Foreign Relations of the United States, 1950, The Near East, South Asia, and Africa, Volume V

601.8811/5–150

Memorandum of Conversation, by the Assistant Secretary of State for Near Eastern, South Asian, and African Affairs (McGhee)

secret

[Washington,] May 1, 1950.

Subject: Meeting with Ambassador Ala

Participants:	His Excellency, Hussein Ala, Ambassador of Iran
	Mr. George C. McGhee—NEA

I received Ambassador Ala alone at luncheon on the occasion of his departure from Washington to assume his new position as Foreign Minister. Ambassador Ala bad declined any formal entertainment in his honor because of the press of personal affairs.

Ambassador Ala stated that he had received a message from Tehran which was in response to the statements which I had made to him at his call in the Department on April 24, 1950.¹ He gave me what he stated was a rough translation of this telegram, a copy of which is attached. He said that he also had received a personal communication from Mr. Ebtehaj, in which Mr. Ebtehaj had stated that Iran’s present financial problems could be solved if three conditions could be met:

1. The budget was balanced.

2. A new Anglo-Iranian oil contract was entered into.

3. The United States provided budgetary assistance to the Iranian Government for any increased internal military expenses.

In response to these communications, I pursued the usual argument that we still felt that Iran’s problems could be met by action within the competence of the Iranian Government. With respect to the telegram attached, we felt that the symptoms of the financial difficulties in Iran at the present time were those of an economic depression or deflation, and that there were various financial means, many of which we had employed during our own depression, for counteracting such a situation.

With respect to the Iranian statement that delay in getting on with the seven-year economic development program was not caused by failure of the high council to approve projects, but because of the failure of the American experts to submit projects, this was a point of fact which we could not profitably discuss but would seek to clarify. I stated that we would seek, through our Embassy in Tehran, to arrive at a better mutual understanding of the facts involved in the present situation in Iran.

I explained to the Ambassador, as I have many times before, the reason why we cannot, as Mr. Ebtehaj suggests, give the Iranians budgetary support for internal military expense. I also explained why, on the basis of our loan and financial policy, we could not give Iran grant economic assistance. I said, however, that this did not mean that we were not deeply interested in Iran. We have, in fact, always followed the Iranian situation closely, with the view of determining what, if any, action we might take which would be effective in assisting Iran. I assured the Ambassador that we had become more and more disturbed, within recent months, with the situation in Iran, and that we wished to do something to help. Within the framework of what I had previously stated with respect to our policies toward such assistance, I asked him what suggestions he had to make.

He replied that he felt that we should on the request of the Iranian Government send a mission to Iran to survey the economic situation. Such a mission, he said, could clarify such points as those we had discussed previously concerning which there was disagreement. I asked him whether or not Iran would be prepared to follow recommendations of the mission no matter how much they cut across vested interests in Iran and whether or not they involve U.S. financial assistance. He replied that in his opinion the recommendations of the mission would be accepted, although he did not wish to preclude the possibility that they would include U.S. financial assistance. I mentioned specifically recommendations such as tax policy, loan policy, land tenure and the administration of the seven-year economic development program as being questions that the mission might address itself to. The Ambassador felt in each case that weight would be given to the recommendations of the mission no matter what they were.

I then developed some general discussion of the question of whether or not the vested interests in Iran—whom the Ambassador admitted, by and large, control the Majlis and have positions of importance in the Iranian Government—could be kept from blocking reforms which are required in Iran if the country is to make progress. He replied that in his judgment the influence of the Majlis could be overcome. He said that there are men in Iran who had the courage to combat them. He said that he himself would be glad to contest such interests for the good of Iran. He also rather lamely classified Prime Minister Mansur as being willing to combat these interests. He didn’t mention Razmara.

I then queried him as to whether in his view the Shah should attempt to run the country, and whether or not his attempt to do so might not create a vacuum in the government to the end that no one ran it effectively. He said that he had always counseled the Shah not to assume responsibility for governing the country, nor to associate himself with individual policies. He should be above individual policies, so that his prestige is not harmed by their failure. He had urged the Shah on numerous occasions to get a strong man as Prime Minister, give him full power to run the country, and back him up 100 percent as long as he was able to retain his confidence. The Ambassador stated that he attached the greatest importance to the candidacy of Entezam² for president of the General Assembly, pointing out how much it would mean to Iran if he were successful. I was noncommittal.

Upon parting, I expressed appreciation to the Ambassador for the fine cooperation that Ave had enjoyed during his stay in Washington, complimented him on the way in which he had fulfilled his responsibilities here, and passed on to him commendations which I had heard from other sources. I expressed great satisfaction that he was assuming the position of Foreign Minister, and felt it would mean that our two governments would continue to work closely together. I stated that Iran and the United States were bound by firm ties of common interest in the present world struggle and that he must never forget, that no matter what disappointments they may have had in the past with respect to failure to receive United States assistance, that we did at all times stand ready to help Iran in the event of emergency. He reaffirmed his solidarity, and that of all Iranians, with this country and the free world and assured me that he would as Foreign Minister seek to develop this relationship.

[Attachment]

Copy of Rough Translation of Telegram Handed to Mr. McGhee by Ambassador Ala

Mr. McGhee’s opinion based on reports from the Embassy in Teheran that the present crisis is commercial and due to excessive imports is not quite accurate; in fact, the slump in the market and the unsaleability of the existing stocks is due more to lack of productive activity and consequent drop in the purchasing power of the individual consumers.

Therefore, assistance from America to create productive activity and thus to increase purchasing power will solve the crisis.

It is necessary to draw the attention of the State Department especially to this point that in carrying out the 7 Year Plan, if sufficient consumer goods be not available within reach of the public to absorb their increased purchasing power, inflation will certainly result.

Nevertheless, this point (excessive imports) has been taken into consideration, and during the current year a reduction of 600 million rials ($20 million) has been made in the import quotas.

The alleged delay in the approval of projects by the High Council to which Mr. McGhee has referred is definitely denied. Not only has the consideration of any projects not been delayed in the High Council—on the contrary, the High Council has approved of more productive projects than the financial means at its disposal justified.

It is also to be noted that no projects have yet been submitted by the American experts; so far they have only studied and approved the projects proposed and submitted by the Iranian experts.

Regarding the statement by Mr. Ebtehaj regarding loan to be made for currency backing, it is necessary to point out that the proposal was first suggested in the course of a private conversation by Mr. Wiley. Mr. Ebtehaj considers this only a stopgap solution.

In conclusion, it is necessary to draw the attention of the State Department to the fact that some of the reports of the officials of the Embassy in connection with economic matters and the 7 Year Plan are based on inaccurate information and incorrect evaluation which is unfortunate as it may give rise to misunderstandings between the two governments.

1. No memorandum of conversation, April 24, has been found in Department of State files; see the memorandum of conversation, April 26 [24?], by Mr. Ferguson, p. 526.
2. Nasrollah Entezam, Iranian Permanent Representative at the United Nations; for documentation on his candidacy for President of the Fifth Regular Session of the General Assembly, see vol. ii, pp. 87 ff.