153. Memorandum of Conversation0
SUBJECT
- Call of the Yugoslav Ambassador
PARTICIPANTS
- The Yugoslav Ambassador, Marko Nikezic
- The Under Secretary
- Mr. J. L. Katz, EE
Ambassador Nikezic stated that he wished to inform the Under Secretary about two matters—Yugoslavia’s need for investment loans and the intention of the Yugoslav Government to simplify its foreign exchange system.
As regards the matter of investment loans, the Ambassador stated that Yugoslavia was grateful for the very great assistance afforded by the US over the past ten years. This aid, mostly in the form of food and raw materials, played an extremely important role in stabilizing the Yugoslav economy. The requirements of the Yugoslav economy had now shifted, however, from this type of assistance to a need for investment capital. The Ambassador pointed out that Yugoslavia now devoted 25% of its national income to investment but it required capital from abroad as well, since development was a basic condition for its policy of independence. Without assistance from abroad, Yugoslavia would be unable to maintain pace with its neighboring countries. The Ambassador [Page 403] recalled in this connection his statements at previous meetings concerning the political importance of economic development to Yugoslavia.
The Ambassador then outlined the sources of foreign financial aid available for Yugoslavia. He pointed out first that Mutual Security assistance and PL 480 assistance were greatly reduced over the past year. The DLF had extended about $50 million in development credits last year. This year, however, the DLF has under consideration only three projects totalling about $35 million. One of these projects, the plastics factory, presents something of a problem. A small part of the process is available only in the UK but US financing of this portion of the project is precluded by the Buy American policy.1
There has been no change in the situation regarding the Export-Import Bank, the Ambassador said. Although the State Department has reportedly said that it saw no reason why the Yugoslav Government could not submit applications to the Bank, the Bank has been unwilling to consider any application from Yugoslavia.
The third source of possible investment financing is the IBRD. Yugoslavia has made serious efforts to meet the Bank’s conditions, the Ambassador pointed out. It had settled its pre-war debts with all countries except for a very small debt with Belgium which will be settled shortly. The Bank has now agreed to send a mission to Yugoslavia in April. Mr. Black, however, has raised two problems. For one thing he continues to insist that Yugoslavia settle also its pre-World War I debt. This debt was incurred by the Austro-Hungarian Empire prior to the existence of the Yugoslav State and represents a rather complicated problem. Yugoslavia recognizes its obligation in this connection, and it is willing to deal with the problem in due course. The Ambassador hoped this matter would not be an obstacle to Bank financing. Mr. Black had also raised a problem with regard to the Bank financing state-owned enterprises. The Ambassador expressed the hope that the Bank would show some flexibility in this regard.
These are Yugoslavia’s main sources of financing, the Ambassador said, and he asked for our understanding and support of Yugoslavia’s position in these matters.
The Under Secretary replied that we had tried to be helpful in these matters but so far had only had partial success. He recalled his conversation with a Yugoslav official (Nenad Popovic) in Paris last December2 and had expressed his willingness to talk to Mr. Black with regard to the [Page 404] Bank sending a mission to Yugoslavia. He was pleased that the Bank had now agreed to send a mission.
As regards the Export-Import Bank, the Under Secretary pointed out that he had had some talks with Eximb officials and, although this was hard to understand, the Export-Import Bank is an independent agency.
The Ambassador asked whether Eximb was concerned about the political risk of dealing with Yugoslavia. Mr. Dillon said he was sure this wasn’t the case. He frankly did not understand their attitude, but he would talk to Mr. Waugh again about the matter.
As regards the DLF, the Under Secretary pointed out that this represented a different problem. There was, of course, no connection between PL 480 and the DLF. The fact that PL 480 assistance was diminishing did not mean that the DLF could or would make up the difference. The DLF did not establish aid levels. Rather it determined how it should distribute its resources among eligible countries by priority of projects and of countries. This did not mean that the DLF did not continue to have an active interest in Yugoslavia.
The Ambassador interjected that he did not wish to be misunderstood. His Government had developed a very fine relationship with the DLF and he was sure the people there were understanding and sympathetic to Yugoslavia’s problems. Progress was slow, however, because of their heavy workload.
Mr. Dillon said that he would look into the problem. With regard to the IBRD, he thought that the problem of financing state-owned enterprises could be overcome by having them finance hydroelectric power projects. Mr. Black’s objections, he thought, would not extend to state-owned public utilities.
The Ambassador next raised the second matter he wished to discuss, the decision of his Government to simplify its foreign exchange system. This, he said, had been a goal of his Government for many years but it had now become imperative since Yugoslavia wished to develop as a part of the world economy. He pointed to Yugoslavia’s recent association with the GATT,3 its association with the OEEC4 and its interest in association with the successor organization to the OEEC as evidence of its desire to be integrated into the world economy.
The decision has now been made to introduce a customs tariff and to eliminate multiple exchange rates during the period of the next five year plan. It is felt, however, that the task could be accomplished in a [Page 405] much shorter time with help from abroad. Therefore the IMF has been approached on the problem. Mr. Jacobsen had expressed his pleasure over the idea and indicated that the Fund would like to help. He had agreed, therefore, to send a mission to Yugoslavia in May. The Ambassador stated that he hoped the US would also become interested in the idea and would extend its support. Even if the Fund found the plan worthy of support its resources might not be sufficient, and help would have to be sought from other countries.
Mr. Dillon stated that we looked upon this development very favorably and we wished to support it in every way we can. The final decision, of course, will depend on the report of the IMF mission. He cautioned, however, that we might have some problem in extending material support since we have no agency or source of funds to supplement the resources of the IMF. While we have in the past joined with the IMF in similar plans for Spain, Turkey and Argentina, what we did was to indicate the assistance we planned to extend over some period of time. In fact we did not do more than we would have done in any event but by indicating in advance our intentions, we gave a psychological boost to the efforts of the IMF. The only case where additional aid was provided was in Spain and this was done through the medium of the OEEC. Mr. Dillon suggested that it might be useful for the Ambassador to talk to Mr. Waugh about this development. He thought Mr. Waugh would be interested in it and it might provide some stimulus for action by the Export-Import Bank.
As a final matter, the Ambassador reminded Mr. Dillon of the wish of the Yugoslav Government to have Mr. Dillon visit Yugoslavia. The Under Secretary indicated that he planned to attend the Ministerial Meeting of ECOSOC in Geneva in July.5 Following the meeting he planned to go to Vienna for a day or two and he could then go to Yugoslavia for three, four or five days. While he did not know the precise dates, he thought he might be in Yugoslavia between the 17th and 21st of July.
The Ambassador expressed his pleasure at this news and stated that he would inform his Government immediately.
The Under Secretary said that he was looking forward to the visit and unless something unforeseen arises he expected to make the visit.
- Source: Department of State, Secretary’s Memoranda of Conversation: Lot 64 D 199. Confidential. Drafted by Katz and approved in U on March 28.↩
- Reference is to Title II of the Appropriations Act of 1933 (P.L. 428), enacted March 3, 1933. For text of this act, see 47 Stat. 1489.↩
- During Dillon’s trip to London, Paris, and Bonn December 7–14. No documentation on Dillon’s discussions with Popovic has been found.↩
- Yugoslavia’s application for association with GATT was formally accepted during the October 26–November 20, 1959, GATT meeting in Tokyo.↩
- Yugoslavia received observer status with the OEEC in 1956.↩
- The U.N. Economic and Social Council was scheduled to meet July 5–August 3.↩