127. Report by the Chairman of the Iran Task Force (Talbot)0

REPORT BY CHAIRMAN OF IRAN TASK FORCE

Mr. Bundy’s memorandum of August 7, 1961,1 reflected the President’s concern as to whether the United States was doing all that it could or should in pursuit of the policies laid down in the original Task Force report on Iran. Since receipt of this memorandum, the Task Force has met a number of times. Ambassador Holmes has returned for consultation to participate actively in the Task Force’s work. There has been a full and free exchange of opinions and analyses, not only of the present situation but of possible courses of action.

It has emerged from the Task Force’s deliberations that there is no significant divergence of opinion as regards United States objectives vis-à-vis Iran. To prevent Soviet domination of Iran must be our immediate and overriding objective. This requires the continuance in power of a pro-Western regime, for the ultimate alternative is a weak neutralist government which could not withstand Soviet pressures and maintain Iran’s independence. Maintenance of the pro-Western regime has been achieved and is not immediately endangered. Prime Minister Amini has succeeded in overcoming a near-crisis situation and thus continuing Iran’s pro-Western policy. He has, however, been unable fully to pursue his program of vigorous reform measures designed to lead to a more permanent resolution of the political weaknesses of Iran.

He has had to take into account the necessity of retaining the confidence and support of his somewhat reluctant monarch. He has been faced with political pressures from the fanatical Mosadeqist opposition, [Page 294]and the sniping of ambitious and discontented conservative leaders. The implementation of the economic stabilization program has intensified these difficulties by infringing the interests of various special groups. The basic inadequacy of the administrative tools available to him, which can be improved only slowly, have further limited his freedom to action.

The first Task Force report stressed that the United States must actively and vigorously, albeit discreetly, press for political, economic, social and institutional reforms in Iran which will provide the indispensable foundation for true and lasting political-economic development. It is generally agreed that the Third Development Plan scheduled to begin in September 1962 must be the primary vehicle to initiate the fundamental political and economic progress needed in Iran. It is equally agreed that the intervening period will be one of critical importance in laying the necessary foundation for the implementation of this third Five-Year Plan.

I have found a consensus within the Task Force that additional United States resources will be required to enable the Amini Government, or a like-minded successor, to surmount the political and economic difficulties which it will face between now and the initiation of the Third Development Plan.

We have agreed with the Agency for International Development on the general levels of United States financial resources required for this purpose, and action is going forward to make them available through appropriate means and at the necessary times. The Ambassador, with the advice and assistance of the Country Team, has worked out a Military Assistance Plan for FY 1962–67 which he believes to be militarily and economically consonant with basic United States interests and through which we can hope to maintain our influence with the Shah and hence be in a position to attain our objectives. The plan is currently being studied by State and Defense in the context of a review of our over-all MAP policies.

A great deal of the Task Force’s efforts have been devoted to discussing alternative means to ensure that the introduction of these resources best accomplishes United States objectives, not only our immediate aim of maintaining a pro-Western government but our longer-term goal of laying the political and economic groundwork for the successful implementation of the Third Plan. Basically, two schools of thought emerge: One advocates an openly activist role for the United States; this would involve the tying of United States aid to formal and perhaps public commitments on the part of Iran to perform certain actions designed to correct specific deficiencies and weaknesses in the political and economic fabric of Iranian society. The countervailing view holds that the same objectives, given the complexities and fragility of [Page 295]Iranian society, would be better accomplished by the private and discreet exercise of United States influence and pressure.

As Chairman of the Task Force, I have carefully considered all of the arguments presented by the members of the Task Force, and have carefully weighed the potential implications of each against the realities of the Iranian scene as presented by our Ambassador, the other members of the Country Team, and our own Iranian experts. I have consulted closely with the Secretary and my other colleagues in the Department. I have concluded that the risks to the maintenance of a pro-Western regime in Iran posed by insisting upon formal and overt United States conditions for the giving of aid are greater than we could prudently accept. Either approach is fully consistent, in my opinion, with the philosophy of the new aid program. However, the first, by seeking the long-term objective through too direct an approach, runs too great a risk of upsetting the delicate balance which Prime Minister Amini has succeeded in creating and maintaining. Given the framework within which the Iranian Government must operate, counter-pressures would be produced which could easily result in the loss of Iran to the West.

In my opinion, the correct course for the United States to follow under the present circumstance is to move towards its goals by combining vigorous but discreet political and economic advice with the minimum economic assistance essential to enable the Amini Government, or a like-minded successor, to survive and to move forward. The judicious and vigorous application of encouragement, support and pressure through multiple channels can be effectively directed to influencing those areas where progress is realizable at any given moment rather than relying on formal assurances or promises which may prove to be empty. In this context, United States or international assistance will be utilized to stimulate self-help moves on the part of the Iranian regime. Influence exerted in this way can be far more effective than open threats that we will cut off aid to Iran.

As Iran moves towards the implementation of the Third Plan, we will wish to draw in multilateral influences which can be brought to bear through an international consortium of lenders. We hope by then there will have been enough progress to permit the more overt exercise of outside influence, perhaps to the point of establishing some public contract arrangement with the Iranian Government in return for the major international assistance which will then become necessary. In the interim, our influence in the direction of helping Iran move from the present delicate stage to a position of readiness to enter upon the Third Plan can best be brought to bear quietly. Now we must act unilaterally and discreetly.

Ambassador Holmes fully concurs in this course of action, and believes that the additional instruments of pressure and influence which [Page 296]we have worked out with the AID, and which he has requested in the field of Military Assistance, will be the best means to make further progress toward our objectives.

Set forth as Annex “A” are the basic elements of the action program which the Ambassador has pursued in consequence of the Iran Task Force recommendations of May, and which he proposes to intensify during the period between now and the end of the Second Development Plan. In doing so he proposes specifically to address himself to the goals set forth in Annex “B”.

This memorandum is in response to Mr. Bundy’s memorandum of August 7, 1961.

Phillips Talbot

Annex A

ACTION PROGRAM UNDERWAY

Pursuant to the Iran Task Force Recommendations approved by the President on May 16, 1961,2 and under the direction of Ambassador Holmes, the following progress has been made as a result of the continual encouragement, support, and pressure exerted by the United States Government through all its various instruments:

1. Reversal of Trend Toward Disunification

The new government has survived all the early challenges to its power. It has halted a twenty-year trend to disunification and is actively laying the groundwork for meaningful political, social, and economic advance. The guidance, support and pressure of the United States have been an indispensable element in these developments. What remains is to reverse long-term divisive trends and lay the foundations for a new political synthesis.

2. Movement of Shah Toward Constitutional Role

Although the Shah continues to exercise direct control over defense, he has come to share with the Prime Minister control over foreign [Page 297]affairs, the internal security functions of the Ministry of Interior and the secret police, and in all other fields of policy-making and administration has gone along with the Prime Minister. The Prime Minister exercises more freedom of action than has any of his predecessors since Mosadeq, although he has frequently admitted to the Ambassador that the Shah sometimes acquiesces only with reluctance. Largely as a result of United States representations the Shah has withdrawn publicly and privately from the politically exposed position which he has occupied for many years.

3. Expansion of Base of Political Support

When Amini took office, he was threatened with isolation and early collapse through the loss of the Shah’s support, as well as the opposition of the military and urban mob. Amini is not a charismatic leader, but he has not only gained the support of the Shah, but has averted the danger of a military coup and has earned the cautious cooperation of the conservative and landowning elites. Although the Prime Minister is under continuous attack from some ambitious conservative leaders and some prominent business men who have been hurt by austerity programs, there is little unity in this opposition.

4. Fragmentation of National Front

In spite of the antipathy of the Imperial Court and the Army toward groups sympathetic to the ideas of former Prime Minister Mosadeq, with our encouragement the Prime Minister has made repeated personal efforts to enlist the support, or at least the toleration, of this embittered opposition grouping. However, the Mosadeqist leadership is still unwilling to settle for anything less than a controlling voice in the government, implying almost certainly a neutralist foreign policy, the exile of the Shah, and the denunciation of the 1954 Consortium Oil Agreement. In the light of this attitude, Amini has firmly but gently prevented this group from extending its organization or from organizing public demonstrations. It is still hostile and dangerous, particularly among students, but its top leaders have admitted that it is increasingly subject to internal quarrels, that its loose organization is falling apart, and that it has been unable to come up with concrete political or economic programs.

5. Reduction of Iranian Military Establishment

The size and expenditure levels of the Iranian military establishment have been held constant for the first time in a decade, and the trend toward increasing size and expense has been halted. For the first time in more than a decade, more senior officers are being retired than are being promoted, and a scheduled plan to weed out the incompetent top officers of the military establishment is well under way.

[Page 298]

6. Maintenance of Pro-West Posture

In the face of a massive subversive Soviet propaganda campaign and recent Soviet threats, the Shah and the Prime Minister have continued to stand firm and to defy the USSR, despite the absence of strong support for Iran’s present pro-Western alignment from any important Iranian power element other than the Army. Iran has behaved sensibly and helpfully in the delicate Kurdish, Kuwaiti, and Afghan-Pakistan crises.

7. Popularization of Government

The Prime Minister, unlike his predecessors, and despite the strain on his physique, is daily mingling with and speaking to groups of laborers, bazaar merchants, farmers, and students, attempting to convince them of his interest in their welfare and of the wisdom of the government’s policies. This technique has probably been the reason for his success in holding off demands for wage increases, credit, and governmental expenditures which would otherwise have wrecked the difficult program of economic stabilization and austerity. Public trials of corrupt high officials have begun, strictly within the law, and the incidence of corruption in high levels of the administration has dropped very sharply. Through the press and radio, the Third Plan frame has been presented to the public for discussion and comment. A sensible though modest land distribution program of private estates has begun, and a major drive against illiteracy has been launched. With the assistance of PL 480 resources, winter relief programs for the unemployed are being worked out.

8. Adjustments in the Stabilization Program

Embassy and USOM have recognized the need for adjustments in the stabilization program given the current situation affecting the economy. Joint discussions with GOI officials have identified the elements of a revised stabilization program including: (a) revision of the credit ceiling, (b) a tightening of administrative controls in the banking system, and (c) establishment of priorities in the extension of further credit. There is informal agreement with IMF representation on both the need for and elements of a revision of the stabilization program. A letter from the IMF has been sent to the GOI (October 4) offering to consult formally on a revision of the program and preparatory discussions by United States representatives in Iran indicate that the GOI will invite further IMF review and consultation.

9. Establishment of Consolidated Budget and Budget Review Process

Following intensive consultations with United States officials, the Prime Minister has ordered the establishment of a consolidated budget [Page 299]and an improved budget review process. Plans to this effect have been completed by the Harvard Group and are now before the Cabinet. Separate interdepartmental working groups in the Iranian Government are preparing (a) a consolidated budget call and format for the Iranian fiscal year 1341 (March 1961–March 1963) which includes both the development and operating budgets of GOI agencies, (b) institutional changes for improved budget and fiscal controls, (c) forward projections of revenue prospects, and (d) new tax measures which could be immediately implemented. United States representatives in Tehran have made it absolutely clear that Iran must achieve a balanced operating budget for 1341 in order to accommodate to the early planned phase-out of emergency United States budgetary support.

10. Financial Planning

United States and Iranian officials have reviewed in detail the financial requirements and resources of the GOI to meet obligations for current on-going activities. The result of this review has pared GOI claims for external assistance for both the operating and development budgets from $130 million to a hard core requirement of $40 million ($15 million for the 1340 budget and $25 million for completion of Second Plan financing). Provision of this assistance is required if current progress affecting social and economic reforms is to be sustained.

In this field the United States has also pressed the GOI to review its external debt to determine whether consolidation and re-negotiation of short-term creditor claims is possible. We expect to move forward on this issue in concert with the IMF and the IBRD.

11. Implementation of Measures Essential to Completing the Second Plan and Launching the Third Plan

General areas requiring special preparatory action by the GOI in order to effectively mount the Third Development Plan have been jointly reviewed by Iran and United States representatives in Tehran. These areas were also reviewed with the IBRD in Washington during July 1961 by an Iran delegation with United States observer participation. In line with this exercise more specific prerequisite measures are now in preparation including: (a) identification of special statutory changes and authorizations which will be required, (b) analysis of the components of the Second Plan which will carry over into the Third Plan period, (c) new project development, including initiation of special surveys, (d) new institutional devices required to initiate Third Plan programs, and (e) review of the implementation potential of line ministries for executing new programs including prerequisite criteria affecting central program and fiscal control which have to be met prior to phased transfers of such responsibilities to line ministries. The Harvard Advisory Group is playing a major role in the implementation of these measures. [Page 300]A further review of progress of required Third Plan measures is already scheduled with an IBRD team prior to the end of this calendar year.

12. Contingency Planning for Economic Distress

Loss of confidence as a result of recent political disturbances had adversely affected levels of private economic activity with resulting slack in investment and employment. Part of this adjustment is healthy in eliminating wasteful speculative activities. However, restoration of private confidence is an essential element of forward economic and political progress. Interim measures addressed to this problem and now underway include: (a) initiation of labor intensive projects in the rural sector utilizing Food for Peace under a Title II, Section 202 program, (b) continuing joint review and appraisal of unemployment levels, and (c) interagency development of emergency labor intensive projects to be implemented in case of need for further special actions. The proposed revision of stabilization objectives also addresses this problem.

13. Long-Range Problems

Although the accomplishments of the past five months represent effective progress, the long-range problems of Iran remain deeply rooted and their resolution may require generations to achieve fully.

Annex B

GOALS OF UNITED STATES ACTION

Having helped the Amini Government to avert early dangers, the United States will now press toward the following long-range goals, the achievement of which will strengthen Iran against communist pressures.

1.
The maintenance of an Iranian regime friendly to the West.
(a)
Maintenance of the Shah’s faith in his own mission and in the value of his pro-Western and anti-communist orientation.
(b)
Withdrawal of the Shah from an exposed position of public responsibility for actions of the administration.
(c)
Progressive delegation by the Shah to capable Prime Ministers of authority formerly wielded directly by him.
(d)
Withdrawal of the Shah’s family, private estates, and entourage from entanglements with private business activities.
(e)
Dilution of the Shah’s extreme distrust of independent political leaders and of his vulnerability to sycophancy.
(f)
Direction of the Shah’s attention away from technical military matters and toward important internal social and economic problems.
2.
Bolstering the Iranian will and ability to resist Soviet pressures.
(a)
Maintenance of a firm and non-provocative attitude toward the USSR.
(b)
Reduction of neutralist sentiment.
(c)
Continuation of internal security and increased respect for minority rights.
(d)
Continuation of Iranian membership in CENTO.
(e)
Settlement of outstanding disputes with neighboring non-communist states.
3.
Broadening the political base of the Iranian government, halting disunifying trends, and developing channels of political articulation outside the existing elites and would-be elites.
(a)
Inclusion of moderates of all types in the policy levels of the administration.
(b)
Recognition of labor as an independent and respectable political force.
(c)
Practical and non-destructive progress toward the distribution of landed estates to the peasantry, peasant education, and regulation of the landlord-tenant relationship.
(d)
Governmental appeals for support directly to non-elite groups.
(e)
Massive adult education campaigns.
(f)
Strict prosecution of high officials guilty of corruption.
(g)
Improvement of the standards of the civil service and the judiciary.
4.
Developing the Iranian economy.
(a)
Completion of the essential elements of the Second Plan.
(b)
Implementation of a sensible Third Plan, financed by an international consortium, and directly supported by United States technical assistance.
(c)
Enforcement of the Economic Stabilization Program, appropriately modified.
(d)
Improved control and direction of government finances and private banking and credit.
(e)
Revision of the tax and tax collection apparatus toward increased revenues and the promotion of social justice.
(f)
Continued reliance on private enterprise as a major part of the development effort.
(g)
Improvement of relations with Western oil interests and the maximization of oil revenues.
5.
Improving the capability and popular acceptability of the Iranian military establishment.
(a)
Reduction of the size and the local currency costs of the Iranian military establishment.
(b)
Improvement of its morale and efficiency through MAP.
(c)
Elimination of surplus and inefficient senior officers.
(d)
Continued and expanded civil action and public relations programs.
(e)
Expansion of vocational training within the armed forces.
6.
The transformation of the urban middle class into a constructive force.
(a)
Awareness on the part of its leaders that they and the Shah share the same basic goals.
(b)
Willingness to share in responsibility for governmental policies which they cannot completely control.
(c)
Appreciation of the practical difficulties of government.
(d)
Greater awareness of the communist threat.
(e)
Dilution of the tendency toward xenophobia.
  1. Source: Department of State, Central Files, 611.88/10–1461. Secret. Drafted by Bowling and Marcy on October 14. Attached to a transmittal memorandum to President Kennedy that bears Secretary Rusk’s signature. Neither of these documents was forwarded to the White House. An earlier draft of the report, dated October 9, and comments on the draft by Talbot are in Department of State,NEA/GTI Files: Lot 66 D 173, Task Force on Iran. Rusk’s October 16 transmittal memorandum to President Kennedy indicates that Rusk had discussed the substance of the report with Talbot and had approved the courses of action proposed. Rusk also recommended that the Task Force had served its purpose and “might now be adjourned sine die, subject to being reconvened in the event that some future development made such a source desirable.” A memorandum from Meyer to Rusk, October 21, indicates that after Secretary Rusk had signed the transmittal memorandum, it was decided to delay sending the report, because of news that Ambassador Holmes was sending an important report in the pouch (see Document 129). (Department of State,NSAM Files: Lot 72 D 316, NSAM 67)
  2. Document 94.
  3. For the Recommendations section of the Task Force report, see Document 51. The draft of the complete Task Force report, dated May 15, is in the Supplement, the compilation on Iran.