60. Editorial Note

On March 19, 1974, the Iranian Government, in an anti-inflationary measure, announced the liberalization of its import regulations by reducing certain taxes, permitting the free import of restricted items, and allowing previously banned imports. In telegram 2262 from Tehran, March 20, the Embassy noted that the liberalization of imports was consistent with the sharp increase in the availability of foreign exchange in Iran. Total Iranian imports were expected to rise more than 66 percent in the coming year. (National Archives, RG 59, Central Foreign Policy Files, D740058–0899)

The Iranian economy was also suffering from food shortages. In a memorandum of conversation, May 13, the Embassy’s Commercial Officer, Richard Coulter, recorded the view of four Iranian businessmen that corruption in very high places was to blame for food shortages in Tehran. Coulter wrote that when one asserted, “everyone knows that this business is Princess Ashraf’s fault,” the others expressed “general agreement that the princess has been given complete control over the city’s food supplies and is trying to drive up prices in order to maximize her profits.” There was also “universal agreement, with much regret, that the people are becoming desperate and that there are plenty of potential rabble-rousers who may bring them out in the streets.” They agreed that the Shah must remain in power to avert anarchy, but “no love for the Shah was expressed by this group of conservative, well-to-do businessmen.” (Ibid., RG 84, Tehran Embassy Files, Box 184, Iran 1975, E–8–2, Prices, Anti-Inflation)

In telegram 3980 from Tehran, May 19, the Embassy reported that, despite inflation, the Iranian Government was considering the removal of subsidies on basic foodstuffs to raise domestic food prices and, thereby, production. Increased imports were expected to relieve the scarcity in the short term, although food sold at world prices would be expensive for the average Iranian. Although raising food prices for farmers was likely the only way to increase domestic production, the [Page 193]Embassy commented, the abolition of food subsidies would “present severe hardship to already inflation-plagued city-dwellers, which could easily cause unrest.” (Ibid., RG 59, Central Foreign Policy Files, D740124–0466)

On May 27, Walter Lundy, an Economic and Commercial Officer at the Embassy, commented on the new economic policy in a report on local food shops. Noting that the shortages he had observed were not serious, Lundy expressed greater concern at “the larger question of the GOI’s pending removal of subsidies on some food commodities and the effect this will have on the already serious rate of inflation” which was at least 15 percent annually. Remarking that urban day laborers, who were suffering most, had seen a substantial drop in real income over the past year, he nevertheless concluded: “I do not think there are enough tangible indications of a critical problem as yet, and I believe we would unnecessarily alarm the Department by trying to make a case that a serious problem exists at this time.” (Ibid., RG 84, Tehran Embassy Files, Box 184, Iran 1975, E–8–1, Prices, Cost of Living)

By July 2, however, according to telegram 5447 from Tehran, the Iranian Government had reversed itself on the subject of price subsidies on basic food items, deciding to continue or increase them for the anti-inflationary effect. (Ibid., RG 59, Central Foreign Policy Files, D740176–0247) In telegram 6042 from Tehran, July 22, the Embassy reported that as the inflationary spiral continued, the Iranian Government had announced new economic policies. The Embassy expected the measures, including increased subsidies and price controls on basic commodities, lower import duties, reduced personal income taxes for the poor, new bond issues, and stricter enforcement of measures, to have some psychological impact. Yet the policies’ most likely result, the Embassy speculated, was a short-term rise in disposable incomes of the lower classes rather than a reduction in inflation. (Ibid., D740197–0289)