408. Memorandum of a Conversation, Department of State, Washington, September 26, 19571

SUBJECT

  • Budgetary Support for Iran

PARTICIPANTS

  • Dr. Ali Qoli Ardalan, Iranian Foreign Minister
  • Mr. Ali Asqar Naser, Iranian Minister of Finance
  • Dr. Ali Amini, Iranian Ambassador
  • The Secretary
  • Mr. Owen T. Jones, Director, GTI

The Foreign Minister opened the meeting by conveying the Shah’s appreciation of the Secretary’s assurance to the Foreign Minister last week that the question of military aid for Iran was being studied here in Washington.2

Mr. Ardalan then said that Iran had some difficult economic problems ahead on which the Minister of Finance would like to speak. The latter expressed concern over Iran’s budgetary position next year. This year they had gotten by without asking us for budgetary help. Next year it will be different. Government salaries will have to be raised. Now the maximum government salary is 7,000 rials a month (a little over $90 a month). The average is about 4,000 rials, which covers only basic necessities. Anything below that borders on poverty. He asserted that 70 percent of Iranian family income was below this figure. The consequent poor housing and undernourishment created potentially serious social and political problems. Strikes had been threatened, It was a dangerous situation.

This year’s Iranian Government budget was 21 billion rials. Forty-five percent of this was for the military. An estimated 6 billion rials will be needed next year to improve the lot of government employees. [Page 947] Efforts are being made to improve tax collections and find new sources of revenue but these efforts will not pay off within the year. They will pay off after that, however, and no special budgetary assistance will be required after next year. The Minister of Finance asked if we could help on the Iranian military budget and thus enable the Iranian Government to increase the salaries of government workers generally.

The Secretary said that this was a difficult problem facing us all. Here in the United States he pointed to President Eisenhower’s veto of the Congressional bill to increase the salaries of postal employees. The idea of living wages for people was sound in principle, the Secretary said, but in the case of Iran he understood that more could be done in collecting taxes. In making this observation, he emphasized that he was not preaching a doctrine of perfection and he realized that the tax-paying tradition, which is to be found in the Scandinavian countries, the United Kingdom and the United States, cannot be established overnight. Nevertheless, our Congress is likely to be critical of any assistance, direct or indirect, that could be interpreted as United States taxpayers supporting foreign taxpayers who are evading tax payments.

The basic problem, however, the Secretary said, is the excessive defense burden. The free world must find a way of finding security at less cost. He quoted at length from his December 28, 1950, speech3 which inter alia pointed out that if the twenty nations making up the Soviet frontier build up “static defensive forces which could make each nation impregnable” we would “have strength nowhere and bankruptcy everywhere.” The essence of mutual security is to find a formula where the total military effort involves contributions from each country that would be less than if each were obliged to go it alone. Throughout the world nations were being forced to make a choice between economic solvency and a military establishment that in the long run would be excessive.

The United Kingdom has already cut back with a view to relying on deterrent striking power. The United States was moving in the same direction. The4 President has imposed budgetary ceilings for our military. It had elicited shrieks of great agony. There were many who felt that it was not safe to rely on deterrent striking power, but the President was being firm. In the evolution of our policy we had abandoned the former principle of build ups against estimated target dates of crisis and were now simply maintaining steady levels that could be supported and that would enable us to cope with crises as they might [Page 948] arise. Under this program we were making studies on how to get more security at less cost through a modification of our existing foreign military aid programs.

The Soviet Union was faced with the same problem. There is evidence that it is cutting back on its conventional arms. It cannot maintain the present pace of capital expansion and development of new weapons in competition with us. With a gross national product only about two-fifths of ours, the Russians are bound to be in trouble if they keep up the present pace. Indeed, some of the recent Russian political developments can best be understood in this context. Meanwhile, they are furnishing obsolete military equipment to the Arabs. The Secretary said that he was appalled at the present orgy of the Arabs for arms. The first cost is the least cost for such equipment. Its maintenance will be a terrific load. The Arabs will find that they cannot support it.

The Secretary concluded by saying that the free world must find a balance on the matter of defense. The United States cannot assume the responsibility for world-wide military establishments that the United States economy cannot support over a sustained period of time. Iran, as well as other members of the free world, would suffer from an overextension of the United States economy. We are not an inexhaustible source of help.

The Secretary assured his visitors that the problem posed by the Minister of Finance would be studied and that the one raised by the Foreign Minister last week was already under study. In connection with the latter, the psychological value of having armaments visibly available was appreciated, but this also brought us back to the same basic problem that had been discussed earlier. When the Foreign Minister pointed out that Iran’s present force levels represent the minimum requirements recommended by the American military mission to Iran, the Secretary said that the United States Government cannot accept uncritically the recommendations of its military representatives abroad. These recommendations have to be examined in the context of the larger problem that he had outlined in the course of this discussion.

  1. Source: Department of State, Central Files, 788.5/9–2657. Confidential. Drafted by Jones on September 27. A note by Macomber on the source text reads as follows: “O.K., WM (note deletion on p. 2)”. See footnote 4 below for explanation of the deletion.
  2. See Document 406.
  3. For text of the speech, made before the American Association for the United Nations on December 29, see Department of State Bulletin, January 15, 1951, pp. 85–89.
  4. At this point Macomber deleted the adjective “present” referring to the President.