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

53. Memorandum From the Director of the Office of Greek, Turkish, and Iranian Affairs (Bracken) to the Deputy Assistant Secretary of State for Near Eastern and South Asian Affairs (Jernegan)¹

Washington, October 22, 1964.

SUBJECT

• Talking Paper on Iran PL-480 Programs for Meeting with Administrator of FAS

Our current experience with USDA in its handling of PL-480 programs for Iran has raised so many troublesome problems that we suggest you schedule a meeting with Mr. Raymond A. Ioanes, Administrator of the Foreign Agriculture Service, to try to reach a meeting of minds on a government-wide approach that would serve both our foreign policy and our commercial interests. At such a meeting you might describe the progress being made in Iran toward efficient economic management and stress the importance of promptness and understanding in our dealings with an important transitional country such as Iran. The following points might be made at such a meeting:

1. Iran’s Progress and Our New Opportunities. Iran has made such progress in financial management in recent years that we are able gradually to shift our major concern from aid projects to market development. We have made a number of policy changes in the past year to take advantage of growing Iranian financial strength for the benefit of the U.S. balance of payments, including: raising the interest rate on AID development loans and gradually replacing such loans by EXIM lending at commercial rates; shifting our military assistance from an all-grant basis to a combined grant and credit-sales basis; greatly increasing the U.S.-use component of our most recent PL-480 Title I agreement (from 35% to 60%, including Cooley loans); and informing the Iranians that further PL-480 agreements after that of September 29 would be under Title IV (dollar credit sales) rather than Title I. In fact, we may have been overdoing things and making too many changes that impinge on the Iranian balance of payments, which has recently begun to show some unexpected signs of strain. But on balance, we feel that Iran will continue to gain in financial strength over the long term and will offer a growing market for our exports, provided we make the appropriate adjustments in our policies and procedures. As regards agricultural commodities in particular, the rising living standards and the current land reform efforts would seem to portend shortfalls for a number of years in marketable surpluses from domestic production. These opportunities not only offer potential commercial advantages, they also provide what may turn out to be one of our chief means of maintaining U.S. influence in this strategically located country.

2. Obligations of the Emerging Relationship. It thus behooves us to manage our new style of financial-commercial relationship with Iran with care. We expect—and to an increasing degree are receiving—more efficient and business-like response from the GOI in our commercial/financial relationships. The GOI, in turn, expects equally business-like and prompt responses from us. During recent months we have encountered hard bargaining in regard to loan terms, and it has been made clear to us that the GOI is in a position and has the negotiating skill to be quite discriminating, for instance, in the choice of foreign suppliers for capital equipment needed in its sizeable development program. So far our PL-480 terms have remained sufficiently concessionary that we have not had to worry about foreign competition in agricultural commodities, although the Iranians have been frustrated by what appears to them as excessive bureaucratic delay.

3. Current Title I Wheat Program. This is a good case in point. The Iranians officially requested, on June 29, 1964, an amendment to the FY-1964 Title I wheat agreement (for 80,000 tons) raising the amount to 240,000 tons because of an emergency situation created by an unexpected crop failure. The amendment route was preferred in the interests of speed, because the GOI, facing wheat shortages in parts of the country where land had been distributed to former tenants, felt under political pressure to ensure adequate wheat supplies in the countryside as well as in the cities. A new PL-480 agreement (the amendment route was vetoed) was not signed until September 29, the amount was reduced to 140,000 tons (to allow for Title IV private entity transactions and some increase in usual marketings), and the terms were hardened in many respects. As of the present PA’s are being issued for 70,000 tons, whereas the Iranians have been pressing continually for issuance of the full amount. As the Iranians see it, their urgent request for wheat, hopefully to be delivered early in the Fall of 1964, has been whittled down and dangerously delayed. None of the explanations we are able to make about the reasons for these actions is very useful in allaying their irritation and feeling that we have let them down. We think the U.S. Government could have acted much more promptly and responsively if all parties concerned had shared the same appreciation of the urgency of the Iranian request and the policy advantages for the U.S. in responding promptly.

4. Current Title IV Feed Grain Request. The GOI on September 8 requested 50,000 tons of feed grains under Title IV to meet unexpected shortages and avoid excessive animal slaughter before cold weather set in. Owing to various delays, we were not able until October 21 to inform the GOI that favorable action was taken on their request, and we still have ahead of us the dispatch of negotiating instructions and the issuance of PA’s.

1. Source: Department of State, NEA/IRN Files: Lot 69 D 513, Iran, 1964, AID 15, PL 480 Food for Peace Program. Confidential. Drafted by Tiger and cleared by Deputy Assist-ant Administrator of the AID Office of Material Resources John W. Johnston, Jr. A handwritten note on the source text reads: “JDJ saw Ioanes 2:30—10/28/64.” A memorandum of conversation recording the meeting is ibid.: Lot 69 D 30, Memoranda of Conversation.