Foreign Relations of the United States, 1961–1963, Volume XVII, Near East, 1961–1962

208. Memorandum From the Administrator of the Agency for International Development (Hamilton) to the National Security Council⁰

Washington, undated.

SUBJECT

• NSC Action 2447—Proposed Approach to the Shah of Iran¹

NSC Action 2447 requested a report on “A Proposed Approach to the Shah to achieve a reduction in force levels of 150,000 men, taking account of relevant political and economic factors.”

After a thorough review of the military, economic, and political aspects of the Iranian situation, I have concluded that a shift in emphasis from the Shah’s present preoccupation with military security to a situation where requirements for economic and social development are reasonably in balance with requirements for military security is likely to be successful only if it includes the following three elements: (a) discussion with the Shah of an FY 1962–67 MAP planning level which we believe should not exceed an estimated $330 million (stated to the Shah in terms of equipment programmed² rather than in a dollar figure), contingent on agreement and implementation of a phased reduction of his forces to 150,000; (b) a restatement by the Ambassador of U.S. interest in the security of Iran and the general assurances which U.S. deterrent power affords the area; (c) assurances and evidence that the U.S. will be prepared to contribute substantially to the Iranian Third Plan and will exert its influence on international organizations and other friendly countries to do likewise, provided that the Plan is sound, that it can be protected from unplanned impingement by Iranian military expenditures so that the contributions of donors to economic development will not be vitiated, and that significant measures of “self-help” are in fact carried out by the Government of Iran.

The arguments in behalf of these conclusions can be summarized as follows: The almost psychotic obsession of the Shah with the problem of his military security is the overriding consideration in negotiating with him at the present time. This concern is not without some basis in fact; and his sense of isolation, I am persuaded, significantly affects his attitude toward the security problem. CENTO provides no specific assurances of U.S. military support in case of aggression; Turkey and Pakistan have both refused to obligate themselves to defend Iran in case of aggression; the Shah’s bilateral agreement with the U.S. does not persuade him that the U.S. can respond to aggression against Iran except at the cost of total war; the Shah is concerned about the delivery of highly sophisticated military equipment by the USSR to Iraq and Afghanistan, and is also concerned with the satellization of these countries.

In seeking to persuade the Shah to reduce his force levels to 150,000 men, I believe it is essential that the interrelationship of military, economic, and political factors be discussed. I think it should be made clear that neither the United States nor Iranian resources are sufficient to provide Iran with absolute security against all internal and external threats. What we seek, therefore, is a balanced program which allocates human and financial resources among various military, civil government, and economic development needs most effectively and consistently within the limited amounts available.

I have concluded that the MAP planning level of Iran for FY 1962–67 should be no more than the estimated $330 million referred to above. This figure somewhat exceeds the Steering Group recommendation of a program of not more than $300 million but, in my judgment, a useful concession to counter the Shah’s preoccupations and to reduce the risk of an adverse response to an approach to him suggesting a reduction in force levels and restraint on local defense expenditures. The $330 million figure represents about $170 million of modernization. The total also includes $41 million worth of items described by the Defense Department as being “desirable” but not necessary from a strictly military point of view and of lower priority than military requirements elsewhere. On the other hand, I have eliminated $92 million of modernization from Ambassador Holmes’ total recommended program of $421 million. These figures should be viewed in the light of the Shah’s desire for substantially more equipment than recommended by the Ambassador.

I have concluded that it is not feasible at the present time to make a specific commitment to the Iranian Third Economic Development Plan, prior to further review by the U.S. Government and by an international group in early summer. We should, however, be prepared to promise general support in general terms now, to participate in international consideration of the Plan next summer, and to encourage other countries to do likewise. Subsequent steps would depend, however, upon the soundness of the Plan, the evidence of consistency of current civil and military allocations with development needs, and the effectiveness with which various “self-help” measures are carried out.

The content and final magnitude of the Third Plan are still being discussed. In the absence of an Iranian assessment of the foreign exchange needs of the whole economy for the Plan period, our own crude estimate is $1.2 billion. This opens the prospect that during the course of the Plan Iran may be seeking from one-third to one-half of this amount in the form of economic aid from the U.S. The lower of these figures ($400 million) is about 25 percent above the projection for five and a half years of the FY 1962 volume of U.S. economic assistance from all sources.

Although we expect to obligate $40 to $60 million in FY 1963 for foreign exchange costs of projects in the Third Plan, it is not thought advisable to indicate any level of U.S. long-term economic commitment at this time, prior to international financing discussions this summer. It is nonetheless desirable to give the Shah some evidence of support for the Third Plan when discussing the military assistance program. I am specifically recommending that we now indicate to the Shah our willingness to give favorable consideration to an Iranian application for a loan for the foreign exchange costs of about $20 million for both the Port of Bandar Abbas and the complementary hinterland road projects to the north. The engineering and preparatory work for these projects, which are contained within the Third Plan, have been completed. These projects have been selected because they are part of the Third Plan economic development program of Iran and would contribute to the regional development as well by making possible an alternative trade route for Afghanistan. Such a move would also help to maintain a momentum of economic development at the start of the new Plan period in September and may have an appeal to the Shah.

The Ambassador should, therefore, be instructed to undertake discussions with the Shah within the current month along the following lines:

1. Iran’s security involves military, economic, and political aspects. The USG wishes to be of assistance in all respects and welcomes the opportunity to review with the Shah the interrelationships of military and economic programs.

2. After a careful review of the military role of the Iranian armed forces, which we consider to be essentially defensive and for maintenance of internal security, the U.S. suggests that Iran’s need can best be met by a modern, mobile, but significantly smaller force. We have planned a military equipment program to modernize Iranian forces on the basis of a graduated reduction over two to three years in force levels from 200,000 to about 150,000 men the proposed equipment program is contingent on implementation of a phased schedule for the force reduction and ability to absorb and maintain present matériel and new equipment. The discussions should make clear the equipment list is not subject to upward revision and deliveries are contingent on our annual appropriations. However, the Shah can be informed of U.S. thinking in relationship to Iranian needs for the period 1962–67, with implementation dependent upon appropriations by the Congress and as may be modified by the world military and political situation.

a. The USG is aware of the importance the Shah attaches to certain highly sophisticated equipment, but believes that U.S. assistance should be geared to military realities rather than to the political glamour value of weaponry, in contrast to Soviet deliveries to certain neighboring countries which are primarily for political purposes.

b. In recognition of the Shah’s genuine concern for the security of Iran, which we share, but which we believe cannot be achieved by Iran in isolation, the Ambassador should indicate the U.S. interest in the security of Iran and give general assurances which U.S. deterrent power affords the area.

3. The U.S. believes that currently the threat to Iranian security comes as much if not more from internal rather than external sources, and that economic and social progress is crucial to the maintenance of stability. Adequate progress can only be achieved if the Shah gives the development program the same personal attention and interest that he now does to military matters.

a. The U.S. hopes the Third Plan will be sound enough to permit the U.S. to contribute effectively and to induce other international agencies and other free nations to do likewise. Prior to making commitments to the Third Plan and in encouraging other countries to join us in this effort, the U.S. will need to be assured that the total Plan for the Iranian economy has made firm provision for defense purposes without supporting assistance grants, which is also consistent with making adequate provision for the other needs of the economy, so that contributions to economic development will not be vitiated by a subsequent unplanned impingement of military requirements.

b. The U.S. believes that a sound financial plan cannot be developed without firm Iranian “self-help” actions in such matters as fiscal policy, budget, and tax administration to make the Third Plan effective. The level of external assistance will, in large part, depend upon success in these “self-help” actions.

c. The U.S. as a token of expression of support of the Third Plan is willing to finance, by loan, the $20 million foreign exchange costs of the Bandar Abbas port and related hinterland roads as indicated in the Plan.

Frank M. Coffin³

0. Source: Department of State,S/S-NSC Files: Lot 70 D 265, NSC-Position Paper Iran—1961–1964. Secret. Transmitted to the White House under cover of a March 8 memorandum from Battle to Bundy (Document 209), which indicates in its list of attachments that Hamilton’s memorandum was dated March 8. Another copy, however, is stamped March 9. (Kennedy Library, National Security Files, Country Series, Iran Subjects: Shah Visit, 3/25/62–3/28/62) The memorandum was discussed at a meeting of the NSC Standing Group on March 23; see Document 219.
1. NSC Action No. 2447 was taken at the 496th meeting of the NSC on January 18; see Document 169.
2. See equipment list attached. [Footnote in the source text. The attachment is not printed.]
3. Coffin signed above Hamilton’s typed signature.