Current Economic Developments, Lot 70 D 467


Current Economic Developments1


No. 207

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Yugoslavia Requests Credits: Trade With West Increases

In the past several months there has been intensification of Yugoslav efforts to obtain western markets, credits, and commodities, paralleled [Page 901] by a reduction in trade activities between Yugoslavia and the Cominform countries.

Requests for Credits On the financial side, a formal loan request has been filed with the International Bank, including a detailed application covering 15 projects for a total of $230 million. We have been informed by the Yugoslav Ambassador that his country hopes to receive the items covered in the application during the coming three years.2 The Yugoslavs have also indicated that they plan to discuss with the Eximbank which of the projects contained in the requests to the International Bank might be financed instead by the Eximbank. Before the Department takes a final position regarding an Eximbank credit, it will be necessary for the Yugoslavs to give the Eximbank information on the urgency of their dollar requirements for 1949; their actual and anticipated dollar availabilities, aside from possible credits; and the extent to which these availabilities are already committed or earmarked.

The Yugoslavs have also been negotiating with private US banks on the possibility of credit extension and our Embassy in Belgrade has been informed by a representative of the Bank of America that it is considering a $10 million credit fully backed by gold located outside Yugoslavia. The Yugoslavs, however, are willing to provide gold collateral only for one-quarter of the credit, and only with gold in Belgrade. The Bank of America is apparently willing to consider partial gold collateral only if located outside Yugoslavia.

Embassy London has been informed that the British Ambassador to Yugoslavia is being authorized to offer the Yugoslavs a sterling credit for the purchase of capital equipment in the UK. The top amount of the credit is to be £5 million with the actual amount dependent upon Yugoslav commitments concerning compensation for nationalized British investments in Yugoslavia and agreements for timber and maize shipments to the UK. We are concerned about the difficulties of appraising the size and urgency of Yugoslavia’s foreign exchange requirements and its ability to bear the burden of the credits, especially since our preliminary studies indicate a balance of payments deficit in 1949 ranging from $27 million to $73 million, with the feeling here that the higher figure is more realistic.

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Increased Trade with West According to the press the agreement being negotiated with the UK calls for a five-year pact involving about $800 million worth of goods. Britain’s present agreement with Yugoslavia is a one-year pact, expiring in September, involving an exchange of about $60 million and is reportedly working out well. The new agreement will call for British manufactures in exchange for timber, grain and food.

Trade between the US and Yugoslavia has been on the upgrade also. From the latter part of February, when the new US economic policy toward Yugoslavia was put into effect, until May 27, US export license applications for Yugoslavia were approved in a total amount of $17,181,000, about 42% higher than the applications approved for all of 1948. Approvals since February include 10 oil-well drilling rigs, 2.5 million pounds of lard and 10,000 tons of motor gasoline. Of the applications outstanding, the one regarded as having first priority, which has been pending for about eight months, is a blooming mill for manufacture of iron and steel ingots. The Yugoslavs have indicated they want mining equipment from us but have not yet provided specific information. They also raised the question of aviation gasoline but were informed that prospects for licensing it were not encouraging.

Satellite Pressure Meanwhile Yugoslavia’s Soviet satellite neighbors are increasing their efforts to put an economic squeeze on Tito. A Cominform meeting is now being held in Poland and reportedly its principal topic of conversation is the economic strangulation of Yugoslavia. The result may be a recommendation that all satellites sever economic relations with Yugoslavia. Apparently Yugoslav-Czech trade has stopped and the Yugoslavs in the press have accused the Czechs of violating their bilateral commercial agreement and of obstructing negotiations to establish a 1949 list of goods to be exchanged. Yugoslavia has also issued an official statement accusing Hungary of running out on its trade agreement and the Budapest press has announced that, because of consecutive Yugoslav violations, Hungary has cancelled its commercial agreement with Yugoslavia. A toughening Polish attitude has also been indicated.

Internal Situation Meanwhile, Yugoslav officials seem confident that the internal situation is sound politically. They have stated that the Cominform rift made it necessary to revamp their five-year plan. This resulted in harder work and more sacrifices but, because of national pride and stubbornness, the people responded and the major goals will be realized. Imports and production of consumer goods for this year had to be postponed but next year it is planned to revert to industrialization and production for the home market.

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  1. This weekly classified publication, prepared by the Policy Information Committee of the Department of State, was designed to highlight developments in the economic divisions of the Department and to indicate the economic problems which were currently receiving attention in the Department. It was circulated within the Department and to missions abroad.
  2. Ambassador Kosanović called on Assistant Secretary of State Thorp on June 8 to discuss the terms and details of a loan request which he had formally presented to Eugene Black, President of the International Bank for Reconstruction and Development, a few days earlier (memorandum of conversation, June 8, 1949, file-800.515 BWA/6–849). This was the first information received by the Department of IBRD loan request briefly summarized here. During a conversation with officers of the Department of State on July 8, Black stated that the IBRD would make it clear to the Yugoslav Government that it would not consider a loan in the magnitude of $200 million but would consider a loan in the neighborhood of $25 million (memorandum of conversation, July 8, file–860H.51/7–849).