Foreign Relations of the United States, 1950, Central and Eastern Europe; The Soviet Union, Volume IV

868.03/9–750: Telegram

The Acting Secretary of State to the Embassy in Yugoslavia

secret

Washington, September 20, 1950—6 p. m.

190. Embtel 211 Sept 7.¹ Principles approved by NAC to guide US Exec Director on [International Monetary] Fund in considering applications for Fund drawing include:

(a) in order conserve resources of Fund, country drawing shld demonstrate ability repay Fund within relatively short period time (any doubts this connection shld be resolved in favor Fund rather than in favor applicant),

(b) a country which finds it necessary ration its dol resources through exchange restrictions on current transactions is to be considered prima facie suffering from fundamental disequilibrium; the ITS Director therefore wld not support a drawing by country exercising such controls except under fol conditions:

1. A specific determination by Fund that circumstances giving rise to proposed drawing are in fact due to temporary rather than fundamental disequilibrium.

2. A specific determination that proposed drawing cannot primarily be attributed directly or indirectly to requirements engendered by rehabilitation or development programs.

Our views re application above criteria Yugo are as fols: Re (a): Prospective insufficiency dol earnings: (1) raises serious doubt Yugo ability repay new dol obligation after reasonable interval, without incurring additional dol obligations; (2) has already required accommodation by Eximbank, in form of deferment to 1954 of start of principal repayments on second and third Eximbank loans.

Re (b) 1. Yugo appears face prospect persistent current account deficit, due failure provide necessary minimum living standard from output home consumption goods, plus importation such goods with fon earnings. As we see it this failure chiefly result excessive utilization domestic resources and external loans for heavy industrial development, at expense production and import e.g., of agricultural equipment other goods for exchange with village. Effect of this wld appear share directly with drought as cause of magnitude food shortage the circumstance giving rise to drawing application. Data submitted by Yugos aimed establish balance current acct non-dol and dol area 1950 not convincing. All signs available here to date point to Yugovt insistence on maintenance usage total resources in manner likely to prolong fon trade deficit. These considerations lead to conclusion Yugo in situation of fundamental disequilibrium in sense of Fund Articles.

Re (b) 2. Although objective Yugo capital development program is ultimate equilibrium at higher level, as indicated urtel, do not consider it appropriate promote such objective with IMF resources. According NAC principles, IMF resources shld be made available for certain types balance of payments assistance, excluding assistance required directly or indirectly for rehabilitation or development programs. While fully recognizing urgent nature Yugovt needs, we feel present needs cannot be appropriately satisfied through drawing on IMF.²

Webb

1. Not printed. In it Ambassador Allen reviewed the drastic food shortages resulting from the Yugoslav drought. He urged the reexamination of every feasible means of affording assistance to Yugoslavia through existing national and international agencies, including the International Monetary Fund (868.03/9–750).
2. In his telegram 307, September 30, from Belgrade, not printed, Ambassador Allen responded to this telegram. Allen urged that the American position on the matter of Yugoslav withdrawals from the International Monetary Fund be seriously and urgently reviewed in the light of current economic and political realities and that some measure of flexibility be introduced without abandoning all restraints on fund drawings. He emphasized that the critical shortage of food and feed in Yugoslavia had created a serious temporary foreign exchange disequilibrium. Allen warned that for both psychological and practical reasons it was highly important for the Yugoslav Government to be able to reassure the population without delay that famine conditions definitely would be averted. He recommended that Yugoslav withdrawals from the International Monetary Fund would provide a quick source for a portion of the funds needed to assure purchase and shipment of minimum food needs to be distributed and stored in Yugoslavia before winter weather gripped the inadequate and over-burdened transportation system (868.03/9–3050).