TRANSMITTAL OF MATERIAL

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01003A001700250001-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 18
• Document Creation Date: December 9, 2016
• Document Release Date: February 8, 2001
• Sequence Number: 1
• Publication Date: October 11, 1963
• Content Type: MF

~
Approved For Release 2001 /03/091? lTRDP79T01003AO01700250001-5
11 October 1963
MII4ORA.NDUM FOR: Chief, Dissemination Control Branch, DD/CR
FROM . Chief, Publications Staff, ORR
SUBJECT Transmittal of Material
It is requested that the attached copies of CIA/RR CB 63-80,
Kuwait's Oil Money Flows into Foreign Aid, 3 October 1963, Secret/NC
FOREIGN DISSEM, be forwarded as follows;
State, INR Communications Center,
Room 7818, State Dept. Bldg.
For Embassies in Djakarta, Ankara, Athens,
Cairo, Damascus, Kabul, Karachi, New Delhi,
Nicosia., Tehran, Baghdad, Tel Aviv, Beirut,
Amman, Jidda, Taiz, and Kuwait
25X1A
Attachments:
Copies #180 - +196 of CB 63-80
c c: CGB/RB
s:::r :oraauu r fray h:,
can cotnpletedr
b Y: 5;1)10
Date.
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SECRET
NO FOREIGN DISSEM
Current Support Brief
KUWAIT'S OIL MONEY FLOWS INTO FOREIGN AID
CIA/RR GB 63-80
3 October 1963
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
NO FOREIGN DISSEM
SECRET
GROUP 1
Excluded from automatic
downgrading and
declassification
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This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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 Approved For Release 2001/03/09 : CIA-RDP79TO1003AO01700250001-5
KUWAIT'S OIL MONEY FLOWS INTO FOREIGN AID
Kuwait's foreign aid program is unique in today's world. Spawned
as a modern form of an ancient institution -- tribute -- it lacks the usual
political, ideological, and economic motives of other foreign aid pro-
grams. The sole purpose of Kuwait's generosity is to secure its status
as an independent state and thus guarantee its future revenues. The
Sheikdom became independent of Great Britain in June 1961, although
close defense ties were retained, and was able to maintain this status
because each of the major Arab states was anxious to deny its Arab
rivals the Kuwaiti oil revenues. Kuwait was admitted to the UN in May
1963 -- the 2-year interim was a period of intensive political maneuver-
ing. The success of Kuwait's campaign to insure the continued friend-
ship of neighboring nations has been partially a product of judicious use
of abundant oil revenues in a program of loans and grants to selected
countries of the Arab League. This program was undertaken reluctantly
at the urging of the governments of the US and the UK and has proved so
successful that the Kuwaitis now view it with enthusiasm.
The primary obstacle to full recognition of Kuwaiti independence
was Iraq's claim to sovereignty over Kuwait. To combat this claim,
Kuwait needed support from other Arab countries. In the course of
winning their backing, Kuwait has loaned or given $154 million to Arab
countries over a 2-year period, distributed as shown in the Table.
1. General Outline of the Program
Kuwait's foreign aid effort began before independence with a govern-
ment loan of $14 million to the Municipality of Beirut, Lebanon, in
February 1961. Shortly thereafter, the Kuwait Fund for Arab. Economic
Development (KFAED) was established with an initial capitalization of
$140 million. In October 1962, KFAED capitalization was raised to
$280 million. The KFAED is financed out of government savings and is
authorized to grant loans to other Arab states for the implementation
of economic development programs. KFAED loans extended to date
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total $69 million, bearing interest rates of 3 to 4 percent arid repayment
periods of 10 to 20 years.
Foreign Aid Extenddd by Kuwait
June 1961 Through) June 1963
Million US
Recipient Loaned by KFAED
Algeria
Egypt a/
Iraq
Jordan
Lebanon (Municipality
of Beirut)
Loaned Granted
by Government by Government
of Kuwait of Kuwait
28.0
X33.6
5.6
Sudan 1.9..6
Trucial States b 3.2
Yemen 1.4
68.6 ! 7~..6 10.2
a. Amount deposited in the Central Ban of Egypt and not officially
declared a loan.
b. Budget for 2 years of the Gulf Perm4nent Assistance Committee
(GPAC) that is expected to be a continuing program.
The government has made several direct loans outside the frame-
work of the KFAED. The government lean to Algeria was extended in
conjunction with. a KFAED loan. Where is loans from the K:FAED are
tied to specific development projects, government loans are free of
strings and may be expended. at the discretion of the recipient. Loans
of this type have amounted. to $76 millio .
S-E-C-R-El T
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Three small grants, totaling $10. 2 million, also have been made in
the past 18 months. A formal program of aid for the Trucial States of
the Persian Gulf was inaugurated in April 1962, and the budget of the
Gulf Permanent Assistance Committee (GPAC) has totaled $3. 2 million
in 2 years. This program is expected to continue and expand. Iraq has
received a grant of $5. 6 million, designated for relief of Iraqis who are
suffering as a result of the Kurdish rebellion. Yemen has been given
$1. 4 million for schools and hospitals -- a forerunner to loan agreement
currently under discussion.
Because of Kuwait's embarrassment of riches, the existing foreign
aid commitment of more than $150 million has little or no impact on the
domestic economic scene. Government oil revenues have grown swiftly,
from $57 million in 1953 to an expected $514 million for the fiscal year
ending 31 March 1964. The foreign assets of the government have in-
creased from $649. 9 million at the end of 1958 to $951. 2 million at the
end of 1963, while the government has been spending more than $200
million annually on development projects at home. I/
The surfeit of cash, combined with an almost total absence of either
products or services available for export, makes the Kuwaiti aid program
unique. It consists entirely of export of hard currency and is not tied to
local exports or technical services. Kuwait provides the money and re-
quires only an opportunity to approve projects contemplated under KFAED
loans. All loans and grants, however, are tied closely to the policy ob-
jectives of Kuwait, and discussions with Indonesia have run into snags
because Indonesia has been unwilling to provide the requisite political
support.
Disbursements to date have been confined to the Arab Middle East
and North Africa. An. offer to Indonesia, however, evidenced Kuwait's
willingness to go farther afield geographically, and pending loans to
Ethiopia and India would break both religious and geographical patterns
that have existed throughout the first 2 years of the aid effort.
In order to maintain and enhance its image as a beneficent member
of the family of nations, Kuwait has committed itself to a continuing
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foreign aid program, and pending loans urrently under discussion re-
portedly total almost $300 million. The director of the KFAED has an-
nounced that capitalization of the KFAE will be increased to $420 mil-
lion, and the World Bank has sent an ex ert to assist in reorganizing
and staffing the KFAED.
2. Loans to Algeria
Two loans totaling $56 million to Al eria were announced in December
1962. Half of this sum is a governrn.entIto-government loan for 12 years
and is free of interest; the other half is o be drawn from the KFAED and
probably is to be repaid in 10 to 20 year at 4 percent interest,
Each loan will be in the form of con ertible currencies to be used
for Algerian "economic reconstruction, " although to date no specific
projects have been delineated, Algeria will be permitted to designate
the repayment currency or currencies. 2/
3. Bank Deposit in Egypt
Kuwait recently deposited $33.6 mi lion in the Central Bank of
Egypt. This deposit, bearing 4 percent interest, will remain for at
least 2 years and is available for immediate, unconditional drawing by
the Cairo government. Apparently this somewhat unusual approach
was used to spare the Egyptians the hur.iliation of accepting a loan from
a "remote desert sheikdom. "' 3/
4. Discussions with Ethiopia
An Ethiopian economic delegation visited Kuwait in April 1963, and
the visit was returned in June. Include~ in the subjects under discussion
were Kuwaiti government aid to the Ethiiopian development, program and
private Kuwaiti. financing for hotels and industries in Ethiopia. The visit
in June resulted in an economic cooperation agreement, but no specific
loan has been announced as yet.
S-E-C-R-E-T
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5. Pending Loan to India
In June 1963, reports from New Delhi indicated Indian interest in a
$140 million loan from Kuwait. This interest was confirmed by the
Indian Minister of State for Foreign Affairs during a visit to Kuwait in
July. Although close economic ties have existed for some time, con-
clusion of a loan to India injects two new elements into Kuwait's aid
program: (a) it would be a departure from the Arab-oriented pattern fol-
lowed in the past, and (b) it would represent a notable geographic dis-
persion.
6. Fruitless Talks with Indonesia
India is not the first Asian nation to carry on loan discussions with
Kuwait, as negotiations with Indonesia have been underway since late in
1962. Early reports stated that Kuwait would lend $28 million to $30
million to Indonesia immediately, with more to follow. Thus far, how-
ever, the Sukarno government evidently has refused to agree to the
elaborate propaganda splash demanded by Kuwait as a condition of the
loan. Kuwait apparently is continuing to insist on an ostentatious dem-
onstration of Indonesian political support, and the loan offer may well
evaporate in the face of this impasse. 4/
7. Grant and Loan to Iraq
Since independence, Kuwait's overriding foreign relations problem
has been Iraq's claim to sovereignty over it, and a major purpose of
the foreign aid program was to obtain allies for the fight against the
Qasim regime. Kuwait's policy now is aimed at buying the sufferance
of the new Iraqi regime. Baghdad apparently has recognized the fact
of Kuwait's independence and has decided to get some financial reward
in return for graceful acquiescence. The broad terms of agreement
reportedly include a loan to Iraq of at least $84 million, a grant of $5. 6
million for Iraqi social welfare activities, and some verbal loosening
of Kuwait's defense ties with the UK. In return, Iraq is to recognize
the independence and sovereignty of Kuwait within the frontiers delineated
in 1932. 5/
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Jordan was one of the earliest recipients of aid from the KFAED.
A formal agreement on a $21 million loan for industrial projects was
signed in April 1962. Of this total, $112 million is for a 20-year loan
at 3 percent interest for further expansi n of the Yar:muk River irriga-
tion project, which has been financed primarily by the US; $8. 4 million
is for a 10-year loan at 4 percent interelst for developing phosphate
mines; and the remaining $1. 4 million v,as set aside for the establish-
ment of new Jordanian industries. Repayment terms on the latter por-
tion have not been announced..
9. Loan to Municipality of Beirut, Leb non
A loan of $14 million was made to the Municipality of Beirut by the
Kuwait government in 1961 -??- a year be$'ore the establishment of the
KFAED. This money is being invested ~n municipal development projects:
$5. 6 million was drawn in 1962 and $5. ~ million more in July 1963, and
the balance probably will be spent next year.
10. Negotiations with Nigeria
A mission from Lagos visited Kuwait in January 1963, seeking as-
sistance for projects contemplated unde the Nigerian 6-year develop-
ment plan. A delegation from Kuwait r turned the visit in June, and a
formal loan announcement may be forthcoming. The Nigerians ap-
proached Kuwait immediately after an unsuccessful bid, in October
1962, for assistance from Iraq.
11. Pending Loan to the Somali Republi~
Negotiations have been underway between the Somali Republic and
Kuwait for the past several months. A Joan of $17 million to $20 mil-
lion is under discussion, but: no formal 4nnouncement has been. made to
date. I
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12. Possible Aid for Syria
Syria was seeking development assistance from Kuwait in 1962; at
the same time, Damascus was attempting to reestablish good relations
with Baghdad. The Kuwaitis insisted on full Syrian recognition as a
prerequisite to any loan, but the Syrians at that time refused to antag-
onize the Iraqis by such a move. This deadlock was followed by politi-
cal upheavals that created a bond between new Baathist regimes in Iraq
and Syria. The recent announcement of Syria's recognition of Kuwait
and the pending agreement between Iraq and Kuwait appear to enhance
Syria's prospects for receiving favorable consideration of any new ap-
plication to the KFAED. Kuwait's announcement of support for Syria
in the border clashes with Israel that began on 19 August may be the
first step toward warmer relations and renewed offers of Kuwaiti eco-
nomic assistance. 6/
13. Loan to Sudan
Sudan was the first country to seek aid from the KFAED, and a
loan of $19. 6 million was granted in March 1962. This 15-year, 4 per-
cent loan will finance a portion of Sudan's railway modernization plan.
The agreement stipulated that $7 million was to be paid immediately,
with the remainder available at any time until the end of 1964.
14. Program for the Trucial States
Kuwait undertook an organized and expanded program of aid to the
Trucial States in April 1962; $1. 2 million was budgeted for the first year
and $2. 0 million for the second year. These funds are outright grants
outside the framework of the KFAED, and Kuwait retains full control of
initiation and implementation of all projects through the GPAC. For the
past decade, considerable scholastic aid has been going to the Trucial
States. Under the GPAC, initial priority has been given to schools,
clinics, and social service centers, but diversification into projects
such as water exploration and distribution already has begun.
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15. Commitment to Tunisia.
After several months of discussion the KFAED announced a loan
to Tunisia in late 1962. Although amo nts ranging from $19.6 million
to $28 million have been mentioned, no maximum amount has been
announced officially. The lack of a formal announcement suggests that
the negotiations actually have not been concluded.
16. Aid to Yemen
In April 1963, Kuwait announced that it had agreed to subsidize
certain projects in Yemen through the FAED. Although no firm figure
has been set, officials in Kuwait have i dicated they may lend up to $28
million to the Yemeni regime. A Kuwaiti mission left for Yemen on
28 July 1963 to discuss specific projects. The first agreement reached
by this mission was a government gran of $1. 4 million for construction
of hospitals and schools. Projects to be financed under the KFAED loan
include the Wazran Dam in Ta'izz Province, harbor construction in Mocha,
a government central building in San'a, and various agricultural Under-
takings.
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Analyst:
25X1A
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3.
4.
State,
Kuwait.
Airgram A-16, 27 Jul 63.
U.
State,
London.
T-2362, 21 Dec 62. U,
State,
Kuwait.
Airgram A-269, 16 Feb 63.
C.
State, Cairo. TOAID 28, 12 Jul 63. OFF
ate, London. T-854, 20 Au 63.
25X1A
6. 25X1A
State, Kuwait. T-33, 21 Aug 63. C.
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NO FOREIGN DISSEM
NO FOREIGN DISSEM
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 Analyst: I/NEA
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ET
CIA/RR CB 63-80
.3 October 1963
25X1A
SECR
NO FOREIGN DISSEM
Excluded trom autumatic
f dokagrading and
I
tle.l~szNicatlan
275
72,
163-228
St/P/C
4 Oct 63
72
St/P
168
OCR
169
170
171
//
172
/1
173
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174
175
176
- 178
179
CGS/RB
7 Oct 63
180
- 228
Filed in St/P/C
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SUBJECT- Distribution of Current Support Brief AWRAW
Recipient
1 O/DDI, Room 7E32, Hdgtrso
2. 3 NIC
4 - i 1 OGI internal
12- 14 ONE
15 - 20 St/CS/RR 25X1A
?a_=30 NS
25X1A
32 m 275 ORR Distribution, St/A/Document Support Section9 Room
GH0915, Hdgt r s o (sue &fact to St/A/=S, 4 Oct 63)
Distributed. by OCT)
SECRET
GROUP 1
Excluded from autamativ
downgrading and
d~cin-ssi;l etian`
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 Approved For Release 2001 ZA%A-RDP79T01
`gip/A/D a-..`tirnents Support Section Distribution o#1 Current Support Brief
14 63.88,_ 1 rat's Oil Mone Flows Into Foreign Aid --- 3 October
1963 (Secret/NO FOREIGN DZSSEM}
33