13. Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Nixon1 2
- This Year’s Military Sales Program for Iran
Attached is Secretary Rogers’ recommendation (Tab B) that we now go ahead with the FY 1969 sale of military equipment to Iran under the Foreign Military Sales Act. This is a yearly slice of a program that has been going on under a general memo of understanding at the rate of about $100 million a year since 1964. This year’s package, which includes some F–4, F–5 and C–130 aircraft and tanks, is part of the Shah’s broad military modernization program.
The general issue since this program began has been its effect on the Iranian economy. So far it has proved financially manageable, but Iran’s future financial soundness is still fragile, depending as it still does on the continued flow of oil revenues at a high level. The Shah annually squeezes the American oil companies as hard as he can to maximize those revenues, and if he squeezes to the breaking point or overprograms his income, repayments on these military sales credits would become a serious burden. For this year, this problem still seems under control.
The specific issues in this proposal are fairly technical:
- Defense proposes to maximize the use of private bank credit in order to stretch its own appropriated funds. This is a sensible direction in which to go and is consistent with your general desire to increase private involvement, but it creates a second issue—
- Using private bank credit naturally raises the interest rate because of the current high price of money. If we need 100% U.S. Government credit, the interest rate would come out about 6.25%. Private rates are around 8%, and when we mix public and private credit the rate averages out between. In this case, the interest rate is an issue with the Shah because the Russians and others make attractive lower offers, and he does not see why his friends cannot do as well. Therefore, State recommends [Page 2]staying as close to 6.25% as possible. The Budget Bureau, however, recommends (Memo at Tab A) that we not make a special effort to keep the interest rate down because Iran can afford to pay and by the criteria in our legislation we must limit concessional lending mainly to those who need it for economic reasons. Of course, it is tempting to try to give the Shah what he wants, but there is an element of bargaining in his position too.
We cannot ask you to make a judgment on the precise division between private and Government credit or about the interest rates. However, it is probably desirable in relaying your decision on this memo to note these problems in order to stiffen the spines of our negotiators. A mere suggestion that you are aware of the budgetary implications will keep them as alert to our financial interests as they will be to Iran’s.
Recommendation: That you approve Secretary Rogers’ proposal and that we note in relaying your decision to State your recognition of the desirability of using private credit to the maximum extent possible and of minimizing the use of concessional credit.[Page 3]
- Source: National Archives, Nixon Presidential Materials, NSC Files, Box 1236, Harold Saunders Files, Middle East Negotiations, Iran Military, 1/20/69–12/31/69. Secret. Drafted by Saunders. Tab A, a Budget Bureau memorandum, is not published. Nixon initialed his approval.↩
- With his concurrence, Kissinger forwarded to Nixon Secretary Rogers’ recommendation to approve the 1969 Iranian Military Sales Program.↩