860h.51/189b: Telegram

The Secretary of State to the Minister in the Kingdom of the Serbs, Croats and Slovenes ( Dodge )

20. Serbian Minister states Jugoslav Government disturbed by alleged attitude of this Government that interest on debt of Jugoslavia to the United States should be paid out of the proposed loan. At the time question of loan first raised Jugoslav Government had made no reply to this Government in answer to note advising it of formation of World War Foreign Debt Commission9 and inviting [Page 1011] proposals as to settlement and refunding of its indebtedness to the United States. Accordingly this Government in inquiring as to purposes of loan asked intentions of Jugoslav Government regarding payment of its indebtedness to foreign governments or their nationals (see Department’s 11, May 1, 4 p.m.) and intentions as to settlement of debt to United States (see Department’s 12, May 13, 7 p.m.). In response to these inquiries assurance was given to you that proceeds of such loan would be used to pay “interest due on Jugoslavia’s indebtedness to the United States.” (See paragraph 1, your 16, May 16, 7 p.m.). For this reason and not because of demand by this Government, this purpose was included in our summary (See Department’s 18, May 24, 4 p.m.) for which we asked official confirmation in order to avoid any mistake. As it has been explained that this was a misunderstanding and that Jugoslav Government is unable to pay interest on indebtedness to United States out of proceeds from loan, this Government does not desire to make such payment a condition of its action relating to this loan but wishes it to be clearly understood that this attitude does not mean acquiescence in the postponement of the payment of interest, the subject of the indebtedness of the Jugoslav Government to the United States being left without prejudice for the World War Foreign Debt Commission.

It is apparent, however, that if payment of interest to the United States is not included among purposes of proposed loan, a more careful inquiry is needed into the purposes to which it will be devoted. This Government, therefore, must ask further information upon this point. It understands (1) that the proceeds of loan are not to be used to pay principal or interest of indebtedness to other governments; (2) that the first issue of proposed loan is to be from “25 to 30 up to 50 million dollars according to agreement,” (your 26, May 28, 2 p.m.); (3) that 10 millions of this first advance will be definitely earmarked for the new railroad construction; that out of the remaining proceeds there will be paid the indebtedness to the Standard Oil Company amounting approximately to $1,300,000; (4) that the remainder is to be used for purposes which are stated broadly as being “other government requirements and for redeeming paper dinars.” It is apparent that redemption of paper dinars would not preclude re-issue later, as has been done by other governments. According to information contained in your despatch 1347, May 8,10 redemption of dinars might not mean more than repayment of debt to National Bank and temporary improvement of exchange. Department is not convinced of the utility of contemplated plan in [Page 1012] the absence of definite provisions for avoiding future arbitrary increases in the currency and for stabilization of exchange. In your 16, May 16, 1922, you stated that further object was “constructing government buildings”. This is indefinite and may not reflect imperative exigency. It is the view of this Government that the proceeds of loans floated here by governments indebted to the United States that insist upon their inability to pay accrued and current interest should be expended only for clearly productive purposes which will aid in economic recuperation, and not for purposes that would facilitate unprofitable governmental expenditures where sound policy requires economic retrenchment.

The Jugoslav Minister has been informed of substance of above. Ascertain as definitely as possible to what ends the proceeds other than those for railway construction and for Standard Oil payment are to be devoted and in what amounts.

The action of this Government will be determined by the information furnished and will be entirely without prejudice to action regarding any future instalments of proposed loan.

Hughes
  1. Dated Apr. 21, vol. i, p. 398.
  2. Not printed.