Foreign Relations of the United States, 1961–1963, Volume XVII, Near East, 1961–1962

102. Letter From the Ambassador to Iran (Holmes) to the Acting Assistant Secretary of State for Near Eastern and South Asian Affairs (Meyer)⁰

Tehran, August 27, 1961.

Dear Armin: I have your highly important letter of August 12¹ and welcome the opportunity to convey my views on the far-reaching problems and questions it raises. Before proceeding to take these up, however, I believe it would be useful to set forth briefly an evaluation of the Amini government and its future prospects.

The Amini government has now been in power for 3–1/2 months. Its advent was unanticipated both in that the collapse of the Sharif-Emami government was sudden and unexpected, and in that the selection of a man long critical of the Shah to head a government of the Shah was somewhat of a surprise. Despite Amini’s long record of criticism of previous governments and his well-known desire to become Prime Minister, it was evident upon his accession to office that the unexpected development caught him unprepared for the job both as regards having a program and a nucleus of capable individuals to help him discharge the heavy task he assumed. This was one of the reasons that the first two months of the Amini regime were marked by confusion, contradiction, and lack of coordination within the government, and by uncertainty on the part of the Prime Minister with respect to the best way to proceed to achieve his objectives. In addition, there was the normal confusion attendant upon a change in administration. Amini had also to struggle with the basic problem of his relationship with the Shah, with the serious economic problems facing the country, and with critical political matters such as the question of elections and of how to handle the National Front. Complicating this task even further was his lack of knowledge of the commitments and undertakings of previous governments, some of which are arising to plague him even as late as now, and of the plunder which had gone on.

The combination of these factors would overwhelm any man. Dr. Amini furthermore must work in the Persian atmosphere and must deal principally with other Persians in attempting to resolve the problems facing him. I need not dwell in this letter on those aspects of their character which make it so hard for Iranians to work together, to plan for the future, and to take drastic action when drastic action is necessary.

It is not for want of personal will that the Prime Minister has not yet solved the problems facing him. He has approached his task with determination and courage and a good deal of skill, and is working himself to the point of exhaustion. With our invaluable assistance he is progressing toward the solution of the economic problems which beset Iran and which must be solved before any genuine progress can be made in the direction of a basically improved political situation. He has established a working arrangement with the Shah whereby he has skillfully obtained the Monarch’s support for unpalatable but necessary measures. He has toned down some of his ministers whose inflammatory statements were causing an unnecessary degree of alarm. The Prime Minister is no longer actively opposed by the principal military elements despite having taken action against important military figures on charges of corruption. He has been unable to reach an understanding with the National Front and has felt required to take firm, but not brutal, measures which have disconcerted and disorganized the Front to the point where at the moment it is not in a position to cause serious trouble.

When Amini came into office there was general enthusiasm over the selection of a man who, although a member of the conservative group, was considered sympathetic with the interests and needs of the people as a whole and known as a strong critic of the Shah and of previous governments. This enthusiasm existed despite the realization here in Iran that Dr. Amini was very unlikely to be a “revolutionary” Prime Minister in the Nationalist sense. It was unfortunately largely based on expectations of actions and reforms which could not be quickly taken in the light of the nature of things in Iran. It was not long after the advent of the Amini government that the traditional Persian tendency to suspect and criticize the government in power reasserted itself and this, combined with failure of expectations to be rapidly met, led to a decline in support for the government among liberal politically conscious elements. In particular, the failure of the Prime Minister, for sound reasons in my view, to meet the demands of the National Front for immediate elections and unimpeded political action led to the alienation by the government of the elements sympathetic to Mosadeq. This despite the sincere efforts which Dr. Amini made to obtain the cooperation of moderate National Front leaders, who rejected his request.

However, at the moment of writing, Dr. Amini seems to possess the support or the acquiescence of at least the following elements necessary to his continuation in office—the Shah, the military, and the conservative civilian elements. He is making continuous efforts to broaden this basis of support to include such elements as the bazaar, the clergy and labor, and in his own view is having a measure of success. Barring some unforeseen development such as a most secretly organized coup, or the Prime Minister’s own resignation or incapacitation owing to frustration or the deterioration of his health because of the burden he is carrying, I anticipate his remaining in office for a considerable period, providing that we continue the help we are giving him. Without this he has frankly said he could not have survived. I agree with you that the Iranian government faces no immediate and crucial political crises involving possible revolution.

I turn now from the current and relatively short term future aspects of the situation to the longer term political outlook which is the primary purpose of your letter. You state that your reading of the situation is most disquieting. Although I agree that the obstacles in the way of establishing a more stable political basis in Iran are formidable, I do not now fully share the apparent deep concern reflected in your letter. For one reason, I do not see how anybody, and particularly a Persian dealing with Persians, could have begun to make significant progress towards this goal in the chaotic situation in which the Amini regime came into office and in the short time it has been in power. The Prime Minister has, during this period, been forced to devote all his energies to the problems of making his government a going concern, of ameliorating the grave economic situation, of establishing a working relationship with the Shah, and in general of arresting the slide toward political and economic collapse which was evident before he came into office. I strongly believe that it is unreasonable to expect notable progress towards so difficult a future political goal until current political and economic problems have been resolved to the point where a tranquil and sound atmosphere will permit political reforms, which are in themselves unsettling, to be tackled. Despite the compromises he has made, I do not at all believe that the Prime Minister has abandoned the goals which he announced when he became Prime Minister. I think that he has come to the conclusion, which I share, that these goals can only be attained over a considerable period of time and that their accomplishment would be greatly delayed, if not rendered impossible, if it were sought by hasty steps from the basis of a new and untried government which had not solved the important current problems of government stability and financial and economic viability.

Assuming that the Prime Minister remains in office for a sufficient amount of time and is able to solve his pressing current problems, I believe that he will devote his attention, hopefully with some degree of success, to the basic political problem which is the object of our concern. In this we can be of help to him by aiding him in his material difficulties while largely leaving him, as a Persian dealing with other Persians and with Persian political problems, to solve the latter in the way he deems most likely to be successful. Steps which might seem logical to non-Iranian outside observers will, I am convinced, in many instances not be found to be appropriate in this process.

The second important reason why I do not share the degree of concern reflected in your letter arises from my evaluation, since I have been in Iran, of the degree of urgency of the primary preoccupation you have stated—the need to bridge, through the creation of some sort of a new and moderate centrist political synthesis, the gap between the largely neo-Mosadeqist elements of the urban middle class and the more traditional and conservative elements of society. The former elements, while highly vocal and critical, possess no unity among themselves. They are not so strong, nor are they likely to be in the next several years, as to be able to take power here without important military collaboration. The only singleness of purpose they have is to take over. They cannot agree on a political program. They cannot be said to have a popular following because they put forward a positive program but because, rather, they provide the only outlet for the manifestation of discontent, arising as much as anything from economic distress. The assumption by these people of even a degree of power at this time would have a profoundly negative effect on the stability of Iran and on our interests here. The inclusion of the more moderate of them in a government would have no significant positive political effect, failing the relief of the underlying political and economic grievances which provide the principal basis of the attraction exercised by the National Front.

In making the above statement I risk being accused of favoring the maintenance of the status quo, and of discounting the pressures for basic changes. To the contrary, I believe that it is inevitable that the middle class eventually will come into power in this country, and that what we must hope and work for is that this process shall be an orderly one. I think there is a fairly good chance that, with luck, it will be achieved by gradual change, not by dramatic or violent action, in response to pressures from politically conscious elements. Results of this pressure, admittedly not basic ones, have become visible in the last year. The fact that the Prime Minister has not made solid progress in building a bridge between the middle class and the conservatives in three months’ time should not, I think, be taken as a cause of grave concern by the United States government. If it should become clear beyond a doubt that Dr. Amini had given up the struggle and had reverted to the attitude of his predecessors, then there would be cause for concern. Assuming as I do that he has not, there probably will be time for him, or some successor, to adjust the basic political situation to conform to current pressures, assuming their continuing will to do so.

I further believe that when the time comes that power has shifted to the middle class, the latter will exercise that power not through a democratic and representative form of government as we understand it. The political history of Persia, and the character of the Persian people, lead me to the conviction that the most likely and probably the most suitable form of government for this country is one where the people are firmly and resolutely guided by a central authority not subject to the daily whims of representatives of the disunited, highly individualistic, and uncooperative people of this nation.

While I therefore do not experience the sense of urgency reflected in your letter regarding the timing of the bridging of the gap between conservative and middle class elements, I hope I have made clear my agreement that the gap has to be bridged. The representatives of the middle class now constitute only potentially a serious menace to the regime. The threat which they do represent will be greatly alleviated if stable economic conditions, accompanied by administrative reforms, can be brought about with our assistance. For the time being this will be the principal field in which we can offer effective aid. We should not at the same time undertake political pressures which would have the effect of stirring up the middle class and arousing their expectations, thereby disturbing the stability and equilibrium of a pro-Western government which is struggling to remove the obstacles standing in the way of an attack by it on longer-range political problems. We must accept the reality that the solution of the latter is going to take a long time and will require continuing patience, help, and understanding on our part. It may well take the decade you envisage. Meanwhile, we will probably continue to be faced with frustrations in dealing with the Iranians, and with a return of somewhat less than 100% on our aid dollar. The political importance of our position in Iran, and the strategic significance of the country, are indubitably such as to require us to bear these disadvantages. I believe what we receive in return is worth it.

You have asked what Amini can do and what we can do to help him meet his country’s political and economic problems in such a way as to better the long-term prospects for evolutionary progress. I think that Dr. Amini’s basic ideas about improvement of these prospects are sound in both the economic and political fields, that is to say, briefly, his ideas about fiscal responsibility, economic stability, increased competence and efficiency in government, anti-corruption, land reform and an improved judicial system, and establishing broader popular support for the government. His interest in improving the lot of the individual Iranian, and in working for social justice here, is as deep as ever. As I have already said, it is clear that to make progress in the long run he must be successful in the short run in these problems that test him so severely today. We believe that the most acute as well as immediate strictly political problem is the one of elections. I foresee nothing but bad results stemming from the holding of another set of elections in this country within the next year, given on the one hand the manner in which elections probably have to be held and on the other our belief that two national elections in a six-months period contributed greatly to the upset situation which brought Dr. Amini into power. The problem that Dr. Amini faces is how to stave off elections for a considerable period without thereby generating equally bad results. It seems to me that his problem will become particularly acute when the University is back in session a month or two from now, considering the extraordinary role which the University students can be stimulated to play in contemporary Iranian politics. I can only conclude, tentatively at least, that the situation thus demands increased activity in the anti-corruption front and active preparation for progress in the field of land reform as a means of directing the attention of the University students somewhat from the issue of elections. Putting it more broadly, although I believe that Dr. Amini tamped down some of the almost revolutionary fervor of the first days of his administration for what seemed sound practical reasons, I think he should now make further efforts in these two particular fields, in order to gain wider support and to divert attention from the election problem.

I plan therefore in the near future to discuss this matter of potential student trouble over elections with the Prime Minister and thereafter if necessary and desirable with the Shah. Although I doubt the advisability of a role for the United States in such matters beyond that of moral support and friendly advice, this should be not without value to a man as sorely beset as Dr. Amini or taken amiss by the Shah.

“To play for time and hope for the best” is certainly an acceptable policy in certain desperate circumstances. While no one knows what is going to happen in countries like Iran and there will probably be no time in the foreseeable future when we can afford to feel relaxed about the situation, I do not think that circumstances here should as yet be described as desperate. After less than three months here I would venture to say that the Persians have a better than even chance of keeping their society intact while concurrently making such adjustments as are required by changing circumstances both outside and inside. They are quite capable, of course, of destroying themselves, but my guess is that they will not.

I am forwarding separately our comments on the NEA study which accompanied your letter.

The remainder of your letter dealt with economic problems, especially the budget, and asked for my comments. I understand your viewpoint to be that in the months ahead the Iranian economic situation will be sufficiently stabilized to permit Amini to concentrate his energies on political and psychological problems, that German aid will virtually eliminate the need for further U.S. ad hoc financing assistance to complete the Second Plan, and that no real need for budgetary assistance over and above the $15 million already discussed with the GOI will be necessary. While I do not visualize catastrophes in the economic field, I am somewhat less sanguine about the economic outlook than may be implied by this assessment.

Amini has been heavily troubled by economic problems since the beginning of his administration. His economic inheritance was a mess—the economy was faltering, the foreign exchange reserves were virtually exhausted, prices were moving upward, the budget was in substantial deficit, stabilization goals had been seriously breached, and over-all administrative efficiency was, even for Iran, at low ebb. With the help of U.S. emergency assistance he surmounted the immediate crisis confronting his Government and he has subsequently made some progress with more basic economic issues. This has, however, involved a heavy expenditure of his time and energies.

Iranian economic and administrative problems are too deep-rooted to lend themselves to quick and clear solutions. Amini believes, and I share his opinion, that it will take at least 18 months to establish a viable economic and financial situation in this country. The economy is in a soft condition, marked by a sharp drop in investments, some industrial dislocation, and rising unemployment. Economic uncertainty is widespread. Landlords, peasants, merchants, contractors and workers all have reason for dissatisfaction with the policies and performance of the Amini Government. Amini, in turn, is confronted with a serious dilemma in respect to economic objectives. With his limited foreign exchange reserves leaving little room for maneuver, he wishes to restore balance in the country’s internal and external accounts primarily by means of the credit restraints involved in the stabilization program. This policy, however, has tended to intensify the liquidity problem in commercial and industrial circles and to contribute to unemployment. Relaxation of the stabilization effort would ease the domestic liquidity situation but it would be reflected in further demand pressures on the thin foreign exchange reserves and a further blocking of access to the IMF standby credits.

No single problem has occupied as much of Amini’s time as the formulation of the 1340 Budget which was finally passed on August 16. While the indicated deficit of 2,616 million rials appears over-stated, it is difficult to predict with assurance what the final outcome of the Government’s fiscal operations will be. However, having taken the considerations cited in your letter into account but without going into detail on this occasion, I feel that Amini is likely to have a hard core deficit of at least 1.5 billion rials ($20 million). This subject will be dealt with in a further communication.

Earlier information from Bonn in connection with the Federal Republic’s contribution to the financing of the Second Plan gap was, as you have stated, surprisingly favorable. Our enthusiasm on this score, however, has been somewhat dampened as a result of our review of the Protocol signed in Bonn and our conversations with Iranian officials. On the face of the Protocol itself, it now appears that the usable German contribution to the Second Plan period may not exceed $20 million, that the arrangements with the NIOC may hurt, rather than help, the 1340 Budget position and that problems may arise with the IBRD and the IMF resulting from the intention of the NIOC to push ahead immediately with the $175 million new construction program. However, reports of discussions between Embassy Bonn and German officials concerned with the negotiations indicated German understanding of the need to maximize disbursements within the limits of the loan for the Second Plan projects (namely up to $36 million). Until the final position of the Germans on this matter is clarified, we will not know the extent to which the Iranians will turn to us for further development assistance to complete the financing of the Second Plan.

In sum, there appears at this time to be a continuing need for budgetary and development support substantially in excess of the levels indicated in your letter.

I am afraid this is a rather long reply, but the questions you raised were so basic that I believed they should be thoroughly treated in the response.²

Sincerely,

JC Holmes

0. Source: Department of State, Central Files, 611.88/8–2761. Secret; Official-Informal.
1. See Enclosure 1 to Document 97.
2. On September 9, Battle forwarded to Bundy at the National Security Council a copy of this letter and a second letter from Holmes dated August 27 that contained 16 pages of Embassy comments on the NEA study, “Possible U.S. Actions Re the Long-Term Political Situation in Iran,” which had been sent to Holmes on August 12. (Ibid., 788.00/9–961)