Foreign Relations of the United States, 1948, The Near East, South Asia, and Africa, Volume V, Part 1

890H.51/1–748

The Minister in Afghanistan ( Palmer ) to the Secretary of State

secret

Kabul , January 7, 1948.

No. 3

Subject: Afghanistan’s Desire For A Loan

Sir: I have the honor to report the history to date of conversations and correspondence with the Royal Afghan Government concerning a possible loan to Afghanistan.

The subject of a loan was first discussed with the Minister of National Economy in April of 1946.¹ (See Enclosure I.) The conversation at that time was very general and exploratory in nature.

As a follow-up to the conversation, the Afghan Government sent the Legation an Aide-Mémoire on July 16, 1946.² (See Enclosure II.) This gave a general outline of the Government’s plans to develop the country if a loan should become available.

August 6, 1946, I sent His Excellency, the Minister of Foreign Affairs, a pamphlet published by the Export-Import Bank of Washington under date of September 11, 1945 as a “General Policy Statement”, and copy of the Export-Import Bank’s First Semi-annual Report to Congress for the period July-December 1945. Both the pamphlet and report were read and returned, but nothing further of a tangible nature was done until the summer of 1947, when a list of specific questions was compiled by this Legation and forwarded to the Ministry of National Economy to help the Afghan Government crystalize into definite terms its rather general planning. (See Enclosure III.)³

The answers to these questions, received by the Legation in November 1947,⁴ showed that the Afghan Government had advanced considerably in its planning during the past year. The section dealing with the financing of the several projects and the repaying of the loan if granted was especially well presented. The questions also brought to light very detailed and concrete planning for improving of transportartion, building dams and irrigation systems, developing a cement industry, and increasing the cotton textile industry. The answers to the questions also showed that little hard planning had been done on the subject of improving the agriculture of the country, although this must be an integral part of the dam construction and irrigation projects and was a major section in the general outline of improvement submitted to this Legation in the Afghan Government’s Aide-Mémoire of July 16, 1946.

Two general conclusions are apparent from the Afghan Government’s answers to the Legation’s questionnaire. First, the Afghan Government has done some good, realistic planning which would indicate that it has a sound basis for requesting a loan and would be a good risk. Second, the Afghan Government has no one properly trained to present their request for a loan in a manner that will assure it of the best possible reception, nor has the Legation anyone prepared to give the Afghan Government proper professional advice. Accordingly, it is my opinion, and I have so advised the Afghan Government in informal talks, that the Afghan Government should obtain the professional services of some firm like the International Hudson Corporation of New York City. It is my opinion, after reading about the International Hudson Corporation and seeing the names of the men connected with it that such a firm would be in a position to recommend to the Afghan Government, or draft for the Afghan Government, the presentation of its case for a loan in a form that would have the best chance of being accepted by the Export-Import Bank, the World Bank or any private bank the Afghan Government might wish to approach. Also, such a firm as International Hudson Corporation would be in a position to send specialists to Afghanistan to help the Government on the spot if necessary. I would appreciate the Department’s suggestion in this matter.

As the matter now stands, the Afghan Government is going ahead on its own in drawing up a request for a loan and is using their answers to the Legation’s questionnaire as a basis for their presentation. I have assured the Afghan Government of all possible further assistance in this regard on the part of the Legation.

In connection with this history of the Afghan Government’s desire for a loan see the enclosure with my despatch no. 356, dated November 5, 1947.⁵ It is apparent from this and from the Department’s talks with His Royal Highness Sardar Shah Mahmud Khan⁶ that the Afghan Government tends to think of the loan as of political as well as economic importance; possibly increasingly so in the light of manifestations of Soviet interest and offers to be of assistance to Afghanistan.

Respectfully yours,

Ely E. Palmer

1. Memorandum of conversation dated April 25, 1946, not printed. The conversation was between the Director of National Economy and the Director General, Political Division, Ministry of Foreign Affairs of Afghanistan, and the American Minister and Secretary of Legation in Afghanistan. The subject of conversation was an Afghan request for a loan of $100,000,000 to finance a ten-year program of public works to raise the standard of living (890H.51/1–748).
2. Aide-mémoire dated July 16, 1946, from the Afghan Ministry of Political Affairs, not printed.
3. Not printed.
4. Not identified in Department of State files.
5. Despatch and enclosure not printed.
6. The Prime Minister talked with President Truman and the Secretary of State on August 8, 1947 (telegram 166 from Kabul, August 9, 1947, 890H.002/8–947). Subsequently, he met with several other officers of the Department before his departure from Washington in late October.