Foreign Relations of the United States, 1964–1968, Volume XXII, Iran

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

Washington, July 2, 1964, 8:47 p.m.

6. Joint State-AID-DOD message. Embtels 1188, 1189.² Following is new Memo Understanding covering military modernization program now in final process approval. Annexes forwarded separately.³ Negotiation authorization follows separate cable when approved.⁴

"I. The Government of Iran and the Government of the United States have reviewed the following defense considerations of their respective countries:

A. The Mutual Defense Assistance Agreement between the two Governments of 23 May 1950, as supplemented by the exchange of notes of April 24, 1952, and the exchange of notes of July 12 and October 31, 1957.⁵

B. The Agreement of Cooperation between the Government of the United States of America and the Imperial Government of Iran of March 5, 1959.⁶

C. The Memorandum of Understanding between the Government of the United States of America and the Imperial Government of Iran of September 19, 1962.⁷

D. The exchange of correspondence prior to, and discussions held in June 1964, between His Imperial Majesty, the Shah of Iran, and the President of the United States of America and other officials of the Government of the United States of America.

II. In the light of these considerations, the two Governments reaffirm the concept for the defense of Iran and the force structure for the Imperial Iranian Armed Forces set forth in the Memorandum of Understanding of September 19, 1962. The Governments also restate their commitments to carry out their respective obligations undertaken in the Memorandum. In particular, the United States Government will, subject to the availability of funds and continued Congressional authorization, deliver on a grant basis the remaining equipment, material and services specified in the 1962 Memorandum. The Imperial Government of Iran will make satisfactory provision for the effective utilization and operation of all equipment provided to and within its military forces and will limit its purchases of military equipment to the requirements of agreed attainable force objectives. The Imperial Government also undertakes to assure that its program of military purchases will not cause undue strain on the nation’s foreign exchange reserves or jeopardize plans for the nation’s economic and social development.

III. In view of the improved financial situation of Iran and the need for modernizing Iran’s military forces on long-range basis, the two Governments agree to an additional program of Mutual Defense Cooperation for the period FY 1965–69 as set forth below. It is understood that, except as specifically modified herein, this new program is subject to those conditions and obligations undertaken by the two Governments in the Memorandum of Understanding of September 19, 1962.

A. The Government of the United States will

1. Extend additional grant military assistance during FY 1967–69 to be programmed as set forth in Annex A for delivery by the end of FY 1970.

2. Subject to the request of the Imperial Government of Iran;

a) Assist in the formulation of long-range plans for the equipping, training and modernization of the Armed Forces of the Imperial Government of Iran;

b) Provide procurement, contracting and inspection services to the Imperial Government of Iran for the material which Iran desires to purchase in the United States;

c) Provide technical advice and training services to the Armed Forces of the Imperial Government of Iran to enhance the effective installation, operation and maintenance of the equipment concerned.

3. In order to assist the Imperial Government of Iran in financing the purchases referred to in Paragraph III B,

a) Assure credits within 30 days from the date of signing this Memorandum of Understanding for the equipment, spares and services enumerated in Paragraph III C;

b) Assure credits during U.S. FY 1965–69 from available private and Government financial institutions or, subject to the availability of funds, from funds made available under the Foreign Assistance Act of 1961 as amended, in amounts which, including the credits referred to in Paragraph III A 3 a), do not exceed a total of $200 million and are consist-ent with the foreign exchange and other limitations contained in III C. Negotiations with available private and Government financial institutions to obtain such credits will be conducted by the Imperial Government of Iran in cooperation with the Government of the United States. These credits will be repayable on terms which will allow payment over the ten-year period FY 1965–74 to be negotiated at the time of the conclusion of each credit sales program or contract under this Agreement and shall take into account Iran’s repayment capabilities. The interest rate to be negotiated will not exceed an average of 4–5 percent per annum on the unpaid balance.

B. The Imperial Government of Iran will purchase from the United States during FY 1965–69 military equipment, material and services over and above that to be furnished on a grant basis. These purchases have an estimated value of $250 million, including:

1. Cash purchases of an estimated value of $50 million (principally spare parts for equipment provided under military grant aid programs).

2. Purchases, utilizing above credits as necessary, of an estimated value of $200 million (principally new equipment, spares, and related services). Illustrative list is at Annex B.

C. To implement this modernization program, the Imperial Government of Iran will place orders and the Government of the United States will provide credits within 30 days from the date of the signing of this Memorandum of Understanding for the following equipment, at approximately the indicated price:

4 C–130 aircraft with spares and AGE	$12.0 million
176 M–60A1 tanks with spares	39.0 million
Other related items and services including packing, inland transportation, port handling, and ocean transportation to Iran	6.0 million
	$57.0 million

Programming of the other equipment to be offered to Iran under the line of credit cited above will be divided into separate increments and phased over subsequent years. In the course of the negotiation of the credit agreement for each increment, the Iranian balance of payments and budgetary situation and progress of the development program will be reviewed in order to determine the amount of credit to be offered in the increment and a feasible amortization schedule.

IV. The Government of the United States designates the Chief of the United States Military Assistance Advisory Group to Iran, and the Imperial Government of Iran designates (a representative to be specified by the GOI) to meet periodically to perform the following functions:

A. Serve as the focal point for all matters pertaining to the United States-Iran military modernization equipment procurement program.

B. Develop detailed plans and arrangements for the implementation of this general understanding, and to supervise actions relating to the implementation of this agreement.

C. Develop Force Objectives and determine valid military equipment and training requirements for the Imperial Government of Iran which are deemed attainable in future time periods.

V. A ranking representative designated by the Imperial Iranian Government will meet with the United States Ambassador to Iran periodically, but not less frequently than once a year, to review the progress and execution of this understanding and its relationship to Iran’s economic and social development program. This will include a joint assessment of the effect of military purchases on the Iranian balance of payments and budgetary situation.

Dated: _________________

For the Government of the United States of America

For the Imperial Government of Iran

Rusk

1. Source: Department of State, Central Files, DEF 19 U.S.-IRAN. Confidential;Priority. Drafted by Walsh; cleared in draft by Director of the Office of Developement and Planning Alfred D. White, AID Near East/South Asia Coordinator Daniel Arrill, Towsley, Stoddart (DOD), and Tiger; and approved by Deputy Assistant Secretary for Near Eastern and South Asian Affairs James P. Grant.
2. Both dated June 23. (Ibid.)
3. Annexes A and B were transmitted in telegram 1196 to Tehran, June 25. (Ibid.)
4. See Document 48.
5. For texts of the Agreement and supplemental notes, see TIAS 2071. 1 UST 420; TIAS 2967. 5 UST 788; TIAS 3952. 8 UST 2369.
6. For text, see American Foreign Policy: Current Documents, 1959, pp. 1020–1022.
7. For text, see Foreign Relations, 1961–1963, vol. XVIII, pp. 105–109.