371. Memorandum From the Director of the International Cooperation Administration (Hollister) to the Acting Secretary of State 1

SUBJECT

  • FY 1957 Aid for Iran

We have great difficulty in finding any economic basis for an FY 1957 economic assistance program to Iran of the magnitude contemplated at the time of our Congressional submission last Spring. At that time we expected at least $20 million of the proposed $45 million would be needed to develop local currency to support military construction projects. It is now clear that, while the local currency requirements for military construction are not yet wholly determined, they will be much lower than our earlier estimates. The maximum rial needs for FY ’57 and FY ’58 together are now estimated at $19 million, and we obligated from FY ’56 funds $16.5 million for this purpose. Thus, not more than another $2.5 million are needed to be obligated for military construction support and even this could as well be obligated in FY ’58 as in FY ’57.

We doubt the desirability of undertaking any large-scale development program in Iran in view of the resources available to the Plan Organization from oil royalties.

I suppose that the Iranians would always be willing to take as much budget support as we cared to give them, but there appears to be no critical need for such assistance. Furthermore, we advised the Iranians in very firm terms last year that we were not going to continue to provide budget support in the light of the ability which we felt Iran had to balance its own budget. I think it would be most undesirable now to reverse our position. As you know, budget support is, to say the least, unenthusiastically looked upon by the Congress, and particularly so in Iran, in view of its own substantial and rapidly increasing revenues, particularly from oil.

Thus, this leaves us with only a few million dollars worth of requirements for local currency to support our joint technical cooperation programs, and not much else. We could rationalize small additional programs to be sure that we had military support costs covered, but another $5 million would seem to be adequate for that purpose.

Unless there are overriding political reasons, we believe that the FY ’57 program for Iran, as a maximum, should be the $25 million we have heretofore carried as a firm program for that country. If the [Page 857] current crises, particularly in the Middle East, do not demand emergency programs which have not yet come to our attention, the balance of the funds originally requested for Iran might be considered as available for regional projects in the area. Some of the expenditures for such projects would be in Iran and some of the benefits would accrue to Iran, but the balance would be for activities in neighboring countries, such as Turkey and Iraq.

We would appreciate the views of the Department of State on this matter and particularly the political aspects thereof.

John B. Hollister
  1. Source: Department of State, Central Files, 788.5–MSP/11–2356. Confidential.