NEA) was not angry but "just fed up." He continued, "We've tried hard over the past five years to do business with Nasser. But his public comments in the past few weeks are almost the last straw. We've tried our best to avoid a showdown, but Nasser seems to be forcing one--for reasons we haven't figured out." (Johnson Library, National Security File, Country File, United Arab Republic, Vol. IV) IRG/NEA was one of several interdepartmental groups dealing with regional issues. Its records are in the Department of State, NEA/RA Files: Lot 70 D 503.
/4/The approval line is checked.