Foreign Relations of the United States, 1952–1954, Iran, 1951–1954, Volume X

888.10/1–2251: Telegram

No. 1
The Secretary of State to the Embassy in Iran²

top secret

Washington, January 22, 1951—8 p.m.

1231. Eyes only Grady from McGhee. Whole question US aid to Iran under urgent review in light deteriorating US position and difficulties with Govt and Majlis, which subj ur recent tels.³ Fol summaries present sit:

(1) Immed fol tel set forth Eximbank suggestion possible solution ratification problem, made by Bank in earnest endeavor help meet present difficulty.⁴ Believe suggestion establishes excellent basis for ur personal discussion with Razmara and, if you deem appropriate, with Shah, to work out means effectively implementing US aid with minimum problem re Majlis. Believe Eximbank will be receptive any specific suggestions you might make upon their proposal which wld improve plan from polit point of view. If this particular proposal not workable, possible that alternatives can be worked out. Eximbank loan only immediate method making aid available, therefore important reach settlement pending est other forms of aid discussed below.

(2) Internatl Bank has restudied its position in light current situation and anxious assist to fullest practicable extent. Pres Black has outlined to Dept current view that Bank shld proceed with economically justifiable projects. While Khorramshahr project only one which Bank will accept without further study,⁵ it indicated willingness send Iliff or equivalent officer to Iran immed with staff, including engineer, required to make prompt decisions on the spot re any projects put forth. While Bank reluctant indicate total loans which it will consider, view earnings Iran fon exchange sufficient, assuming completion AIOC agreement within year,⁶ reasonably to justify earmarking $10 million annually for debt servicing. Bank prepared proceed on assumption AIOC agreement will be concluded. Estimating $5.5 million for surplus property credit and Eximbank loan, $4.5 million annually wld remain for further debt servicing. The loan amount which this sum cld service is therefore theoretical limit present thinking, and this dependent upon no further Eximbank loans which wld absorb any portion of $4.5 million. Bank urges USGov coop in (a) lending good offices to influence IranGov improve budgetary practices and introduce finan and administrative reforms, (b) discouraging IranGov from contracting from sources other than Internatl Bank for further external loans, and (c) exchanging views with Bank on specific projects for $25 million Eximbank use so as to assure coordination projects financed by both institutions.

Understand Bank officials plan discuss appropriate phases foregoing (excluding, of course, understanding with USGov noted above) with Moqbel in near future. Bank has asked that we not indicate to Irans approximation of total loans which it might be prepared to make.

(3) Dept urgently considering recommending increase from $10 to $25 million amount grant aid to be included in forthcoming legislation. Since Budget, Defense and other agencies involved in decision Dept’s approval of increase would not be final. In light normal legislative uncertainties and possible Congressional reaction, Dept cannot authorize any announcement of proposed grant aid at this time.

Realization of the above programs shld in Dept’s view contribute very substantially to econ progress in Iran and to improvement of Amer prestige in Govt, Majlis and public. Recognized, of course, that in all probability only portion total funds can be absorbed within year. For this reason, as well as facts that (a) increase of Eximbank commitment to one hundred million dollars wld probably be interpreted widely as capitulation to Iran pressure and wld lead to even greater demands by Irans, (b) there is no assurance that even higher Eximbank loan figures wld be accepted by the Majlis, since it wld contain same “onerous” terms, and (c) extension of Eximbank loans in this magnitude wld certainly preclude any participation by Internatl Bank on basis that Iran servicing capacity wld be exceeded, Dept unable at this time to recommend such course, and believes in light new aid picture you will agree it undesirable. Furthermore, if US promises one hundred million and only small portion is used, Irans wld probably accuse us of failing to fulfill commitments with polit consequences even more serious than at present.

Dept recognizes that even this liberal approach cannot assure removal govt, Majlis and public criticism, but feels that degree to which it can be made successful is dependent in large measure upon extent of coop that you can obtain from Razmara and Shah. Therefore attaches utmost importance to ur discussions from this point, and I assure you I am gratified that you are in Iran to carry out this important task.

There is growing impression among agencies here IranGov, on assumption it can play one power off against the other as it has so often in the past, has deliberately during past three months obstructed US attempts aid Iran and provoked anti-US feeling in effort to force greater concessions. Unless this impression corrected chances of US rendering really effective assistance to Iran will progressively diminish and I am sure you will agree we must urge Irans it is in their own best interest to do so.

Ur urgent telegraphic comments on the foregoing will be appreciated.⁷

Acheson

2. Drafted by Rountree and cleared by Matthews, the Investment and Economic Development Staff (ED), and the International Bank for Reconstruction and Development (IBRD).
3. In telegrams 1559 and 1577 from Tehran, Jan. 13 and 16, Ambassador Grady reported that the $25 million Export-Import Bank loan would be rejected if submitted to the Iranian Majlis and asked that the Bank increase its credit line to $100 million and that the Department of State announce an increase in grant aid to Iran. (888.10/1–1351 and 1–1651)

4. Telegram 1232, Jan. 22. The suggestion reads:

   “Eximbank prepared consid estab $25 million credit in favor Bank Melli provided (a) Eximbank satisfied Bank Melli has legal author to borrow 25 million US dollars from Eximbank in line with terms provided orig draft agree with Govt; (b) governing authorities of Bank Melli take approp action incur indebtedness; and (c) IranGov in consideration of Eximbank extending credit to Bank Melli agree with Eximbank by letter agree that it will put into operation and administer proj procedures contained in memos of understanding forwarded to you with draft of original loan agree.” (888.10/1–2551)

5. A proposed $3 million project for the development of the port of Khorramshahr.
6. The Anglo-Iranian Oil Company (AIOC) supplemental agreement with Iran was signed on July 27, 1949, and submitted to the Majlis which referred it to a special oil commission. On Dec. 12, 1950, the commission unanimously recommended that the supplemental agreement be rejected by the Majlis. For further documentation relating to the supplemental agreement, see Foreign Relations, 1950, vol. v, pp. 445 ff.
7. In telegram 1664 from Tehran, Jan. 26, Grady again strongly argued for the $100 million Eximbank credit. (881.10/1–2651)