Foreign Relations of the United States, 1955–1957, Near East Region; Iran; Iraq, Volume XII

368. Telegram From the Department of State to the Embassy in Iran¹

Washington, November 2, 1956—8:40 p.m.

864. Re Embtels 609, 664, 685, Deptel 814.² Present status loan negotiations substantially as follows: (a) IBRD submitted to Ebtehaj loan agreement containing clause calling for effective pledge of Plan Organization share oil revenue. IBRD expressed no objection to Ebtehaj’s according EXIM Bank similar treatment, (b) Ambassador Amini week or more ago informed EXIM Bank he prepared recommend to his Government that Iranian Government portion oil revenue be pledged to EXIM Bank, (c) EXIM Bank gave serious consideration to all aspects this problem but unable arrive at any answer other than Iran Government either not giving positive pledge to anyone or giving EXIM same pledge given IBRD. Amini so informed by EXIM Bank on 31 October. He now informing his Government.

Ambassador Amini in his various approaches here has been conciliatory and helpful. Upon Ebtehaj’s return Tehran he may criticize US Government and EXIM Bank for his difficulties. You authorized therefore in your discretion and as circumstances require to set record straight on basis following background material.

1. When high level US decision made two years ago to extend Iran $53 million EXIM credit, decision was also made not to tie such credit to pledge of oil revenues. At that time Black IBRD was consulted and he was then strongly opposed to such pledge, stating IBRD would ask for oil pledge if such previously given others. On current proposal IBRD loan Black states Ebtehaj offered pledge of oil revenues and Black believes he should now have pledge because of nature of loan and also because he hopes obtain commercial bank participation. Black asserts his earlier remarks were in context of long term project development type loan and that current loan request is for short term non-project type in anticipation revenue collection. FYI Avoid any criticism of IBRD in your discussion of its role in this entire problem. End FYI.

2. Ebtehaj has argued with EXIM Bank that it made loan in face of prior existing allocation of oil revenues by Majlis to Plan Organization. EXIM Bank convinced that legal situation is not as Ebtehaj puts it and that spirit of $53 million loan agreement is to contrary. This according EXIM Bank is evidenced in part by GOI’s seeking waiver EXIM Bank’s rights under negative pledge clause in order make positive pledge to IBRD.

3. EXIM Bank preference throughout has been that of no positive pledge being given anyone and of IBRD accepting same type of negative pledge now held by EXIM.

4. EXIM Bank does not seek pledge but in view existing negative pledge clause and in order protect its position it wants share pledge insisted upon by IBRD. Both broad policy and political considerations preclude US Government subordinating to IBRD US Government claims against Iran.

5. In addition to outstanding EXIM loan of approximately $19 million (against $53 million credit), there are also $42 million ICA loans outstanding that contain same negative pledge as EXIM Bank. EXIM acting as agent for ICA loans and has informed Amini in writing that it seeking same protection for ICA loans as for EXIM Bank loans.

6. Amini earlier proposal mentioned (b) of first unnumbered para hereof would provide pledge of 10 percent of oil revenues (representing government share) to cover $61 million loans (and possible $95 million if full EXIM Bank credit utilized) whereas 60 percent oil revenues (representing Plan Organization share) to be pledged to cover IBRD $75 million loan. EXIM regards that as inequitable although it believes ten percent share would probably be sufficient to cover loan service.

7. FYI. History negotiations show EXIM made this loan after strong Departmental urging on politico-economic grounds following conclusion Consortium agreement and unavailability of any other similar credit facilities (including IBRD) at that time. Because of this, the considerations set forth above and Ebtehaj’s historic hostility towards EXIM Bank, Department has not sought influence EXIM Bank in its decision. End FYI.

EXIM Bank has expressed gratification over your response Foruhar and its continued desire assist Iranian development program.

Dulles

1. Source: Department of State, Central Files, 888.2553/11–256. Secret; Niact. Drafted by Jones and cleared by OFD, Treasury, Export–Import Bank, E, and ICA.
2. In telegram 609 from Tehran, October 18, Iranian Finance Minister Foruhar, acting on instructions from the Shah, asked for Ambassador Chapin’s personal intervention in the matter of the $75 million IBRD loan and the waiver of the Export-Import Bank’s negative pledge. (Ibid., 888.2553/10–1856) In telegram 664 from Tehran, October 29, the Embassy asked for guidance on the IBRD credit in light of Ebtehaj’s return to Iran. (Ibid., 888.2553/10–2956) In telegram 685 from Tehran, November 1, the Embassy noted press reports attributed to Ebtehaj that the IBRD was prepared to grant the $75 million loan and requested guidance. (Ibid., 888.2553/11–156) In telegram 814 to Tehran, October 26, the Department informed the Embassy of Ebtehaj’s departure from New York for Iran and promised a cable containing guidance on the status of Ebtehaj’s negotiations. The promised cable is the telegram printed here. (Ibid., 888.2553/10–2656)