888.00 TA/1–1952: Telegram

No. 149
The Ambassador in Iran (Henderson) to the Department of State

top secret

2696. Totec. For Bingham from Warne. The Embassy has already described the serious financial situation confronting the Iranian Government and Mosadeq’s reaction to this problem (see Embtel 2609, Jan 141). The Prime Minister is insisting upon an answer to his request for budgetary assistance in shorter time than it is practically possible to work out positive response. There is, however, means of alleviating the Iranian problem and giving us three weeks to month more time to develop plan. I suggest that we immediately utilize the authority now available for advancing dollars to the Iranian Government for local currency required for the TCA program in Iran.

We would immediately advance the full $6 million authorized for rial requirements of the program in Iran and simultaneously agree with the Iranian Government for the sale of the dollars for certain imports “essential” to the Iran economy particularly sugar. The rial proceeds of the dollar sales would be deposited to a US Government account with Bank Melli. We could assure the bank and government that our rial requirements over the next eight weeks would be under (say) $500,000 and that the balance could be drawn on by the government as loan from Bank Melli. We would expect our account would be restored in balance prior to time actual requirements for rials occur.

To put this transaction in action would require only advance acceptance of provisions of bilateral agreement already proposed to Mosadeq. He has indicated willingness sign agreement subject certain [Page 333] changes we consider acceptable and have referred to you Embtel 2654, Jan 16.2

The procedure suggested does not necessarily need to imply commitment for further assistance and it would provide at least partial solution to five important problems:

It provides strong incentive for conclusion of basic agreement necessary to initiate TCA program.
It affords relief for Iran for an apparent critical sugar situation.
It serves a temporary relief for the financial stringencies of the government.
It settles the question of providing rials for the TCA program, and
It answers the problem of more favorable exchange rate for the TCA program.

Against these advantages the risk we run in advancing the full amount to the government at this time is the loss of the deposit in the event of revolution or complete bankruptcy of Iran.

In such eventualities, the losses we would suffer would far exceed the monetary loss of $6 million.

The suggestion is being advanced primarily because it offers means of meeting difficult situation quickly and without the necessity of additional authorizations or special arrangements. It provides necessary assistance swiftly and inconspicuously. The Dept is therefore given additional time to develop alternative arrangements for longer period and to work out an understanding with the British.

I cannot, however, emphasize too strongly that we must decide and act quickly. Time runs out here. If humanly possible need answers, if favorable on agreement and this proposal inside 24 hours, and also if favorable, similar fast action when requested on allotment advice. We anticipate if your advice on both counts favorable can conclude agreements in one day.3

  1. See footnote 2, Document 145.
  2. Telegram 2654 reported on the negotiation of the TCA agreement that entered into force the next day. (888.00 TA/1–1652) Regarding this agreement, see footnote 4, Document 141.
  3. The Department replied on Jan. 19, informing Henderson that since his latest proposal was an integral part of the larger question of economic aid to Iran, no decision could be made on this matter until a position had been developed regarding the entire issue of economic assistance to Iran. (Telegram 1476; 888.00 TA/1–1952)