891.001 Pahlavi [,Reza Shah]/11–1849
Memorandum of Conversation, by the Secretary of State1
Subject: Exchange of Views Between the Shah of Iran and the Secretary of State Regarding Iran’s General Situation and Need for American Assistance
| Participants: | The Shah of Iran |
| Hussein Ala, Iranian Ambassador | |
| The Secretary of State | |
| Mr. Willard Thorp, Assistant Secretary for Economic Affairs | |
| George C. McGhee, Assistant Secretary for Near Eastern, South Asian, and African Affairs | |
| John D. Jernegan, Director, Office of Greek, Turkish, and Iranian Affairs |
I called on His Majesty at Prospect House for the purpose of giving him an opportunity to discuss privately some of the major questions in which he was known to be especially interested. During the course of an hour and twenty minutes we touched on a number of subjects, including possible security arrangements and the emergency need for railroad equipment in Iran, both of which topics I reported in separate memoranda.2 The bulk of the conversation dealt with the Shah’s desire to obtain both economic and military assistance quickly and in substantial quantity. It may be summarized as follows:
His Majesty considered it vital to Iran that the military strength of the country should be promptly increased to prevent its being overrun or subverted before economic improvement plans could have their effect. He considered that the next three or four years were critical from this point of view, and that after that it would be easier to deal with Iranian economic problems. Therefore, he wanted to develop the military strength of Iran to approximately one-half that of Turkey. This would mean, he said, an Army of 150,000 plus 30,000 frontier guards. He did not consider that this was “shooting too high” since one-third of the number at any one time would consist of raw recruits of no use in combat and another 30,000 would be engaged in rear echelon activities, leaving a maximum of 70,000 fighting men. (He did not count the frontier guards in the combat strength because they would be eliminated by the enemy at the first onslaught.)
His Majesty argued that this force equipped and trained by the United States, was essential to enable Iran to put up a fight for her independence. If Iran could resist an attack for two or three months it would be a great help to the Western Powers in a general war, unless those powers were confident of being able to win a war quickly by the use of the Atomic Bomb. In the latter case, of course, Iran’s military strength or lack of it would not matter. But if Iran were attacked and lost her independence without a real fight, it might never be possible to re-establish the democratic form of government in Iran.
His Majesty hoped very much that the United States could increase the contemplated amount of military assistance to be given to Iran possibly by reallocating appropriated funds from another MAP country under the authority of the “5 per cent clause”.
I agreed with His Majesty that some increase in Iranian military strength was probably desirable, but I emphasized the fundamental necessity of giving priority to economic and social development. All nations in the free world face the same problem. If we attempted to build up our military establishments to a level comparable with that of the Soviet Union, we would wreck our economies and leave ourselves [Page 576] so weakened that we would collapse without even being subjected to military attack. The best way to prevent war, which was after all our real objective, was not by military preparations but by so developing our free economic and social structures that the Russians would be deterred from attacking. I pointed to Nationalist China as an example of the wrong policy. At the close of World War II, I said, Chiang Kai-shek was on top of the world; he had large and well-equipped forces enormously superior to the military forces of the Chinese Communists. The President and General Marshall had strongly advised him to concentrate on improving the economic and social condition of the Chinese people, but he had chosen to attempt a purely military solution. The result was that the Chinese people had lost all confidence in the Nationalist Government and even in the military field Chiang had been defeated because his soldiers would not fight. All the vast quantities of American military equipment poured into China had merely gone to arm the Chinese Communist armies as a result of the mass surrenders of the Nationalist forces.
Now, I said, it was Southeast Asia that faced Communist pressure. While the countries of that area would need some military equipment, we believed that our greatest effort there should be made in the field of economic progress so that the new national governments could gain the loyalty of their people. After all, our resources were really slight and we had to utilize them in the manner that would be most effective.
In reply to this line of argument, the Shah observed that China’s downfall was largely due to corruption and he asserted that Turkey was putting large resources into its military program and still was able to maintain its internal stability. Some Iranians had called him a Communist because he wanted social reforms. He was opposed to the absentee landlord system and to the exploitation of labor, but even if he took away all the wealth in the hands of the landlords and factory owners it still would not amount to very much in the light of Iran’s needs and, he implied, would not compensate for the misfortunes that would result from military unpreparedness. I said that I had not meant to suggest immediate sweeping social reforms of the sort he mentioned and I agreed with the necessity for a certain degree of military preparedness. What I wished to emphasize was the importance of striking a balance. With respect to the Shah’s specific request for increased military aid, I suggested that he should discuss this especially with General Bradley when he saw him later in the afternoon. We would see what adjustments, if any, could be made. It had been difficult to get the Military Aid Bill approved by Congress and the amount had been reduced twice by the legislative branch. Furthermore, new responsibilities had been thrust upon us since the program was first planned, which would make it still more difficult for us to [Page 577] increase the share of any one country. As an example I pointed to Austria; if an Austrian peace treaty were signed and Western troops withdrawn from the country, it would be essential to provide military aid to Austria to prevent its being subverted by the Communists.
Mr. McGhee observed that while it would be difficult to increase the Iranian share of military aid through use of the “5 per cent clause” or otherwise, such a possibility was not foreclosed. It was not impossible that some transfers could be made. He emphasized that our possibilities of action in this first year of the MAP were limited and said that if there were a new military program in the next fiscal year we would give most careful study to Iran’s needs.
On the subject of economic development, the Shah indicated his appreciation of the importance of the 7-Year Plan and said that this importance was fully appreciated also by the mass, of the people of Iran, even those in the villages. In this field, too, he hoped for direct American aid. Could we not find some way to extend financial assistance on the pattern of the European Recovery Program? Could not the President at this time make a public statement that he would request Congressional authority for such a move with regard to Iran?
I replied that this would be very difficult. We were beginning to terminate the ERP, not to extend it. This program had been developed to meet a particular problem, namely, the acute dollar shortage in Europe. It had not been designed for purposes of general economic development. Congress would not be receptive to new proposals.
Mr. Thorp, Mr. McGhee and I all pointed out that Iran had a favorable balance of payments which made it a good credit risk for loans from the International Bank. Congress would expect Iran to exhaust its credit at the bank before appealing for direct aid, since we had taken the lead in setting up the bank for the specific purpose of facilitating economic development. Mr. McGhee explained that we had to be consistent in our economic aid policies, and we had taken the position with all countries that they could not expect grant aid from the United States if they had a credit standing enabling them to obtain funds from other sources. Our National Advisory Council would not under present circumstances approve an economic grant policy for Iran.
His Majesty observed that Iran’s dollar resources were not, after all, so great as people seemed to think. The oil royalties, which were the primary source of dollars, presently amounted to only seven or eight million pounds yearly, around $20,000,000 at the present rate of exchange and even if doubled by the new agreement with the oil company would still not amount to any enormous sum. He added that Iran had already been in touch with the International Bank, which had indicated its willingness to extend a credit of some $35,000,000 [Page 578] for certain projects, including a cement factory. The bank was planning to send a mission to Iran in December to study these particular projects. However, $35,000,000 was a small amount in comparison with what was needed and the bank would have to take a broader view if it was really to be of help in the 7-Year Plan. Mr. Thorp remarked that the mission sent by the bank would probably study the whole situation and thus lay the basis for larger credits in the future.
Reverting to the oil royalties question, the Shah said that if all of this income were devoted to the Economic Development Program there would be nothing left in the Iranian budget to maintain the Army. Local currency was even harder for the government to obtain than dollars.
His Majesty and Ambassador Ala then raised the question of utilizing the Export-Import Bank in addition to the International Bank. Mr. Thorp and Mr. McGhee agreed that the Export-Import Bank might be interested in some phases of Iran’s needs, but they emphasized that in our opinion it is desirable for Iran first to exhaust the possibilities of the International Bank. The latter institution lacked flexibility, and the Export-Import Bank could deal with certain situations not within the sphere of operation of the International Bank. It would be wiser, therefore, to hold the Export-Import Bank in reserve to meet unforeseen emergencies. I emphasized that there seemed to us no reason to believe that Iran’s economic needs could not be met for the present by the International Bank and I assured His Majesty that the American representative on the bank would give full support to Iranian requests.
Toward the end of the conversation, the Shah explained that the Iranian public expected a great deal in the way of American assistance to result from his visit to this country. He could not return empty handed. Was there not something more that we could do, whether in the economic or military fields? Could we not issue a statement re-emphasizing our support for Iran and promising further assistance?
I replied that we could issue a communiqué, preferably in the form of a joint statement by the President and the Shah, reiterating the public statements of support for Iranian independence previously made. I did not think we could say anything new, however. In the economic field, we would carefully examine points which had been discussed in this conversation and see what could be done in the field of providing railroad equipment, bank credits, etc. With respect to direct aid outside MAP, we simply had no authority.
In conclusion, His Majesty said that so long as he could remember Iran had always been attempting to progress, had always had plans for economic development except during the period of wartime occupation. Iran had always faced the Russian menace and had, figuratively, [Page 579] “fought Russia with her bare hands” to protect her independence. With or without American help, if anything happened in Iran her course of action would be the same.