STRICTLY CONFIDENTIAL 103841

INTERNATIONAL BANK FOR

RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized NINETY-SECOND ANNUAL MEETING

of EXECUTIVE DIRECTORS Public Disclosure Authorized

Board Room International Bank Building Washington, D. c. Tuesday, April 26, 1955

The meeting was convened at 10:05 o•clock a.m., Public Disclosure Authorized Mr. Robert L. Garner, Vioe President, presiding. Public Disclosure Authorized STRICTLY CONFIDENTIAL 2

__.__._..CONTENTS __ ...... _...... Agenda Item Iran . . • . • . . . . . • ...... • . • . · . . . 3 STRICTLY CONFIDENTIAL 3

MR. GARNER: Gentlemen, we are glad this morning to welcome Mr. Yu in place of Mr. Lee, who is absent. This meeting was called to lay before the Directors a proposal that is somewhat unusual. I dontt Jmow that there is any action required on it, but we thought that we should explain it to you and get any comments that you might have. Following the settlement of the oil dispute and new agreement in Iran, Mr. Ebtehaj, who was formerly the bead of

I: the Central Bank of Iran, later Ambassador in Paris, and most

1111

:.11 recently in the Fund for several years, returned to Iran and !II l!il 1 1i was made head of the Seven-Year Plan Organization. This !I! ·I organization was set up some years ago for the purpose of

::111 i·! 'I' devoting the oil revenues to development in Iran. There was ··11 1I I a period of years in which there were no oil revenues, but with the oil settlement the prospects are very substantial II with revenues steadily increasing over the future. Because I of that situation of large future revenues, Mr. Ebtehaj, in discussions with us before he went back to Iran and afterwards, took the position that he had no purpose of askin the Bank for financial assistance at the present time and perhaps not at all, but that he was very anxious if the Bank

could give him some help in setting up the organization and working out the application of these oil revenues to

development purposes. He asked us to send some pebple STRICTLY CONFIDENTIAL 4

out there to discuse the matter and see what help we could I give him •. In November Mr. Prud•homme. stopped in Iran on 11 his way back from Pakistan.and had some discussions as to the

form that our help migp.t take. Following that, Prud•homme £tWa~ and our engineering ~' Mr. Calhoun, went to Iran and spent a few weeks there. As a result of that, Ebtehaj renewed his request that we assist him in getting a group ot foreign experts, largely engineers, but engineers, executives, and others, to work in the Plan Organization with him. There was a rather unusual situation as regards the

financing picture. Ebtehaj said that he bas plenty of money but he was confronted with some political difficulties in hiring foreigners at the salaries that they needed and that he realized would have to be paid tor first-class men, and having to disclose the salaries of so much to X and so much to y. And we explored the possibilities with the u.s. and others as to whether some other outside financial arrangements could be made. we found that tbat was 1mpract1cal.

We also felt it impractical for the Bank to actually pay tor people to be hired by a member government; that we were willing to share expenses on many types of things, but in this it would be going be~nd what we bad done for any other member country. So in discussion the following proposal bas been made:

Tbat the Plan Organization would make a contract with the STRICTLY CONFIDENTIAL 5 I .i Bank under which the Bank would secure the servio~s of

111 something between 4, 5, 6, 7, or 8 foreignere, mal@. contracto

1 11 ti with those foreigners on behalf of the Plan Ox-gani.iation, l!i

1! and the Plan Organization would incorporate them within its 1 II I! l own operations. The Bank would be paid a flat fee to cover the expenses incurred by it in recruiting and paying these experts, with the agreement in general that if we didntt pay aa much as the fee provided we would make a return to Iran. If we paid mo5' with their approval, they would pay. In other words, the Bank would not take a financial risk on it and it would not make any profit on it. It was agreed between us that any such group should be as international in character as possible, not confined to any one nationality. The other ract of importance is that Mr. Ebtebaj would

like very much for Mr. Prudthomme to head up this group, and the management is willing to give Prud•homme a leave of ~ absence for that purpose 1f tae e&n~1ace can be worked out. I would like for Prud•homme to briefly explain the conditions that we think should come into this contract if it can be worked out. It is our idea, and we have already told Mr. Ebtehaj that if we go ahead on this we think it would be desirable tor him to come over here, spend a few days and sit down and work out the details. I would like to ask Prudthomme to outline to you this somewhat unusual proposal STRICTLY CONFIDENTIAL 6 get genral comments on it. MR. PRUD•BOMME: The more we work on this arrangement .. the odder it appears. I think you can vel'J quickly grasp some ot it• oddity in terms of its main outlines, vhieh is ' i that the Bank i8 paying tor people, the Plan Organization in I Iran actually employing them .. and the problems or appropriation!

o~ds to reimburse the Bank, and remembering tbe problems I that might arise if some of these employees have to come home. Their employment may be terminated in the middle or the contract. We may be asked then to find someone else to take that individual•s place, and meanwhile Mr. Ebtehaj and his Plan Organization working on a limited amount of money that bas been appropriated for the purpose. It is complicated enough so tbat you will find some opinion around the Bank which says, "God forbid that we try anything like this again." So while the conception or it i8 undoubtedly an

interesting and periJ,apa very useful one, it is in my opinion - and this 1s a personal opinion that I haven•t discussed with Mr. Garner -- one that I wo\Mn•t start afresh and attempt a thing of this kind in just this way. There may be ways for accomplishing the same purpose in which the technical problems would be a little simpler to work out. Now, we contemplate not only that there will be a signed agreement between the Bank and the Plan Organization acting for Iran tor that purpose, but there will also be individual 11 STRICTLY CONFIDENTIAL 7 contracts between the Bank and these so-called technical experts. The.main document, of course, would be.the agreement between the Bank and the Pl.an Organization. l~ fellaas, · ~K

•at ell I t1h'11l)1 If•• wMY ••••••, •het.~re is nothing Ir ~ exceptional in this f\ but I {ould like to touch on some of the

points that will have to be covered in this agreement.

In the first place, we speak about the services of the Bank, and before discussing tbat I should tell you that, referring back to Mr. Garner•• remark about Mr. Ebtebaj rs problem in paying high salaries, at one point it appeared as though it might be possible for him to pay this global sum, this fixed ree to the Bank, for which he would be bJ agreement getting not only the services of the technicians working for him but also the services or people like Bl'Jan

~,!'~~~ who went out and spent a week in Iran, and myself, who went out and spent some time. We talked over a great many problems of kinds of projects that they vant to do and how best to get them started, and Mr. Ebtebaj asked about some of the consulting engineering firms that he wanted to employ, and did we think they were high grade. Yes, we did think they were high grade. 5o this is a service from the Bank tbat waantt directly concerned with the employment or the foreign technicians, but if we got into dealing with Iran on the problem or the foreign technicians STRICTLY CONFIDENTIAL 8 we might find ourselves more andmore trying to help them get ji ,...... ,~,_i 1 ~ along with their ,-"JC So Mr. Ebtehaj•s proposal was that , by paying this fixed fee he could present to the parl·1.ament ~~~ I JK"I this ar:rangement where he was paying the Bank for.a•'f9:nle l things, including the recruitment and payment of the foreign personnel. I , I think I should emphasize the point that we are~/ ~ an employment agency 1n the sense or finding people for him. These people are not working ror the Bank. They are under the supervision and control of the Plan Organization, and they are not under the supervision and control or direction or the IBRD. so we describe the services of the Bank under this contract as being willing to give advice, and occasional advice by people from the Bank, and the recruiting and paying of these foreign personnel. We provide for the fact that the group will be international. We will use our best effort to make this group international. This is vecy strong about their not being employees of the Bank. I think this

has to be quite clear.

There will be a provision subsequently in the cont:racts with the individual technicians for the conditions under which they work, what their position is, whom they are responsible to, what kind or work they are expected to do, and I think even in such detail as hours of work and days of work, vacations, and the normal questions that have to be '! STRICTLY CONFIDENTIAL 9 settled and the man has to at least lmow about and accept before he accepts" em:l?loyment with. any organization. We merely will provide in this agreement that those conditions of service are to be made lmovn to us and that they will be lmown to the technical experts before they take on the job. One of the peculiarities about this thing is the thing that I referred to in the beginning as an oddity. It isn•t in the abstract clear what the obligations of the Bank are to these technical experts, and so to cut right through this we have simply proposed that there be a clause in this agreement saying that we shall be the sole arbiter of our obligations to these people. And then of course the provision that these technical experts will not be subject to income taxation in Iran. I should say about the title that we don•t·like the title "experts" and we don•t like the title "technicians'1 because these people are not really technicians. They will

not be people who will lmow whether we should have a certain kind ot a vat in a chemical plant. They will be engineers of broad experience and preferably who have had something to do with operations, and maybe even who have had to take into account the financial and economic aspects of an engineering project. For strictly technical work, Iran will have to retain the services of high-grade, technical consulting engineers, and I think they have every intention of doing so. STRICTLY CONFIDENTIAL ,:1 10 ii' 1 j That sets the stage for the basis on which these people operate in Iran and the general line that the. Bank will follow 1D recruiting them. Then we come to the question of pa;yments, and there it is quite simple. There is to be a fee paid by the Plan Organization to Iran on a regular basis. 'I.be Bank, of course, will endeavor to keep its obligations to the foreign technicians within the limit of the tee. It must try to do so. There are, however,, various eventualities under which we might find ourselves,, through no intentional action of our own,, under obligation to pay more than we had anticipated. One of the boys in the Bank suggested that we might take a bachelor out there who would get married and produce several children during his visit in Iran. We would find our resettlement expense was considerably in excess of

what we anticipated when we hired him. There is a strong provision that Iran will hold the Bank harmless for any fi:oancial claims that might arise out of this agreement. A very important aspect or it from the point of view of the Plan Organization is that the Bank will repay to the Plan Organization any part of the fee that is not used, and we specifically stated that it is not our intention to make any profit out of this. Time and other expenditures of the Bank on this operation is a contribution,

if you like,, that we make to Iran. There is a provision with respect to currencies, because STRICTLY CONFIDENTIAL 11

I think our expectation is that if we hire a Swede he would getjI so many kronor and so many rials. Everybody will probably get some rials because they will need rials for their living expenses in Iran. If we hire an Englishman, he will get so many pounds and so many rials, and although our idea is to

denominate this thing in dollars, the account has to be run in some single currency and not in a half dozen different ones. It will be denominated in dollars but we will have the right

to request that certain other currencies may be made available to us instead ot dollars.

Then we come to the end or it. In terms of the order of chapter headings, the thing follows a little bit the style of a loan agreement. We have a special covenant with a provision for consultation, keeping ourselves informed as to how the thing is going along, and finally we have provisions with respect to termination.

The agreement can be terminated at any time by either

party on 60 days' ~r 90 daye• notice, whatever it 18 we agree on, and there are other provisions for termination in the event that, for example, the Plan Organization went out of existence or other eventualities of this sort. I think that is enough, Mr. Chairman. MR. GARNER: I think there is one other thing you might comment on. we are advised by Ebtehaj that under the present law he can only contract, and thus we can only contract with

,I \I STRICTLY CONFIDENTIAL 12 Jiran, for employment up to February 1957, because this plan will also expire then. There is every expectation that that law will be extended, but we have this problem. Actual employment salary-wise ean only run for that period. We see

some difficulty in getting people to go out there with a

lmaximum of about eighteen months, and it is ou~ judgment that !we probably would have to give a man a commitment to cover about two years. We think -· and this is one of the things we would have to work out -- that it would be possible to guarantee to the Bank an amount of money sufficient to cover the two years, of which say eighteen months would be employment. If it was terminated at that time, the other would be termination pay. But that is something that bas to be worked out. I would like to make one other comment. You said we would be taking certain risks. I think if our lawyers are as able

1 as I believe they are we will be covered by any foreseeable commitment that we make in accordance with the general objectives bere. Now, nobody can say that some possibility would not come up, but I think that would be very marginal. I think the principle we are following is that we will have an agreement from Iran to reimburse us for expenses properly incurred in carrying out this plan. And finally I might just say the theory behind this is the same as we have followed in other cases, though we have never had such an extensive II STRICTLY! CONFIDENTIAL ii 13 ! I proposal. Where we send people in the role of analyzing a situation, making recommendations, .and working out programs, we have felt that tbe Bank could have its repreeentatives act in that capacity, but where it has been a case of an individual or a group taking a position vbere they are actually engaged in operations in a country, the Bank should not be in a position of having its agents, its own repre- sen ta ti ves, people on the Bank payroll and part of the Bank staff, actually carrying on operations in the country. As I say, we have followed that so far in that we have helped countries find consultants to come in and operate with them, but we have never followed this other device of our actually paying them. But the principle that we have is that the di vision between advice and operations is one that we have followed, and we think is sound. Now, in all of this, aside from the finances and anything else, we certainly are accepting a considerable responsibility

to try to see that this thing works 1r we were to enter into it. I think the Bank should give moral backing to these

people that go out there, and that if difficulties arise we

should be in close enough contact with the situation to be

able to detect these difficulties and use our good offices to try to work them out.

I think it would be interesting if you would tell them a little bit of what you saw of the actual setup of the program STRICTLY CONFIDENTIAL 14 and organization. MR. PRUDtROMME: Many of you gentlemen know Ebtehaj, and I thought therefore it might be interesting for you to know a little bit about the way he is tackling this problem. It is a veey large program for a country like Iran._ The consortium told me in Teheran they will pay their payments in sterling. They deposit them in the Midland Bank in London. Upon deposit in the Midland Bank in London, the bank credits this to the account of the Plan Organization in Iran. The

first three years t payments are fairly well assured. They

may vary if the price of oil changes, and they may vary if the cost ot operation changes, but generally speaking there will be something like the first year $90 million through this process ot going through the Plan Organization, plus $25 million to the National Iranian Oil Company, which is the company that when the oil induatey was nationalized took over. The next year there is something like $150 million or $160 million, and in the next year it runs pretty close to $200 million. Those are the first three years. After that it tapers off somewhere about $200 million a year of revenues from oil. Now, there is the possibility that the Finance Minister would feel that he bad to dip into these oil revenues to help balance the budget. He hasntt given any indication of wanting to do so, and he and Mr. Ebtehaj work veey closely together.

I ,,l I; STRICTLY CONFIDENTIAL 15 But the fact is that Iran is running a budget deficit of the equivalent of about $5 million a month, and the u.. s. Government baa been helping them out on this for a cert•1n length of time. As a matter of fact, there is money coming I from the u. s. to the end of the present u. s .. fiscal year

1 to help them with their budget deficit. This is on a loan

1 NA-§ bas is, and this, as you ma1 have read, ythe subject of much

argument in the Ma jlia as to whether or not it was proper for Iran to incur foreign debt for the purpose of balancing its budget. It was, however, finallJ done. Mr. Ebtehaj is a very positive, executive person, wbo bas a very clear conception of where he wants to go and a tremendous amount of determination toward the way he thinks it should be done. Re intends to employ the best international consulting engineering firms that he can get, and what he wants to do ia to come to us and say, "Ia this all right, this firm, for this particular type or project?" And we have been willing to say. "Yes. it is." because those firms are well

known. He bas picked people of international sr,!~ng. He / bas such a consulting engineering firm for all ;!l' projects, I w.tlol ! which means highways, ports, railways, power. HeAburl.7' a fertilizer plant in Abadan, using natural gas down there)~

lr-Bt--l!IAtt a consulting firm for that. After the consulting engineers have decided on the economy and design of a particular type of construction, they will supervise the II 11 STRICTLY11 CONFIDENTIAL 16 requests for international bids on this work. They will supervise the awards to the contractors, and they then will I supervise the actual execution ot the work. He is absolutely determined that he is going to keep graft out o.f the operations o.f the Plan Organization, and this is something which is causing him some difficulty because of the tact that prior to the time that he took over the managemen there had been quite a lot of' contracts passed or promised in various directions, some of which he didntt think were quite proper. However, that is water over the dam. Those things are being picked up and taken care of in the first year, and from here on he is .following the line that I have just mentioned to you. His program runs somewhere between $750 million and $800 million for the first seven years. And I should say, referring back to something Mr. Garner said, that this Seven-Year Plan Organization was created six years ago, so tbat it baa only this year or a little more to run. Between now and the end or this year they will put to

parliament a bill under which a new Seven-Year Plan will be approved, and from then on ~can look forward to carrying

on the pro~ram I have just discussed. MR. GARNER: We will be glad to have any questions or comments. MR. CRENA DE IOl'GH: Mr. Chairman, it seems quite a

complicated thing to try to grasp. What troubles me is that if

I il I STRICTLY CONFIDENTIAL 17

I understand the thing well the contract will be made between

the Seven-Year Plan Organization and the Bank. However, if I understood Mr. Prud•homme well, the people that will be engaged by the Bank will be paid by the Bank but will not be in the service of the Bank. On the other band, there will

not be, if I understand it well, a direct contract, therefore, I between the Persian Government and these people, so that the people willbe in the service of the Persian Government because they are not in the service of the Bank yet have no contract with the Persian Government. Is that right?

MR. PROD•HOMME: That is correct, they will not have a contract specifically with the Persian Government. They will have a contract with the Bank, which refers to their employment

by the Persian Government. At the time that we are ready to make the contract with the technician, he will receive from I the Persian Government a simple letter conf11'1111ng that he is employed by the Persian Government. MR. GARBER: We make the contract with the individual and it is confirmed by the Plan Organization. MR. CRENA DE IOtfGH: That is the thing that was troubling me. MR. GAmraR: We make that in the contract terms of the general agreement with us, which empowers us as the agent or the Plan Organization to employ a man on these certain terms!.

MR. CREl'IA DE IOJIGH: So I should say the Bank would be I ! STRICTLY CONFIDENTIAL 18 sort of an agent? MR. GARBER: I think for this purpose we would be acting as their agent.

MR. CREKA DE IO.IGB: Would they be paid by the Bank? Let me just ask this. or course, I think we all realize that veJ!1 much depends on the way it will be executed, but I have

in my position as a Director of the Fund some experience with

Mr. Ebteha j, and I must sa7 he always made a veey good impression. MR. CALLAGHAN: The primaJ!1 question that I think we should direct our attention to and I am not clear about is whether the Bank ia keeping its nose clean. Are we in a good

posi~ion vis-a-vis the member. As the explanation is given, ~~s I understand it seems to me a vef.'7 ticklish problem and very ticklish case, and it seems that the Government of

Iran is not prepared to pay the salaries required ror the men in question. On the other hand, we have Mr. Ebtebaj, a man of I considerable experience and obvioua capacity, wbo realizes tbat to get this work done he bas got to pay f'or it. He and some of the others in association with the Bank have worked out a scheme. That is fine. But as to the more direct question of the Bankta relations with the member, if I can put it on the highest plane, on the ethical plane, where does the Bank stand with its member? Coming down from that to the next plane, can Ebtebaj reall7 make a contract with the Bank or can the STRICTLY CONFIDENTIAL 19

i.'i 'i planning commission. Isn•t there need for the member to be in the contract? MR. GARNER: That is a very excellent point, and here is what has happened. The general proposal was developed with Ebtehaj. That proposal then was taken to the committee of the I Majlis, which approved it. It was then taken to the cabinet and to the Shah, and they have approved it. At the present time it bas the support of the powers that be in the Government, and the final contract will be approved by the committee, by the cabinet, and by the Shah. So I think as far as the people now in power in Iran, that this is the government giving support to the arrangement with the Plan Organization. We would insist on that.

Now, I wouldn•t try to say that the Bank is not incurring some risk of criticism in this. I think the first thing we did with Iran was a ve1!'! unusual thing -- attempting to go out

and settle the oil question. I hope this endeavor might prove to be more successful. We were subject to certain attacks within Iran and without Iran for that. We thought that the importance of the subject was worth the risk. I think there will be some criticism of this arrangement. I There will be some criticism of the Bank. I think one can make this judgment. We have this unusual

situation of an underdeveloped count1!'! which is going to be having money running out of their ears, more money than they cai

I I 1! Ii STRICTLY CONFIDENTIAL 20

spend. It the money is not speni,;'in a vay that brings on actual development, I think the whole Iranian settlement is

likely to blow up in the tuture, with all its consequences. The key to this thing is to strengthen Ebtehaj•s hand so be , can actually get things done in a proper and efficient manner. I I think we are taking a certain risk. In the opinion of the management of the Bank, the possibilities of helping her are

sufficient for us to incur those risks. I think that our position would be such that we would have so:W ground to

stand on from any attacks, in that we are not making a profit out of this thing. We are doing it at the request both of the Plan Organization and of the government. We are going to try to select people who will be as competent and able as possible, and then I think we will just have to take the consequences

if the thing fails. It will be too bad. If it succeeds, I

think it will be one of the constructive things that we have been able to do.

MR • CALLAGHAN : I think that is 1mpo rtant • I think we can take criticism provided we don•t get it from the member.

MR. GARll'ER: we won•t get it from the people that are now in charge of the Government of Iran whom we make the deal vi th.

MR. PRUD•ROMME: I would like to reinforce that if I may, Mr. Garner. One of the interesting histories of this is -- and this is perfectly open. There is nothing confidential STRICTLY CONFIDENTIAL 21 I i I about what I am saying -- th.ere have been about $80 million , ~ sorts of contracts passed by previous people in '&e • ministries and in the Plan Organization before Ebtebaj t't there. He didn •t like the way some of them had

1 been done. In fact, some of them have been turned over since

he got in. I dontt want to mislead anybody, but one of his

problems was with the Prime Minister, and the people wit~

whom Mr. ~d I have talked in Teheran were Mr. ~, who was~~rt .J/.nister and who is now Prime Minister, the Finance Minister, and the Foreign Minister, who is now Deputy

Prime Minister, and Mr. N~sser, who is the governor of the Bank. Those people, with Ebtebaj, were the strong group

in Teheran, and all our conversations have been with those

people. I have discussed the problems of the Plan Organization with them. What bas happened is that at the time we were there you could bear people saying, "One of them is going out, and my guess is Ebtehaj is going out." This is what you

could hear said. In fact, the way it has turned out it bas put that group who are now the government and with whom we are #ii_ ' dealing all on the same side so far as relations with membe¥ is concerned. How long it will stay that way, of course," no I one knows. MR. WARREN: Mr. Chairman, this is quite a challenging proposition, and I think it is imaginative and thoughtful. I myself would not be quite so worried about the risks perhaps I! STRICTLY! CONFIDENTIAL 22 as Mr. Callaghan. It seems to me that most governments in giving technical assistance frequently enter into arrangements

which in principle are not greatly different. So I think that on balance we have a veey special situation, where you have the chance for development, you have money available, and what you need is someone who can make sure those two things come together properly. It is encouraging that the Bank is in a position to do that matching. I would be interested to know whether within the Plan Organization it is envisaged that some of the more capable Iranian people will work alongside the advisers. I would like to know what Mr. Prud•homme•s position will be vis-a-vis Mr. Ebtehaj and how long would we expect Mr. Prud•homme would be absent from the Bank? Perhaps if you could give us a little information on bow this Plan Organization would work it might be helpful.

MR. GARNER: Let me say first that we donrt know how long Mr. Prud•homme will be absent. It is our feeling that this thing is not going to be solved in a year or two but that at least two or three years of assistance of this sort is

going to be needed. I don•t think that we want to cross the bridge or saying that we are willing to have Prud•homme out there as long as he is needed. There is a considerable degree of sacrifice to the Bank in giving him leave or absence. But I would think if it works well it is a question of a couple of STRICTLY CONFIDENTIAL 23 I 1years until he gets the thing going, and then I would hope we could get somebody else who could step in.

In a rough way, I think I would define what I hope his position will be as a sort of chief of staff to Ebtebaj. And it is definitely agreed that this group will be under group control. In other words, it just won•t be a group of

individuals, each working in a sort of a separate thing. I think the general idea is that this will be a staff group

working directly with Ebtehaj•s office. Beyond that, I think Prud•homme can give you a little bit more of what looks like the setup within the Plan Organization if this arrangement is carried out.

MR. PRUD•ROMME: I think, Mr. Warren, the truest thing one can say about it is that it will evolve, depending on the personalities and the job to be done. On paper, the way it

sets itself up is that in the Plan Organization there is a

thing called a technical bureau. The technical bureau has in it the foreign experts, so-oalled, and in eaoh oase Iranians working with them. The chief of the technical bureau rides

herd on the group and is 1n direct contact with the managing director of the Plan Organization.

MR. WARREli: Is that you? MR. PRUD•HOMME: Yes. MR. GARNER: I think Ebtehaj realizes that these people are going to have more authority than just a normal adviser or

Ii \I STRICTLY CONFIDENTIAL 11 24

;I consultant in selecting projects for his final approval. I

think if it is going to work they will have to ta~ quite a.lot responsibility, always subject to Ebtehajts final approval. MR. WARREN: Suppose the worst happens in Iran and an administration comes into power which is not interested in development in the proper sense. Would the contracts be of a character that would allow the Bank to say, .. This scheme is washed up and terminated?" MR. GAR?raR: Yes; and as I say, if we lmow how to draw a contract properly, we will be financially covered for our commitments • MR. PRUD•HOMME: This will be a difficult thing perhaps

to do, but we have said all one can say about it. In fact, I wrote Mr. Ebtehaj a letter telling him tb.at, of course, if the

thing wasn•t working right, if the foreign consul~anta were not being used and were wasting their time, or if for any reason the thing seemed to be going bad, the Bank could withdraw. MR. CRENA DE IOBQB: Mr. Chairman, I am not quite sure about the amount which was mentioned, the six to eight hundred thousand dollars. Would that be for seven years? MR. PRUD•HOMME: No, Mr. Crena de Iongh, I mentioned , $750 million to $800 million.

MR. GARNER: For the total amounts that are likely to

flow to the P1an Organization, but what bas been tentatively II STRICTLY CONFIDENTIAL I 25 approved there now is $250,000 to cover this group of specialists that we would hire. MR. CREBA DE IONGH:. For bow long? MR. GARIER: As I say, to cover the period of employment ' lup to February 1957• If in working it out more money is required,, in agreement with us, I dontt think Ebtehaj will have any difficulty it it needs to be $300,000 or $350,000 •. I dontt think be will have any difficulty with that. Is that your understanding? MR. PRUD•HOMME: I believe so. MR. WARREN: And if he can, he will work to the ceiling? MR. GARNER: He will work to the ceiling. MR. DONNER: I am not perfectly clear yet about the

~~!!ion in this scheme or the consulting engineer firm. ~ould be a contract tor them outside this scheme of $250,,000? MR. PRUDtHOMME: Yes. The $250,000 is solely to pay the salaries and other costs of the technical experts who are working in the Plan Organization. VISCOUNT HARCOURT: Working advisers. MR. GARNER: This would have nothing to do with that, and there seems to be no financial limit on the amounts or the number of consulting engineers that the Plan Organization can employ. As a matter of fact, I think one of the chief

duties of this group would be in advising Ebtehaj on the STRICTLY CONFIDENTIAL 26 Ii ij I suitability of consulting engineers and who is best qualified to do that, and the forms of the contracts, and all that. MR. DORER: Then if I understand the function of the consulting engineering firm, on the one hand they would be I consultants to the consultants group, and on the other hand I the1 would supervise the actual construction. MR. GARNER: I think the1 would be in exactly the_ same

I position as they are related to the Bank when we make a loan and we say to the borrower, "You must get consulting engineers satisfactory to us to supervise the construction." MR. DONNER: Who would this contract be with, which I understand is separate? MR. GARNER: It would be made by the Plan Organization.

MR. DO!lllER: That would be entire]J' outside the arrangemen1 between the Bank and Iran?

MR. PRUD • llOMME: Yes • MR. GARNER: It would be made with the Plan Organization as the executor of the project, with the consulting engineer. MR. PRUD•HOMME: You understand, Mr. Donner, there would

be a consulting engineer ror the rert111zer racto~another consulting engineer for one port, and maybe another one for another port. There may be ten, twenty, or thirty consulting engineers who are working on specific projects, on the supervision and design of those projects. And their relation- ship to the Plan Organization is precisely the same as the

I

11 ii STRICTLY11 CONFIDENTIAL rl 27 II I relationship between any company putting up a plant that hires a consulting engineering firm to take care of that piece of construction. MR. DONNER: Aa far as the scheme bas been presented,· and as tar as I am able to understand it from the short delibera-

tion, it impresses me. I think it is a grandiose plan. I think we have here a case in which the Bank without using its money can be useful. Risks will be incurred, certainly, but

I think the price of it is worth it. So I think one really can congratulate you and the Iranians at the same time for this scheme. 1 MR. YUMOTO: May I just ask here whether Mr. Ebtebaj will be the man who will sign the contract with the Bank?

MR. GARNER: I presume so, but that the contract as I understand it would also then be approved b;r the Majlis committee and by the cabinet and the Shah.

MR. YUMOTO: So this contract will have a sort of

endol'sement or approval? MR. GARNER: It will have a guarantee ot the government. VISCOUNT HARCOURT: Presumably it will have a government guarantee back of this contract somehow. MR. GARNER: It will be the good faith and credit of the government as well as the Plan Organization.

MR. YUMOTO: Will this contract approve a sort of ceiling of the expenses which will be spent tor this purpose? It STRICTLY CONFIDENTIAL 28 doesntt give any amount of commitment, of spending so much money for this purpose by the Iranian Government in this contract? MR. GARDER: Assume that the final amount is $250,000. The Iranian Government and the Plan Organization would authorize us to spend that much on their behalf. Is that right? MR. PRUD•ROMME: They would agree to pay us $250,,000.

That would be in the agreement. MR. GARNER: The payments would be at regular intervals,

and there would be an adjustment. If we didntt spend as much as that, we would refund any unexpended balance.

MR. YUMOTO i Another small po int. Suppose if this contract is concluded and the expert is sent to Iran, and suppose during this period of eighteen months the Bank will

have to send some representative who will look after any program between the government and the commission of experts.

MR. GARNER: I doubt that we would keep anybody out there all of the time, but I think it is inherent in it that we must keep in ve'l"I close touch and that ve have a frequent representative out there to see that it is operating properly, and 1f trouble arises, as I say, use our best offices to try to straighten it out. If we eouldntt straighten it out, then we would be in a position to say we want to disassociate

ourselves from it and terminate it. I think it will be

I I: II STRICTLY CONFIDENTIAL 11 29 realized there and here that the Bank has considerable responsibility to see that we use evel"1 effort to see that this thing works successfully, and we have to keep in pretty close touch to know what is going on. MR. HOOKER: Mr. Chairman, I think it is a veey good proposal. One aspect of it is we never can tell how these things develop. Suppose Mr. Ebtehaj steps out tor one reason or another and you get a new director in the Plan Organization and he is of a different point of view. I mean suppose he thinks he can rely solely on consulting engineers for advice and that he doesn•t need the foreign experts. If a situation like that develops, are the termination provisions such from the standpoint of the people who have been working there and have been sent out there and from the standpoint of the Bank that the contract can be terminated without any difficulties arising? Do we work it out in the beginning in the event of such a contingency? Do we have a six months• termination

benefit ~or the experts which is agreed upon between the parties and we don•t have to negotiate the whole thing? MR. GAMER: That has to be provided for, and I think we lare going to have to give these people a minimum guarantee from \the Bank. We have got to have a contract that that guarantee is covered to us from Iran. I think the rights under I termination by either party must be clearly indicated in the contract, so that there will not be a question of dispute, and

I Llj STRICTLY CONFIDENTIAL 30 I think we have got to say that we will have to determine those matters. MR. WARREN: Will the arrangement with the Plan Organization cover things like vehicle transp0rt for the advisers, housing, medical expenses, and the kinds of things that people may be upset about when they arrive in underdevelo d countries? MR. PROD•BOMME: They have all been considered. We haven•t quite CI'1stallized on what is the best way of doing it. Our present intention is to pay something which we don•t want to call a salal'1 • We have to be careful about what we say with respect to the sum we pay these men, because we don•t want to give any impression that they are employed by the Bank. But let•s call it a fee that we pay to the man as what we call an independent contractor. He will get his tee, which will be the equivalent of a salary, plus an allowance, which we will probably call a subsistence allowance to cover rent. Our intention is to provide that he may take his own car over. ~ ttt- we pay the ~f-his furniture and car. I think our general idea is to try to avoid making too many side arrangements and jtry perhaps to see whether we could leave it at that -- a Isubsistence allowance and a salary and, of course, travel. But these things have been discussed, and we bave asked Mr. Ebtehaj some questions about whether there are any employees• disability provisions in Iran, whether for travel on II STRICTLYii CONFIDENTIAL 11 31 I business in Iran they will be expected to use the Plan Organization transportation or may use their own, and if so is it on a mileage basis? When they are on travel for the Plan Organization, are they paid reimbursement tor expenses or per

diem? MR. GARNER: I think the real question is that if Mr. Ebtebaj retains his health and his position this thing will work. If he doean•t, I would have grave doubts that it would work. MR. WARREil: Long life to him. MR. GARNER: Any other questions?

MR. SBOAIB: Mr. Chairman, in spite of your attempt to be disassociated from the operations, I think this is a veJ."1 good operation on the part or the Bank. I fear this example will lead other member countries to ask for help. In fact, I have some countries who bave expressed that desire, but that is l for the future.

1 I MR. GARNER: If this proves to be successful, then I think we have to face up to the question that somewhat similar proposals will come from other countries, and we would have to I give them careful consideration. MR. SBOAIB: I would like to thank the Bank and the Board. I think this is a veJ."1 good arrangement which is not only liked by Mr. Ebtehaj but by the government as a whole. So it

seems to me that the chances of working it out well are veJ."1 STRICTLY CONFIDENTIAL 32 good indeed, and from my own personal knowledge or Iran, I know the Prime Minister and others whom I lalow are all very anxious that this kind of arrangement should be worked out. I vant to thank you once again.

MR. GARNER: Do I understand that it is generally the consensus that we will go ahead and try to work out defin.itive arrangements within the lines as indicated here, and do our best to set up something that will work practically? MR. DODER: Will we hear about these definitive arrangements? MR. GARNER: Yes. We will show you the whole thing. As I say, we hope that Mr. Ebtehaj can come over here within a tew weeks and settle the thing. We dontt think it is very

easy to work this out by correspondence back and forth, and he bas indicated he would be willing to do that as soon as some immediate pressing problems clear up. We will certainly inform you of the developments.

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