Foreign Relations of the United States, 1949, Eastern Europe; The Soviet Union, Volume V

860H.50/8–1649

Memorandum of Conversation, by the Acting Chief, Division of Southeast European Affairs (Campbell)

secret

[Washington,] August 16, 1949.

Participants:	The Yugoslav Ambassador, Sava Kosanovich
	The Secretary
	Mr. Rusk1
	Mr. Campbell, SE

Ambassador Kosanovich opened his conversation by saying that on his recent trip to Yugoslavia he had talked with Tito and Kardelj and with Ambassador Cannon,² and thought that the Secretary might wish to ask him some questions.

The Secretary asked for information on the general economic situation of Yugoslavia at present. The Ambassador said that the situation was “stabilized” but confirmed that the need for loans was immediate and urgent. He referred to the cutting off of trade from other countries of Eastern Europe, saying that it was now completely stopped except for the slight movement of goods between Yugoslavia and the USSR under the 1949 trade agreement which had reduced trade to ⅛ of that of 1948. He said that Yugoslavia faced a difficult period of readjustment and required assistance in the form of credits. The Secretary inquired about the current Yugoslav negotiations with the British. The Ambassador said that these were proceeding and that Yugoslavia hoped that they would result in an agreement on trade and on credits.³ The latter were needed in addition to the loans which Yugoslavia hoped to get from the International Bank and the Exim Bank. Mr. Kosanovich then reviewed, at the Secretary’s request, the present status of Yugoslavia’s applications submitted to those two institutions. He stated that Yugoslavia had first, in 1947, submitted a request to the International Bank for a loan of $500 million. This had later been scaled down to some $250 million, and now Yugoslavia had put forward its proposals in the form of 5 or 6 individual projects which might be passed on separately. He said that a mission from the Bank was now arriving in Yugoslavia to investigate those projects. In regard to the possible Exim Bank loan, he said that the Yugoslav Government had given the Bank officials the material supporting its application and that he understood the matter was now before the NAC. He said that Yugoslavia hoped to get a loan of $20 or $25 million some time in September. He also mentioned the Yugoslav request for a drawing of $3 million from the International Monetary Fund.

The Secretary then asked whether the various loans for which Yugoslavia had applied were all for capital equipment. The Ambassador said that this was basically so. He added that Tito had also thought that it would be desirable to get a loan of $10 or $15 million for the purchase of consumers goods. In view of the great devastation inflicted on Yugoslavia during the war, he explained, the people had not been able to get even the ordinary every-day articles which they needed. He mentioned toilet articles as an example. Asked whether Yugoslavia was also interested in cotton, he said that this was the case. Yugoslavia would like to get cottton for processing in its own mills.

In connection with the discussion on loans, the Secretary referred to Signor Castiglione’s recent conversation with Mr. Rusk, saying that Castiglione has presented himself as private emissary from Marshal Tito to discuss the loan question with US officials.⁴ The Ambassador, who seemed amused by this, stated that Castiglione seemed to be a kind of “volunteer worker” for the Yugoslav Government in this affair and added that he could not be considered as spokesman for the Yugoslav Government. The Secretary said that Mr. Rusk had not received him in such a capacity and had wished to get some clarification from the Ambassador concerning Castiglione’s role in order to avoid embarrassment. The Ambassador stated that he had talked to Castiglione in Belgrade and that the Yugoslav Government had felt that the latter might be of help in arranging matters connected with trade and credits from Italy, especially with private banks. He remarked jokingly that Castiglione had told him that Yugoslavia was not asking enough from the United States and could get more. The Ambassador said that he preferred to be straightforward about the situation and to present to the US a picture of what was actually needed. Yugoslavia’s situation, he said, was not “desperate”, as some reports had it, but was as he had described it.

The Secretary asked whether, on the supposition that Yugoslavia should get a loan from the United Kingdom, an Exim Bank loan, and loans from the International Bank for some of its projects, the situation would be satisfactory for the Yugoslav economy. The Ambassador said that it would, adding that the main problem was to get past the present difficult period of adjustment in which new markets had to be found for Yugoslav goods. Mr. Rusk inquired, if and when that adjustment should be made, Yugoslavia would be producing and exporting enough goods to pay its own way. The Ambassador said that it would. He saw great possibilities for the development of mineral production and also for greater agricultural exports. For this expansion, however, it was necessary to have new mining and agricultural machinery and to modernize and expand the transportation system.

The Secretary asked whether Yugoslavia was having difficulties with respect to its trade with the US. The Ambassador took the occasion to thank the Secretary for the granting of a license for export of the blooming mill. He then mentioned delays in the granting of licenses as a factor creating difficulties for Yugoslavia, since the resulting uncertainty made it hard to plan and to know whether to seek similar articles elsewhere. The Secretary and Mr. Rusk stated that they were not aware that licenses were being unduly delayed and asked what particular instances the Ambassador had in mind. He said that he could not give specific examples but that he would make detailed information available to the Department. The Secretary said that the Department would look into the matter and see what could be done to speed up the process if it were unduly slow. The Ambassador suggested that it would be desirable if the Yugoslavs could be given a preliminary indication, at the time of making their applications, so that they would have a better idea as to whether these applications might eventually be granted.

On the subject of Yugoslav exports to the United States and other western countries, Mr. Kosanovich said that Yugoslavia had had some difficulty in finding markets. In reply to a question from the Secretary he said that Yugoslavia had on hand stocks of non-ferrous metals for which markets in the west had not been found. Mr. Rusk said that the Department would look into the question of possible need for these products in Western countries. The Secretary said that something might be done to ease this particular Yugoslav problem.

Turning to political matters the Ambassador remarked that the question of the Yugoslav-Greek frontier had been mentioned in his previous conversation with the Secretary⁵ and referred to Tito’s speech at Pola on July 10⁶ announcing the closing of that frontier. He added that since its closing a number of incidents involving Greek and Yugoslav soldiers had taken place in the frontier area. Yugoslav soldiers and citizens, he said, had been killed on Yugoslav territory, and Greek forces had several times crossed the frontier. (Yugoslavia, like Bulgaria and Albania, has made a continuous series of allegations of frontier violations by Greece both before and after the closing of the frontier; it is impossible to check the authenticity of these charges since Yugoslavia has not been willing to recognize the existence of UNSCOB or to permit it to investigate these incidents; one of the most recent was a charge that Greek planes attacked the Yugoslav town of Skocivir late in June; Yugoslav and Greek officers met at the frontier on July 11th to discuss the matter but reached no agreement on the facts or what to do about them.) Ambassador Kosanovich said that Yugoslavia had sent notes to Athens protesting these incidents but had received no replies. He hoped that something could be done about it. The Secretary asked whether these matters might not be dealt with directly by Yugoslav and Greek representatives on the spot. Mr. Rusk said that it might be possible to have joint investigations of such incidents by Greek and Yugoslav officials. The Ambassador said that he hoped the situation could be improved.⁷

In leaving Ambassador Kosanovich brought up the fact that American passports are stamped “not valid for Yugoslavia”. He wondered whether this practice could be abolished since it seemed to be discriminatory and since there was really no reason for it. US citizens, he said, were in no jeopardy in Yugoslavia. The Secretary, after recalling that the Ambassador had brought up this same matter with him in 1947, said that the Department would look into it and see whether anything might be done.

[John C. Campbell]

1. Dean Rusk, Deputy Under Secretary of State, from May 1949.
2. In his telegram 662, July 12, from Belgrade, not printed, Ambassador Cannon commented that news accounts of his conversation the day before with Ambassador Kosanović in Belgrade had been overly dramatic. Cannon observed that the conversation had been the “usual casual diplomatic dialogue without any significance whatever”. (711.60H/7–1249)

3. In his telegram 791, August 15, from Belgrade, not printed, Ambassador Cannon reported that the British-Yugoslav negotiations in Belgrade on a trade and credit agreement had reached a critical stage and might be broken off. Cannon commented on the importance of the negotiations as follows:

   “Failure conclude early agreement would affect adversely not only Yugoslavia and Britain but also US and other western countries interested keeping Tito regime strong enough to continue slugging it out with USSR and subservient satellites. French and Italians have made their contributions in expectation British would soon make theirs. If British contribution delayed much longer US would have to reconsider its tentative plans. Credits to Yugoslavia involve financial risk but failure grant moderate and timely credits involves broader risk that economic and morale situation here will deteriorate below danger point and lead to regime’s collapse which, at this stage, would have most serious consequences from western standpoint.” (641.60H31/8–1549)

   Telegram 498, August 31, to Belgrade, not printed, stated that the British Embassy had been informed of the Department of State’s concern over the apparent snags in the British-Yugoslav trade and credit negotiations and of the Department’s interest in the speedy and successful conclusion of the negotiations in the light of the common American-British attitude toward Yugoslavia (641.60H31/8–1549).

4. According to information in the Department of State, Camillo Castiglione was a member of an Austrian banking family with commercial and industrial interests in Germany, Italy, Austria, and Switzerland. He appeared to have a reputation for energetic, skillful, if “not entirely scrupulous” business dealings and had already served as an intermediary in several sales of petroleum products to Yugoslavia. In May 1949, Castiglione visited Belgrade and had a private conversation with Marshal Tito. Telegram 1751, June 13, from Rome, not printed, reported that Castiglione had conversed with an officer of the Embassy. Castiglione alleged that Tito wished to use him as an unofficial intermediary with the United States to discuss the possibilities of economic assistance to Yugoslavia. Tito allegedly wanted to use a private person in order to avoid risking humiliation in case an approach through official channels to the United States failed (660H.119/6–1349). Telegram 1240, June 20, to Rome, not printed, instructed the Embassy to give Castiglione no encouragement (660H.119/6–1349). In August Castiglione began a visit to the United States. He had a conversation with Deputy Under Secretary of State Rusk on August 11, but no record has been found of the meeting.
5. Ambassador Kosanović paid a courtesy call on Secretary of State Acheson on July 1 just before returning to Belgrade for “routine consultation”. According to John Campbell’s memorandum of that conversation, not printed, Kosanović expressed his appreciation for what the United States had done to improve economic relations with Yugoslavia. The Secretary of State suggested that Kosanović talk in Belgrade with Ambassador Cannon on any matter of American-Yugoslav relations which appeared to warrant discussion—particularly the question of Yugoslav aid to the Greek guerrillas (711.60H/7–149).
6. On July 10, Marshal Tito delivered a major speech at Pula (Pola), Slovenia in which he reviewed all of Yugoslavia’s principal foreign policy problems including Carinthia, Trieste, Greece, relations with the U.S.S.R. and the satellites, and relations with the West. For extracts from that speech, see Carlyle, Documents on International Affairs, 1948–1949, pp. 459–460.
7. Additional documentation regarding the Greek civil war and the interest of the United States in Yugoslav-Greek relations is scheduled for publication in volume vi.