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Foreign Relations,
1961-1963, Volume XVII, Near East, 1961-1962 Released by the Office of the Historian Documents 246-272 246. Memorandum of Conversation/1/
Washington, April 13, 1962, 11 a.m.
/1/Source: Department of State, Central Files, 611.88/4-1362. Secret. Drafted by Bowling, Talbot, and Gaud on April 20; cleared by the Department of Defense on April 23 and by the White House on April 25. According to the President's Appointment Book, the conversation lasted from 11:02 a.m. to 12:03 p.m. (Kennedy Library)
SUBJECT PARTICIPANTS The President and the Shah examined the draft Joint Communiqué The President referred to a conversation the previous evening with the Shah, The President said that nothing contributed so much to the Shah's prestige as Iran's economic development program. The President congratulated the Shah for having found such an excellent Prime Minister and for supporting him in his efforts. We are very interested in cooperating with Iran in the field of economic developments as far as our resources would permit; it is very important to get the other Western nations to help Iran.
The President noted that he, the President, could leave his present job and the United States would go on, but Iran would collapse if the Shah were to leave his post. The President assured the Shah that he had the support of the United States.
The Shah acknowledged the importance of this point, and noted that he had been working for twenty years at the task of building a strong anti-Communist society through social reform and economic development. But even if the USSR did not exist, he would still have a duty to work for the progress of the Iranian people. The Shah remarked that he felt responsible to the majority of his people and he cannot belong to the few. The President interjected that the few can take care of themselves. The Shah replied that this was true, although things were being made a little harder for them now.
The President told how Franklin Roosevelt was still regarded almost as a god in places like West Virginia, because Roosevelt, though a rich man, had worked for the interests of the common people. Referring to the current trouble with the steel companies, he said it was necessary to identify ourselves with the small people, and he was aware that the Shah had done precisely this. This particular thunder must be taken away from the Communists. He wanted the Shah to realize the depth of his feelings on this subject. Life is a burden, but unless the Shah survives, Iran and then the whole Middle East would crumble.
The Shah stated that this concept was the goal of his life, and that he had devoted his life to this end. He gathers strength from seeing that Iran is moving forward. To succeed on the economic side Iran needs time and security. These last elements will be provided by the bilateral agreement with the United States and by the existence of revamped armed forces which will give Iran the prestige it has needed. The Iranian people expect strength from their government. Iran needs an honest, first-class army with a decent standard of living. With such an army Iran can resist Communist pressures and build the country into a showcase so that other peoples can see that it is possible to work with the West and get more effective support than countries such as Egypt receive.
The President told the Shah that he wanted the content of their exchanges to be perfectly clear, in order that there should be no feeling later that their meaning had been misunderstood. Therefore he wished to remark that he did not believe it was possible to make Iran a showcase immediately. Even here in the United States, we still have many problems, such as unemployment. We have fiscal limitations, and we cannot give as much as the Shah would wish. But we will do the best we can and will press other countries to help. He emphasized that the United States is far from being a showcase--we still have unemployment, educational problems, and many other problems yet to be dealt with.
The Shah said that by the term "showcase" he had meant only a comparative improvement. He wondered why Iran's efforts looked better now than they had in the past.
The President surmised that this interest and support for Iran was due partially to the fact that Iran has picked its enemies and partially to the fact that it has picked good people to work on the main problems. The situation in Iran is obviously improving.
The Shah agreed and remarked that he is not by nature a dictator. But if Iran is to succeed its government would have to act firmly for a time, and he knew that the United States would not insist that Iran do everything in an absolutely legal way.
The President agreed that there are always special factors that have to be taken into account in different countries. We are aware that the Shah is the keystone to the arch in Iran. Iran's progress will depend on continuing recent efforts--it will be necessary to keep the heat on those who do not accept the national interest and take their money out of the country.
The Shah said that some people had become unjustifiably frightened of the stabilization program and had taken their money out of Iran.
The Shah asked if it would not be possible for Iran to take more advantage of PL 480 assistance, and noted that Iran needs substantial supplies of wheat now. Mr. Gaud said that Iran's request for 100,000 tons of Title I wheat represented no problem, and that a further request, which he understood was coming along, for 100,000 tons under Title II would be given prompt consideration.
The Shah pointed out that PL 480 wheat was also important in that it generated local currency which could be used, among other purposes, to provide low cost housing for civilian and military employees of the government. The President suggested that we might consider devoting all the local currency generated by the forthcoming wheat shipment to such housing rather than spending it on a variety of scattered projects. He said AID should check on the possibilities. He also asked AID to assist the Iranian government in obtaining information on recently-devised methods of producing inexpensive housing, such as had been used in Brazil and Venezuela.
The Shah spoke of his interest in utilizing special Army battalions to further civil economic development programs. Ambassador Holmes mentioned that we had a Corps of Engineers headquarters in Iran, and that there are plans to expand civic action programs there.
The President asked if the Shah had any advice as to how the United States should cope with its problems and responsibilities. The Shah replied that he felt the United States was doing very well indeed, and that the Communists will be defeated in this way.
The President said that as a politician he would like to emphasize that national leaders must identify themselves with the common people. The President said that he knew this was the Shah's course, and that politically it is the most successful course. The Shah replied that he had been working at this very problem for many years, and that it is his life. For example, he had been jailing people for corruption for two years, but that it was only being noticed now.
At this point Mrs. Kennedy and Caroline entered the office for a brief visit with the Shah before he had to leave for his Press Club speech.
PARTICIPANTS
H.I.M. the Shahanshah of Iran The Secretary In opening the conversation and inviting the Shah to comment on any issues which he wished to pursue further following his conversations in Washington, the Secretary remarked on the favorable public response which both the Shah's visit and Iran's progress in the economic and social fields had made in this country. He believed that in a very real sense the U.S. and Iran were partners, and wished to know if the Shah agreed, what the Shah's plans were, and how the Shah felt as a result of his visit.
In response, the Shah stated that he had tried to be as clear as possible in all his conversations in Washington. Obviously speaking extemporaneously, he continued that his primary problem was how to promote social justice in Iran, and also how to utilize the untapped as well as the existing wealth of the country, agricultural and/or industrial. The aims are to raise per capita income, and to secure for the country a posture of both plenty and social justice. On one side, there was the question of state development to provide an incentive to his own people for investment. This they were doing: for example, there was a five-year tax exemption. There was also legislation providing a favorable climate for foreign investment. On the side of social justice, there were problems as regards land and labor. In the latter sphere, he was thinking of some formula to make labor shareholders in factories, or perhaps to give them a share in profits. As regards government employees it was not just a question of pay raises: housing was essential. He was also thinking of cooperatives or something in the nature of a civilian PX. The essential thing was not to force the civil servants to be dishonest. If their living conditions were improved, then he could be hard on them in the case of dishonesty.
The Shah continued that this was all part of what he described as "positive nationalism." This was true of Iran's foreign relations as well. This policy was based not on hatred but rather on friendship. He then turned to Iranian-United States relations and said "that is the basis of our relations with you, we are not your stooges." What the Shah was trying to put across, he said, was that it is possible to cooperate with the West. As he had mentioned the day before to Congress, the Shah's policy is based on friendship with the Western powers. He then said he hoped that this policy would also be instructive as regards the African countries. They should not, as some were obviously doing, base their policies on hatred. Returning to his own internal problems, he said that what was necessary was to speed up development and raise the standard of living rapidly. He referred to the Soviets' 20-year program enunciated at the 22nd Party Congress. We have great chances, he continued. Essentially Iran is stable; we have had no serious upheavals. We have a tradition of stability. For example, my trips throughout the country are eloquent witness of the response of the people. There is no possibility, so far as I am concerned ("perhaps your information services have information to the contrary") that in the absence of outside intervention there will be any upset. It has not happened in Iran as it has happened elsewhere. This raises the question why? So far as the Shah could see, it was the brave start his father had made. For his own part, he thinks it is because as both King and Commander-in-Chief of the army he has kept the army and politics separate. Internally, this involved several interwoven problems. On the one hand Iran had a good plan, and is working toward social development. They had good administration--although admittedly it needed revision. On the other hand, there was the need for security. This was as much psychological as anything else. Iran's borders must be secure. This was accomplished both through the bilateral with the U.S., and through the Iranians' own will to resist. It was necessary, however, to give a firm impression to the people. They don't need to know the details, but must know that the borders will be defended. Therefore the Shah could not allow himself to withdraw completely his military elements from the northern borders lest, among other things, the fear of occupation induce the people to establish contact with the Russians even before they come.
Turning to his neighbors, the Shah remarked that Turkey, Pakistan and other countries depend on their armed forces. "We, however, have the institution of the Crown. We also have strength--I don't want something fantastic, but something worthwhile." This helps boost morale. Internally reforms must be made. Sometimes measures are unpopular, for example constitutional reform. As he had told the President, personally his character had nothing of a dictator in it: in the long run dictators cannot last. But he must give his people the base on which to build. The Shah then alluded to the Belgian constitution, and said that if it was merely a question of a piece of paper, this could be adopted overnight. But it must be built, beginning in the village councils and on up, through the parliament. As regards parliaments, Iran had had one for many years. The Shah had never personally suffered from it; in fact he regarded it as the foundation of the state. This is not enough, however. In his view he could not permit the constitution to impair Iranian unity. "If it does so, let's forget about it." The Shah hasn't forgotten it: "perhaps in just a few months time I may be forced to have a parliament." But this should not come first. "I must put first the high interests of society and my people." He thought he was making progress. He also thought he was having a desirable influence on his neighbors.
This line of thought led the Shah to dwell on the Afghan situation, which concerned him "seriously." More and more the Afghan economy was falling into the Russian orbit. The Iranians were trying to help; they were offering the Afghans trade routes for many reasons, including their own benefit. This was one of the reasons the Shah was particularly interested in Bandar Abbas. A cardinal interest in Bandar Abbas was military as it would permit help to reach him more rapidly in the case of necessity. It would also have the additional advantage of offering the Afghans facilities. As for Iraq, unfortunately he just did not understand. For the last two years both the UK and the U.S. had told him the uncertainty would be "finished," but so far as he could see the situation just continued to deteriorate. Just before he left Iran he was told that 12,000 Kurds were united in opposition to Baghdad. So far the Soviets had not gotten in, but if the situation gets out of hand, "if next summer the Kurds pass to the offensive," then possibly the Soviets might be tempted. "We must therefore be on our watch, especially since we have Kurds, as do the Turks--incidentally the Kurds are the purest Persians, pure Aryans, from their tradition, their language and their history." In Iran the Kurds have had no local success, as they have had in Iraq. The Shah is endeavoring to help them by building roads, schools, hospitals, electrifying their villages, paving their streets, building silos.
As regards Turkey, "our strong ally, and for which we have only real fraternal affection, I hope we need not worry," the Shah continued. But, because the country is now divided and there is strong political hatred, because the army is now in politics, it is worrying. The army should be a national army, drawing strength from all sections of the country and all walks of life. But the Shah hoped that Turkey could pull through.
As regards the Arab world, "perhaps it is pure prejudice, but I just don't like them." Therefore we have some apprehensions, particularly when we see them talk about the "Arab gulf." The Shah was referring to all the Arab countries except Jordan, Lebanon, which is not a military power, and Saudi Arabia. All the rest have switched to Russian arms. They have either sent their people to the Soviet Union, or have accepted missions of experts in the hundreds. Thousands of Egyptians have gone to Russia or Czechoslovakia, officers of the air force, navy, etc. Iraq also has the same policy--"It is true they are divided, and there is not much chance they can get together." The Shah was sorry to say it, but his feeling was that if the President of Egypt "gets what he wants, he might be a source of danger." He has started Arab socialism, "which cannot succeed;" it is not compatible with Arab nationalism. But what happens when it fails? The Shah had the feeling that "we, who are the open and declared allies of the West--we should succeed. I am sure that you want also to see your friends succeed." He concluded his remarks by stating that he had not mentioned Pakistan because the Iranians really had no problems with the Pakistanis.
The Secretary thanked the Shah for his comments, which contained many elements of solid interest, and were very important to us. He wished to speak first of what the Shah referred to as his policy of "positive nationalism," which he interpreted as meaning independence of national policy in friendship with the West. We were "entirely comfortable" with such a policy. That is just the way we think the international community should be organized. Our view of the world community was well stated in the opening passages of the UN Charter. We were not seeking satellites as allies. As regards the neutrals, their very independence could be a source of concern to us. In a certain sense the U.S. was never less sovereign than it was today. Its responsibility has limited its freedom of action. He was reminded of a remark a friend had made to him that in an international negotiation, two countries could never reach accommodation unless each fully understood its own interests. Referring to the Shah's allusion to Khrushchev's 20-year plan, he quoted Adenauer as being amused at "the luxury of being able to announce a program concerning which you would not have to answer any questions for 20 years."
Regarding the Shah's remarks on the Arab world, we looked at the possibility of an Algerian resolution as perhaps presenting new opportunities both for France and for the Western powers. Algeria has been the worst problem. Of course, on the other side there was also Palestine which, together with Algeria, is the only unifying element in the Arab world. The Secretary continued that we are not completely discouraged with the direction of the Arab-Moscow relations; sometimes the temperature goes up, sometimes it goes down. Arab temperament and Arab nationalism are such that we thought they would cause the Soviets as much trouble as they have us and would in fact be a bar to the Soviet ambitions.
The Secretary then commented that the most important element was the sense of security. This was where Berlin was vital. Perhaps the Shah would like him to expand on the Berlin problem--unless the President had done so that morning. The Shah acknowledged that they had touched on Berlin, but not at length, whereupon the Secretary continued that Berlin was the principal issue over which a major clash could occur. The Soviets had been making insistent demands, which "cut right across the vital interests of the West." Since June, in fact since the President and Khrushchev had met in Vienna last summer, it had seemed that the harsh Soviet line was designed to intimidate the West. This had led to the President's July 25th demand to the Congress to increase our defenses. Since mid-September, it had seemed that the Soviets had been more moderate. In fact there was some evidence that Khrushchev had perhaps been a little surprised at the degree of the President's reaction. As regards his own talk with Gromyko, on substance, that is on the merits, there had been no significant headway. There had been, perhaps, a change in the atmosphere and mood. The Secretary could be wrong, and it could change tomorrow, but he felt that the Russians were not driving toward a crisis or a diplomatic impasse.
The Berlin situation could affect Iran in two major respects, first if there were a major clash--and the Secretary here emphasized that "We will not be driven out, for the consequence of that would be just as disastrous as a major engagement," and we have been trying to make this known to Khrushchev. Secondly, it would weaken the Shah's position if we were weak in Berlin. If we are able to interject a note of caution in Soviet thinking in this respect, it could be reflected in their conduct in Southeast Asia and regarding Iran.
Turning to the economic, social development side, the Secretary continued that the U.S. is very much interested in Iranian progress. The Secretary understood that the Shah's plan would be ready in June. There would then be a consultative group under the Bank, "with the maximum U.S. interest in enlisting the efforts of a number of countries, in September." There was also the question of how to maintain the momentum before other countries undertook commitments. In this respect, there were a number of things that could be done: for example, Bandar Abbas, where we hoped to be able to respond favorably to a loan application somewhere in the order of $20 million for foreign exchange costs. There were a number of other things that could be done. The Secretary had only two remarks to make. First, we are trying, and he asked the Shah "not to be understandably cynical too soon"--we are trying to establish a mechanism to make decisions more rapidly. This was basically a question of good administrative practice: the Secretary found it amusing that we were encouraging the Iranians to improve their administration at a time when we were also working in the same direction. The Secretary was trying to concentrate decisions in two places; with Ambassador Holmes, who would on the basis of his expert knowledge of the local scene, and in consultation with the Iranians, make recommendations, etc. The second focus was with Messrs. Gaud and Hamilton here in Washington: these two elements working together should be able to make decisions promptly.
The second remark the Secretary wished to make was that we recognize that international consultation may be cumbersome. But in the next decade we foresaw that the West would be developing common policies with regard to aid to less developed countries. For example, OECD was a symbol of this cooperation. There are nations who are already devoting to international development portions of their gross national product comparable to that devoted by the U.S., and in total somewhat more: this to development, not to military assistance. What we must do is to mobilize the resources of the free world for the long term: this was where the Iranian program was important. We propose to work with you and the International Bank. First there will be consultation no later than September. In the meantime, we must manage to maintain momentum. For this purpose we are prepared to entertain applications for development loans during the period before the plan is finally prepared. The Secretary wished to know whether this approach fit the Shah's thinking and approach to the problem. There was a very considerable number of things in which we are interested, but the Secretary did not believe it necessary to go into detail. It was basically a question of how best to use our own interest in Iran for its maximum leverage on others.
In thanking the Secretary for his remarks, the Shah stated that U.S. policy was a great comfort to him, to his people and to the region. He continued that he knew and accepted U.S. policy. Even when the U.S. was not directly concerned, it was interested in justice, international standards, etc. Therefore he looked to the U.S. For a long time Iran had been suspicious of the Western powers, particularly Britain and Russia. Therefore, in the First World War Iran had been pro-German. But now Iranian policy had switched to a pro-West policy, and had every prospect of remaining so. Iran endorses U.S. policies. The Shah therefore understands the sense in which we agree with his "positive nationalism."
As regards the Arabs and the Secretary's remarks concerning a possible happy outcome to the Arabian problem, the Shah commented that he had friendly personal feelings towards DeGaulle and believed these were reciprocated. He had first warned DeGaulle about Algeria in 1959, pointing out that he was the only one who could resolve the issue. (The Secretary commented that this was "extraordinary counsel.") The Shah was happy that the situation was improving, and envisaged that this would bring the Moslems together, particularly the Algerians and the Tunisians. He agreed that thereafter Arab nationalism would focus on Israel, but pointed out that Egypt did not "want" a solution. As he was coming to the U.S. this time, at the Beirut airport, the Lebanese Prime Minister had commented that it was now necessary to resolve the refugee problem, along the lines of the UN resolution. The Shah had not given him a direct answer, but Lebanese informants had told him that it was essential that the U.S. induce Chehab and Chamoun to get together. To an interjected question by Mr. Talbot as to whether this had been recently, the Shah replied that it was perhaps indiscreet to say so, but in fact this had been said by the Lebanese Ambassador in Tehran on March 21.
Turning to the EEC, Japan and economic growth in the West, the Shah continued that he had long told many of his European friends that they "could no longer get rich on the U.S." As regards Iran, foreign powers could not just sell to Iran: they must invest in order to secure foreign markets. "Otherwise we will attract capital and you will suffer. We will offer favorable markets to those who invest capital in Iran." The Shah was of the opinion that the European nations were inclined to help--perhaps not to the extent that the U.S. and he wished, but in any event to help. He then commented that, broadly speaking, the price of industrial imports tended to increase each year, whereas the prices of agricultural exports were declining. This was very difficult for a country like Iran, with an increasing population. With respect to aid, the Shah had talked to the President, who seemed to have liked the idea that Iran should take more and more P.L. 480. The possibility should be explored to the maximum. This would help him combat the rise in prices of agricultural commodities. Iran's problem was complicated, of course, by a bad harvest. To this, Mr. Gaud commented that we are in agreement to the extent that there is a need.
The Shah then commented, in reference to AID, that the Iranians had decided to have an over-all budget. He continued that Mr. Asfia was having talks with various competent people in Washington. He was not aware of the details, but he assumed they were helpful. Mr. Hamilton agreed that there had been very helpful talks. In the course of this exchange, the Shah made a remark to the effect that the talks had been useful "to the extent that you are willing to give us the same kind of help you are extending to India and Pakistan." He continued that "surely we will tax, we wish to tax," but this is not a good year to start. Furthermore, the stabilization program made it difficult. Following a comment by the Secretary that he believed that the IMF was coming to Iran in May in connection with stabilization, the Shah continued that it was also necessary in the long term to make the oil companies grasp the situation in order to have stability. Iran should "remain the bastion guarding the gateway to the Middle East." Therefore, it was "in the oil companies' interests that we should stand firm. They should see to it that our production is boosted; particularly when there is a choice of where to increase, they should naturally favor us." This is especially so when others have so much income they don't know what to do with it, for example Kuwait. Mr. McGhee interjected that it was difficult, because they were not the same companies, for example, in the gulf. To Mr. Ball's statement that we understood that the Shah was going to talk with the members of the consortium, he said that he talked with them regularly. Just a month ago he had received five or six of them. They have promised to increase revenues 7 to 10 percent this calendar year. This, Mr. McGhee commented, would compound rapidly, and the Shah remarked that if they continued to increase up to perhaps 12 percent, it would naturally be of great importance. To Mr. Ball's comment that as the President had said, we intended to talk to the oil companies--what success we would have is questionable, however--the Shah remarked that he thought they would be favorably disposed since the Iranians were not causing them troubles, as was for example Iraq. Mr. McGhee suggested that perhaps the Shah could speak to them more forcibly, directly, than could we, and the Shah acknowledged that that might be true.
Mr. Ball then addressed himself to the Shah's comments regarding the adverse developments in terms of trade. We were thinking now not only in terms of the EEC but also the over-all general development in this respect. In many items Iran was simply not competitive. After some discussion on Iran's competitive position, particularly with Greece and Turkey, Mr. Ball continued his explanation of the broad lines of U.S. policy. We were seeking free trade without preferential agreements. We were talking with the UK, France, and others seeking to eliminate preferential treatment and substitute commodity arrangements on a global basis. These were clumsy and difficult when perishable items were concerned. The U.S. is attacking the problem directly on an item basis, for example, coffee, cocoa, and minerals, seeking both stabilization in price, and income stability. From the point of view of terms of trade as such, the Shah was right. We are aware of the problem of the rise in industrial prices and can understand the Iranian anxiety regarding the Common Market. As regards our own trade policy, we had two points: (1) the most favored nation approach and (2) our new trade legislation. The latter would provide free access for certain tropical products and perhaps would be available for some Iranian products. In any event, we were very actively working on these problems. Mr. Ball agreed that over a period of time it could be serious if aid were vitiated by price fluctuations. He could give no assurances; it was a very complex problem but we were working on it.
The Secretary then turned to military questions, referring to the Shah's conversations with the President and Mr. McNamara. He handed the Shah an aide-mémoire and annex, The Shah continued that he would naturally be very glad to receive the planning team to consider the reorganization of his forces. Although he personally agreed in the light of the fantastic retaliatory power that he had seen during his visit, and since also the Soviets know that any attack would mean war (but also that Iran could not defend effectively), nevertheless this did represent a completely new approach. It was different from CENTO, and that was a problem for him: how to explain to CENTO, and what would be its effect on the military committee? The Shah could not comment on that. Ambassador Holmes interjected that this reflected precisely what the Shah had been seeking: more mobile forces, and greater striking power. Military plans were never static, and there should be no difficulty in explaining it. The Shah continued that stationing of these new units would be a problem which must be studied. He must also study the "static forces which we have to keep in the north in order not to give the impression that we are abandoning our territory. Well, this is a new approach, in any event." As he understood it, the material reflected in the annex "is for the rest of our conventional forces." To Ambassador Holmes' comment that there would be less concentration and more emphasis on transport and mobility, the Shah replied that these questions must be studied. He did not mind cutting his forces but there was a question of mobility and of the mechanization of these units, for example, personnel carriers and tanks. He did not know whether these questions had been taken care of. In any event, the team could discuss these matters. The Ambassador continued to point out that with smaller forces there would be more concentration of equipment--a greater density, and the Secretary noted that substantial training was also involved. This the Shah had not thought of, but continued that the important question is that "This is not the result of discussion--this is your approach. We cannot, of course, force you, but we can tell you if we agree. I recognize I cannot force you, but I do know that you are fair enough to let us tell you if we do not think this is sound." Ambassador Holmes noted that the Secretary of Defense was prepared to send a team immediately and thus get things moving, which the Shah acknowledged. Regarding the Air Force, the Shah noted "You naturally tell us what you are willing to give, but let us see and study. There are questions of targets and ground support. We must see if it is adequate, then we would have the sentiment of having studied and told you our point of view." Nonetheless, the Shah had the feeling that, short of atomic weapons of course, "you want us to have a hard-hitting mobile and modern force." The Secretary and Ambassador Holmes acknowledged that this was our joint objective, and the Secretary directly asked the Shah if he did not wish modernization. The Shah said he did, and raised the question of timing, to which the Ambassador responded that we would act immediately if we can.
There was then some talk about the question of training, it being pointed out that it took three years to make a pilot. The Shah noted that while he had men to fly the planes today, there was the problem of ground personnel. And maintenance, Ambassador Holmes interjected, continuing that as he understood it, Mr. McNamara would send for General Hayden immediately. The General would go into the problem of organizing a JCS group which would then go out to Iran to study these matters. The Shah said that he would receive them himself. He noted that he, of course, would have to make the decision and that it would not be a popular one--general staffs always exaggerate their needs. The Secretary noted that in this regard general staffs always wanted bigger and better forces, it was something like Parkinson's Law. Ambassador Holmes summed up by saying that if the Shah were agreeable we could proceed on this basis, and the Secretary acknowledged that the Shah must know before he could prepare his budget. The Shah then raised the question of radar, noting that while the British were supplying some equipment, the Iranians themselves were doing all the construction, which seemed to him onerous. Ambassador Holmes noted his understanding that the UK had undertaken its radar construction in the north. As he understood it, Mr. McNamara was thinking of early warning in other directions, and the question of numbers of stations was also involved. To this the Shah acquiesced, noting that he had been amazed at the detailed knowledge that Mr. McNamara possessed. Ambassador Holmes noted that it was important that we not compete with the UK since after all we were all allies.
The Secretary then raised CENTO, noting that there was the question of international military headquarters. It seemed to us increasingly that there was a question as to whether there should be theoretical or real planning. This we had noted in many alliance organizations, including NATO, SEATO and CENTO. We were trying to direct matters towards real planning. We must also direct our thinking towards what would be real contingencies, not just theoretical possibilities. He felt that CENTO must review its planning with this thesis in mind. In this general line of thinking the Secretary hoped to have very frank and intimate talks with his Foreign Minister colleagues at the CENTO meeting. He therefore felt it very important that the Pakistani Foreign Minister attend. Acknowledging the significance of such attendance, the Shah said he would try to help, and turning to the Foreign Minister, asked him to draft an appropriate message. Turning back to the Secretary, the Shah commented that he had already informed him of a message he had received from Ayub. The Shah said that he had spoken to Ayub regarding a U.S. Commander-in-Chief, telling him that while he recognized his reasons for wishing an American, this was no reason to refuse a British commander. Why hurt the UK for nothing? "I will now tell him that if he wants more military assistance, from my talks here I do not think it will help" to have an American. To this the Secretary commented that the nationality of the Commander-in-Chief would have no bearing whatever on U.S. MAP policies, and the Shah repeated that he would send Ayub a message. He continued "I have already tried, but . . . maybe." The Secretary, stating that he was speaking privately, not for the Pakistanis but for the Shah's information, remarked that the psychology of our own people made it desirable not to have an American commander. We had already Commanders-in-Chief in NATO, Atlantic Command, Sixth Fleet; we had substantial forces in Turkey; substantial forces in other regions. We had the Seventh Fleet in the Far East. We had several thousand military men in Vietnam, and in that area we were now having casualties every day. It was important for the U.S. people to see that the U.S. was not the gendarme for the world. A UK general for CENTO would help in this respect. We wished our allies to help more everywhere. We would like the Australians to help in Vietnam. We are prepared to meet our fundamental commitments everywhere and anywhere there is a major confrontation. "We are entirely serious in this." But the U.S. is unique in having so many forces elsewhere in the world. What we need is more of a mixture of our allies. The Shah said he understood, and also that he recognized that it would have no effect on MAP. "But in the same trend of thinking," he continued, "if the U.S. is sure of some countries and certain of their will and capability to resist, surely the U.S. would wish them to take some part of its responsibilities. There would thus be less and less need for the U.S. to undertake such responsibilities short, of course, of total war." The Secretary acknowledged that this was our hope. There followed an exchange on the relative cost of maintaining a division, the Shah noting that it cost the U.S. some $250 million a year, whereas an Iranian division cost much less. Ambassador Holmes commented that this was a figure for a combat division during the Korean war, including ammunition and equipment. The Secretary continued that for the time being of course there was a need for our physical presence in many places, to register our commitment. He then told a story of Vishinsky and a U.S. businessman. In response to the businessman's comment that Vishinsky must recognize that the U.S. people would never permit an attack on the Soviet Union, Vishinsky had averred that he could not rely on this. Look at Korea, he said "didn't you tell us--didn't you do everything you could to tell us--that you were not interested, and then look what happened!" To this the Shah commented that his concern was not to give the Russians a situation, be it economic or military, of weakness which might lead them to temptation. He might add, in connection with the UK assuming a little more responsibility, that it was his impression that the British were revamping their military planning, and gravitating south of Suez. They were building up Aden and some place in Africa. He speculated that perhaps they wished to assume more responsibility in that area, noting that it was "OK with us." The Foreign Minister interjected that they might be contemplating the necessity of leaving Cyprus, and Ambassador Holmes noted their interest in Kenya. To the Secretary's acknowledgment that they had major interests in the general area of the Indian Ocean, the Shah concluded that what they required was some sort of a base between Malta and Singapore.
The Shah then asked the Secretary's opinion regarding the prospects for disarmament. The Secretary began his reply by expressing the hope that his colleagues would not hear of his response, but frankly while there would be lots of discussion, there was one utterly fundamental point on which no agreement could be reached: inspection. Secrecy and disarmament were utterly incompatible. The Secretary continued at some length to discuss the history of the testing discussions, and the breakdown over inspection. Gromyko had noted to him that one man on an inspection team could conduct espionage of vital significance to the Soviet Union. Noting that the inspection we had proposed in connection with testing did not provide "a farthing's worth", the Secretary indicated that no progress could be made, although he foresaw that we would go ahead talking, perhaps in moderate terms. Noting that the point we had now reached was that we could inspect what had come to be known as the "bonfire," but nothing else, he opined that the Soviet position defies logic. To the Shah's speculation as to Soviet motivation and his suggestion that they might be afraid to expose their weakness, the Secretary said that one or two of the satellites with whom we were talking had in fact suggested the Soviets were concerned about a disclosure of weakness. This of course might change, but we felt that the Soviets had reached a basic decision last summer to make a major new effort in the missile and nuclear field. They had resumed testing for a sound military reason. We therefore must conclude that for the present at least they have no intention of making progress. The Secretary then asked the Shah if he might have a few words with him in private and the meeting broke up, with Mr. McGhee taking the Foreign Minister to his office as arranged for a separate chat. The United States Government believes that the basic force level of the Imperial Iranian Armed Forces should be 150,000 men. The United States Government recognizes that a static force above this level may be required in minimum strength to preserve a visible defensive posture in the northern border areas of Iran and is prepared to undertake a joint study to determine the size and equipment of such a force.
The United States Government is prepared to send a military planning team from the United States Joint Chiefs of Staff to Iran, to consider these questions and to consult generally with Iranian Armed Forces concerning their plans and military deployments.
In conjunction with the proposed force level stated above, the United States Government is prepared to make a firm undertaking to deliver military equipment to Iran over the period July 1, 1962 through June 30, 1967, in accordance with the attached Annex A to this aide-mémoire. This firm undertaking would, of course, be subject to the approval of the United States Congress for annual appropriation requests of the necessary funds. The United States Government believes that, in the light of the present and future strength of its own strategic retaliatory and non-nuclear forces, together with the measures being taken to improve their mobility, the above force level and proposed equipment supplies for the Imperial Iranian Armed Forces would make these forces substantially more effective than at present for the purpose of carrying out their missions. The United States Government notes that the proposed equipment deliveries would constitute a major increase in the delivery levels of the past two years, and would provide for the first time a clear understanding of military assistance plans over a five-year period.
a. Stocks of M-1 rifles; BAR automatic rifles; 3.5" rocket launchers; and 57 mm and 106 mm recoilless rifles will be brought to authorized levels for the suggested force levels.
b. Ammunition will be supplied for light and heavy weapons in quantities sufficient for reasonable training requirements and to bring stocks to the planned 30-day level.
c. Approximately 200 60 mm mortars.
2. Additional Communications Equipment
3. Approximately 100 M-113 Armored Personnel Carriers
4. Additional Vehicles:
a. 5,000 Jeeps 5. Combat Support Equipment: Cranes, water trucks, graders, tractors, Bailey bridges, etc.
6. 2 Minesweepers (inshore)
7. 20 Helicopters (H-43B)
8. Civic Action Program Support
9. Ground Force Construction Project: Guchon Barracks and Facilities
10. Liaison Aircraft:
a. 30 L-19's
b. 15 Cessna 180's
11. Transport Aircraft:
a. 1 Squadron C-130's (4 aircraft)
b. 12 additional C-47 aircraft
12. Additional Combat Air Capability:
a. 2 Squadrons Jet Fighter-Bombers (13 aircraft per squadron)
b. 2 Additional Squadrons (13 aircraft per squadron) d. Provide a dispersed staging base in Northeast Iran
e. Consult with the British as to steps which can be taken to assist in providing the required early warning radar system.
SUBJECT This is the report you requested on the size of the current PL 480 programs in the UAR.
Food-for-Peace programs in the UAR have been large because of Egypt's increasing dependence upon food imports to meet its growing needs. Egypt was traditionally a food exporting country, but the rapid growth of population, combined with a restricted supply of arable land, had forced her to import large amounts of food in recent years to supplement local production. This increased need from abroad put an increasing burden on the nation's foreign exchange reserves which were badly needed for economic development purposes. The PL 480 program, especially through Title I, has contributed much to satisfying these needs and has made a major contribution to the economic development program in the UAR. By saving scarce foreign exchange reserves, which would ordinarily be used to purchase the required food, the UAR was able to purchase capital goods from hard currency areas, including the U.S., and thus become less dependent upon assistance from the Soviet Bloc to meet its capital needs.
While the program was expanded considerably in FY 1962, this was due largely to severe crop failures which sharply increased the country's needs from abroad. The program, which began in FY 1955 under Title III (donations to voluntary non-profit agencies), was interrupted in 1957 and 1958 following the Suez Crisis and revived in later years under Titles I (sales for foreign currencies) and III. In 1961, severe insect infestation and abnormal flooding of the Nile reduced output sharply in the agricultural sector. The production of corn, which provides a part of the farm population with the main ingredient for its bread, was down 20%. Wheat production remained about the same but in recent years the UAR has been able to produce only about half of its requirements. Cotton production declined about a third and supplies of edible cottonseed oil fell far short of requirements. Exports of cotton normally account for about 70% of the country's foreign exchange earnings. The decline in the cotton crop alone represents a potential loss of $100 million and has compounded the chronic problems of foreign exchange shortages. To help alleviate these conditions, the PL 480 program was expanded. As a result, the FY 1962 program rose almost $80 million to about $180 million. While the FY 1963 program is expected to decline with improved crop conditions, Egypt's needs are still expected to total about $140 million. The following table shows the dollar value of the PL 480 program in the UAR over the last three years, broken down by Title and by commodity:
/2/A supplementary Title I agreement of $14 million for wheat has been approved but not yet signed. [Footnote in the source text.]
/3/A supplementary Title I agreement of $14 million for wheat has been approved but not yet signed. [Footnote in the source text.]
Fowler Hamilton
Secretary invited Harman's forecast area developments as influenced, among other things, by Algerian settlement. Harman expressed pessimism stating even before end of Algerian situation Israel had observed hardening attitudes among Arabs and sensed comparative calm recent years might soon end. He referred to Ben Bella's declarations that Israel is Arabs' next target and he would contribute 100,000 men to cause. In rising current of hostility, according to Harman, it important not to encourage Arabs even by such unconscious acts as equating Syrian and Israeli declarations. Syrian threat to exterminate Israel is in simple justice not to be equated with Israel assertion of determination to defend itself against aggression. Secretary observed that in such era as Harman envisaged Israel might be well advised cooperate to fullest extent with UN as source great political strength.
Harman declared this is exactly what Israelis are doing, and had done in recent Tiberias troubles. He criticized UNTSO's performance and definition its responsibilities. Citing Von Horn's suggestion Israel had not given him adequate access, he declared UNTSO has much greater freedom of movement on Israel's side than Syria's, where observers are not permitted to move fifty yards beyond their stations. He expressed resentment with Von Horn's alleged practice of describing facility as absolutely imperative and then making public issue of this requirement. When Secretary asked him elucidate, he referred to UNTSO boat on Tiberias. According to Harman there no need for boat because tiny Lake Tiberias can be adequately "covered" from shore stations. Violence is not from vessel to vessel but from shore to ship or ship to shore. In second place Syrians are making determined effort obtain rights to Tiberias and introduction UNTSO boat would be regarded by them as great advance. Secretary asked if Harman thought in fact that boat would impair Israel's claims, Harman replying probably not except for Syrian aspirations. He complained also about UNTSO's recent use of stickers on their vehicle windshields describing themselves as road patrol regulating traffic of their vehicles on Israel roads.
Secretary said he would like to ask informally if Israel in its relations with UN would not be wiser in long run regard it as an ally and try to grant its requests unless such concession materially affected Israel. Secretary said suggestion made in all friendliness on basis his own personal experiences. In relations with other governments he supposed at least once weekly US Secretary of State could take umbrage at attitudes or requests other governments. US had learned to try not let problems develop in this atmosphere and instead do what needs to be done. He observed psychology of Israel's relations with UN is most important both to Israel and its friends if Middle East is in fact moving into new era increased tensions. Impression US public opinion has of Israel's relations with UN is important to Israel's security.
Harman described Israel as wedded to principles of UN and cooperating with it but on basis of UNTSO having understanding of its role. He was particularly critical of ISMAC, asserting it should not be umpire keeping record of balls and strikes; its job is keeping borders quiet, which is easier of accomplishment by diplomacy. (He broadly hinted UNTSO might function better if headed by civilian with military advisor.) Israel prepared rejoin ISMAC at any time Syria will drop demand for consideration D/Z status as agenda's first item. According to Harman, this is not unreasonable requirement inasmuch as General Riley, former UNTSO Chief of Staff, ruled in 1951 that disputes about D/Z were to be referred to him rather than ISMAC. He made usual reference to Lebanon-Israel MAC as model which should provide pattern for all others. It meets, he said, to correct difficulties not to engage in futile exercises as to where responsibility lies.
Secretary remarked Harman may have misunderstood him. He had not meant to suggest specific relations with Von Horn or UNTSO but UN and all its agencies as complex with which it Israel's advantage to cooperate. It difficult to escape conclusion there is element of pugnacity in Israel's attitude.
Rusk
SUBJECT Mr. Feldman requested Assistant Secretary Cleveland to provide the White House with a recapitulation of the recent Security Council consideration of the Israeli-Syrian controversy, with appropriate material which could be drawn upon in response to complaints and inquiries.
Nature of the Complaints
The Syrian complaint centered on an Israeli raid in force, launched from within the Demilitarized Zone on the night of March 16/17. Israel counter-claimed a) that Israeli fishermen and police patrol boats on Lake Tiberias had been fired upon by the Syrians and b) that Israel's political independence had been threatened in statements by high officials of the Syrian Government.
Background
The Lake Tiberias region is a particularly sensitive one because: a) Syria has traditionally been particularly and vigorously anti-Israeli and is determined to resist Israeli encroachments in the Demilitarized Zone and b) the Arabs are agitated about Israel's plan to withdraw Jordan Basin waters from Lake Tiberias in late 1963. Israel alleges absolute sovereignty over the entire lake. In response to Mr. Feldman's request, the Legal Advisor is preparing and will shortly transmit a thorough legal exposition of the position of the U.S. Government on this question of sovereignty. The Formulation of the U.S. Position
Our major aim during this exercise was to strengthen the U.N. peacekeeping machinery in the field and to encourage the parties to cooperate more fully with it so as to render the recurrence of such hostilities unlikely. In order to prevent the Soviets and/or the UAR from pre-empting the situation and to give us the maximum degree of control over the outcome, we and the British decided to sponsor a reasonable, balanced, and constructive resolution.
The Secretary sent to the President on March 28 a memorandum outlining the projected U.S. position (Tab C). A proposed resolution was enclosed. On the basis of the von Horn report (Tab D), reports from our posts in the area, and consultations with the Israelis, friendly Council members and Dr. Bunche, USUN drafted the preliminary U.S. statement, which was cleared in the Department and delivered by Ambassador Stevenson on March 28 (Tab E). Mr. Cleveland was informed by you that we should proceed along the lines of the memorandum, and USUN was authorized to proceed accordingly (Tab F).
In keeping with the Council's previous stand on retaliatory raids, in our original draft resolution the Israeli attack of March 16/17 was explicitly condemned. However, adequate balance was provided by a paragraph which would have held "that the hostile actions from Syrian territory of March 8" were clearly violations of the cease-fire. Although the presumption is that Syrian provocation took place, UNTSO was unable conclusively to determine where the responsibility lay for initiating the several fire exchanges which occurred prior to the Israeli raid. In response to questions put by members of the Council General von Horn made further observations on April 4 (Tab G). A major reason for the fragmentary nature of UNTSO's information was the denial by both parties of sufficient observational facilities and freedom of movement to the UN observers.
The Israelis made energetic representations at all levels, including a call by their Ambassador on the Secretary on April 2 to persuade us to desist from supporting a condemnatory resolution (Tab H). Consultations with the Israelis in New York, Tel Aviv and Washington were frequent and frank throughout.
Despite the fact that we had urged the Israelis not to bring into the Council debate the contentious question of sovereignty over Lake Tiberias their representative explicitly reaffirmed their assertion of sovereignty in two statements before the Council. It was determined by USUN that it would be tactically undesirable for us publicly to take issue with Israel on this aspect of the problem in the Security Council debate.
In light of the consultations conducted with regard to the resolution, the Department reconsidered its original draft. Ambassador Stevenson was given discretion to negotiate within a range between a strong version and a milder one (Tab I). He decided to use the milder version as the basis for further negotiations and so informed you and Mr. Schlesinger.
The Israelis, who were obviously acquainted with our first draft, should have been pleased that we decided to pursue a milder resolution. Meanwhile, however, more background information became available, publicly and privately, from General von Horn, who had come to New York at our suggestion, and from sources in the field. Inter alia, this information strengthened doubts about who had really provoked whom in the fire exchanges prior to the Israeli raid. USUN came to the conclusion, with which the Department concurred, that a factual justification for charges that the Syrians bore exclusive responsibility for initiating the hostile exchanges simply could not be made. Consequently the resolution took on a less "balanced" if more objective cast, in order to reflect more accurately the ascertainable facts and accordingly to make it more viable in the Council. Naturally, the Israelis were disappointed about these last changes. You will note that in our major statement (Tab J) we took the Syrians seriously to task for raising the level of fire in the March 8 exchange.
Moreover, we were as responsive to Israeli suggestions about the resolution as the facts of the situation warranted. For example: (a) the resolution does not newly and directly condemn Israel, but rather reaffirms the Council's position on retaliatory raids; (b) in response to Israel's second complaint, an operative paragraph calling upon both Governments to refrain from the threat as well as the use of force was added to our original draft and later the phraseology of this paragraph was changed to make it even more satisfactory to the Israelis; (c) we eliminated a direct call upon the Governments to exclude their armed forces from the Demilitarized Zone and reduce their forces in the Defensive Area; and (d) we changed another paragraph so that the emphasis would not be solely on the reactivation of the Mixed Armistice Commission, but also on the Armistice machinery. Points (a) and (d) were major changes. At the last minute, we also made a "technical" change at Israeli request by deleting reference to the Demilitarized Zone as the "Syrian-Israeli" DZ. In retrospect it seems fair to say that despite its allegations of great unhappiness about the outcome, Israel got more of the changes it wanted in the resolution than it had good reason to expect. (Tab J(1))
The Council Action
The US-UK resolution as approved by a vote of 10 to 0 with France abstaining constitutes, in our view, an evenhanded approach to the March incident and a constructive directive for future action by UNTSO and the two parties. The vote was a convincing demonstration of the value of our taking the initiative in such cases. The completely one-sided Syrian draft resolution (Tab K) was not even pressed to a vote.
We regarded it as very important that the Council adopt a reasonable resolution. If the Council had failed to pass a resolution, which was the outcome the Israelis indicated they would have welcomed, the Council would have: 1) failed to exercise any restraining influence; 2) in effect condoned Israel's deliberate policy of retaliatory raids; and 3) failed to support and strengthen the United Nations machinery on the ground. The net result would have been to increase the risk of renewed hostilities.
Boilerplate
Attached as Tab L is material which you may wish to draw upon in replying to inquiries about the United States position in the Lake Tiberias dispute.
A.E. Breisky Following is a summary of the status of important substantive actions initiated in the course of the Shah's visit to Washington.
Military Assistance
The Shah received a copy of the Aide-Mémoire The Shah understands and agrees with the wisdom of our plans to enlist maximum support from other Western nations for multi-lateral assistance under the aegis of the IBRD by September of this year, and to maintain momentum in the planning process in the meantime. We will continue our efforts to bring about agreement between the IBRD and Iran on the Third Economic Plan. We will act to complete arrangements for a project loan on the Bandar Abbas project. We will also study the possibility of using PL 480 funds for government employees' housing projects in Iran. We will continue to urge Iran to develop specific development projects for multi-national financial consideration and to provide Iran with assistance in carrying out surveys on which intelligent investment plans can be formulated.
CENTO
It was agreed that the two governments would make a final effort to persuade the Pakistan Government to send its Foreign Minister to the upcoming CENTO Ministerial Meeting, Iraq and Afghanistan
It was agreed that in view of the Communist subversive threat in Iraq and Afghanistan, the United States should attempt to maintain a vigorous presence and maximum influence in these two countries. It was agreed that strong efforts be made, including favorable transit arrangements, to prevent the spread of Soviet influence in Afghanistan. No follow-up U.S. actions or policy changes are necessary.
The Possible Increase in Iranian Oil Revenues
We have informed the Shah that we would consider the possibility of approaching the major American oil companies with a view to maximizing Iranian oil revenues through production allocations in the Middle East. A staff study is underway in the Department. The Shah may meet with representatives of the major companies while he is in the United States, and a final decision as to what if any action should be taken by the United States should await the results of this meeting, if it is held.
Increased Assistance to the Iranian Gendarmerie and National Police
We understand that the President and the Shah conferred privately on the subject of possible assistance to the Iranian Police and kindred organizations in order to improve counter-insurgency capability. Liaison with the Paris Garde Mobile was mentioned. We understand that General Taylor is acting on this subject through the Inter-Agency Counter-Subversion Committee.
E.S. Little "For Talbot and Cleveland.
Johnson saw Meir two hours Sunday, three hours Tuesday morning and at his request 45 minutes Tuesday afternoon. Moe, Rafael, Arad present all three sessions, Yahil and Rosenne at first two.
Johnson presented 'some ideas' based essentially upon his Working Paper Five. At the third meeting Johnson (1) expressed disappointment, (2) regretted essentially negative character of response, and (3) declined to assent to Meir request expressed in second session not to mention 'poll' of refugees on other side. FonMin did not again allude to last point. She said she failed to understand Johnson's disappointment. She and colleagues were manifestly determined, despite Johnson's reiterated denials, to interpret his approach as threat to Israel's security, and complained of unequal pressures on peace-seeking Israel. Also characterized his suggestions as 'mechanical' solution ignoring political fundamentals.
Given character Israel reaction Johnson did not develop brief allusion to compensation made in the first talk.
At conclusion he asked serious consideration his 'suggestions' before he returned, probably 5-6 or 10-11 May (he plans not to be in Israel on Independence Day 9 May despite cordial invitation). He did not seek interview this visit with PriMin who is on vacation but was assured without asking that Ben-Gurion wanted to see him next month.
Despite evident absence of meeting of minds conversations were generally cordial in tone.
Johnson left Jerusalem by car Wednesday planning spend evening in a kibbutz, night at Tiberias, and arrive Beirut 19 April at noon."
Scott
PARTICIPANTS Ambassador Kamel reviewed the improvement of U.S.-U.A.R. relations since 1958 and the importance of a free and stable Egypt which he described as unaligned in the domain of the Free World. He stressed the value of avoiding issues on the question of Israel and maintaining tranquility in the area. He noted the quiet which had prevailed for more than three years except for the recent incidents, because of which, he said, both sides must be strongly counseled to avoid recurrence. He defined the essential goals of Dr. Kaissouni's mission as follows: (a) agreement with the IMF for a stabilization program during the present visit; (b) agreement on a multi-year PL 480 sales program; (c) U.S. support for and help in organizing a consortium to meet the current foreign exchange problem; and (d) U.S. help for a consortium support of the U.A.R.'s longer term economic development.
In welcoming Dr. Kaissouni, the Secretary confirmed the serious interest of the U.S. in relations with the U.A.R. The nonalignment of Egypt causes the U.S. no concern. The U.S. interest is in the security of a society of independent states. He observed that the Ambassador had put the points in an appropriate order of priority. If a stabilization arrangement can succeed, it will open the way for other things.
Dr. Kaissouni noted that discussions with the Fund had been prolonged and the problem of the U.A.R. is immediate. He believed the two or three points of difference with the Fund were negotiable. He stressed the value of assistance given at the right time and hoped for good offices of the U.S. with the Fund. The current payments gap, including the cost of trade liberalization under a stabilization program, would be about $120-$130 million of which up to $60 million might come from IMF arrangements, leaving the balance for a consortium.
A consortium for the current foreign exchange problem was essential but so too was assistance for the economic development program. Social and humanitarian problems of Egypt would not permit postponement. The planned eight per cent annual growth rate might be debatable but however much progress was to be made, the U.A.R. would need foreign loans and other assistance. There were available credits and offers from a number of countries, but organization and rationalization of the approach was needed as well as verification of the availability of additional funds. The development program problem was not so much one of an immediate requirement for expenditure as of assuming the basis for going ahead.
In response to the Secretary's question, Dr. Kaissouni gave first priority in the development program to industry, including communications, electric power and the like, noting that these involve greater foreign exchange costs than does agricultural investment. Agriculture, however, could not be expanded as rapidly. Although land reclamation was in progress, gains in this area were dependent on availability of increased water from the High Dam about 1967.
The Secretary said the U.S. was prepared to help on the IMF stabilization program. Following some discussion of priorities and level of needs, the Secretary stressed that the U.S. has been pressing its friends abroad very hard to increase their aid and that the U.A.R. should understand that development of consortium support would mean effort on its part. He asked whether there had been discussions with other capitals.
The Ambassador and Dr. Kaissouni noted recent efforts to improve relations with various European countries, including release of the French Mission members and negotiations for settlement of claims with Switzerland and Italy. Dr. Kaissouni also acknowledged the validity of Mr. Gaud's comment that development consortia should be headed by an international agency and that the recipient country had to be prepared for considerable probing into the soundness of its economic plans. Dr. Kaissouni recalled that he had participated in detailed negotiations relative to the proposed High Dam consortium and knew the potential of the IBRD and the implications of this type of approach. The Ambassador stated that, while the U.A.R. would do its part, a gesture from the U.S. side was of critical importance.
Discussion of a multi-year PL 480 sales arrangement brought out that there was no objection in principle by either side although details might take a little time. Mr. Cottam noted that an interim arrangement to ensure continuation of wheat supplies might be desirable and that consideration of this possibility has already been initiated.
In conclusion, the Secretary said he wished to talk with Dr. Kaissouni again before his departure. The U.S. side would do all it could for positive steps during Dr. Kaissouni's visit and hoped he would leave encouraged by the results. II. This constructive cooperation--in its different aspects--will undoubtedly lead to fruitful results in the relations between the two countries as well as the stability and prosperity of the Middle East.
III. The visit of His Excellency, Dr. A. El Kaissouni, Minister of Economy of the United Arab Republic, and the members of his delegation is another important step in the process of exploring new possibilities for solid and extensive economic cooperation between this great country and the United Arab Republic.
IV. The visit of the Minister of the United Arab Republic has a two-fold objective:
A. The conclusion of a stabilization program with the International Monetary Fund, a matter which the United Arab Republic Government finds it urgently necessary to be finalized during the visit of Dr. El Kaissouni to Washington.
B. The settlement with the competent authorities of the United States of important and urgent matters relating to the following:
(1) To begin talks in order to form a consortium to enable the United Arab Republic to implement its Economic Development Plan.
(2) An agreement with the "Agency of International Development" concerning a loan program similar to that recently approved by the above-mentioned Agency for other countries. The objective of this loan is to overcome the existing temporary difficulties in the United Arab Republic Balance of Payments, resulting from the natural disaster which affected seriously our crops this year. The loan is to be used for payment of current imports.
(3) An agreement for a multi-year program to provide the United Arab Republic with wheat and other surplus commodities under P.L. 480.
(4) An agreement for the financing of some projects of the Five Year Plan, which are considered of high priority in the Economic Development Plan of the United Arab Republic.
(5) To study ways and means for the utilization of the accumulated amounts of the Cooley Fund.
(6) To explore the possibilities of expanding the areas of cooperation in the field of technical assistance.
(7) To explore the possibility of the United Arab Republic benefiting from the excess surplus property program.
(8) To exchange views concerning the possibilities of reaching an agreement on a grant to the United Arab Republic equivalent to 25% of the value of agricultural commodities shipped to the United Arab Republic under P.L. 480.
(9) To consider forming a mixed committee to work on the above-mentioned items of this Aide-Mémoire.
V. The Embassy is confident that the United Arab Republic Delegation, headed by the Minister of Economy, will receive from the United States authorities that kind of interest, constructive understanding and fruitful cooperation which the Government of the United States has always demonstrated in the past in the administration of its relations with the United Arab Republic.
VI. The Embassy is also confident that the success of the talks between the American authorities and the United Arab Republic Delegation will certainly promote the good relations already existing between the two countries.
PARTICIPANTS
For the United Arab Republic For the United States The Secretary commented that Dr. Kaissouni's mission had had a most satisfactory outcome for which he was pleased.
Dr. Kaissouni expressed deep gratitude for the courtesy and kindness with which his mission had been received. This would be reported fully to his Government. He confirmed that agreement with the IMF management had now been reached and he had earlier that afternoon given a letter of intent to Mr. Jacobsson regarding financial measures to be taken by the UAR. Dr. Kaissouni had talked with IBRD President Black, whom he described as an old friend of Egypt, regarding an economic development consortium. Mr. Black's response had been encouraging and he had promised to send experts to report on the UAR plans and prospects as soon as Bank staff availability would permit. Dr. Kaissouni said he had pressed for a complete report in time for discussions with other countries' finance ministers during the annual Bank and Fund meeting in September; but Mr. Black regarded this as too tight a schedule. Dr. Kaissouni hoped the Bank might consider recruitment of a team outside Bank staff, recalling the mission of General Wheeler at the time of the Suez crisis. Dr. Kaissouni replied that they were contacting Germany, UK, Italy and Japan. In the case of France, the UAR did not yet have diplomatic relations. However, the Ambassador suggested sounding out the French in view of the more favorable prospects in Franco-UAR relations.
In concluding the discussion of Dr. Kaissouni's mission, the Secretary re-emphasized the importance of IBRD leadership in the long-term development area. Dr. Kaissouni's report reinforced the Secretary's impression of Mr. Black's deep interest in Egypt's future. If the Bank was able to move forward, this was a good sign. Although the Secretary's intended conversation with various NATO ministers regarding short-term payments assistance would naturally be in the framework of its long-term problem, he did not want to step out ahead of the Bank at this time in any specifics of a possible long-term consortium.
The Secretary concluded that he was especially pleased that there had been achieved on both sides a high degree of clarity on what lies ahead.
Ambassador Kamel expressed his happiness that Dr. Kaissouni's mission had been a success and now foresaw the way to resolution of many difficult issues. The Secretary responded that he hoped the Ambassador would take quiet satisfaction in this outcome. PARTICIPANTS
For the United Arab Republic For the United States Dr. Kaissouni said he believed the UAR side had now come to agreement with the management of the Fund and he expected to sign a letter to Managing Director Jacobsson today confirming proposals for a financial program. He hoped for early approval of the arrangements, including a standby agreement by the IMF Board, perhaps as early as April 30. There were some remaining problems. While approval of a quota increase is expected, Mr. Jacobsson was most reluctant to present a proposal to the Board which prejudged the quota increase. As things were now, therefore, standby would provide for drawings of $42.5 million over a nine-months period. There was also the problem of whether the $30 million gold collateral drawing due next January would be converted to the longer term. Dr. Kaissouni had talked with various Fund directors, including the U.S. representative, Mr. Southard. He commented that Mr. Southard had been very helpful.
Mr. Gaud said the U.S. side certainly hoped that the remaining difficulties would be resolved satisfactorily, inasmuch as the U.S. program which he would describe was based on the assumption of an appropriate program with the Fund and availability of those resources.
Since the meeting on Monday, the problem presented by the UAR side had been reviewed very carefully in terms of what the U.S. could do and a program had been discussed with and approved by Secretary Rusk. Since the UAR side had discussed project requirements as well as the current payments problem, the U.S. program proposals were addressed to both. On the basis of projects discussed and understandings as to priorities in point of time, the U.S. would be prepared to finance projects totaling $51.3 million in the coming approximately one year--or through USFY 1963. This total was composed of the Cairo West Power Plant-$31 million; the cardboard plant-$5 million; the Bagasse plant expansion-$5.3 million; and another possible $10 million for diesel locomotives. With respect to the latter, it was noted that the UAR had mentioned up to $25 million of diesel locomotives but that $10 million would meet the requirement during the next year. The $10 million specified would be either AID or Export-Import Bank, dependent on further consideration. The AID loans (excluding the possible financing of diesels by ExImBank) would, according to present loan policy, be for 40 years with a 3/4 per cent service charge and no interest and would carry a 10 year grace period. The U.S. willingness to finance these projects was necessarily subject to appropriation of the funds by Congress since most of these would probably not be ready for final approval before USFY 1963. The loans would of course be subject to normal AID criteria as to engineering, feasibility, etc.
It was also proposed to utilize $5 million of the outstanding loan to the Industrial Bank toward the foregoing projects since these funds had been lying idle for some time and the prospects for the Bank's utilizing them appeared very limited. Dr. Kaissouni thought he might like to retain some of the funds for the Industrial Bank. Mr. Gaud indicated he was entirely agreeable to deferring decision on this point. It was agreed that the UAR would respond within a month.
Mr. Gaud then turned to the question of funds for the stabilization program. He recalled that it was difficult to fit emergency requirements of this nature into the pattern for which U.S. assistance funds were available. Also this had come at the end of the fiscal year when funds were limited. After careful review, however, the U.S. was prepared to loan immediately upon conclusion of arrangements with the Fund, $20 million to be used for specified types of commodities to be purchased in the United States. It was understood that the UAR would do its best to obtain further funds from other Western countries and the U.S. would do what it could to support these efforts. In addition, if contributions of other Western nations to the stabilization fund exceed $20 million, AID will in FY 1963 match the excess dollar for dollar up to $10 million, subject to availability of funds. The terms of this possible additional loan would be ident |
