Office of the Historian

388. Memorandum From the Deputy Assistant Secretary of State for Economic Affairs (Kalijarvi) to the Secretary of State1

Washington, February 5, 1957.

SUBJECT

  • NSC Policy Paper on Iran2

We do not disagree with the policy outlined in the attached paper on Iran. However, we do wish to record our views with respect to certain facets of the programs which are being proposed pursuant to the policy.

The military program discussed at the time of the Prochnow study involved a very substantial amount of assistance for the provision of end-item maintenance and construction. At the time that this program was discussed we had some questions about the effects on the Iranian economy. The present paper incorporates (in the detailed annex) a substantial increase in construction expenditures which apparently would require additional aid.

In addition to our military objectives, we wish to encourage the Iranians to establish internal financial stability, to divert more of their oil revenues to basic economic development projects and thereby to increase the living levels of the Iranian people. These steps are necessary in order to maintain long-term political stability in Iran by meeting some of the aspirations of the people for better living conditions. It is also in our interest to build-up the Iranian economy in order that in the future it may be able to support its military efforts without our aid. If contemplated military programs are carried out during the next three years, the impact on the Iranian economy will be such that it will run seriously counter to these policy objectives.

It is, of course, not our function to judge the necessity of the military programs nor the timing which is necessary. However, I would recommend that every effort be made to appraise the need for such substantial increases in the military program and to phase such a program at a reduced annual rate over a considerably longer period of time.

  1. Source: Department of State, S/S–NSC Files: Lot 63 D 351, NSC 5703 Series. Top Secret. Drafted by James A. Lynn and Milner L. Dunn of the Bureau of Economic Affairs.↩
  2. Reference is to NSC 5703; see footnote 2, supra.↩