888.00 TA/9–1153: Telegram

No. 366
The Ambassador in Iran (Henderson) to the Department of State1

secret

639. 1. At Palace reception evening September 9 group Cabinet Ministers told me there had been very stormy Cabinet session earlier in evening. When Prime Minister had been informed by Finance [Page 792]Minister $37,100,000 of $45 million US emergency aid was to be “doled out at rate $5,300,000 monthly” for budgetary purposes and that less than $8 million would remain for “impact programs” he expressed disappointment and frustration. He informed Cabinet he would ask me to see him September 10 to tell me that without more funds for reducing unemployment and raising standards living his government foredoomed to failure and that he therefore thought he should resign now. When later Acting Minister Foreign Affairs asked me see Prime Minister morning September 10 I agreed provided Warne accompany me.

2. Warne and I spent two hours with Prime Minister. Prime Minister’s son Ardeshir and Farzanegan, Acting Minister Posts Telegraph also present.

3. Prime Minister appeared depressed and harassed. He said he grateful for such aid as US had found it possible extend. Unfortunately it inadequate meet minimum emergency needs of country. He outlined at length certain projects which he said must immediately be initiated in order stimulate country and give Iranian people real hope for better future; for improvement living, health, education standards for reduction unemployment, etc. He dwelt particularly on needs for new roads, railroads, agricultural machinery, irrigation projects, improved agricultural methods, extension medical services to villages etc. He mentioned plans for establishing chains cooperatives; for creating banks to finance agriculture mining, trade, etc. He referred to programs for organizing peasants and urban workers into effective political groups. He maintained if 250,000 could be put immediately to work decisive blow would be struck unemployment. Warne made notes and will report in more detail some projects outlined. Prime Minister said it impossible make progress with only $7 million in carrying out these necessary programs. It would be dishonorable for him stay in office if it should become clear he unable carry out promises made to Iranian people who were trusting him. He could not conscientiously be Prime Minister of government which like preceding government last fifty years made promises and did nothing. In view hopelessness situation he saw no choice other than submit resignation to Shah. It became apparent to me from his remarks and those made by Cabinet Ministers preceding evening he had obtained impression US Government had decided instead of giving immediately $45 million aid promised to hand-out bulk of it at rate $5,300,000 monthly in order that it could have whip hand over Iranian Government and influence its current policies. I believe this impression created in part by statements appearing in US press that UK was bringing pressure on US to keep Iran on dole until oil settlement achieved and in part by failure his Ministers to make clear factors [Page 793]responsible for our decision tentatively to turn over about $5 million monthly to Bank Melli to be sold for rials.

4. I told Prime Minister I regretted hear him talk of resigning. I sure he too great patriot abandon his efforts for country merely because task more difficult than foreseen. It would be dishonest for me offer him hope US could give Iran more than $40 million emergency aid.

I sure every cent available to US Government for such purpose had been placed at disposal Iran; additional funds could not be allocated since Congress not in session. Even if Congress were in session it would not be likely make grants to Iran of character which would revolutionize overnight economy of whole country. I doubted that Congress, for instance, would extend Iran grants to purchase thousands of tons steel rails (mentioned as one of needs). Funds for great economic development projects such as railroads should it seemed to me come more properly from loans. Even if Iranian political and economic situation was such as to encourage lenders, no loans possible under Iranian law until Majlis could be convened. Majlis could not meet for at least 6 months. Therefore, no possibility begin placing orders now for large quantities material and equipment for great economic projects. Furthermore careful study should convince him it would require many years carry out some of projects outlined. Necessary train thousands technicians and by education bring about certain changes in mentality Iranian people. Beginning could be made now on many programs outlined but country’s economy, health and culture could not be revolutionized in course few months or even years.

5. Warne told Prime Minister he thought latter unduly discouraged. Start could be made on many programs outlined by him with $7 million now available. It not nearly so easy effectively spend money as Prime Minister seemed to think. Warne mentioned illustratively some uses which might be made with $7 million. He also pointed out that US contributions to budget and to Bank Melli for exchange purposes should in short time result in increases in budgetary income.

6. Farzanegan said there seemed to be divergence in thinking between US representatives and Iranian Government. Iranian Government considered it necessary for psychological and security reasons make multiple mass attack immediately upon economic, cultural and health weaknesses of country. US officials seemed to advocate more cautious carefully planned approach, effect of which might be felt over long term but not quickly enough to cause Iranian people retain confidence in determination present government carry out its promises. Temper of country such that Iran could not wait for years.

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7. We explained in detail and by illustration various problems inherent in multiple mass approach tactics; also shock to Iranian economy which would result if attempt made convert immediately all emergency aid funds available into rials. We took considerable pains make Prime Minister understand that that procedure of handing out to Bank Melli approximately $5 million monthly for exchange purposes was not prompted by distrust of Iran or desire bring pressure but by fact that at present time that amount together with dollars received through usual transactions was probably all Bank Melli could offer for sale to Iranian importers without upsetting stability exchange rates. In addition to amounts placed at disposal Bank Melli for exchange purposes, plans being made rapidly to send Iran certain commodities such as sugar, which could be sold for rials thus increasing amount rials available for programs in country without disturbing stability exchange. We believe that Prime Minister eventually came to conclusion US was doing all it possibly could with limited means at its disposal to help him meet his financial and political economic problems and US not following policy of dole in dealing with Iran.

8. At conclusion our conversation Prime Minister asked that we again bring attention US Government fact that although Iran grateful for $45 million and other aid much more was desperately needed for immediate spending. He mentioned no specific amount. He suggested that if US could find more funds some of them might be used in sending Iran urgently needed commodities which Iran otherwise could not afford to buy, such as drugs, medicines, agricultural tools and machinery, et cetera. I told Prime Minister I would pass his comments along to US Government but that I must again be frank in stating I did not believe it likely US could find funds to increase amount of aid promised.

Henderson
  1. Transmitted in two sections; passed to FOA.