SECRET

C. (54) 335
8th November, 1954

On 29th July the Cabinet agreed that a loan of £5 millions should be offered to Persia through the Export Credits Guarantee Department (C.C. (54) 36th Conclusions, Minute 7). The Persians have made no formal response but have indicated that they wished the amount to be £10 millions, the period of repayment 5 years and the interest 3½ per cent. (instead of the 3 years and 4 per cent, offered).

     2. Meanwhile Persia’s foreign exchange position has deteriorated and her free reserves are almost exhausted. In September the Central Bank was forced to suspend most sterling payments, thus seriously checking the expansion of our trade with Persia.

     3. The United States Government have recently decided to offer during the next eight months grants and loans totalling over $100 millions. This is enough to secure Persian economic stability without further assistance from us; but it actually strengthens the case of increasing our own credit. It is very much in our economic and political interests to get a firm and early foothold in the expanding Persian market, and to see a substantial part of their future sterling earnings from oil (£100 millions annually within three years) spent on British exports. An improvement of our trading position will strengthen our political and cultural influence.

     4. A £5 millions credit is not sufficient to secure our ends. A proportion of it will be devoted to financing contracts already let to British firms and the balance will not make an adequate contribution to financing new ones, which will go to the Americans or even to the French, who, with much less at stake, have offered the equivalent of £5 millions and are apparently ready to double it.

     5. We need, therefore, in our own interests to make an offer on terms which the Persians will accept at once, which will allow the flow of United Kingdom consumer goods to resume and which will give our exporters a chance to compete for the many new development contracts. £10 millions should do this.

     6. I recommend that—

A. E. [Anthony Eden]

Foreign Office, S.W.1,
        6th November, 1954.