Foreign Relations of the United States, 1964–1968, Volume XXV, South Asia

531. Memorandum of Conversation¹

Washington, April 28, 1965.

SUBJECT

• Afghan Aid Request

PARTICIPANTS

• Mr. Mir Mohammed Siddik Farhang, Deputy Minister of Planning of the Afghan government and Leader Grantee
• His Excellency T. A. Majid, Ambassador
• Mr. Phillips Talbot, Assistant Secretary—NEA
• Mr. William J. Handley, Deputy Assistant Secretary—NEA
• Mr. Frank E. Schmelzer, Afghanistan Desk Officer—SOA

Farhang said that the Afghan economy would remain a problem for the next few years because of long-term structural weaknesses. The price of Afghanistan’s major export to western markets, karakul, had remained about the same since 1939, whereas the price of manufactured goods imported from the West had increased 300 per cent in this time. The present Afghan aid request² grew out of the short-term financial crisis, but he was glad to report, as he had heard from Kabul the day before, that the deficit for the fiscal year ending March 20, 1965 had been 600 million Afghanis rather than the one billion which it had been feared to be. Farhang said that the attention of the government had been concentrated on political and social reform with the thought that the government could revert to economic problems later. Now, however, the attention of the government is concentrated on the current economic problems, and the government has learned that it must tackle political and economic problems simultaneously. The government hopes that it will not suffer politically during the election period in October as a result of present economic problems.

Mr. Talbot said that the U.S. would await the results of the IMF mission talks in Kabul before deciding what we could do to help Afghanistan. Mr. Handley asked what the Afghans themselves could do to improve their situation.

Farhang replied that recently the government had convened successfully a congress of landowners to persuade them to agree to an increase in land taxation. The government hoped to do a number of other things to overcome structural weaknesses: (1) to process karakul in Afghanistan, perhaps with U.S. assistance, which could increase the income from this source by 50 per cent; (2) to set up a wool scouring plant; (3) to sell fruit in the Middle East particularly Kuwait. The fruit presently sold to Pakistan and India is sold on bilateral account and does not earn foreign exchange; (4) eventually, to export cotton goods. Farhang said that the Textile Mill is in better shape now because Abdul Majid Zabuli,³ its moving force, had returned to Afghanistan and because the government was giving it additional assistance. Farhang commented that he hoped that the private sector would play a stronger role perhaps after five years. The government planned to help selected enterprises, and the new legal system would facilitate the development of private enterprise as a whole.

Referring to his discussion April 26 with Mr. Macomber of AID, Farhang said that he had reported to his government Mr. Macomber’s suggestion that Afghanistan would be best advised to give up one or more projects now contemplated under U.S. assistance in order to better handle the present financial problem. Farhang said that he did not know how his government would react to this suggestion. He himself felt that it would be better to continue with the projects contemplated; otherwise, workers and machinery becoming available as other projects are finished would remain unused, and there would be an imbalance in Afghan development if new American projects were not taken up (Soviet projects would continue).

Mr. Talbot said that he hoped Mr. Farhang would take back with him the knowledge that the United States is very much interested in the constitutional and economic development of Afghanistan. Many Americans were interested in these developments, particularly since the visit of Their Majesties to the U.S. in 1963. Mr. Talbot said he was glad to meet Farhang again, this time in Washington. Farhang expressed appreciation of American interest and assistance, and concluded that he hoped that he could also take back with him to Afghanistan American agreement for assistance to meet the current need there.

1. Source: National Archives and Records Administration, RG 59, Central Files 1964–66, AID (US) 8 AFG. Confidential. Drafted by Schmelzer on May 6.
2. The Embassy reported in telegram 563, April 2, that it had received a letter from Minister of Planning Yaftali requesting U.S. assistance to help solve Afghanistan’s financial crisis. (Ibid., FN 1–1 AFG)
3. Abdul Majid Zabuli, President of Bank-i-Milli.