Coll 28/3(2) ‘Persia. Financial situation.’ [‎230r] (459/817)

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(jovernment appointments for political services, given or expectec , or from
nepotism, has resulted in a service which is, in general, well below even (he mod
average standard of Persian competence. The outcome is a comh Inat.inpf 1
inefficiency and corruption which, although it always existed, has growrTsfeacl
over the last few years. The diversion of taxation receipts to the officials’ 0 1
pockets, thefts and embezzlement of public money and stores by public servants,
collusion between dishonest officials and tax-payers or contractors, have had their
effect both on revenue and on such morale as the service possesses.
19. Soon after the American Mission’s arrival, expenditure at the rate of
500 million rials a year was added to the budget for increased pay to civil
servants, but this did not fully compensate them for the higher cost of living, and
additional amounts (not yet specified) are being provided in the current year.
Further, a Civil Service Bill is being introduced which will revise existing
methods of appointment, salaries and increments, methods of promotion, pension
rates, &c. this measure is being prepared by Mr. Brownrigg, a member of the
mission, who has had long experience of similar work in the United States. An
American field inspection system is being set up in the provinces to supervise in
particular the administration of the Government’s commercial undertakings.
Efforts are being made to improve methods of accounting and audit. A number
of prosecutions for the misappropriation of public funds or property are already
in hand.
20. Plainly the civil service, as it at present exists, is an inadequate instru
ment for financial or any other administration. The mission is doing all that it
can; but to create an efficient and honest public service might well take something
like a generation, if indeed in Persia such a thing (without continuous and
intensive foreign supervision) is possible at all.
Prospective Position.
21. The resolutions of the Middle East Financial Conference held in Cairo
during April cover fully the measures necessary in the countries concerned,
including Persia, for (a) the balancing of the budget, {b) absorption of surplus
purchasing power by taxation, internal loans and savings, and (c) the progressive
reduction of prices. Persia was represented at the conference by a small delega
tion headed by M. Ibtihaj, which was a party to all the resolutions passed;
although there was at times a tendency on the part of each delegation, even the
Persian, to regard the others as the only legitimate targets for criticism.
22. How far is Persia ready to face the changes which will take place in its
economy at the end of hostilities with Germany, or indeed earlier, if the develop
ment of the war in Europe makes it no longer necessary to use Persia as a transit
route to Russia ? Dr. Millspaugh is fully alive to the situation. He has put in
hand arrangements for post-war planning by the appointment of a variety of
interlocking committees to cover the mam problems which will arise—involving,
to use his own words, currency, foreign exchange, falling prices, foreign trade
policy, budgetary readjustment, unemployment, settlement of claims, property
transfers and internal security. The committees consist of Persian officials and
members of the American Mission, together with Persian merchants and others in
cases in which they are likely to be of use.
23. Although there is no doubt of the progress made by Dr. Millspaugh
since he came to the country, both in laying the foundations required for financial
reform and erecting in part the superstructure, there is much still to be put in
hand. Persia can well stand higher rates of direct taxation than those now
levied; and an increase is necessary to absorb purchasing power and stabilise
prices. Methods of tax collection seriously need reform. Internal borrowing,
alien as it is to the country’s tradition, needs to be tackled with greater success.( 6 )
As to prices, it appears likely that the peak has nearly or quite been reached.
transport, which are coming into being as the result of Dr. Millspaugh’s powers
of economic control, they should turn downward slowly. The effect, in addition,
of the recent favourable war news has been to bring long-hoarded goods on to
the market and materially to depress the prices of certain articles.( 7 ) All in
( 6 ) (a) The deposits in the Government Savings Bank were 146 million rials at the end of
1943_44 as against 54 million at the end of 194*2-43, a large increase but a very small total.
(b) In September 1943 an issue of 500 million rials in Treasury bills was authorised—the
first internal loan in Persian history. So far only about 160 million have been taken up, of which
about 50 have been subscribed by Government departments.
( 7 ) Although the less scrupulous merchants have been spreading rumours of German
successes in the hope of keeping prices up!
and that with the improved methods of purchase and improved distribution and