Office of the Historian

141. Memorandum From the President’s Special Assistant (Rostow) to President Johnson1

Washington, May 21, 1966, 1:30 p.m.

Secretaries Rusk and McNamara recommend you approve $200 million in new arms sales to Iran, which Ambassador Meyer will discuss with the Shah this week. This would extend our 1964 agreement through FY 1970, raising the total arms credit to $400 million. State proposed bunching these sales in the early years but gave in to McNamara’s plan for $50 million a year FY 67–FY 70. They finally agreed that our Military Assistance budget is too tight to cover the 4% interest rate Meyer asked for and propose sticking to the market rate (now 5.5%), except for one last sale under the 1964 agreement.

Most of us believe the Shah is foolish to spend his money this way. AID forecasts a rapidly growing balance of payments deficit if he pushes both development and heavy arms purchases too hard. His oil revenues will not rise as sharply as he hopes, and AID fears he will end up asking us to bail him out of a foreign exchange bind just when we are phasing out of economic aid.

But since he is determined to buy arms somewhere, the best we can do is to lean on the brakes. His parliament appropriated $200 million last fall, and only by sending a survey team have we delayed him this long. We will probably want him to let us set up in Iran a partial alternative to our intelligence facilities in Pakistan (we will re-open this with you soon). Anyway, if we cannot dissuade him, no point in losing a good sale.

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While on balance this package makes sense, we want to be flexible in case Iran’s economy sags. We want Meyer to keep a close eye on the economics and not tie you too firmly to a long-range commitment, thereby losing the leverage of a short leash.

So I recommend you approve but authorize me to read back to State this indication of your feelings: “The President is deeply concerned over Iran’s worrisome economic prospects. He wants each slice of this new program submitted to him for approval only after searching review of Iran’s economic position. He regards the new $200 million as a planning figure subject to annual review. He asks that Ambassador Meyer tell the Shah of this concern, while reassuring him of the President’s full respect for his judgment.” Charlie Schultze concurs. Attached is a rather legalistic justification.2

Walt

Approve3

See me

  1. Source: Johnson Library, National Security File, Memos to the President, Walt W. Rostow, Vol. 3, May 16–31, 1966. Top Secret. A handwritten note on the margin of the source text reads, “Rec’d 3:20 p.”↩
  2. Not printed.↩
  3. This option is checked on the source text.↩