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

888.10/12–1052

No. 247
Memorandum of Conversation, by the Assistant Secretary of State for Economic Affairs (Linder)

secret

Washington, December 10, 1952.

Subject:

• Eximbank Loan to Iran

Participants:

• Mr. Gaston, Chairman of the Board, Eximbank
• Mr. Walter Sauer
• Mr. Stambaugh
• Ambassador Henderson
• Mr. Linder (E)

Pursuant to a decision reached in the Secretary’s office this morning,¹ Ambassador Henderson and I called on Mr. Gaston, Chairman of the Board of the Export-Import Bank. The Ambassador led off by explaining that the establishment of credit by the Bank would be of great value in improving our relations with Iran. He then indicated that he was not expressing the Department’s position, which he thought I should undertake to do.

I stated that the Department had given the matter careful consideration and had concluded that we thought it would be extremely helpful if the Board of the Bank would establish a credit of approximately $25 million. The Iranians must of course be made to understand that the establishment of credit did not mean the immediate flow of funds in their direction, and recognize that specific projects would have to be worked out on a basis acceptable to the Bank as well as to their Government.

Mr. Gaston said that at the time the loan was under consideration 18 months to two years ago the Bank was of the opinion that repayment could only be expected if oil was flowing from Iran. He asked what the prospects for a settlement of the dispute were, and wanted particularly to know whether the granting of the loan would help in accomplishing our purpose or retard a resolution of the controversy. I replied that we had been hard at work over a long period of time in an endeavor to work out a deal between the Iranians and the British. Thus far we had not been successful, and while we are not without hope, I could not promise that a settlement could be anticipated within any specific period of time. Responding to his question, I told him that we, of course, had considered whether the opening of a line of credit would help or hurt the prospects of a settlement. We were convinced that it wouldn’t hurt, and if our judgment of Eastern psychology was correct, we believe that our relations with Iran would improve if the credit were opened, although we could not go so far as to say that the chance of a settlement would be specifically increased.

Mr. Sauer, who had worked on the loan in the past, said that the negotiations had originally bogged down because the Iranian representatives were never authorized to sign the loan agreement which included specific provisions for some surveillance over and approval of projects. Ambassador Henderson and I recalled that approximately a year ago the Majlis had approved the loan agreement and the reason it had not been consummated was reluctance on the part of the State Department to give its consent.

When the conversation turned again to the security for the loan, I explained that if we could get the oil flowing there would appear to be no question about the desirability of the credit from a purely banking point of view. With this, Mr. Gaston heartily agreed. If, however, no resolution of the oil issue was reached and our fears as to the stability of the Iranian Government were borne out, then it would be some months before the Bank’s funds were actually advanced. The Bank could then presumably find some basis for limiting or terminating further advances.

We explained the importance of avoiding any leak of the substance of our discussion and it was agreed that the matter would not be brought up at the next meeting of the Bank’s Board, but consideration would be given to raising the matter at the Board meeting on the 18th.²

It was clearly understood that if the Bank approved the credit, Ambassador Henderson would be careful to explain to Dr. Mosadeq that no funds would be forthcoming for several months and that a prior condition to the advance of funds would be agreement between the Iranian Government and the Bank as to the specific projects. This might require surveys in Iran to be made by one or two representatives of the Bank, who might be assisted by TCA technicians.

Harold F. Linder

1. In a memorandum of Dec. 8 to Acheson, Byroade recommended that the Export-Import Bank be informed that the Department had no political objections to the grant of such a loan and that it approved early consideration of the loan on its economic merits. (888.10/12–852)

   On Dec. 10, Secretary Acheson met with Ambassador Henderson along with Linder, Byroade, Bonbright, Richards, and Foy D. Kohler of the Policy Planning Staff. Byroade explained that the Export-Import Bank had previously held up implementing the loan to Iran for political reasons, but he now thought that the Bank should be informed that the Department no longer objected to the loan. Linder and Bonbright disagreed with Byroade’s recommendation, but Ambassador Henderson supported Byroade. Secretary Acheson instructed Linder and Henderson to discuss the matter further with Herbert Gaston, the Chairman of the Board of the Export-Import Bank. (888.10/12–1052)

2. According to a memorandum of conversation drafted by Linder on Dec. 12, Gaston had, that day, indicated to Linder that he favored proceeding with an Export-Import Bank loan to Iran. It was decided, however, to delay bringing the matter before the Bank’s Board for formal action until Henderson returned to Tehran and Secretary of State Acheson returned from Paris, where he was attending the North Atlantic Council meetings. (888.10/12–1252)