Iran's foreign economic policy involved also the procurement of loans. Näsir al-Din Shah’s grants and cancellations of concessions led to popular discontent, which, in part, led to his assassination in 1896. Upon accession to the throne, his son, Muzaffar al-Din Shah, was confronted by numerous claims for arrears of salary on the part of a huge and corrupt bureaucracy. He felt the need for a new fiscal policy because he wanted money for his medical and pleasure trips to Europe.
In 1900 the Shah borrowed £2,400,000 from Russia. Iran had first approached Great Britain, which had “hesitated and procrastinated,’’ insisting on immediate control of the Iranian customs as security for a British loan. Russia profited by British slowness and made the loan through the convenient medium of its bank in Iran. The loan was guaranteed by the Russian government and carried 5 per cent interest. The security was the Iranian customs revenues except those of Persian Gulf ports. The loan agreement had a number of important conditions to which the government of the Shah agreed. These were aimed at economic and political subjugation of Iran. The Shah and Atäbak Azam, the Prime Minister, agreed that the proceeds of the new loan should be devoted to repayment of the balance of the British loan which had been contracted to provide compensation for the withdrawal of the tobacco concession.
Having fulfilled all the conditions attached to the loan, the Shah and his entourage drew upon what money was left to pay the expenses of their longed-for trip to Europe. Upon his return the Shah found the Treasury empty. In 1901 he borrowed from Russia again, this time an amount equivalent to about £1,500,000. To obtain the loan, the Shah agreed to extend to 1912 the period during which he would contract no loans from any power except Russia. The Shah also agreed to revise Iran’s tariffs, with the consent of Russia, as soon as possible.
Thus within three years the Shah had contracted two Russian loans amounting to a total of approximately £4,000,00. This sum equaled the whole of Iran’s revenues for the same period. There is no evidence that any of this money was used for productive purposes.' It is well known, however, that once again the Shah and bis entourage drew upon the public loan to pay the expenses of another lush and leisurely trip to Europe.
Muzaffar al-Din Shah’s fiscal policy produced popular opposition just as had his father’s concessionary policy. It was during the years when the Russian loans were being negotiated that the earliest secret society was formed in Iran. No free press was allowed in Iran, and no newspaper published in Persian abroad could enter the country." The secret society, which was composed of some of the influential personalities who later led the Constitutional Movement, mimeographed and circulated an “evening newspaper” (Shabndmah), vigorously protesting the negotiations for acquiring loans from Russia.
Nevertheless, the decision to borrow was not abandoned. The failure of the opposition may be attributed to two major factors. First, by means of advancing loans and credits on easy terms the Russian bank had gained too firm a grip upon a number of merchants and some of die influential clergy. Second, the opposition was not broadly based ; only a few educated individuals could see the injurious economic and political consequences of Iran’s heavy indebtedness to Russia.
Talbot Concession: Dishonoring a Nation
