Foreign Relations of the United States, 1952–1954, Iran, 1951–1954, Volume X

888.00/10–1354: Telegram

No. 498
The Acting Secretary of State to the Embassy and the United States Operations Mission in Iran¹

secret
niact

Washington, October 13, 1954—7:51 p.m.

729. Joint State–FOA cable.

1. As result high level inter-agency discussions it has been agreed that following economic aid “package” be authorized for Iran provided adequate assurances as discussed below forthcoming.

(a) $8.5 million technical assistance;

(b) $13 million development assistance to be used jointly with (a) above;

(c) $12.8 million budgetary support from FOA funds for rest of calendar year of which $5 million to be released promptly without regard to rest of package (FOA Washington cabling immediate authorization release $5 million);

(d) $83 million for budgetary and developmental assistance, including $18 million for Karaj Dam.

2. All of above items are to be in form of loans except items (a) and (c) and $11 million of item (b).

3. There has been, however, grave anxiety and concern at high levels here regarding uncoordinated spending and commitment Iranian Government revenues; also regarding apparent intention further appreciate rial-dollar rate. Offer above package must be contingent on assurances Iranian Government will take effective action in (1) establishing better control and direction over use its revenues (2) bringing order to present state of financial confusion (3) imposing limits on imports (4) avoiding excessive purchases from foreign suppliers on credit and (5) avoiding further unwarranted appreciation exchange rate. Exchange appreciation reduces effectiveness US aid and leads to demands for more assistance. A solution to financial management problem suggested by concerned Washington agencies would be to place power to control expenditures in hands of committee made up of Ebtehaj, Amini, Nasser and possibly Minister National Economy. Such arrangement should be helpful to Ebtehaj in his desire to channel Government spending toward economic development.

4. While avoidance of any further rial-dollar appreciation need not be made absolute precondition of a package offer you should make abundantly clear that US expects GOI will not appreciate rial rate until in position to accept full financial responsibility for consequences. Separate cable elaborating this point follows.²

5. With exception of $18 million for Karaj Dam, which is type of project for which IBRD is normally proper source of financing, development loans from US Government and its agencies will be limited to goods and services for programs or projects promising quick results of benefit to Iran. Other development projects to be discussed with IBRD.

6. Prior to your return Washington next week (which Department desires in connection Iranian aid problem independent of October 19 ceremonies) request you discuss this frankly with appropriate Iranian officials. You should make clear that all plans regarding aid package now held in abeyance until assurances given by Iranian Government along foregoing lines. Please also endeavor obtain clear statement from Iranian Government as to extent and terms of repayment of presently outstanding Iranian commitments. (Para 4, Embtel 825.)³

7. FYI reason for dropping $100 million package suggested while Warne and Rountree were here is belief loan that size would get into fields more appropriate for IBRD financing. End FYI.⁴

Hoover

1. Drafted by Baxter, Stutesman, and Crowl and approved by Byroade after being cleared in draft with Norman Paul; Assistant Secretary of the Treasury Overby; Frank Southard, Executive Director of the IMF (paragraph 4); General Edgerton; Waugh; and Nolting.
2. Reference is to telegram 790, Oct. 22, not printed. (888.00/10–2254)
3. In paragraph 4 of telegram 825 from Tehran, Oct. 7, the Embassy reported that Ebtehaj had informed American officials that he had thus far been unable to ascertain the exact amount of Iran’s future foreign commitments made during the past 3 years; the figures available, however, indicated that they were in excess of $100 million exclusive of oil commitments; that between October and Jan. 1, 1955, Iran was obligated to pay out some $4 million on a number of commitments; and that Iran did not have the funds to honor these commitments. (888.00/10–754)
4. The following day, Oct. 14, Ambassador Henderson agreed with the policies and conditions set forth in telegram 729, but he informed the Department that it would be necessary to present these conditions to the Iranian Government as delicately as possible, especially when approaching Ebtehaj and Prime Minister Zahedi. In view of these considerations, Henderson informed Foreign Minister Entezam of the contents of telegram 729, and Entezam, in turn, “promised” to try to get the Prime Minister into the proper frame of mind when Henderson would see him on Oct. 16, just prior to Henderson’s departure for Washington. (Telegram 865; 888.00/10–1454)