Office of the Historian

140. Memorandum From W. Howard Wriggins of the National Security Council Staff to the President’s Special Assistant (Rostow)1

Washington, May 21, 1966.

WWR:

McNamara has won the battle over the new $200 million Iran arms sale, so the Rusk-McNamara recommendation (attached)2 comes out as close to the hard line as possible. The Shah may scream. So we could face a tactical review of our negotiating line later, though we think it unlikely.

The two main issues were: (1) State argued hard for slices of $100 million in FY 67 followed by $60 million and $40 million tranches. McNamara stood firm on four tranches of $50 million each to spread out the burden on his MAP budget (MAP funds must cover 25% of these credit deals). (2) Meyer pushed hard for 4% interest, but even State eventually agreed that this doesn’t make sense. A 4% rate on a $200 million credit would cost $42–48 million more in MAP funds over five years than for the same deal at the market rate (now 5.5%).

Hal has fully staffed this out with Budget. Schultze’s memo to you (attached)3 is fully reflected in the memo to the President he drafted for your signature.

Schultze feels very strongly (as we do) that it’s essential to keep control of this program in the President’s hands.

  • —First, the economics really are disturbing, as Schultze says. Bringing the President down hard on that point will help keep Meyer on his toes (I wasn’t too impressed with his grasp of this problem last week). We also want to avoid making this an irrevocable commitment and are underscoring (as Schultze suggests) that this is a planning figure subject to annual review.
  • —Second, we regarded the joint annual economic-military review as a major achievement when the Shah agreed to write it into the 1964 Memo of Understanding. It’s an excellent device for keeping our voice alive even after AID phases out, and this year’s exercise showed that we really have succeeded in bringing the Shah face to face with his economists.

This is why the last paragraph in our memo.

[Page 251]

The touchy element is timing. Meyer begins the economic review Sunday and should present this package to the Shah as soon after that as possible. However, tactically I assume you feel it’s bad to rush the President. So we’ve only alluded to the timing problem in the memo. We’ll rely on you to get it onto his desk quickly and give him a chance to get to it before nudging.

Howard
  1. Source: Johnson Library, National Security File, Country File, Iran, Memos & Miscellaneous, Vol. II, 1/66–1/69. Secret. The source text bears a stamped indication that it was seen by Rostow.↩
  2. The undated memorandum from Rusk and McNamara to the President is not printed.↩
  3. Schultze’s May 21 memorandum is not printed.↩