221. Background Paper Prepared in the Department of State1

Shah/BP–3

VISIT OF THE Shah OF IRAN

August 22–24, 1967

IRAN’S DOMESTIC POLITICAL/ECONOMIC SITUATION

Political

The internal Iranian political scene has not been as stable as it is today since World War II. The Shah is firmly in control of the government and is in the forefront of the drive to modernize the country. His programs for economic development, land reform, health and education and many other improvements have engaged the cooperation of most Iranians and have outdone the slogans and proposals of the opposition to his rule. Economic growth is creating jobs and investment opportunities and helping to build a middle class with a vested interest in stability. Aside from having the wind taken out of its sails by the Shah’s programs, the opposition is divided and impotent.

The Shah’s regime is still dependent in the final analysis on the security forces which he commands, and the opposition is still strictly controlled. But, except for a few minor incidents, there have been no demonstrations or attempts at armed insurrection against the regime since 1963. The Shah’s reform programs and the growing economy are enlisting the energies of numerous former opposition leaders.

Parliamentary elections were held on August 4, 1967. Although there were efforts to create an appearance of competition among approved pro-regime candidates, the elections were firmly controlled and directed from the Palace. The new parliament can be expected to be completely responsive to the Shah’s guidance.

The principal weakness in the Iranian political scene remains its dependence on one man. But the chances for longer term stability, should the Shah suddenly disappear from the scene, are increasing as more Iranians obtain a stake in stability. Although the establishment of democratic institutions as we know them is still a long time off in Iran, the government is relying increasingly on Iran’s best trained people as its administrators, and the Shah seeks advice from a broad spectrum of Iranian life. The Shah has also recently decided to establish better procedures for [Page 406] a regency should he die before his 6-year-old son reaches maturity. Finally, even many Iranians who oppose the regime can conceive of no viable alternative.

Economic

The Shah and his government are proud of Iran’s economic and social progress and their economic development plans for the future. The government’s annual growth target of 6% for GNP has been well exceeded in the past two years, with relative price stability being maintained in this period. The prospects for the current year again indicate a growth rate of 7–8%. The rate of population growth is estimated to be 3%. Annual per capita GNP is about $230.

Oil revenues finance the greater part of the government’s development expenditures. The Fourth Plan, which begins in 1968, will establish priorities in favor of industry and agriculture with less emphasis on infrastructure to which considerable resources have already been devoted. Private industrial investment is increasing steadily.

Iran’s capital investment programs have thus far been carried out with only moderate reliance upon foreign capital. This situation is changing rapidly, however, with official foreign credits as well as foreign private investment steadily increasing. Iran’s credit-worthiness has continued to improve, and there appears to be no question that further borrowing on conventional terms will be feasible in the foreseeable future.

Annual oil income amounting to over $600 million accounts for approximately three-fourths of Iran’s total foreign exchange earnings and about one-half of total government revenues. Although the current outlook indicates there will be continued pressure upon the balance of payments, the long-term foreign exchange prospect is favorable in the light of increasing oil revenues and exports of petrochemicals and natural gas, greater import substitution in manufactured goods, and the government’s demonstrated capacity to impose fiscal and import restraints as well as to borrow and usefully absorb greater amounts of foreign capital.

Despite increasing urbanization, the importance of its oil resources and the growth of new industries, Iran’s economy is still essentially agrarian. The agricultural sector supports two-thirds of the population and provides nearly one-third of gross domestic product and GNP.

Land reform has been the cornerstone of the Shah’s “White Revolution” and since 1962 the government has made substantial progress in dismantling a feudal land-holding system and extending new ownership and farming rights to villagers throughout the country. This has been accomplished with minimal resistance and without impairing agricultural production. The final phase of land reform now underway is aimed at boosting output and expanding local cooperatives. Further [Page 407] progress will depend heavily upon the ability of the government to mobilize additional capital, extension services and local leadership. This key reform effort has been successfully complemented by an imaginative use of military conscripts serving throughout rural Iran in separate literacy, health and development corps. For example, four years ago only 8% of the rural population received any exposure to rudimentary education. The figure is now 20% and rising.

  1. Source: Department of State, S/S Files: Lot 68 D 475, Visit of the Shah of Iran, August 22–24, 1967, Vol. I, Briefing Book, V–39–A. Secret. Drafted by Newberry and J. Patrick Mulligan (NEA/IRN) and cleared by Eliot, Rockwell, Funari, and NEA Regional Affairs Director Sidney Sober.