4. Memorandum From Robert W. Komer of the National Security Council Staff to President Kennedy0

We’re still trying to find out whether Amini has in fact resigned or the Iranian Finance Minister was simply trying to scare us into a loan. However, there’s no question that we face a major financial crisis in Iran. Amini has been unable to produce a balanced budget because of price rises, [Page 10]pay increases for teachers, land reform costs, and inability to control the military budget (which the Shah reserves to himself). Of course some of these outlays are for the very reforms we’ve been hoping Amini would make.

Amini’s been trying to pare the budget but some fear he’s lost control of his government. Ed Mason thought he was a spent force, but Holmes believes he’s still in control and still has the Shah’s backing. At any rate, you can’t beat Holmes’ argument that there’s no decent alternative to Amini on the horizon.1

All of us here believe Iran should be forced to dig itself out of this one instead of our bailing it out again. If Amini can cut his budget enough, he should be able to cover the remainder by deficit financing plus diversion of oil revenues from the development budget.

The cost will be delay or stretch-out in Iran’s new Development Plan. But it isn’t ready anyway (the Bank is unwilling to call consortium planned for September) and fiscal stability is essential underpinning for it.

Amini has been pressing the Shah to cut the military as well as civil budget, but we don’t know how much it’s been cut already. We’ve flatly refused to repeat the $15 million budget support we gave last year, so if Iranians even keep military down to last year’s level it will be an actual real cut.

We’ve got to back Amini’s hand. Therefore, once we find out the score in Tehran, we may want to press the Shah not to let Amini go, but instead to cut the military budget. We could argue that the big MAP package we offered him when here was predicated on a force cut designed largely to reduce the local budget burden. We’re still haggling about this.

R. W. Komer
  1. Source: Kennedy Library, National Security Files, Meetings and Memoranda Series, Staff Memoranda, Robert Komer. Secret.
  2. In telegram 15 from Tehran, July 4, Ambassador Holmes reported on financial disarray in Iran and Prime Minister Ali Amini’s difficulties in retaining control of the budget process and even his own Cabinet. Holmes believed, however, that the United States should continue to support Amini’s position. (Department of State, Central Files, 888.10/7–462) In telegram 33 to Tehran, July 13, the Department of State concurred in Holmes’ position. (Ibid., 888.10/7–1162) For texts, see the Supplement, the compilation on Iran.