192. Record of Meeting of Interdepartmental Regional Group for Near East and South Asia1
Record of Meeting—May 8, 1967
The meeting was held to consider the United States position regarding the negotiation of a new annual increment of credit-financed sales of military equipment to Iran. The Group:
Agreed that a review of the favorable Iranian economic and financial situation does not make undesirable on economic grounds the extension to Iran of the second $50 million increment of the $200 million military sales credit approved by the President in May, 1966. At the same time, noted the rapid projected increase in Iranian military expenditures and agreed that when informing the Shah of the availability of the $50 million, our Ambassador should stress our concern lest these expenditures divert resources from Iran’s economic development.
[Page 360]Agreed that Iran’s economic and financial situation does not call for concessionary terms for this increment of the military sales credit. After noting, however, the importance to vital U.S. security interests of our special installations in Iran and the key importance of Iran in the light of unfavorable developments affecting the U.S. position in the Middle East, agreed that for overriding political reasons the credit should be on concessionary terms.
Noted that DOD currently obtains funds for military sales credits from the Export-Import Bank at an interest rate of 5–1/2% with a repayment term of 7 years and that the President last year stipulated that the terms for such credits to Iran should carry an interest rate averaging between 5 and 6% with repayment by FY 1976. Agreed that an interest rate of 5% and repayment term of 8 years for the second $50 million increment should suffice to achieve our political objectives by making it possible for us to indicate to the Iranians our special interest in their country. Noted, however, that these terms would not fully please the Iranians. Further agreed that the credit negotiators be authorized initially to offer a 5–1/2% rate, with the offer of a 5% rate to be made as required in the course of the negotiation. Noted in this connection the critical importance of not handling this aspect of the negotiation in such a way as to lose the overall political gain we seek from the transaction.
Agreed that the recommendations to the President should be ready for forwarding to him by May 12 in order that it will be possible for our Ambassador to meet with the Shah on this matter prior to the Shah’s departure from Tehran for Europe on May 23 and in order that the credit negotiations can be completed prior to the Shah’s arrival in Washington on June 12.
Noted that the “cost” to the U.S. of the concessionary terms would consist of $3.7 million of appropriated DOD funds, which would be recovered when Iran repaid the credit, and the foregone 1/2% interest which, assuming an even repayment schedule over the 8-year repayment period, would approximate $1 to 1–1/2 million. Agreed that a statement of the cost to the U.S. should be included in the memorandum of recommendation to the President.
Members Present:
Executive Chairman: Ambassador Battle
AID: Mr. White
CIA: Mr. Critchfield
DOD: Col. Jordan
JCS: Brig. Gen. Sibley
NSC: Mr. Saunders
USIA: Mr. Carter
[Page 361]State (NEA) Messrs. Rockwell, Eliot, Polstein; INR/RNA—Mr. Archie Bolster
ACDA—Mr. Charles Van Dorn
Treasury—Mr. Sam Cross; Mr. Arthur Gardner
Acting Staff Director: Mr. Ernst
Acting Staff Director
- Source: Johnson Library, National Security File, NSC Files of Harold Saunders, Iran Military, 4/1/66–12/31/67. Secret. Drafted by Ernst on May 9.↩