891.51/563: Telegram
The Minister in Iran ( Dreyfus ) to the Secretary of State
[Received April 27—12:12 p.m.]
429. Millspaugh has written me important letter giving reasons for Iran’s financial ills and suggesting certain remedies. Copy sent Department by air.90
[Page 575]Iran’s financial position is dangerous. Government borrowed 1 billion rials from Banque Mellie last year and now owes that bank 3 billions. Millspaugh wishes to keep this year’s borrowings down to half billion but in view of heavy commitments, reduced Government income and inflated prices he believes he will have to find an amount of 1 billion in addition to half billion from Banque Mellie. He suggests that only way out of present difficulty is to seek an American or joint British-American loan of at least 1 billion rials perhaps guaranteed by oil royalties, extending to 1 year beyond end of war and possibly made contingent on maintenance of an American financial mission to Iran. He realizes loan would be inflationary but considers it less dangerous than other alternatives. He asks Allied Governments to assist Iran by (1) reducing Allied expenditures in Iran (2) bringing in gold and silver for purchase of rials (3) permitting more goods to be exported to Iran (4) paying Iranian taxes where not specifically exempt (5) refusing to pay wages above the Iranian scale (6) not employing Iranians now in Government service (7) assisting to prevent export of goods from Iran (8) revising contracts such as Soviet arms contract which place financial burden on Iran Government and (9) permitting Iranians to postpone payments on certain obligations such as payments for Lend Lease trucks.
For his part Millspaugh is endeavoring to correct situation by reducing budget and refusing to make payments except for absolute essentials. He proposes to take such steps as controls of prices, treasury bond issue, income tax increases, sale of Government property, sale of diamonds, gold and silver and restriction of bank credit. He feels his Mission has already had following positive results (1) given some strength to Government (2) made progress in reorganizing financial administration (3) established control over expenditures and (4) formulated comprehensive plan for dealing with financial and economic situation. Aside from financial situation he takes pessimistic view that collapse of organized government is distinct possibility because of lack of effective leadership and demoralization and corruption of Government employees due partly to 7–fold increase of cost of living in 7 years which has made current wage scale insufficient for even minimum subsistence. End résumé.
Department’s comments on question of possible loan would be appreciated.
- Despatch No. 540, April 29, not printed.↩