891.51/568: Telegram
The Minister in Iran ( Dreyfus ) to the Secretary of State
[Received June 12—4:20 a, m.]
608. There follows summary of letter of June 8 from Millspaugh answering points raised in Department’s 272, June 4. Full text being sent by air.93
Begin summary.
1. Need for loan is urgent and amount requested conservative. Unless loan granted irreparable harm may be done and collapse of Government might result. Without loan Government will be unable to finance essential operations, maintain security, purchase essential goods, maintain Government income and continue operation of factories and mines.
2. Iranian Government is willing to pledge any of its revenues as security for loan. Lending governments may also fix other conditions such as passage of income tax law or employment of American advisers. Any financial relief obtained from internal sources through increased revenues, internal loan, sale of gold, et cetera will be taken into consideration in use or repayment of loan.
3. Straight American loan would be preferable but joint Anglo-American loan would be acceptable. Discussion of Soviet participation would be waste of time.
4. Deficit for current year will be at least billion and half rials. This cannot be covered fully by Banque Mellie loan. Government now owes bank 3,750,000,000 rials. Eial currency to supply further Government borrowing is physically unavailable unless notes are printed without metallic backing or unless loan is obtained against which notes can be issued. Act of November 19, 1942 requires 100 percent cover for rial notes (60 gold and 40 dollars and/or pounds). Since passage of this act bank’s lending power to Government is limited to its own resources. Loan is not desired for psychological reasons but because of physical impossibility of borrowing from bank.
5. Silver and diamonds are being sold in open market. Gold is being brought in by Iranian Government and by British for sale. While in theory this will produce sufficient rials, in practice it will not since sales will be slow and because absorptive capacity of market is not known. Gold sales are expected to have important anti-inflationary effect but will not increase bank’s lending power to Government.
[Page 579]6. Iranian Government is grateful for offer to postpone payment for Lease-Lend goods but relief offered will not change total picture appreciably.
7. Complete and accurate statement of amounts owed by and to British and Soviets is impossible because of disorganized and confused state in which Iranian accounts were found. Amounts due by Soviets and British have been taken into consideration and so have no relevancy to general problem except that if any remain unpaid the situation will be worse than has been calculated. They will be subject to claims and counter-claims and in all probability payment will be long delayed.
Principal items in British-Iranian accounts concern Iranian claims for customs duties and road taxes and possibly forest taxes for trees cut.
According to best information available main items owed by Soviets to Iranians are: (a) 46 million rials for food purchased (b) 80 million rials to Iranian railway for work performed (c) 50 million rials for customs duties (d) undetermined but large amount for freight and passenger charges on railway (e) a not fully verified Iranian claim for 57 million rials for advances to Soviet trade delegation (f) in addition Soviets will owe large sums for munitions and canned goods being produced for them in Iranian plants but these items are payable in goods and will be subject to claims and counterclaims.
Present policy of Soviets seems to be to require Iranians to finance them in what amounts to a kind of Lease-Lend arrangement. Iranian Government has to be at full cost of road maintenance in north and much of railway maintenance although Soviets fail to pay transport charges due Iranian Government. Soviets require Iranians to finance plants producing munitions for them. Under Soviet-Iranian financial agreement Iranian[s] must advance 83 million rials monthly to Soviets. End of summary.
8. I am in full agreement with Millspaugh as to necessity and urgency of this loan. British Minister concurs and will recommend participation by his Government. I have discussed question with Soviet Ambassador94 who takes view that loan is not necessary since Iran can meet obligations from internal revenues. I am afraid his view is based on either lack of knowledge of Iran’s financial situation or desire to prevent extension of Allied loan to Iran as matter of policy.
It would in my opinion be preferable from political viewpoint to arrange for a joint Anglo-American-Soviet loan. However since full consultation with Russians would cause undue delay I recommend that negotiations for extension of an Anglo-American loan be initiated forthwith, the Russians to participate if they so desire.