Foreign Relations of the United States, 1958–1960, Near East Region; Iraq; Iran; Arabian Peninsula, Volume XII

301. Memorandum From the Assistant Secretary of State for Near Eastern and South Asian Affairs (Jones) to Acting Secretary of State Dillon⁰

Washington, September 20, 1960.

SUBJECT

• Aid to Iran

Discussion:

Ambassador Wailes has pointed out the urgency of measures to assure the Shah of continued United States interest and support at a time when he is exhibiting signs of depression and of disappointment over United States aid levels, is preparing to negotiate with the Soviets, and is apparently considering the possibility of withdrawing from CENTO (Tab A).¹ Following is a summary of the status of various aspects of the problem.

1. Presidential Letter²

A Presidential letter to the Shah reassuring him of continued United States interest and support has been sent to the White House.

2. Military Equipment

Embassy Tehran, noting the Shah’s desire for modern military weapons, has recommended that the five-year MAP plan be amended to provide for various specific packages of modern weapons and that the Shah be so notified. After discussion of the issue with Defense, we have come to the conclusion that in view of the worldwide shortage of MAP funds, the expense of the proposed additional equipment and the low global military priority assigned to Iran, we cannot recommend that the Embassy’s proposals be adopted.

However, in an effort to provide some positive response to the Embassy’s proposal, the Department of Defense has queried ARMISH–MAAG Tehran as to whether or not current training and maintenance levels in Iran would justify a speed-up in deliveries of F–86 aircraft. It has also suggested to Tehran that it might be possible to alter the presently programmed FY 1961 MAP funds pattern to provide some of the equipment desired by the Shah. We are awaiting a reply to this inquiry (Tab B).³

3. Military Construction

The MAP construction program, which is a vital part of our military assistance effort in Iran, was slowed down by the deferral to later years of all programmed funds for FY 1960. It will be delayed further by the recent deferral of about half of the FY 1961 program of about $30 million. These delays are of such a magnitude that they will inevitably come to the attention of the Shah, who will doubtless regard them as the nonfulfillment of United States commitments and as further evidence of the relatively low priority the United States assigns to Iran. We, therefore, intend soon to recommend at least a partial restoration of MAP construction funds for FY 1961 (about $9.0 million) in order to reduce the adverse political impact of this stretch-out. Our recommendation will be made upon receipt of certain details from Tehran (Tab C).⁴

4. PL 480 Assistance

Negotiating instructions have been sent to Embassy Tehran for 200,000 MT of wheat under Title I, PL 480. In response to an urgent request from the Iranian Government, Iran is to receive seventy percent of the sales proceeds (about $10 million) as a loan for economic development projects as compared with forty-five percent received in the most recent Title I wheat agreement (Tab D).⁵

5. Economic Development Loans

The Embassy has urged, following agreement on stabilization, the early arrival of a State-DLF-ExIm Bank loan team headed by a senior officer of the Department of State who will be Assistant Secretary Martin. The team will arrive in Tehran about October 8 (Tab E).⁶

An IMF representative has reached agreement with the Iranian Government on a stabilization program which he believes will be acceptable to the IMF Board of Directors. We agree with the Embassy that this is a most encouraging development.

Iran’s financial problem involves both a local currency and a foreign exchange shortage (Tab F).⁷ We believe that the United States must provide between $70–$80 million in loans over the next two years to enable Iran to adhere to the stabilization program and complete its Second Seven-Year Plan without further financial adjustments which would place too great a strain on the Shah’s regime.

6. Defense Support

Tentative allocations for Defense Support for Iran in FY 1961 total $20 million. The Ambassador has stated repeatedly that $22 million is an absolute minimum for FY 1961 if further dangerous political repercussions are to be avoided (Tab G).⁸ His recommendation for $22 million in FY 1961 is strengthened by the distinct possibility that, as a consequence of the newly adopted stabilization program, Iran’s military budget may be reduced by as much as 7.5 percent (about $10 million). It is possible that such a reduction may necessitate further examination of our DS aid to Iran in the near future and a recommendation that it be increased.

Recommendation:⁹

In the light of the foregoing, I am constrained to recommend that FY 1961 DS allocations to Iran be increased to $22 million at this time.

0. Source: Department of State, Central Files, 788.5–MSP/9–2060. Secret; Presidential Handling. Drafted by Bowling with concurrences from Bell of U/MSC and in draft with Kerr of E. None of the tabs was attached to the source text.
1. Telegrams 498 and 545 from Tehran, August 27 and September 1. (Ibid., 611.88/8–2760 and 788.00/9–1600)
2. See footnote 3, Document 300.
3. Telegram 543 from Tehran, September 1. (Department of State, Central Files, 788.5–MSP/9–160) Reference is apparently to telegram DEF 982850, September 13. (Department of State, NEA/GTI Files: Lot 66 D 173, U.S. Military Assistance to Iran 1960)
4. Telegrams 367, 368, and 622 from Tehran, and telegram 627 to Tehran, August 13, August 13, September 15, and September 9, respectively. (Ibid., Central Files, 788.5–MSP/8–1360)
5. Telegram 640 to Tehran, September 13. (Ibid.,411.8841/9–1360)
6. Telegram 631 to Tehran, September 12, and telegram 612 from Tehran, September 14. (Ibid., 788.5–MSP/9–860 and 788.5–MSP/9–1460)
7. This conclusion was reinforced with Tab F, a memorandum by Jack C. Miklos of GTI, entitled “The Financial Outlook for Iran,” and a draft memorandum from Jones to Dillon, September 15, entitled “Political Necessity for Increased Aid to Iran.” (Ibid., NEA/GTI Files, Economic Stabilization Mission 1960 and U.S. Military Assistance to Iran 1960)
8. Telegrams 587 and 616 from Tehran, September 8 and 14. (Ibid., Central Files, 788.5–MSP/9–860 and 788.5–MSP/9–1460)
9. Dillon approved this recommendation on September 26.