Office of the Historian

142. Telegram From the Department of State to the Embassy in Iran1

Washington, May 23, 1966, 4:53 p.m.

1158. For Ambassador. Subject: Annual Review. Refs: Deptel 1155;2 Embtel 1572.3

1.
President has approved following instructions (which take place of refdeptel) for your audience with Shah in connection with second [Page 253] annual review. You should inform Shah US willing, subject to availability of funds and continued Congressional authorization:
a.
Provide credit financing for remaining $60 million under 1964 Memorandum of Understanding at 4 percent.
b.
Provide additional credit sales up to $200 million in annual increments of $50 million through FY’70 at interest averaging between 5 and 6 percent, repayment within ten years from date of agreement.
c.
Provide credit financing in FY’67 of $50 million (in addition to $60 million remaining under 1964 Memorandum of Understanding).
d.
Make every effort complete deliveries of items opted for by Shah by end FY’71, but because this involves new procurement we cannot now predict with certitude that this will be possible. FYI. Almost certain some items will spill into FY’72; extent of spill-over will depend on priority GOI assigns to weapons systems and which ones it wants to negotiate first. End FYI.
2.
You should also inform Shah orally as follows: It is our view total amount of US credit contemplated for FY’65–’70 period ($400 million) together with $70 million in cash purchases could prove overly heavy burden for Iran’s economy. For this reason we continue attach great importance to our joint annual military/economic review which will allow us to form economic conclusions bearing on release of annual tranches. These reviews will necessarily consider, among other things, substantial additional military purchases. FYI. We assume annual review already agreed to would allow for consultations on magnitude and terms of major purchases outside this arrangement and therefore specific amendment of 1964 Memorandum of Understanding to provide for consultations on this not necessary. President considers new $200 million as planning figure, a commitment in principle on condition that our joint economic review confirms feasibility in light Iran’s economic position. You should impress concern re economic burden on Shah, in context above, while reassuring him of President’s full respect for his judgment. End FYI.
Rusk
  1. Source: Department of State, Central Files, DEF 19–8 US–IRAN. Secret; Immediate; Limdis. Drafted by Crawford; cleared by ISA Regional Director for Near East and South Asia Lieutenant Colonel Fred E. Haynes, Jr., Howison, and Wriggins; and approved by Hare.↩
  2. Dated May 21. (Ibid.)↩
  3. See the attachment to Document 143.↩