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198. Action Memorandum From the Assistant Secretary of State for Economic and Business Affairs (Katz) to Secretary of State Kissinger1

Iranian Debt Arrearages

The Problem

The issue of Iran’s $36 million debt arrearages is the type of problem we should try to wrap up quickly.2 Although we have given the matter priority attention over the past year, our efforts need a new impetus. We believe a friendly reminder from you to Finance Minister Ansary could be quite effective in getting this problem off dead center.

Congress has been very critical of Iran’s failure to pay the debt, and the issue could flare up and become a major irritant in US–GOI relations at any time. Jack Brooks’3 Committee on Government Operations is the focal point of Congrassional criticism, with the Committee recently recommending that we consider limiting weapons sales to Iran until the debt is paid. Brooks will also be the key man in President-elect Carter’s plan for Executive Branch reorganization. We have been asked by Brooks’ Committee to report by January on the status of our collection efforts.

Therefore it would be in both our own interests and those of Iran to quickly clear this up.

Background/Analysis

The United States has been in regular communication with Iran for the past four years in an effort to collect arrearages (principal and interest now totaling about $36 million) on several lend-lease and surplus property agreements signed in the period 1945–48.

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Negotiations have been complicated by the fact that Iran has—since 1974—made payments dependent on negotiation of an Iranian claim against the U.S. Government for damages they say were done to Iranian railways by Allied military forces during World War II. We have stressed that we can see no factual or legal connection between the debt owed to the U.S. (which has been recognized by the GOI and on which payments have been made) and the Iranian claim. Nevertheless, we have given the Iranian claim against the USG careful study. After a good deal of research, we concluded the Iranian claim was groundless. The GOI has submitted only very thin evidence to the contrary. We officially advised the Iranians in detail of our conclusions in June 1976.

Deputy Secretary Robinson raised the matter several times with Finance Minister Ansary in 1976. Largely as a result of his talks, the GOI made a payment of $1.8 million last October.4 The GOI noted, however, that future progress would be dependent on negotiation of the Iranian claim against the USG.

The Options and Recommendations

Appropriate means we could now take to prompt Iranian reconsideration of the problem and hopefully GOI recognition that forward progress on the debt is in their own best interest are:

1. A letter from you to Finance Minister Ansary (attached).

2. A letter from the Deputy Secretary to Finance Minister Ansary.

3. The Deputy Secretary calling in the Iranian Ambassador.

EB and NEA believe we should act via one of the above options to prevent the arrearage from becoming a major bilateral irritant. Both prefer option 1.

Option 1: (Letter from you to Ansary. Preferred by EB and NEA.)

Option 2: (Letter from Deputy Secretary to Ansary.)

Option 3: (Deputy Secretary calling in Iranian Ambassador.)5

  1. Source: National Archives, RG 59, Central Foreign Policy Files, P770007–2198. Limited Official Use. Drafted by Brian G. Crowe (EB/IFD/OMA) and cleared by Atherton.
  2. Iran was indebted to the United States for surplus property (U.S. installations and immovable property transferred to Iran) and Lend-Lease obligations dating from the end of World War II. In 1972, Congress opened an inquiry, led by Chairman of the House Subcommittee on Foreign Operations and Government Information William S. Moorhead, into arrearages owed to the U.S. military by foreign governments, including Iran. Moorhead’s report was forwarded to Tehran in telegram 241431, December 10, 1973. (National Archives, RG 84, Tehran Embassy Files, 1973, Box 8, Public Debt, 1973) Efforts to collect on the debts followed, as reported in telegram 18666 to Tehran, January 29, 1974, and telegram 944 from Tehran, February 4, 1974. (Ibid., RG 59, Central Foreign Policy Files, [no film numbers])
  3. Congressman Jack Brooks (D–Texas).
  4. As reported in telegrams 245329 to Tehran and 10537 from Tehran, October 15 and 29, 1975. (Both in National Archives, RG 59, Central Foreign Policy Files, D750358–0149 and D750374–1196) A summary of broader Iranian Lend-Lease issues is in a memorandum from Richard Smith (EB/IFD) to Joseph Greenwald (EB), May 4, 1976. (Ibid., P820026–0942)
  5. Kissinger initialed his disapproval of option 1 and his approval of option 3 on January 7. The attached letter to Ansary was not found.