Iranian Oral History Project | Harvard University Center for Middle Eastern Studies
Khodadad Farmanfarmaian
Plan Organization Director
Transcript 10 of 16
Narrator: Dr. Khodadad Farmanfarmaian
Date: December 20, 1982
Place: Cambridge, Massachusetts
Interviewer: Habib Ladjevardi
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Q. I would like you today to begin by describing your entry into the Central Bank. Perhaps you could begin by telling us a little bit about your acquaintance with Mehdi Sami'i, with whom you worked for a number of years, then we'll take it from there.
A. Well, you know, after I resigned, which I think I've described amply already, I walked the streets of Tehran. I really had no job whatsoever. I had no salary whatsoever, although I remember Asfia telling me that I shouldn't resign because I'd lose my salary and pension. But I had no choice but to resign because I wanted to make a point of resignation. I didn't want to transfer, I didn't want to sort of become an advisor on the side or anything of this sort. I wanted to break away and I wanted a clean break. And I wanted to make a noise. This was really the intent, to make a loud noise.
But, in that same year that I was jobless, I wrote some very major articles for "Tehran International." They're available, by the way, I saw them in the Ford Foundation archives. They're supposed to send it to me, I'll give you a copy. Make sure you have a copy of these. Because they do show my thinking at that time and my differences with the government at that time. A whole page of "Keyhan International."
Well, Mehdi Sami'i at that time was already a close friend of mine. Don't forget, Mehdi is some good ten years senior to me. He had already been a vice governor to Bank Melli before he had moved to the newly established IMDBI <Industrial and Mining Development Bank of Iran> as associate director, with von Ravenstein . And Mehdi was in fact a member of a mission I took to the United States to discuss the overall, general economic problems of Iran under Amini when we went there for budget support negotiations. And it was Mehdi, who among equals, made the suggestion to other members of the mission that I should serve as chairman of the whole mission and I have not forgotten this. These were discussions with people like Dillon, for example, who was at the time undersecretary for economic affairs in the state department, before he became secretary of the treasury.
So, I had grown very close to Mehdi. I had traveled with him as friends, and I enjoyed just being with him. I remember we had a great trip to Portugal together, on the way back from these meetings; and we nearly missed the plane and that was a great incident. They held the plane for us, right on the runway where the plane was near take-off, and they drove us to the plane. People must have thought we were big shots that they held the plane for us.
Anyway, I enjoyed this person as an intellect and a friend. If I may spend a little time now describing Mehdi's character, as it is essential, like I did try to describe Ebtehaj's character. Mehdi was trained by Ebtehaj. And in that sense he had some of the great qualities of Ebtehaj, such as for example, his personal discipline and seriousness, eyes for figures, his understanding of accounts. He was trained before that as an accountant in England, a chartered accountant in England. He had all the necessary equipment.
Mehdi was far more than an accountant. He had read a great deal and he had studied economics also, while he was in England, and spoke both French and English perfectly. His English was meticulous, again like Ebtehaj's was, lack of mistakes, you know. He immediately saw mistakes and noticed sloppy language. His Persian was just as strong.
Generally speaking, he was a very decent person. He wasn't hard like Ebtehaj. He is a much softer person in character than Ebtehaj. But he was also a great disciplinarian, at least when it came to himself. He was always the first man in the shop and the last man out. He believed in leaving records of things. When he made a decision, he always recorded his decisions. And he made sure that whatever he had read, he would initial; and his comments were always on the side. These are traditions he had learned from Ebtehaj, these are traditions we all learned from Ebtehaj.
He was a man who believed in due process. He was a man who believed in advice. And he didn't have as much of an ego as Ebtehaj did. He fully believed in the limitations of his knowledge. Again like Ebtehaj, he was very genuine when he would turn to a man like me and ask for economic advice, for example. He never had the pretense of being an economist, although I found him to be far more competent than many economists I knew and on many questions, far more knowledgeable than myself. Certainly when it came to banking.
He had no equal in all Iran, probably short of Ebtehaj, but when it came to central banking, I'm convinced that Mehdi had really already become the master of the game. If you ask me today to pick one person who would be most knowledgeable on the questions of the whole banking structure of Iran, on the whole banking system; but also, more so on international banking -- that is one thing I purposely want to add, it wasn't just Iran -- on international banking, I would certainly say Mehdi Sami'i is right on the top there, without any doubt in my mind.
You see, he had learned over the years, as Ebtehaj would have seen to it, the very nitty-gritty business of banking. Something I never learned, something I never knew. Anyway, at the time -- and when he was in the Development Bank, he was learning the development, he learned development banking, investment banking. Although Bank Melli used to engage in this type of thing, but not in the systematic fashion as an investment bank would do, as the newly established IMDBI. So when Alam asked him to become the head, the governor of Central Bank, I think Alam's choice was the best possible choice. This I have never doubted.
I had a great deal of loyalty to Mehdi. During the time when I was jobless, running around, he asked me to go to sit in IMDBI and organize a conference at that time for development. I think this was a conference on development banking. And I sat down there and organized it. I remember Javad Mansour, who was at the time sort of an assistant director in IMDBI sitting next to me, and he was my executive arm and I would just plan these things, and Javad would carry them out.
Mehdi came also from, as you know, a distinguished family. He had a sense of noblesse oblige. During the time we were organizing the conference (I think it was during that time), he was told that he was going to the Central Bank. So Mehdi asked me to sit down and draw up policies for Central Bank. With the help of Manouchehr Agah, who was at the time (if I'm not mistaken) head of the research department at the Central Bank. So Manouchehr Agah used to come to IMDBI and sit with me. I had no particular position, the question of my deputy governorship had not come up. And we used to consider and discuss policies. And I remember distinctly that we fortified Mehdi and Mehdi was the type of a man who would think in those terms that "If I'm going to the Central Bank, what is going to be the policy of Central Bank?" You know, normally people got appointed and they just went and sat behind a chair and then maybe they began to think. This was the normal way of doing things in Iran.
Not Mehdi. Mehdi wanted to go in there with a set of concepts, working concepts and policies. And don't forget, the time I'm talking about is '63. This is the time when Iran had now tasted the bitter stabilization program. It's trying to come out of the depth of a recession, a bad recession. And Mehdi wanted to have a new Central Bank policy.
I was perfectly convinced that this is the time for expansionary policy. Agah was rather scared. But like a bulldozer, I was in those days, I would just push and push and push. And we took out the figures. We sat down and analyzed these figures and we put it in the hand of Mehdi with our recommendations. My recommendation was, "Look, the country needs development. We have had a recession and contraction. Let's now push for increased activity. The role of the Central Bank in the post-recession period should be to encourage expansion of investment activity and development."
For the first time ever, Mehdi's statement to the press was that, quite contrary to what people believe, in a country like ours the Central Bank has an important job with regard to development of the country and it has to be mindful of that development, and it has got to support that development. He did that, he made that statement. I hope that one day you'll have occasion really to interview this man, Mehdi Sami'i.
Q. He's opposed to it.
A. Mehdi has been, has been in and out of that government and knows a great deal.
Shortly after his appointment, Mehdi was asked in a press interview, about the successor to Dr. Moghadam, who was the Deputy Governor of the Central Bank and had left to take a post at IMF in Washington. The Central Bank did not have a deputy governor and Mehdi was looking for one. And the press asked Mehdi, who is going to be the new deputy governor? Mehdi only made this statement, and I remember this distinctly, that "I assure you someone as good as Dr. Moghadam will be the new deputy governor of the Central Bank."
Q. Was there any significance in Moghadam leaving Iran?
A. Moghadam had left because he had come to the conclusion after Amini's departure, after our departures, that the atmosphere was not right for him anymore. Moghadam is a very sensitive person. God, I like to talk about that man. I did talk, didn't I, one time? He's a wonderful person, one of the best, one of the best and brightest of our country. And he was the man, he was the man who had the courage to carry out the stabilization program. You know, Moghadam had created a situation to give us good elbow-room to bring recovery and expansion. When we arrived at the Central Bank of Iran, if it weren't for the work Moghadam had done, for the hardship that he had accepted, for the tough policies that he had followed, we would have never been able to flourish the way we did and be successful as we were during that whole term of nearly eight years -- the combination of myself and Mehdi, both as deputy governor and governor. It was Moghadam who gave us the elbow room. I said this to him, I've said this to everybody. He left us a legacy which allowed us freedom to move.
Anyway, I was at that time, that was the summer I was lecturing in Hamedan, I used to go and lecture at these management courses. Mehdi had already suggested my name to the cabinet and for four months, Mr. Behnia, again minister of finance to Mr. Alam, had held the decree proposal to the cabinet which was required for my appointment. And Mehdi quietly pressed and pressed and refused to change his mind about me.
Finally, I had a private meeting with Mr. Behnia to let him know of my circumstances and thoughts, and I went off to Hamedan. And I remember when I was in Hamedan, Mehdi phoned me and said that the cabinet had approved my appointment as deputy governor. It was still Alam's cabinet.
I stayed in that post for nearly six years. It is interesting, I remember the lectures of Mehdi to me. And mind you, I was in politics par excellence, regardless of our pretense that we were technocrats and so on. The very nature of planning and investment allocation is political. And before coming to the Central Bank, I was dealing with allocations. The very nature of the Plan Organization, in spite of all the attempts to be insulated from politics, to be independent of the goings-on within the government, was highly political. Where there is money, there must be politics.
Now Mehdi, among other lectures, among other things that he told me, he said, "Do you know central banking?" I said, "yes, I do," because that was one of my fields, central banking, monetary policy. He said, "But you must remember the art of central banking as against the science of central banking." To which I said, "What do you mean by the art of central banking?" He said, "While I fully recognize that the Central Bank is a place where there is money and everybody naturally has their eye on the Central Bank and the government constantly presses the Central Bank for money, we as individuals, as governor and deputy governor, not only must keep out of politics ourselves, but we must keep the institution totally out of politics. And that we must pave, create, continue a tradition, a non-political tradition for the Central Bank. Keep it out of politics. Money should not, the currency of the country should not become a political football. It should not be subject to political games. And if you or I as individuals are involved in politics, then automatically Central Bank is put into politics and money supply and the value of money becomes subject of political caprice of various governments."
This was his advice to me, which I fully understood because then I started to read especially about great traditions of central banking in England. And this comes up every time. The Central bank is to be kept clear of political machinations. Mehdi had also said another thing, he said, "Once you play politics, Central Bank loses its independence."
For six years, I sat in my office quietly. Another thing he advised me was, "Look, no more trips to Washington." No more trips to Washington, because he believed, he knew that every time I went to Washington, I made waves -- while I was in the Plan Organization and so on. The news would get to Tehran before I returned to Tehran to explain what I did. And naturally in this way news was distorted and interpreted by various individuals in the way they wanted to. Mehdi knew what I was doing. Mehdi was with me on some of those missions and saw the results back in Tehran. He said, "No more Washington. You can travel to Russia as far as I'm concerned. If you travel, go to Europe, to the East..." As it were, for three years, more, although there was business to go, I didn't even attempt to go to the annual meetings of the Fund and the bank of which I was a member, you know.
Q. So who would go? Would Mehdi go?
A. Mehdi would go and as Deputy Governor I had to stay home. However, even when there was occasion, I didn't go for another reason. Mehdi was governor of the IMF and the Minister of Finance was governor of the IBRD or the World Bank. Jamshid Amouzegar, now Minister of Finance, manipulated through the cabinet to become governor of both. Well, some countries, South American countries have that tradition, others would send two representatives, two chief representatives, one as governor to the fund, one as governor to the bank, but they went as a group. In the earlier years Iran had followed this practice.
However, every time Amouzegar went, Mehdi went along, naturally, as second-in-command. I just didn't like that, I wanted the independence preserved. It bothered me tremendously. I just didn't like this. And later on, when I became governor, I refused to go, because of the same reason and sent Dr. Cyrous Sami'i, who was my deputy at the time. I remember Pierre-Paul Schweitzer, who was the managing director of the International Monetary Fund, wrote me a personal letter complaining to me of my failure to attend the annual meetings.
Six years I sat in the Central Bank. Six years I went through schooling. I began first by calling in Parviz Nabavi, who was an excellent chartered accountant, to come to my room in the early days with a blackboard to teach me how to read and analyze a balance sheet. And it was important for me. He would teach me what is a promissory note, various types of acceptances -- you know, I had to become familiar with banking terms. What's the meaning of overdraft bank guarantees, letter of credit, etc. What are the government accounts. They took me right along and Mehdi helped along. And I was a very good student because I really would listen, I was doing this because of a genuine desire to learn.
As deputy governor, I was in charge of economic policy and the economic research department reported to me. All policies regarding interest rate, expansion of money supply, balance of payments, foreign exchange handling, etc., were under my immediate direction -- in addition to the training of the existing and future employees of the bank, which I had taken under my wing in spite of my other heavy responsibilities, because I loved that type of work. We instituted a program of sending people abroad for training on a regular basis. These people are now well-known individuals who spread all over, in all government agencies and in the private sector. They were selected in the most careful way. They were top-level students throughout the country; and they had already shown, proved themselves through national examination.
Then they would take a special examination at the bank, and after passing that they would be interviewed each separately by a group of us to see if they were the right type, how they looked at the world, if they were capable enough, if they were ambitious enough, etc. Anyway, at the end we had a group of nearly seventy people. There were seventy students of the bank in England being trained in accounting, economics and banking when I left the bank.
Slowly, slowly our policies paid off. The country began to pull out of the recession. We supported heavily the development efforts. But then again, in good time, we noticed that if we are not careful with monetary policy, prices are pushing up. On the other hand, we began to ease our foreign exchange regulations as oil revenues increased and as our foreign exchange reserves improved, we began to relax our regulations regarding foreign exchange. During this period of about 8 years, the Central Bank was held in great regard by the government and the public at large. It was a period of constructive support for development activity with price and balance of payment stability.
We used to have bloody wars, of course, within the government of Hoveida. As all governments, they were always thirsty for funds and we would refuse to do so uncritically. We couldn't just open the door of the bank. We would delay, we would negotiate, we would fight, we would refuse, we would take the fight right up to the Shah, you know. At the end of the day, we had done rather well. Prices kept their levels, foreign exchange reserves slowly built up, and steady economic growth was maintained.
And I remember one time, when we only had ten million dollars as foreign exchange reserves. I'll never forget we wanted a renewal of five million dollars from the Midland Bank in England, who had been holding the central account of Iran for over forty years. They refused us the five million dollars. And another bank, an American bank, came forward and gave us a hundred million dollars. When the telex came across, Mehdi held me and cried because of the fear of the circumstances that existed that we could not face our import bills and commitments, we could not face our due payments. Of course, promptly we removed our central account from that great, old English bank and shifted it to the American bank.
Constantly, during Mehdi's tenure (about six years) as governor of the bank, the Prime Minister wanted him to take other positions, higher positions, etc. and he was unwilling, he didn't jump into that sort of thing. And we would talk together. There were also bids for me to accept various roles. I didn't either.
During this time, among things that I did was the establishment of the Asian Development Bank. I was chief negotiator on behalf of Iran to establish the Asian Development Bank; and I became subsequently the head of the committee which prepared the statutes of the bank and finally delivered the statutes of the bank in the Philippines, in Manila. And when the ministers all signed the charter and the bank was established, Iran suddenly pulled out of the bank simply because I think they were very poor sportsmen. The minister of finance's argument before the senate was that, "We went in there just because we wanted the bank to be located in Iran. Now that we've failed that, we shouldn't become a member of the bank," and we didn't. I felt that that was a failure after all those great efforts. And mind you, Iran had a great number of votes, but not enough; and finally, the reason it went to Manila and not to Tokyo, was because of Iran's decision to support a developing country as against Japan.
I had lobbied strongly for votes for Iran and we just had one vote short of getting the bank located in Tehran. We had to have a higher majority. We ranked first in the number of votes, but there wasn't enough to be a clear majority. And then we decided to tell people who supported us to vote for Philippines instead of Japan. It was a very interesting phenomenon because we thought really the bank would become an instrument of Japan, of Japan's trade policy and foreign economic policy and so on. And we felt that it's better for the bank to be located in a developing country.
We had many reforms during this time in the bank that related to the welfare of the employees. For example, we established a free health service, free in the sense that people were free to go to any doctors, any hospitals they wanted to. Previous to that they had to go Bank Melli hospital and Bank Melli doctors. Now we simply produced a list of doctors and hospitals and made arrangements with them to serve the Central Bank employees and their families. This was a great innovation to be emulated later by other government agencies.
Q. This is the staff of...
A. The staff of the Central Bank. And that gave them great freedom of choice. And we noticed that the cost was the same. We didn't have our own hospital, so to speak, we didn't have to build a hospital. We used the existing hospitals. People were talking about building our own hospital, the old guard in the bank were insisting that we should build our own hospital. I said, "No. There are hospitals started by all these young doctors who have returned, let them have a chance." And this spread all over, this new approach spread all over and people began to emulate what the bank did.
The bank was a lovely place, it was a clean place, it was a disciplined place. The bank was unlike other government institutions such as the Plan Organization. The bank operated well. People had discipline. It had a great tradition and almost a culture of its own.
Q. What do you mean it was unlike the Plan Organization?
A. In terms of politics, in terms of goings and comings, in terms of its bureaucracy, in terms of filing systems, in terms of procedures. There was a discipline that did dominate the bank, but this discipline was the famous banking discipline, by the nature and function of the bank this was possible. Whereas in government agencies, such a thing was not possible. I mean the bank was spic-and-span, so to speak -- you know, you walked in the corridors of the bank, they shined. And people were behind their desks, people were on time and worked properly.
We began also a new staffing pattern. We brought in new people, young ones trained especially for banking, for accounting, etc. And we began to provide support to the private sector. We encouraged some of these accountants we had trained to go out and open private accounting firms -- such as, you know, Nabavi who became senior partner of Coopers and Lybrand; Majzoub and several others. And then, most of the private banks and the industrial firms, like the ones that belonged to your family, were using those very people to produce balance sheets and accounts by the end of the year. So you see, that had a very widespread effect throughout the country.
Well, at the point of time Asfia left the Plan Organization, the Prime Minister offered the job to Sami'i and Sami'i became the managing director of the Plan Organization, Plan and Budget Organization. I became the governor of the bank. And at that time, it's interesting for me to tell you, the only thing -- and this is a comment on Sami'i -- the only thing that happened, I changed rooms. Nothing else happened. Yes, my signature appeared on the currency of the country, before that it was Sami'i's signature. But this was routine, as a matter of fact. Nothing happened in the sense that he had treated a deputy so well in terms of making him familiar with everything, that there was no big change and there was no change of policy, you know, as you would in Iran get people, new people coming in and changing things. The bank's function continued very smoothly right through; and what was more, there was a great deal more cooperation between the Plan Organization and the Central Bank, simply because Mehdi understood what was going on in the Central Bank and I certainly had a deep understanding of what was going on in the Plan and Budget Organization, and we could get along very well.
Q. With what thoughts did he go to the Plan Organization? What did he expect to accomplish? Did he also try to have some policies written or developed before he went to the Plan Organization as he did when he came to the bank?
A. I don't remember. We were already familiar with the development problems and he consulted with me on those aspects as well as on the appointment of his top-level assistants such as Dr. Moghadam, Dr. Aliadian, and Dr. Hezareh.
Q. He brought Moghadam from?
A. From the IMF. Moghadam was at IMF. Abadyam <?> from the World Bank. These were my recommendations to him, these are people I knew. Abadian became assistant managing director for planning, Moghadam deputy head of the Plan. He brought the head of, then our head of the research department which was Hezareh, for the budget, to become deputy prime minister for budget. I'm not sure, as I look back, that that political post was a good choice for Hezareh and I wanted to accept partial responsibility for that recommendation. But I liked this man, he was so decent, he was so honest, and he was so hard working, he was so faithful. And he knew his stuff, he knew economics, to be sure. But he wasn't a budget man, he wasn't a negotiator, he wasn't diplomatic enough and he didn't do all that well, in my judgment, in the post of deputy premiership. I don't know, I think Mehdi would say the same thing now. But among my recommendations to Mehdi, I think this is the one which, although both agreed, with regard to his competence, with regard to his character, with hindsight, we notice that he wasn't the right man for that particular job.
So Mehdi, after nineteen months there, couldn't make it, endure it anymore. Because as I said, now the Plan had become so political, every minister was attacking the Plan Organization. He had trouble with the oil company, he had trouble with the minister of agriculture, I remember. in spite of his soft personality, Mehdi had the hardness to insist on accountability. He wouldn't approve funds just because the minister wanted it. He just wouldn't approve quit-tenders because the ministers pressed for them.
Anyway, there was a great deal of opposition to Mehdi and at that point Mehdi felt he could not continue in the Plan Organization. And the Prime Minister saw fit to ask me to go to become the head of the Plan and Mehdi returned to the Central Bank. By the way, a man like Amouzegar applauded this decision saying...
Q. The change?
A. Yes. Amouzegar didn't get along with us all that well, with none of us. He admired us, but he didn't get along with us -- let's be honest. We admired him for some of his great qualities, but we just didn't see eye to eye. That's all there was to it, there was an honest fight constantly between Amouzegar and the two of us. This is Djamshid I'm talking, who later became prime minister, of course.
But I remember distinctly that Djamshid turned and said, "Well, finally a real planner goes to the Plan Organization and a real banker takes once over again the management of the Central Bank." And Djamshid came to me, asking me to urge Mehdi to come back to the Central Bank after the Plan Organization. And Mehdi did, just because of his character, not because he thought it proper. He just came with the understanding that, "Look, I'll come for a short period of time because I don't want instability within the system, but I won't stay there very long. You find somebody else to take over the Central Bank." This time Mehdi stayed only for six months at the Central Bank, his second time there as governor.
I went to the Plan and Budget Organization and remained there nearly three years -- until 1973 when I quit. And Mehdi subsequently left the Central Bank after six months and became advisor to the Prime Minister and had an office in the Prime Minister's office.
And later, at the time when I left the Plan Organization, Mehdi accepted to become the head of the Agricultural Development Bank, which was a creation of the Central Bank of Iran. And was a lesser job, when you consider his background, but he was very much interested in agricultural development as such. Later on he had become extremely well versed in agriculture. Although I was extremely critical of Mehdi for: (1) having accepted the job; (2) on some of the policies, especially aid to agro-industry and the problem of agro-industry which became, at the end, the biggest problem Mehdi had in the Agricultural Development Bank.
The Plan people knew me better, there was no doubt about it, from the bottom to top. I had this advantage over Mehdi. Although Mehdi knew the bureaucracy of Iran probably much better than I did. But that one organization belonged to me in some sense of the word, because I was there at the beginning of it, because I had put part of my heart into it, because I was familiar with the individuals -- I knew who was who, I knew who knew how much, I knew who was faithful, I knew who was loyal, I knew who was disciplined, I knew who played around, I knew who played games, you know. I could slowly, slowly begin to weed out the ones I didn't want, slowly replace the people I didn't want with other people that I had a great deal of respect for or I had come to know outside of the organization. But I worked with the same top management, like it has always been my policy, exactly the same management that Mehdi had created.
I did the same in the Central Bank. I hardly made any changes there. I hardly made any changes here, because these were my own friends. Also, these were people that I had recommended. The only difference was that Abadian after a year left and went back to the World Bank. I remember he had family problems, he described them to me with great emotion. Abadian was my friend and colleague from the first day we arrived in Iran, and he loved me, I had no doubt, but he had personal problems.
Dr. Moghadam remained to the end. It is very interesting that when I arrived in the Plan Organization, these people who knew me came to me, in my office, complaining about Moghadam -- because Moghadam was a very, very hard person. God knows he was hard, and he just couldn't tolerate incompetence. He would scream at people, kicked them out of his office. He was that type of a man. He would call them idiots, in just so many words. I remember Moghadam calling them idiots and they walked to my office, with tears in their eyes, saying "Dr. Moghadam has called us idiots!" This is really very interesting. I said, "You probably are idiots." One day, as they streamed into my office, I'd look in their eyes and say, "Moghadam is the real head of this organization. He runs this organization. What he says, you may assume to be my words." And believe me, within a week I never again had any complaint about Dr. Moghadam. It was amazing. They now had learned about the extent of my love and respect for that wonderful, competent and patriotic person and abided by him.
And this man in the Plan Organization put in so many hours, God knows. He looked at every project, he checked the figures, he checked the logic of things, he checked procedures. He wanted to be sure that money was not just being thrown around. And on the military. He'd made an agreement with me, he'd always send the military projects -- you know he was the man who signed the projects, I never signed anything. The military projects were sent to me, or certain projects he didn't like, he didn't believe in -- let's put it that way -- were sent to my office with a little note handwritten on the top saying, "Please, would you allow me not to sign this project. However, if you have any good reason that makes you unable to sign it yourself, return it to me and I shall sign it. Please tear this note and throw it away." I always did, and I never put the burden on him. And where I wanted to make a stand, the same as he did, I simply took the project to the Shah or the prime minister and refused it. And there were many cases like that, absolutely refused.
The very famous case of microwave -- one of the reasons why Mehdi left the Plan Organization is this case of Northrup (do you remember), the famous case.
Q. Which was what?
A. Microwave throughout the country, this large...
Q. For communications?
A. Communications. This was almost a project without ceiling. We had started with, I don't know, an eighty-million dollar project. This eighty million dollars had now become one hundred-twenty when Mehdi left; shortly it was becoming more. My boys made an estimate that by the time this project is finished, it will be $360 million dollars and it will not be finished by '72... Remember, the Shah wanted this because his reasoning was that, "By '72 the British will be pulling out of the Persian Gulf and if we did not have this whole microwave system, he could not really be controlling the Persian Gulf as was his intent."
So among the first reports that I ever gave to the Shah, I said, "Sir, this project was eighty million dollars, it's now becoming one hundred and twenty. Now I appear before you in the first month of my service in the Plan Organization. I want to tell you, Sir, it will be finished in '75 or '76, no earlier; and what is more, the cost will be well over $400 million dollars." When the project finished, it was '76, the cost had exceeded $400 million dollars.
During one of my meetings, I found an excuse to get rid of this project, that is, not to have any responsibility with regard to this project. One of the men who was sitting, one of the men who represented Northrup, they were negotiating with me, a large number of people -- Ministry of Post and Telegraph and these people, all these Americans, and my people were present and I was chairing the meeting. One of the Northrup people burst out, "But your instructions are to carry out this project the way we are proposing it."
Q. Who said this? One of the Americans?
A. One of the Americans. The minute he said this, I got up and I left the room. They ran into my room to apologize, but it was no use. I went to Alam and said, "Mr. Alam, this project cannot stay in the Plan Organization anymore and I refuse to deal with these people." Alam said, "Send it over to the Ministry of Court." I wrote a formal letter and sent the whole project to the Ministry...
Q. Ministry of?
A. Of Court. To the Ministry of Court, believe it or not; because Alam was involved in this, or was asked by the Shah to intercede. And when they were saying, "You were instructed," they meant Alam, because Alam had talked to me about it and I said, "I don't know about it, I've got to look into it, I've already given a report to the Shah about it and just cannot go on like this." And constantly I talked to the Prime Minister, who really was having trouble in this connection. And the Prime Minister approved of the transfer. You know, of course, before I transferred the project to Alam, I told the prime minister that, "This is not a project for us. This is too political." I didn't mean to say, I didn't want to say it's corrupt also. God knows, there were all kinds of manipulations in connection with that project. This policy...
Q. How could it be transferred to the Ministry of Court when you were paying for it? Which meant...
A. No, didn't matter. Responsibility for assigning the project, we could assign, the Plan Organization under the law I could assign full responsibility of any project to any agency. This was law, had allowed us freedom to transfer the designing, the tendering, and contracting of actual execution to any ministry. I had that right. In this case, of course, when I say sent to Ministry of Court, it meant Ministry of Court and Ministry of PTT, Post and Telegraph; because they would become, they were the real, they would become the staff and Alam simply as minister of Court presided over this business, you know. And then two ministers would take responsibility, would send the project up after they had approved it and signed it, and in that way we could make allocations. As it were, we did make allocations. Plan Organization did make allocations for the project. But we refused any responsibility for or association with the project.
I used this practice in many other cases where the project stunk and Dr. Moghadam would send me a note on it. I'd simply say transfer it to the Ministry of Industries -- I didn't want a thing to do with it. You see, let me be honest with you. This was out of recognition that I could not singlehandedly take my sword and be David against this Goliath of corruption, not necessarily all corruption, but bureaucratic interest, or political interest. I couldn't singlehandedly fight this. When I knew the prime minister plays a game -- he did play the game and that with great skill -- he would...the only thing I could reasonably do was to make enough noise against the project and dissociate myself and the Plan Organization from it.
On another occasion, a similar project which had started with thirteen million toman and now had reached four hundred million toman, I mean something like this, within a couple of years -- the Prime Minister would tell me, in front of some of the interested parties who were standing there, he would say, "I told you to approve this and send it over. Why haven't you?" I would look at him and say nothing. But as the interested parties left and we were alone, for example, walking -- I remember in this particular case it was in the airport and we were walking towards the Shah's plane to receive him -- he would turn his head and say, "Khodi, Khodi, don't ever do it. Don't do it. Don't do it." In other words, the Prime Minister, whom I've always considered incorruptible in a material or monetary sense (by the way, not so conceptually or idealistically), he was as clean. He didn't like this type of thing going on in his administration. That is the gospel truth. He didn't want these types of projects to be associated with him or his government.
Yet, he faced the tremendous vested interest, a powerhouse which was behind these projects -- great powerhouse which pressed for allocation of projects, for example, among powerful countries such as the United States, the Soviet Union, England, France, Germany as well as among the vested interests in Iran, the group around the Court who each had interest in some project and he had to deal with them in some way. The prime minister didn't like it a bit, however. And I'll repeat, that to the end he didn't want them.
But he played his game, threw it from one place to another as a football. I had learned that game too. I would not be involved in those projects and I simply rejected them or transferred them to the willing ministers.
Finally, I passed a new set of procedures regarding tendering. The position was this, if a minister who is responsible to the parliament writes and gives reasons why there should be quit-tender and says at the end of such a letter to the Plan Organization that he will fully accept the responsibility, and he does consider a quit-tender in the best interest of the country -- and I developed a set of wording for that -- then the Plan Organization should immediately turn over the responsibility to the ministers who were, after all as I said, politically responsible to the parliament and to the Shah. I wasn't the only man there to make such decisions. After all, the ministers had responsibilities also and we could not assume that we in the Plan Organization were the only honest people in the country.
Another thing, within a short period of time a line or queue of six months long of people waiting to be paid for work already done was reduced to three weeks. And that was another achievement, because I was familiar with this problem from way back, always the people who were to be paid by the Plan Organization had to stand in a queue and that queue was an important cause of corruption, an instrument of corruption, of the Plan Organization people. You know, they would take the application from the bottom of the pile and put it on the top and for that, they'd get paid -- little guys in the financial section.
On the budget, on the military budget, obviously we didn't have very much power, we couldn't do very much about it. I used to take the various cases to the Shah and argue. But you know, they had already done the arguments themselves in front of the Shah, that is the military, and the budget would simply be instructed upon us. It wasn't a situation that we had thought of earlier, that by being in control of the budget, we can influence the military allocations; and this is the heart of the matter when we earlier argued (and I've so recorded) that the budget should come to the Plan Organization because the planners can influence allocations. However, although we were unable to influence much of the military allocations -- and I did my best -- I went around to the generals, I talked to them...
Q. How did that idea work, the military. How were the military projects different from civilian projects in terms of the procedure and budget allocation? Did they follow the same path or were they different?
A. No, no. The military had its own separate procedures, separate laws. They had a separate law even for borrowing money. They did it directly, didn't come to us. Mehdi Sami'i as a person (who was the governor of the Central Bank) was the only advisor that the prime minister and the Shah insisted should look into this borrowing business of the military. And Mehdi, at the end, would simply write his reports and give his position, but slowly, slowly the practice was discontinued. And then Mr. Toufanian would go directly to Washington to borrow or to banks and borrow funds for his purchases of various....
Q. Wouldn't the Central Bank or somebody have to guarantee those loans. Wouldn't they come into the act at some point?
A. You see, in the Central Bank we had instituted certain regulations. The Central Bank would never, never guarantee the signature of the government because of reasoning that it is the Central Bank which is a part of the government and not the reverse. So if the Ministry of Finance guaranteed an agreement,then the Central Bank would not guarantee, anyway it was the guarantee of the government of Iran. However, at the end, the Central Bank had to stand by it and honor the government signature.
Anyway, the military budget really became very bad after the oil revenues increased with the OPEC 1973 price hike. Not all that bad before. And there were people in the military like General Khatam who understood our arguments...
Copyright © 2003 by the President and Fellows of Harvard College (Harvard University)
Dr. Habib Ladjevardi
Iranian Oral History Project
Center for Middle Eastern Studies
Harvard University
1430 Massachusetts Avenue
Cambridge, MA 02138
ladjevar@fas.harvard.edu
617.495.4232 (tel)