641.60H31/5–1249: Telegram

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


499. Successful outcome British trade and payments negotiations (Embtel 222, March 4 et seq.1) understood hinge on inclusion sterling credits. Yugoslavs have requested credits of about 11 million pounds in connection five-year planned imports capital goods valued 30 to 33 millions. If credits withheld, Yugoslavia threatened break off negotiations comprehensive trade and payments agreement. British willingness advance credits would pave way early conclusion such agreement.

British Relegation weighing pros and cons this proposition in light general policy keeping Tito afloat. Inclined recommend London agree include discussion credit of about 6 million pounds (1) to insure conclusion comprehensive agreement and (2) to bolster Tito. Believe some imports consumers goods (textiles, household and other incentive goods) possibly under credit would help ease economic situation population, under heavy stress five-year plan implementation in spite substantial exchanges with east, and lift civilian morale. On other hand [Page 890] British delegation somewhat concerned political question what is aggregate in loans and credits west as whole should contemplate as price of keeping Tito above water and whether British credit along lines indicated would be in harmony policies other western countries notably France Italy and US’. They anticipate no difficulty with Italy or France since those countries have already granted credits to Yugoslavia.2

Although total such credits substantial, Embassy considers price relatively small when measured against tangible benefits increased Yugoslav trade with west and less tangible but politically important effects on general orientation Yugoslavia toward west and bolstering of Tito regime against mounting Cominform pressures.

Credits by OEEC countries particularly those able furnish capital goods tends diminish Yugoslav need for US dollar credits private or otherwise, but since US preferred source many capital items, Embassy inclined believe US influence Yugoslav policies would remain substantially unchanged.

For foregoing reasons, Embassy inclined favor such limited credits by OEEC countries as they find necessary in order conclude satisfactory trade or trade and payments agreements with Yugoslavia during period applicability present general policy toward Tito regime.

Embassy concerned, nevertheless, about difficulties appraising overall Yugoslav ability bear burden of trial loans and credits and bringing into focus that regard existing commitments and current Yugoslav requests of governments, private banks and IBRD. British delegation also concerned this problem.

Department’s comments on possible British credit and related problems mentioned above would be appreciated.

Sent Department, repeated Paris 38 for ECA, Geneva unnumbered for Porter, London 23.

  1. Not printed.
  2. The references here are presumably to the trade payments arrangements provided for under the Franco-Yugoslav Payments Agreement of June 12, 1946, and the Italo-Yugoslav Trade and Financial Agreement of November 28, 1947.