Foreign Relations of the United States, 1948, Eastern Europe; The Soviet Union, Volume IV

860H.50/1–448: Telegram

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

secret

Belgrade, January 4, 1948—7 p. m.

9. ReEmbtel 6, January 3.¹ For economic part in talk with Marshal Tito yesterday I used for background (a) long memo² prepared by Leonhart³ summarizing prewar, present and prospective trade and possibility of triangular trade under ERP and analyzing rates of exchange nationalization practices and secrecy on statistical information (b) memos of conversations in Department November 12 forwarded under despatch 35 December 9⁴ (c) memos of conversations November 13 forwarded under Form DS 4 November 17⁵ and (d) Issue No. 129 December 15 of booklet Current Economic Developments⁶ from which fortunately we were able have some idea of Department’s thinking on current negotiations on Yugoslav gold and counterclaims.⁷ Local Foreign Office liad also given me copy of aide-mémoire presented by Simić to Secretary Marshall November 13.⁸

I found Tito only mildly interested in normal trade development and entirely indifferent to long range aspects. He wants machine and electrical equipment now. Clearly chief preoccupation is realization that success of five year plan depends on mechanical equipment which eastern bloc cannot furnish and which must somehow be obtained.

My reference to eventual Yugoslav exports to be tied into ERP provoked no reaction. My suggestion of importance of even incomplete statistical information which normally would not be confidential but is here treated as utmost state secret also left him cold.

On only two points did he show interest.

1. Removal of tourist ban. He spoke of badly needed foreign exchange this would produce but I am sure he was thinking chiefly of political factors. I said atmosphere was not favorable to any change now but I would review the situation in the spring and make recommendation to Department in light situation then.

2. Above all he wants the blocked gold. He said “keep twenty millions until we settle claims and release rest which we will spend at once for American machines”. Having already detected signs that Yugoslavs would like to transfer at least part of negotiations to Belgrade. I said that claims were being worked on in Washington and I had not sufficient details to entitle me comment this proposal. He asked me at least to “animate” the negotiations. At this Bebler beamed for he had told me of assurances of Secretary and Hickerson in November which Thorp⁹ had then reiterated but “after the first technical meeting we were back in same rut”.

As reported mytel 6 these economic topics were discussed parallel with political questions which, except for blocked gold, may have been of more immediate interest to him as they were to me.

This talk confirms at least Embassy’s impression of hard sledding for five year plan, shallowness of intra-bloc trade agreements and insufficiency of export surpluses to cover estimates optimistically put forward in series of simultaneous bilateral trade negotiations. It also fits in with my conjecture that whatever may be ability of Soviets to help industrialization of Yugoslavia it is not to Soviet advantage to do so. I think soviets will give minimum aid to keep Yugoslavs in respectful dependence; and will encourage building up industries of direct military importance; and will favor whatever imports from west Yugoslav Government can manage to acquire holding this to be capital accretion to resources of bloc. But I think that strategically they still look upon Yugoslavia as forward area and intend to concentrate important basic industries within Soviet Union rather than expose them to peripheral risks or contribute to centrifugal forces which major political or military changes might set in motion.

Sent Department 9, repeated Moscow 4, London 5, Paris 4.

Cannon

1. Supra.
2. Not printed.
3. William K. K. Leonhart, Second Secretary at the Embassy in Belgrade.
4. None printed.
5. For the Secretary of State’s memorandum of his conversation with Foreign Minister Simić on November 13, 1947, see Foreign Relations, 1947, vol. iv, p. 852; for a summary of the memorandum by John D. Hickerson, Director of the Office of European Affairs, of his conversation with Foreign Minister Simić on November 13, 1947, see ibid., p. 852, footnote 1.
6. The reference here is to a Department of State classified weekly report; issue No. 129 included a brief review on the status of negotiations in December 1947 on United States claims against Yugoslavia and the question of unblocking of Yugoslav gold in the United States.
7. Regarding the negotiations under reference here, see the memorandum by Walworth Barbour for the Under Secretary of State, infra.
8. The aide-memoire under reference here is not printed.
9. Willard L. Thorp, Assistant Secretary of State for Economic Affairs.