888.00/7–2050: Telegram

The Ambassador in Iran (Grady) to the Secretary of State
top secret   priority

164. 1. I agree that it is important to inaugurate aid program in this area along lines proposed Deptel 89.1 These countries are clearly [Page 175] in precarious position and they feel American aid has skipped over them. An aid program will have material effects and even more important, it will give confidence and raise morale.

2. Iran:

Such a program is almost essential here supplement Eximbank loans now under consideration since Point Four funds for this year are likely to be small. Funds are needed cover certain projects in fields of health, sanitation and agriculture which might not qualify under Eximbank loan requirements, and it is necessary provide more of much needed technical assistance and supervision. Under seven year plan there are number desirable projects qualifying under your 2(B) which are ready for early initiation.
Such aid program, if properly administered, could enable us bring about more effective and integrated use other resources available Iran Government. It would also give greater force our advice and suggestions re essential fiscal and other reforms.
On basis our investigations to date, including consideration internal financial capacity and development projects, we believe that $50,000,000 capital imports financed by US loans or grants is maximum that could be effectively used in first year.
Need for aid is great enough in Iran so that we must accept risk Iranian chagrin which would follow denial by Congress. No doubt about Iranians accepting aid, and would probably accept mission in order get aid.
We assume that valuable assurance of continuance program over several years which was granted Europe would also be given here so that plans could have realistic timing. Also assume that program would be flexible enough permit use foreign exchange and local currency for technical assistance in education, health, and other fields of Point Four nature. This type assistance is primary need here.
There is one point in your proposal about which I have reservations. I fully agree that all US technicians in country must be coordinated by single authority but am doubtful about use of mission independent of Embassy. I do not think independent ECA mission can operate in country like Iran without causing friction between itself and Embassy. Small size of country, weakness of government and dominant position of mission having this relatively large amount of money give it de facto equal, if not superior status to Embassy. I think Ambassador should have top executive powers in carrying out ECA/W directives as well as giving policy guidance. Relationship would be that planned for Greece just prior my arrival there.

3. My comments re other countries this area:

Afghanistan; believe funds could be spent there advantageously; Afghan Minister to Iran discussed related matter with me, pointing out that Afghans position very much like that of Iran and just as apt to be object of interest to Russia as means of reaching Persian Gulf, India and southern Asia.
Pakistan; believe funds could be effectively spent there for development. Could be loans from Eximbank, IBRD, ECA (or whatever organization is set up to give economic aid) and grants. I feel that [Page 176] loans should be made wherever practicable and grants in remaining cases.
India; in particular, have serious doubts about grants here. They have resources not adversely affected by war. Actually they built up large funds in London and manufacturers made much money during war. When there I tried to persuade them employ American dam building firms on basis of my endeavoring get loans covering dollar expenditures from Eximbank. This, I understood, would be about half total cost of dams.

4. The more I see of grant aid to countries, the more convinced I am that it can be fruitless if we are overgenerous. Our lending policy on other hand, through whatever agency loans are made, can put aid program on firmer and better basis if it is both liberal and intelligent. While I recognize that there are good arguments for grant aid, in general I feel that loan principle is preferable wherever it can be used.

5. Your message delayed in transmission to here.2

  1. Supra.
  2. In telegram 222 from Tehran of July 26, Ambassador Grady reported that Iranian officials and press were conducting “rather persistent pressure campaign on us” for a large American aid program. Should such a program be decided upon, Grady continued, “it is important that I be given some advance notice so that I can reverse my tactics with Iranian officials prior announcement from Washington.” Grady closed by restating his aversion “to a large handout program here” and his preference for Export-Import Bank and International Bank loans as part of any program decided upon (888.00/7–2650). Acheson replied in telegram 187 to Tehran of July 26 that “Even in event early Dept policy decision grant aid shld be extended countries in question, congressional action this session may not be possible and by no means certain in future.” There was thus no need for any change in the line taken with Iranian officials on finance and loan matters (888.00/7–2650).