Foreign Relations of the United States, 1947, Eastern Europe; The Soviet Union, Volume IV

860H.50/11–1847: Telegram

The Ambassador in Yugoslavia (Gannon) to the Secretary of State

secret

Belgrade, November 18, 1947—6 p. m.

2232. Withdrawal of major proportions in economic policy seems to be under way here. For almost two years and half Yugoslav Government has proceeded in Communization program at unprecedented rate. This pace commensurate with zeal of its leaders was based on set of highly optimistic economic calculations re (1) support by Soviet exports and Yugoslav trade agreements, (2) post-UNRRA aid, (3) early and appreciable reparations deliveries, (4) unblocking of assets in US, and very importantly (5) success in enlisting voluntary cooperation peasantry and labor. None of these calculations has succeeded fully and some have failed.

Progress under 5-year plan has begun to slow markedly and work on large sections of it not yet commenced. Tremendous drop in 1947 imports has accelerated consumption UNRRA supplies which except for durable goods are largely used up. Throughout summer and fall appreciable price rises and goods scarcities developed with reciprocal relation that peasants withheld food from markets and labor beginning to feel effects incessant speedup and inadequately rewarded did not meet production goals. Speeches of Tito at Croat peasant rally, Peoples Front Congress, and War Veterans Association inauguration were recognitions of the deteriorating economic situation.

Confined within inexorable Communist framework of policy and association, Yugoslav Government is not free to attempt major reforms that could correct regime’s weaknesses but has instituted own version of new economic policy. Labor’s grievances sought to be cured by new wage scales (Embtel 2050, October 3¹) which not only increase general level of wages but also distance between lowest and highest paid workers. Peasant dissatisfaction sought to be ended by virtual abandonment compulsory food collections. Institution of free sale system for basic foods and commodities intended pacify both groups (Embassy airgram A–406, October 10¹). System provides for double prices, one set for rationed quantities and one set for all other sales. Kidric² in remarkable admission at labor union conference on November 10 said “experience past two or three years proves it is neither in interest our peasantry nor adequate supplies for our cities if we go on prolonging impossibility for peasants sell freely surplus products at freely established prices. As soon as we introduced free sale system quantities of goods in our market doubled and tripled”. Embassy believes this last a gross overstatement.

This reversion to more capitalistic market and wage practices has been accompanied by another NEP in international commercial policy. Yugoslav Government apparently at last recognizes need to trade with US for industrial and transport equipment if 5-year plan is to be launched within 5-year period. Recent US businessmen travelling here have been startled by cordiality their reception and reiterated expression desire Yugoslav Government for business with US. Habjanic, Yugoslav commercial attaché in Washington, returned for months consultation in October and in call on me left strong impression of Yugoslav determination to increase its US [trade?]. Type of encouragement and proposition given T. P. Philip Bros. (Embtel 2114, October 16³) we consider major development. Simić visit to Secretary (Embtel 2222, November 14¹), which Embassy has as yet received no information, may be related this trend.

All this indicates we are entering difficult and delicate period in our economic relations with new Yugoslavia. As long as regime’s policies were as crudely unconcealed as its political programs, question of contribution by US industry to strengthening of country presented no great problem. Now if façade of sweet reasonableness in commercial matters be presented question may well become more acute. I would emphasize that no divorce of economics and politics is possible in regime such as this and I am sure that driving fanaticism of its leaders makes any deviation from straight Communist line only temporary and tactical. Our economic policy toward Yugoslav Government must be shaped with full consideration these factors.

Cannon

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2. Boris Kidric, Chairman of the Yugoslav Central Economic Council, Chairman of the Central Commission for Planning, and Minister of Industry.
3. Not printed. Telegram 750, November 24, to Belgrade, not printed, which replied to the Belgrade telegram under reference, stated that representatives of Philip Bros, had discussed with the Department the desirability of continuing mineral imports from Yugoslavia and the question of a possible loan to Yugoslavia. The telegram outlined the Department’s policy in the following manner:

   “They [the representatives of Philip Bros.] were informed Dept favored continuance imports at maximum level since same desirable for US stockpile strategic raw materials. They were also told Exim loan highly unlikely but that in line with traditional policy Dept would have no objection to private commercial loan.

   . . . . . . . . . . . . . .

   “Dept’s policy of non-discrimination in trade relations with Yugo involving transactions and commodities of nature referred to above not considered in contravention US policy in Greece.” (611.60H31/10–1647)

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