Foreign Relations of the United States, 1964–1968, Volume XXII, Iran

283. Telegram From the Department of State to the Embassy in Iran¹

Washington, May 18, 1968, 1921Z.

166827. Subject: Military Credit Sales Program for Iran.

1. The President has approved, Congressional consultation has been completed, and you are hereby authorized to inform the Shah of USG approval of the following Military Credit Sales Program for Iran:

a) USG offers to Iran a military credit sales program for FY 1968 on concessional terms for a minimum of $75 million and, subject to the availability of necessary additional funds, a maximum of $100 million. (This is to be dependent on funding arrangements and global availability of funds.)

b) You should tell the Shah that we recognize his desire to work toward a program of military modernization for the next five years and that we engage to cooperate with him in his attaining this goal on the following basis:

The United States Executive Branch declares its intention each year to seek Congressional authority and appropriations for such credit sales as both governments would agree were indicated to move toward accomplishment of the program mentioned above. On the part of the United States the amount of authority and funds sought, and the amount of sales made for cash, would be subject to the results of a yearly review, with the Government of Iran, including reviews of Iran’s economic development and military programs, as well as an assessment of the effect of military purchases on the Iranian balance of payments and budgetary situation. The actual amount and terms of credit made available to Iran in each year will of course depend on the amount of credit authorization and appropriations approved by the Congress, on prevailing credit market factors, and on other U.S. requirements world-wide. If the amount of credit authorization and appropriations approved by the Congress proves in future years to be insufficient for the mutually agreed needs of Iran, the Executive Branch declares its intention to do what it can to help Iran obtain credits from non-Governmental banking sources.

2. You should also tell the Shah that we are anxious to complete the credit negotiations for the FY 1968 increment as soon as possible and must complete them prior to June 30. We therefore propose that a U.S. negotiating team be sent to Iran about June 15 for this purpose. If the Shah prefers, however, the USG would be pleased to receive an Iranian negotiating team in the United States at that time. (FYI. Negotiations should commence after June 12. End FYI.)

3. You should inform the Shah that the President’s action is a token of our confidence in the Shah and in Iran, that the equipment we are providing will be responsibly employed to the maintenance of peace and stability in the area. We further hope that with this arrangement made, Iran can devote the fullest possible resources to economic development and social reform.

4. You should tell the Shah that as in former years we have carefully reviewed the economic data provided by the Central Bank and congratulate Iran on its continuing economic progress. Although we have concluded that Iran’s economy is making good progress and warrants a large credit increment this year, there are a few points of concern. For example, we note that security expenditures have grown very rapidly over the last few years and we hope it will be possible for the GOI to keep the increase closer to the growth in the economy and, in any event, no higher than that projected in the Central Bank figures (11.6 percent increase per year) in future years. We are also concerned that increasing payments for arms purchases may reduce total public investment and thus reduce the rate of economic growth. We believe economic improvement and social betterment are best assurance of security in long run against threats to Iran and urge that Iran’s economic progress not be adversely affected by her military expenditures.

Rusk

1. Source: Department of State, Central Files, DEF 19–8 U.S.-IRAN. Secret; Immediate; Limdis. Drafted by McClelland on May 17; cleared by Eliot, Rockwell, and Saunders and in draft by Sober, Schwartz, Kuss, Assistant AID Administrator for Near East and South Asia Maurice J. Williams, Lewis D. Junior (G/PM), Knute E. Malmborg (L/E), and Assistant to the Secretary of Treasury for National Security Affairs Raymond J. Albright; and approved by Katzenbach. Repeated to CINCSTRIKE.