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

105. Summary of Proceedings of a Meeting of the Iran Task Force⁰

Washington, September 7, 1961.

A meeting of the Iran Task Force was called by the Chairman for 3:00 p.m., September 7, 1961, to be held in Room 5514, NS. Prior to the meeting, copies of Embassy Tehran’s reply to the Department’s letter of August 11, 1961, as approved by the Task Force, were distributed to each of the Task Force members.¹ A list of members present at the meeting follows:

[Here follows a list of the 28 officials at the meeting.]

Mr. Talbot opened the meeting with a description of his recent visit to Iran and his talks with Iranian and American officials. The Shah was ebullient and articulate, but seemed far more interested and excited over military matters than over Iran’s political or economic difficulties. He emphasized the difference in the level of U.S. aid to Iran and to Turkey. Mr. Talbot in reply had emphasized to the Shah the importance of Iran’s balancing total resources against total needs.

The Prime Minister had not been prepared as to details when he was called upon to assume office. He must meet his problems piecemeal. In the immediate future, political threats to the Prime Minister’s objectives are secondary to the economic threats. Apparently his relations with the Shah are good, and Amini hopes to gain even greater support from the Shah on a wide range of issues. He believes that early elections would have catastrophic results; apparently there is growing interest in Iranian official circles in something like Ayub’s “guided democracy” theme. Amini does not seem to possess the characteristics of a charismatic popular leader, but he has a good realization of the problems confronting him, is a realist, and is overworked and worried. He does not appear to have a good staff. If he can meet his immediate problems, there is a possibility that a vague body of support can crystallize behind him. He has reduced the military danger to his regime; the possibility of a military coup against him is small, since the military leaders seem now ready to go along with him, and have modified their original resentment and distrust. Other rightist elements seem somewhat more reconciled to Amini than they were a few months ago, although they still hate and fear Agriculture Minister Arsenjani. Amini has not had corresponding success as regards the opposition of the “left”, the National Front and similar groups. The Front is badly fragmented, and the government’s firm but gentle show of force on 30 Tir seems to have disheartened the Front, which is uncertain whether the Prime Minister is “really bad or just ordinarily bad”. In any case there is at present little sign of coalesced organized National Front resistance to the government. The dangers of a serious political break between the Shah and the Prime Minister are lessening. There is little sign of either pro- or anti-Amini activity.

The fiscal and economic situation in Iran is more depressing. Amini inherited a confused and inefficient fiscal organization. The Army and the Shah press for more funds for the military; up to $60 million remains as a gap in the financing of the Second Plan; and the recently negotiated German aid will apparently only cover $20 million of that gap. The current budget, for the year half over, shows a deficit of between $20 and $40 million, and its preparation has been marked by a great deal of confusion and inefficiency. Better budgetary control requires something in the nature of a Budget Bureau, which the Prime Minister is now driving toward. Perhaps by next year a minimum of fiscal discipline will have been introduced. Local government is weak and ineffective while the Third Plan calls for great responsibility on the part of local government units. There is a vague and confusing overlap between the functions of the Plan Organization and the Ministries. Amini seems determined to move ahead with due regard for the law on the problem of corruption in the government, and has been permitted by the Shah to bring up the names of Royal Court officials as necessary in the coming trials. He is genuinely concerned over land reform, but without adequate government services and finance to take over the functions of the landlords, the task will be slow and difficult. Tax reform is moving, but slowly. Iran is not in good health. The U.S. will have to slowly nurse it along, but must avoid creating a sense of dependence on U.S. aid. The Iranian infrastructure, starting from near zero, has improved and is improving. Iran is worth an effort on the part of the U.S., but no panaceas are in sight, and there are no grand slam solutions to its deeply-rooted problems. Iran, incidentally, appeared to be considerably more modernized and prosperous, both in the city and the countryside, than is India.

On Mr. Talbot’s request, Mr. Miklos² briefed the Task Force on the economic situation. Mr. Miklos emphasized that as regards the financing of the Second Plan, we cannot request additional U.S. development lending until we are certain what the final result of German aid lending will be. Our Ambassador is pushing for a government-wide Iranian evaluation of the exact meaning of the German aid protocol, and for a reopening by the Iranians of the negotiations if this evaluation shows the present protocol to be as unhelpful as is presently indicated. At such time, we would be able to back up the Iranian request to the Germans.

Mr. Welk³ asked Mr. Miklos why we should not approach the Germans now, and Mr. Miklos replied that we felt it would be improper for us to do so until the Iranians themselves had opened the question.

Mr. Miklos went on to say that it now appeared far more likely than it did a few weeks ago that we would have to support the Iranian budget for the current year, but that we could not pinpoint the requirement until after a joint U.S.-Iranian task force in Tehran had completed a detailed analysis of the budget problem.

Mr. Komer said that he detected in the Task Force a “cycle of concern”. We looked ahead a few months ago with great concern, taking a long-range point of view. Now that we note that Iran is getting along from day to day, coping with its immediate problems, we must keep in mind the long-range prognosis. Perhaps the Embassy, in its reply now before the Task Force, is slightly more optimistic than we have been. The problem is, granting the necessity of full support of Amini’s long-range problem—what can we do? There can be no sudden quick solution. Our actions will probably have to be many and small, and some of them may not work, and even have unfavorable results. I am somewhat reassured by Mr. Talbot’s impressions, and it appears that there is no immediate crisis in Iran. There is the question of lead time, however, both as regards the delays inevitably encountered both in our government and in that of Iran, on the implementation of new action programs. I think we should consider what we should start now which may not come to fruition for a long time but which will assist in meeting long-range problems. If political prospects in Iran are reasonably bright, then a liberal U.S. response to Iran’s economic and financial needs is indicated.

Mr. Talbot said that he felt Iran was definitely in a crisis, but that the crisis was not solely of politics or of economics, but of political economy, and that the current evidences of the crisis are in the fiscal aspects of the political economy of Iran. We must not forget that unless the day-to-day crises are overcome, the long-range chances will be lost, and I still feel that the Amini regime offers the best long-range hope for Iran. The question of political glamorization of the regime is probably not as important as the improvement of the institutional structure, which would provide Amini with better tools and freedom to act on the long-range political problems.

Mr. Hansen⁴ remarked that he was only in Iran for about eight hours, but he did get to talk at length with several officials. The central problem of the Amini government is that it did not know the nature of its instrumentalities, such as the abysmally incompetent Finance Ministry. The installation of a Budget Bureau will solve nothing in itself. Will the budget bureau have real control over funds, control based on sound financial and economic plans? Should the Plan Organization control the capital budget or should the hypothetical “budget bureau” act on the basis of a plan? Putting real power into the Prime Minister’s office is no answer until you see who is wielding that power. The key institution is economic planning.

Dr. Lardner⁵ asked if Mr. Hansen had seen any indication of improved fiscal control measures in the Iranian military. Mr. Hansen replied that it appeared that there was attention being given to the problem and that there was some movement, but few signs of solid progress.

Mr. Talbot then distributed copies of a draft memorandum (copy attached)⁶ to the White House from the Department of State which constituted a reply to the White House memorandum of August 7,⁷ and which was based largely upon the Embassy’s letters of August 27 and invited a discussion of the Embassy’s letters.

Mr. Hansen said that the Embassy’s document is essentially a do-nothing approach, advocating no political action but waiting for the dust to settle. The document can only be termed a negative analysis.

Mr. Komer said that we must decide whether or not we are doing all that we can. He felt that there were two basic alternative attitudes which we could take. We could either say that we are now doing what we can, or we could take an active attitude by launching further follow-on actions beyond what we are now doing but in the general direction of the Task Force’s earlier actions. The first course is doubtless defensible, but I favor the second.

Mr. Hansen remarked that another way of putting it is that we can either shore up Amini, recognizing that he can best solve his own problems in his own way, or we can go in closely with action programs, sitting down with Amini and telling him that if he takes such and such a specific action, we will take such and such an action. If we take this bold approach it is true that we commit ourselves. But the Embassy’s reply and this draft memorandum reflect negativism and the passive approach to a problem. Could we not direct the students of Iran to positive attitudes and actions? Could we not work actively with moderate middle class elements fighting corruption? Fiscal reform must be a clear condition of United States aid. Are we ready to come to grips with the problem of the military? We should immediately devise a program for land reform legislation, laying the problem of land distribution temporarily aside. The Embassy’s approach is a negativistic defense of the status quo, and conveys no sense of crisis.

Mr. Thurston⁸ said that it seemed to him a basic question as to whether or not we wanted to build our program around the Shah, or to work for a reduction in the power of the Shah.

Mr. Talbot replied that the Task Force had built its original recommendations around Prime Minister Amini, with the goal of broadening the power base in Iran in the direction of the Cabinet and the Prime Minister and away from the Shah.

Mr. Bennett⁹ said that perhaps other financial measures are still unexplored, and that the flight of capital may be a hole in the barrel. Better financial controls in Iran would possibly reduce the demand on our own resources. Perhaps we could force the formation of a committee to manage Iran’s external financial resources and prevent drains on our resources; too little attention has been given to remedial measures.

Mr. Spain said that the main pressures on the Iranian government sprang from the Nationalist Left. Without consideration of Amini’s competence in handling financial problems, there is grave doubt that he is capable of handling this opposition, which is only temporarily quiescent. The hypothesis that political problems could be set aside in favor of the solution of financial and economic issues is open to question. Amini’s political base of support is becoming narrower, but can we not take more positive action on remedial measures on the problem of leftist pressures? If I were Amini, I would have gone much further left than Amini did; I would not, for example, have muzzled Arsenjani. Perhaps some degree of increase in the power of the National Front would be useful.

Mr. Stoops¹⁰ said that each year for years we have talked of fiscal reforms in Iran but we end up by bailing the Iranians out again without any reforms. Unless we can drive home the necessity of reforms, Iran will not be in the Free World for long.

Mr. Talbot said that we are faced with the problem of immediate action in Iran to face an immediate crisis. We have had a gendarmerie mission in Iran for twenty years, but the gendarmerie still takes bribes. The question is not just whether or not to continue subsidizing Iran. The essence of the problem in Iran is one of social discipline and the nature of the political forces there. It is not a question of whether or not we give budget support. It is a question of whether or not we can work at improving the institutional structure while we continue to assist the regime financially. Institutional improvements as they occur will improve the political situation. Political and economic actions are interrelated. Our Ambassador is continually pounding hard at the Prime Minister as to the necessity of action on the malaise of fiscal control, on the demonstration of government sincerity in the corruption cases, and so on.

Mr. Hansen said that the Embassy’s comments indicate that it expects little response from these pressures. In the past, we have been credited with huge influence even when we had very little. I advocate our overt association with political change in an orderly comprehensive way with specific prescriptions for positive programs. We must provide the direction for these programs, even to the point of public association with them, in which case we would at least be blamed for what we actually do, not, as in the past, for everything that happens. Desirable action programs would consist of a statement of our objectives, the way in which the program is to be advanced, and a statement of the nature and extent of our assistance in advancing the program. The IMF stabilization program is essentially good, and is the kind of thing I am talking about. The Embassy’s response to our questions is extremely disappointing to me.

Mr. Welk suggested that if such approaches be tried they be tried in areas least likely to cause a political disaster.

Mr. Hansen replied that the action program must be a broad one which would involve risks of all kinds.

Mr. Welk suggested that Mr. Hansen provide the Task Force with a more specific outline of just what he had in mind.

Mr. Hansen said that one can’t make such detailed and realistic plans from Washington. They have to come from the Country Team, and I see in this response little to make me sanguine about realistic planning coming from that source.

[less than 1 line of source text not declassified] suggested four courses of action which might improve the situation and which we have not yet attempted. First, a strong U.S. attempt to influence Iranian students and teachers through influencing international student and teacher groups with U.S. components; Second, to shore up Amini through influencing the intelligence positions of friendly governments; Third, to realign our aid to Iran and coordinate it in the direction of the building of lightly armed military organizations effective in maintaining internal security; and Fourth, to take more active steps on the covert level to find and develop a moderate nucleus of moderate middle class political leadership, since the long-range future lies with the middle class, and we cannot risk truly remaining aloof and aligning ourselves only with the Shah, the Army, and Amini.

Mr. Talbot said that these suggestions were interesting but tricky, particularly the last item. Amini has survived, and this in itself has been a success. Obviously the middle class must eventually become more identified with the government, but the time scale is doubtful.

[less than 1 line of source text not declassified] replied that the two latter points were long-range, but we could at least start them now.

Mr. Bowling remarked that for years our Mission has been under instruction to attempt to locate, for possible build-up and support, realistic moderate middle class leadership, but it has so far not been able to come up with anything.

[less than 1 line of source text not declassified] said that he was contemplating something more direct and specific.

Mr. Thurston asked if elements of the military could not serve as this type of middle-class leadership.

Mr. Spain, quoting from the National Intelligence Estimate, said that there is some potential, but not much, as compared with a country like Pakistan, in the military for real political leadership.

Dr. Lardner said that he thought the group was overlooking some unpleasant realities. He pointed out that the Government of Iran was sovereign, and mentioned a previous U.S. Ambassador who had tried to pressure the Shah to specific action and had immediately lost all his influence and effectiveness. There is a limit as to how hard and fast we can push on these things. We must also be more specific. How much can you achieve in a certain period? On the matter of the budget, can you find the men you need in a hurry? We may be ignoring details to a dangerous degree. We cannot continue to talk in generalities. To come to a decision, we must have something concrete to study. Perhaps it would be too risky politically, perhaps not, but we can’t decide on the basis of generalities. Perhaps we on the Task Force are deficient in not working up more specific proposals for action. Everyone talks in generalities but waits for someone else to come up with specific proposals.

Mr. Komer said that we cannot wait forever, and that our approach must be frankly experimental. In a time of crisis one must take risks, and perhaps play by ear, never knowing exactly what the result would be. We should explore low-confidence options in this type of situation.

Dr. Lardner said that, for example, we agree that improvement in the judiciary would be desirable—the question remains how one goes about it. And is it remotely achievable in time to affect the political crisis?

Mr. Polk¹¹ said that the important thing was comprehensiveness; even uncompleted actions could have beneficial political results.

Mr. Hansen said that in the Task Force we established a general line of action. If the Embassy had come back with an affirmative reply, we could have come up with specific plans. But this Embassy response brings me to a halt. If the Country Team is incapable of devising policy it is probably incapable of implementing policy. I’m for a real action program, but much of both the genesis and execution of such a program must come from the field.

Mr. Talbot said that it is clear from the Embassy response that our tentative Washington appraisal of the fiscal problem was over-optimistic. The Prime Minister has a sense of the problem but not a lively sense of it. We must act, when we act, through the existing crisis, which is now expressed in fiscal and economic terms. If we ignore this, we would be deviating from our own recommendations. In the nature of our response to the immediate crisis must be the seeds of longer-term progress which will result in Amini coming out stronger, broader based, and with broader support from the Shah. Our response to this immediate crisis must be such as to provide alternatives to its repetition. The Embassy paper does not seem to me to be do-nothing. The Ambassador is feeling his way into the situation. Our field people have decisiveness and vigor of leadership. The field is now actively engaged in re-evaluating and changing our economic aid pattern.

Mr. Komer said that Task Force could be a useful tool for packaging an effective instrument to meet the crisis in Iran. I see no signs that we are out of the framework of crisis action.

Mr. Talbot said that the crisis is one which has deep and fundamental roots.

Mr. Bennett noted that the Central Bank was not playing the role that it should in Iran, and that Amini had fired a good chief of that Bank and put in a poor one. Mr. Komer asked if we could continue to rely on the normal processes of diplomacy as envisaged in the draft memorandum and in the Embassy’s response, and if we should not move in strongly and immediately on such questions as that of the head of the Central Bank.

Mr. Talbot noted that our NSC-approved instructions were to move “positively but discreetly”, and that the word “discreetly” had been inserted after a thorough discussion. We should push actions at the wholesale and not at the retail level.

Mr. Hansen remarked that we had assumed that Amini would play in the direction of the National Front, and that he had not done so. We misevaluated him; he is acting as a typical Persian Prime Minister.

Mr. Komer said that perhaps we must choose between too much pressure and presence or none at all.

Mr. Talbot said that we are expecting further information on the nature and extent of the two upcoming financial-economic problems, and that our response will be affected by the final shape of this year’s foreign aid legislation. In about the next three weeks we must all study ways in which we can respond to the present crisis in such a way as to advance toward a solution of basic problems.

Mr. Hansen suggested that an “issues” paper be written and that the Task Force then break up into “action groups”, in order to speed up the machinery.

Mr. Talbot said that when we have firm information on the fiscal and economic problems, we can devise the best possible responses. Before closing the meeting, Mr. Talbot directed that a short NEA memorandum be distributed (copy attached).¹²

Mr. Talbot indicated that another meeting of the Task Force would be called within three weeks to consider specific Iranian requirements for additional financial assistance, whenever the necessary information should be available. He asked members of the Task Force to consider in the meantime various alternatives as to the U.S. response.

0. Source: Department of State, NEA/GTI Files: Lot 66 D 173, Task Force on Iran. Secret. Drafted by the Task Force’s Executive Secretary, Bowling. A September 6 memorandum, drafted by Bowling and sent from Miner to Talbot, contained suggestions for conducting the September 7 Task Force meeting. Attached to it is a State-Defense Working Level Ad Hoc Group report on Recommendation No. 5, approved by the National Security Council (see Document 51), which directed an examination of matters related to the deployment of U.S. forces in the area. (Department of State, NEA/GTI Files: Lot 66 D 173, Task Force on Iran)
1. Meyer’s letter is printed as Enclosure 1 to Document 97. Holmes’ August 27 reply is printed as Document 102.
2. Of the Bureau of Near Eastern and South Asian Affairs.
3. Of the Export-Import Bank.
4. Of the Bureau of the Budget.
5. Of the Office of the Assistant Secretary of Defense for International Security Affairs.
6. Not printed.
7. Document 94.
8. Of the Department of State’s Operations Center.
9. Of the International Cooperation Administration.
10. Of the Development Loan Fund.
11. Of the Policy Planning Council.
12. Not printed.