888.00 TA/4–2650
Memorandum of Conversation, by the Officer in Charge of Iranian Affairs (Ferguson)
Subject: Aid for Iran
| Participants: | The Iranian Ambassador, Mr. Ala |
| Mr. Aram | |
| Mr. Nemazee | |
| Mr. Vahid1 | |
| NEA—Mr. McGhee | |
| GTI—Mr. Woodbridge | |
| GTI—Mr. Ferguson |
The Problem:
The constant desire of the Iranian Government to obtain some tangible form of United States support in the form of economic and greater military assistance.
Action Required:
To consider all means of helping the Iranians in their present critical situation either by actual assistance or by constant advice and encouragement.
Action Assigned to: NEA and GTI
Discussion:
The Iranian Ambassador called on Mr. McGhee at his own request to say good-bye. After an exchange of amenities centered around the Ambassador’s service in this country and his elevation to the post of Minister of Foreign Affairs, the Ambassador said he would like to raise again the question of the critical situation in Iran and the need of that country for some sort of United States assistance. Mr. Ala said he had not forgotten what he had been told at his last meeting with Mr. McGhee two months ago2 when he was advised that mere repetition [Page 527] of Iranian requests for assistance would have no effect on the policy of the United States in this matter and that only a changed situation would warrant reconsideration. Mr. Ala said the situation had now changed and the situation in his country was a matter of great concern.
Mr. McGhee replied that the Department would always be interested in new aspects of the situation.
Mr. Ala said it was a matter of deep regret to him that he felt obliged to raise this question again but the fact remained that a severe crisis exists at present in Iran involving a large Government deficit, an unfavorable balance of payments, merchant bankruptcies, closing of factories, unemployment, crop failures, loss of livestock, and the tense situation created by the herding of refugees from starvation areas in the larger cities. The Ambassador remarked that the only aid Iran had been promised to date had been under MDAP and this, while greatly appreciated, was insufficient to relieve the strain on the budget caused by essential military expenditures.
Mr. McGhee pointed out to the Ambassador that Iran’s problems were of an internal financial nature which are not susceptible to outside assistance programs. He said that no United States assistance program anywhere contemplated a program of this nature.
Mr. Ala said that his Government, with the coming to power of Ali Mansur, was trying very hard to effect the necessary reforms but was laboring under great difficulties since its assets were all earmarked for development projects and it was confronted by the vital need of maintaining its army in a state of readiness and efficiency. The exigencies were such, he said, that he must appeal again for American support. The Ambassador stated he would like to be able to carry back with him to Tehran a message of hope—some tangible sign of good will at this time of crisis.
The Ambassador then referred to a conversation he had had on April 12 with Mr. Hare3 in which he had offered certain specific suggestions as to the form United States assistance might take. He repeated some of these suggestions:
- 1.
- Direct, grant aid to finance projects designed to increase production to permit an increase in exports in order to pay for American goods and services.
- 2.
- Encouragement of American private investment in Iranian enterprises.
- 3.
- A United States Government credit to be used as cover to permit an increase in the note issue.
- 4.
- American good offices in the AIOC negotiations to ensure a fair deal for Iran and to increase royalties to a 50–50 basis.
- 5.
- Increased military aid to relieve the strain on the Iranian budgets.
- 6.
- Development projects in the Province of Khuzistan.
- 7.
- A relief program for the Province of Azerbaijan.
- 8.
- The inclusion of Iran in any aid program for Southeast Asia.
Mr. McGhee replied that the Department was aware that the situation in Iran had been deteriorating for some time and that it was a matter of some concern to the United States. The difficulty, he said, seemed to lie in the problem of internal finance since Iran was still not short of foreign exchange. Mr. McGhee remarked that he understood Iran was undergoing a severe depression but that this was the type of problem which required internal measures. He said the Department was disappointed that the Iranian Government had not taken decisive measures called for by the situation and that the American consultants with the Iranian Plan Organization were very pessimistic.
Mr. Ala expressed surprise that the OCI consultants were pessimistic since reports reaching him had indicated that the Plan was proceeding in good order. He said that the Plan Organization was busily engaged in preparing projects for the IBRD Mission now in Iran but that the numerous conditions and requests for information attached to IBRD loans made it difficult to get started. Mr. Nemazee mentioned that the preparation of these projects seemed to be a bottleneck at the moment.
Mr. McGhee said he understood that the OCI had forty projects ready but had been totally unable to obtain their approval by the Supreme Council of the Plan Organization. He said the OCI was very discouraged. Mr. McGhee added that Iran might reach the point where it needed outside assistance but for the moment it refuses to take the internal steps which are obvious and necessary to see whether outside help is required. He pointed out the obstructive tactics of the Iranian Majlis and said that there is a limit to what external assistance can accomplish while the Iranian Government does nothing. He cited as an example the refusal of the Majlis to enact the currency reform desired by Mr. Ebtehaj and Mr. Ala replied that it was psychologically impossible to expand the note issue without additional coverage. Mr. McGhee said that the Department had looked into the possibility of stabilization loans to foreign countries but had found them not to be feasible. Reverting to the Ambassador’s suggestion concerning the AIOC negotiations, Mr. McGhee said it would be invidious for the United States to intervene and that the 50–50 royalty basis desired by the Ambassador existed only in Venezuela and that concessions in such countries as Saudi Arabia had no such provisions.
Mr. Nemazee remarked that he understood 50–50 splits were customary on traditional concessions and that since the Saudi concession was relatively new, it was not a pertinent example since only those with long established concessions such as that of the AIOC could be [Page 529] expected to grant such royalties. Mr. Nemazee said that public opinion in Iran would never accept anything less than a 50–50 arrangement, Mr. Ala said that he believed that the AIOC must at least concede the principle of an equal distribution. He said the British Government now receives more in taxes from the concession than the Iranian Government does in royalties.
Mr. Nemazee suggested that if the British could be induced to grant greater royalties, these could be used as cover for an increased note issue. He asked if it would not be possible in this connection to obtain a short term credit in this country with which gold would be left on deposit here and the currency expanded against this cover. Mr. McGhee replied that he was sure such an arrangement would be possible through commercial channels and that the Department would look into the matter.
Mr. McGhee concluded the economic part of the conversation by telling the Ambassador that he could be assured that the Iranian situation was receiving constant and serious consideration and that should Iran find itself in real difficulties, it would not find the United States wanting. In the past, he said, there had been no need and at present most of the difficulties were within the competence of the Iranian Government to solve since there was no question of a shortage of dollars.