788.5 MAP/1–2650

Memorandum of Conversation, by the Officer in Charge of Iranian Affairs (Ferguson)

secret

Subject: Economic Assistance to Iran

Participants: The Iranian Ambassador, Mr. Ala
Mr. G. A. Aram, Counselor, Iranian Embassy
Mr. Mohammad Nemazee, Commercial Attaché, Iranian Embassy
NEA—Assistant Secretary George C. McGhee
GTI—John D. Jernegan, Director
C. Vaughan Ferguson
Jeffrey C. Kitchen

Problem:

To make the position of the United States regarding repeated Iranian requests for economic as well as military assistance understood to the Iranians who have to date shown a chronic unwillingness even to listen to our explanations.

[Page 448]

Action Required:

Telegram to Tehran1 summarizing the conversation and the text of the Aide-Mémoire 2 handed Ambassador Ala at its conclusion. (The Department’s Aide-Mémoire was dated January 26, 1950.)

Action Assigned to:

GTI

Discussion:

The Iranian Ambassador called at Mr. McGhee’s request to receive a reply to the former’s Aide-Mémoire of November 293 concerning Iran’s desire for greater military and economic assistance from the United States.

Mr. McGhee told the Ambassador he had asked him to call since it seemed the Iranian Government by its repeated requests for assistance had completely failed to understand the position of the United States. Mr. McGhee said he knew he could talk to the Ambassador in complete frankness and felt relations between the two countries must be based on a policy of complete understanding of each others’ points of view. He said the receipt of the Ambassador’s Aide-Mémoire so soon after American policy had been explained by the President and the Secretary to the Shah had caused a feeling of irritation in high levels of the United States Government.

Mr. McGhee explained to the Ambassador the basic criteria governing the various United States foreign assistance programs. He said that aid to a given country must be granted in accordance with world wide U.S. policies and not merely on the particular needs of that country without any relation to the rest of the world. Nor, he said, was aid rendered to one country simply because others had received it. Mr. McGhee told the Ambassador that the frequency with which aid was requested had no bearing on the amount it received and, indeed could serve as an irritant in relations between the requesting country and the United States, and make more difficult favorable consideration of assistance.

Mr. McGhee added that the NEA area which was his responsibility in the Department contained some 680,000,000 people in eighteen countries. Of these countries, economic aid is now being extended only to Greece and Turkey and military aid only to Greece, Turkey, and Iran. He said that the Iranian requests for assistance outnumbered those of all of the rest of the countries in the NEA area put together. Mr. McGhee explained to the Ambassador that such repeated requests [Page 449] for aid, many of which were ambiguous, overlapping and not well justified, could only make a very unfavorable impression on United States officials and were therefore not in Iran’s best interests.

Mr. McGhee told Mr. Ala that it was the understanding of the United States Government that at the time the International Bank was organized it was intended to be of assistance in cases such as Iran’s, and that the Export-Import Bank, concerning which the Iranian Government had inquired on many occasions, should be called in only where assistance by the International Bank was not practicable. He said that from all information available to this Government, Iran’s foreign exchange position was exceptional and that its position could not be compared with those countries receiving direct American economic help. He mentioned to the Ambassador that the United States could not accept the claim of the Iranian Government that it had not fulfilled its obligations under the Tehran Declaration4 which in the opinion of this Government had no bearing on the question of post-war economic assistance. It would not be profitable for Iran to continue to press this point.

Mr. Ala replied that he was surprised to be given such a categoric statement and considerably concerned since he had only recently received new instructions from Tehran to explore again the possibilities of direct American financial assistance. He said that he understood the United States was or was about to render economic aid to several countries outside of Western Europe, particularly India, Pakistan, Indonesia, and Israel. Mr. McGhee replied that no assistance was contemplated for India or Pakistan and Israel had received help in the form of an Export-Import Bank loan. Mr. Ala explained that the Aide-Mémoire had been submitted as part of the Shah’s discussions since it was designed as a working paper for the Joint Declaration5 by the Shah and the President which was then under discussion.

Mr. Ala went on to say that his information concerning the economic situation in Iran was at variance with Mr. McGhee’s. He was informed that a large increase in the military budget appeared to be regarded as essential, that the diversion of the oil royalties to the Seven Year Plan was leaving a gap in the revenues of other branches of the Government, and that the International Bank was being so difficult that it might not be possible to utilize that source of funds. The latter fear arose, he said, from the complex formalities required of Iran and some apparently stringent conditions the Bank had set.

Mr. McGhee replied that regardless of Iran’s internal budgetary difficulties, its external financial position was good in comparison with [Page 450] other countries and under no circumstances could either military or economic aid be rendered to assist the local currency problems of the country concerned. Mr. Jernegan pointed out that it was not our policy anywhere to assist foreign countries to increase the size of their armed forces. The most we were doing was to help some countries maintain their existing forces. With reference to the reported difficulties with the International Bank, he observed that any other source of financial assistance, including the United States Government, would in all probability impose equally difficult conditions. Mr. McGhee expressed the opinion in this connection that it could be assumed the Bank would not take an unreasonable position.

Mr. Ala then said he understood that Mr. Thornburg,6 the representative in Iran of Overseas Consultants, Inc., was due in Washington in the near future and that he had hoped to explore with Mr. Thornburg and the Department the steps the United States could take in helping solve Iran’s acute economic problems. He said that he was thinking of suggesting to his Government the employment of an American financial expert, either Governmental or private such as Dr. Nourse.7 Mr. Jernegan expressed the opinion in the latter connection that such a person hardly seemed necessary in view of the presence in Iran of the Overseas Consultants as well as such competent Iranians as Mr. Ebtehaj,8 the Governor of the National Bank.

Mr. Jernegan told the Ambassador that the Department did not intend closing the door in Iran’s face forever and that should there be a marked change in the present situation, this Government would; always be glad to reexamine Iran’s needs. Mr. McGhee agreed and said that the door would always remain open but that the Iranian Government must understand that the policy of the United States was as he had outlined it and would probably so remain for some time to come.

Mr. Ala inquired whether Iran could expect to continue receiving military assistance to which Mr. McGhee replied that, as the Iranians had been previously informed, their needs would be taken into consideration in any future military assistance program that might be enacted by Congress.

Mr. Ala said that he had been under the impression that the executive arm of the United States Government had always been sympathetic to Iran’s needs and that the principal task confronting the Iranian Government in obtaining greater assistance was to make [Page 451] Congress more “Iran-minded”. He mentioneds a conversation with Mr. Dooher9 of our Tehran Embassy last September in which it was indicated Iran was faced with a problem of tactics rather than policy and Mr. Dooher had said Iran’s chances were not enhanced by the statements of Mr. Ebtehaj at that time that Iran did not need a loan. Mr. Ala pointed out that all Mr. Ebtehaj had intended to convey was that if the United States relieved the drain on the Iranian budget of maintaining its military establishment, Iran could proceed with its economic development without assistance.

Mr. McGhee replied that the Department had clearly understood Mr. Ebtehaj’s position which was as the Ambassador had described it. He explained that it was neither the remarks of Mr. Ebtehaj nor the attitude of Congress which prevented the adoption of a special program of aid to Iran. The Executive Branch was not thinking of such a program because it would not conform to the basic criteria of our national policies. The mere passage of time or an increase in Congressional interest would not change this situation.

Mr. McGhee concluded the conversation by pointing out that the remedies for the difficulties presently being encountered by Iran in the economic field were internal in nature and within the competence of the Iranian Government to resolve without assistance from abroad. He said, however, that he would always be glad to talk the situation over with the Ambassador.

The Ambassador as he left indicated that he would reply to the Department’s Aide-Mémoire handed him by Mr. McGhee at the close of the conversation in answer to his Aide-Mémoire of November 29.

  1. Telegram 106, January 28 (888.00 TA/1–2850), not printed.
  2. Infra.
  3. The aide-mémoire under reference here is printed in Foreign Relations, 1949, vol. vi, p. 585.
  4. Foreign Relations, The Conferences at Cairo and Tehran, 1943, p. 646.
  5. The joint statement under reference here, released on December 30, 1949, is in Foreign Relations, 1949, vol. vi, p. 592.
  6. Max W. Thornburg, Vice President in Charge of Operations in Iran of Overseas Consultants, Inc.
  7. Dr. Edwin G. Nourse, Chairman of the Council of Economic Advisers, 1946–1949.
  8. Aboi H. Ebtehaj, Governor of Bank Melli Iran (National Bank of Iran)
  9. Gerald F. P. Dooher, Attaché of the Embassy in Iran.