888.10/10–1254
No. 497
Memorandum of Conversation, by the Director
of the Office of Greek, Turkish, and Iranian Affairs (Baxter)
Subject:
- Loans to Iran
Participants:
- The Under Secretary
- Mr. Waugh, E
- Mr. Jernegan, NEA
- Mr. Baxter, GTI
- Mr. Black, IBRD
- General Edgerton, Export-Import Bank
- Mr. Overby, Treasury
The meeting was arranged in order to clarify views on proposed loans to Iran, their amount and source, and the feasibility of IBRD participation.1
It was pointed out that State believed there were over-riding political and psychological factors necessitating the early offer to Iran [Page 1055] of an aid package which would include substantial loans. It is the unanimous opinion of United States officials in Tehran that the oil agreement has produced a favorable climate for advancing our objective of sewing Iran up firmly with the West and the country off the dead center on which it has been statically poised for several years. Now that things are rolling in the right direction, the momentum must be kept up. However, it will be at least three years before the oil revenues will reach a level of anything like abundance and during the first year they will not even be sufficient to cover Iranian budgetary needs.
Mr. Black stated that the question for which he needed an answer is how the IBRD can enter the picture, if at all. At the moment he did not see how Iran could qualify for an IBRD loan. According to his information, irresponsible commitments were being made by various Iranian officials which probably did not correspond either to Iranian needs or to their ability to pay. Mr. Nasser of the Bank Melli had told him there were approximately $52 million of uncoordinated commitments and he would not be surprised if there were $50 million more which he did not know about. The IBRD had very little information about the situation in Iran, had not studied Iranian projects to find which were justified, and would not be able to consider loans until Iran had brought its house into order and established some effective control over its expenditures. With regard to the proposed $100 million loan, he asked if any commitments had been made to the Iranian Government by the United States, pointing out, however, that a United States commitment could not commit the IBRD, which was an international organization.
Mr. Hoover stated that there was no commitment but that it was United States policy to assist Iran. Certain United States institutions, such as the Export-Import Bank, can extend aid when it is decided that it is in the United States interest to assist some country which might otherwise be lost. He believed that Iran was as good an example as could be found of a country which should be saved. If there should be no fulfillment of the hopes of the Iranian people for early improvement following an oil settlement, exaggerated though they may be, there is a serious possibility that Iran will fall into the Soviet orbit.
Mr. Black said that if that were United States policy he had nothing further to add but that of course the Bank could not participate in any such loan package. He expressed fears, however, that such action would establish a dangerous precedent, as it would lead both Iran and other countries to think they could get longterm development loans from sources other than the IBRD, which had been established for such purposes. He also expressed strong [Page 1056] doubts as to the wisdom of linking loan repayments directly to oil revenues. The IBRD has had unfortunate experiences in the past with this and did not like such a procedure; however, if other lending agencies insisted on that kind of guarantee, the IBRD would of necessity have to ask for the same if it should come into the picture. It was agreed that the suggestion of tying a loan to oil revenues would not be pursued.
In connection with Mr. Black’s comments on uncoordinated spending in Iran, it was pointed out that everyone, including most responsible Iranian officials, are equally concerned and equally desirous of establishing some kind of firm control arrangement. It would be politically impossible to ask the Majlis to include financial controls over all Iranian Government expenditures in their approval of a United States loan agreement. We would, however, as a prerequisite to extending loans, insist on the establishment of some effective over-all control arrangement. It is felt that perhaps the best instrument would be the present Finance Committee composed of Minister of Finance Amini, Director of the Plan Organization Ebtehaj, Governor of the Bank Melli Nasser, and the Minister of National Economy. The United States would maintain control over its own loan funds by approving expenditures on a project-by-project basis.
Mr. Overby restated United States policy to the effect that loans for long-term development projects should be channeled to the IBRD and that funds of the Eximbank should be used primarily for United States supplier loans for short-term projects. There are, of course, exceptional occasions in which, for political reasons, Eximbank loans can be of a slightly different nature. He suggested that the present situation might be met in the following manner: The Iranian Government might be told that, subject to satisfactory assurances of a control arrangement to regulate government commitments and expenditures, the United States is prepared to negotiatate a package loan from the Eximbank consisting of (a) $30 million from FOA funds for budget support, (b) $18 million for the Karaj Dam, and (c) $35 million for United States goods and services for programs or projects promising quick results of benefit to Iran. Other future development projects are to be discussed with the International Bank.
General Edgerton indicated that he thought such a suggestion would be satisfactory to the Eximbank, as it already had applications from the Iranian Government for loans totaling $53 million. The Karaj Dam is in a special category, as it has assumed a political as well as economic significance in Iran, and work and engineering are already fairly advanced. General Edgerton was not sure that all of the items included in the Iranian $35 million request [Page 1057] were in the proper category, but he felt that substitutes could be found for those which fall into the long-term category.
Mr. Hoover indicated that a telegram embodying these suggestions would probably be dispatched very soon to Ambassador Henderson,2 so that he could discuss them with appropriate Iranian officials before his return to Washington next week. It was pointed out that such an aid package, including loans and FOA grant assistance, is considered a one-time shot in the arm in order to get Iran over the present hump. Future needs for long-term development should be channeled through the IBRD. In this connection Mr. Hoover thought the IBRD could be of great help to Iran, pointing out that Mr. Ebtehaj has already requested Bank assistance. He expressed the hope that Mr. Black would be able to send advisers to Iran to assist Iranian officials in working out a coordinated program for future development.