891.24 FLC/2–2247: Telegram
The Ambassador in Iran (Allen) to the Secretary of State
128. Colonel Shields1 requests copy be given General Connolly2 of following letter which I addressed to Minister of Finance today:
“Excellency: I have the honor to refer to conversations which took place in the office of the Ministry of War on February 16, 1947 attended by Colonel Shields concerning the question of the utilization by the Iranian Government of credit for the purchase of military supplies which the American Government expressed its willingness to extend to Iran in the letter from General Connolly to General Mahzari dated November 26, 1946.3
During this conversation various questions were raised by Your Excellency and other Iranian officials concerning the terms of the credit as set forth in General Connolly’s letter and concerning the possibility of an alteration or modification of these terms. You asked specifically whether it might be possible for the Iranian Government to utilize the credit through individual purchase contracts in which interest payments would be included as a part of the principal. You also questioned the rate of exchange provisions in the standard form of US credit agreement applicable to credits of this kind.
The Embassy has received telegraphic instructions from the Department of State in Washington pointing out that the American Government desires that the arrangement for this credit be negotiated in Washington. Consequently any suggestions of the Iranian Government for alterations in the terms of the offer contained in General Connolly’s letter of November 26th should be taken up through the Iranian Embassy in Washington with the competent American authorities. This Embassy does not know whether any alteration in the terms of the offer would be possible or not.
I feel that I should add that I personally am doubtful that my Government would be able to accept any substantial changes in the terms as contained in General Connolly’s letter. It is my belief that if the Iranian Government desires to take advantage of the offer made in General Connolly’s letter it will be necessary for the Government of Iran to accept substantially the terms contained in that letter.
I should point out moreover that General Connolly’s letter still appears to have remained unanswered or unacknowledged. I suggest that prompt action be taken by the Iranian Government if it wishes to utilize this credit offer.
I should also refer to the conversation which Colonel Shields and and I had with you in your office on February 12th in which you expressed doubt that the Iranian Government could legally enter into a credit agreement calling for the payment of interest without the approval of the Majlis. If this is true it would seem to me desirable for the proposed credit agreement to be drawn up now in order to be [Page 897] ready for prompt submission to the Majlis when it convenes. I am confident that the American Government will find it necessary to include in any credit arrangement with the Government of Iran as in all other credit agreements of this nature a provision for interest to be paid on outstanding balances.
In order to assure the proper coordination of the discussions in connection with this credit, I am sending the text of this letter to my Government by telegraph.”4
- Col. Charles J. Shields, OFLC Field Commissioner for the Persian Gulf area.↩
- Maj. Gen. Donald H. Connolly, Foreign Liquidation Commissioner.↩
- Not printed, but see footnote 20, Foreign Relations, 1946, vol. vii, p. 546.↩
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Subsequent to sending this letter to the Minister of Finance, Ambassador Allen discussed the arms question on several occasions with the Shah, the Prime Minister, and other Iranian officials. In telegram 132, February 25, 1 p. m., from Tehran, the Ambassador reported on a conversation with the Prime Minister the previous day during which the latter made it clear that he had not realized previously how much the supplies would cost Iran. He expressed doubt that Iran needed or could afford such large expenditures. The Ambassador reminded the Prime Minister that the U.S. offer had followed his urgent request for assistance. (891.24 FLC/2–2547)
In reply to a query in Department telegram 109, March 5, 7 p. m., Ambassador Allen stated in telegram 175, March 10, 6 p. m., from Tehran; “I consider it in the over-all Iranian interest to take advantage of at least a considerable part of the military credit offered by US, and the Embassy does not believe that the proposed rapid repayment [in three years] would have any significant effect on economic development plan for benefit of Iranian people, provided Iran obtains credits from International Bank for development plan. However, [if] economic development here must be financed without international loan, repayment of arms credit would substantially reduce funds available for economic plans during next three years.” (891.24 FLC/3–447; 891.51/3–1047)
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