Memorandum of Telephone Conversation, by Peter C. Walker of the Office of Eastern European Affairs
Subject: Participation of the IBRD in a Working Group to Survey the Yugoslav Economy
I called Mr. Lipkowitz today to explore with him, on an informal basis, the possibility of someone from the IBRD participating in a United States Government working group to survey the Yugoslav economy. I also wanted to clarify the position of the bank as it had been expressed to Mr. Perkins by Mr. Garner during his visit just before Christmas.
Mr. Lipkowitz said that on the first matter he did not believe there would be any difficulty. In fact, he thought that a general agreement on the facts of the Yugoslav economic situation between the bank and the various United States Government agencies was much in order. Such a survey by a working group would deal with facts rather than recommendations. Nevertheless, out of an agreement on the facts would necessarily come a much clearer picture of the various lines of action which could be pursued.
Mr. Lipkowitz implied that he did not think there would be any objection to a general pooling of information for the purposes of such a survey.
As to his understanding of what Mr. Garner and Mr. Rosen had said to Mr. Perkins in their interview, Mr. Lipkowitz stated that he believed the primary purpose of their call was to impress upon the Department the obvious inconsistency from the point of view of the bank and indeed of the United States Government which would result were the bank to loan Yugoslavia large amounts of money for capital development while they were unable to pay for the raw materials and other commodities necessary to maintain the stability and continuity of their economy. In this connection, he said that the bank estimated that during the next two years the Yugoslavs would need around $75 million, entirely aside from capital equipment purchases, in order to maintain the level of imports necessary to keep their trade in balance and their economy going. In other words, in addition to some $200 million on capital account during the next four years it would need some $75 million of foreign capital on current account. The soundest method of providing such financial assistance would be through grants which would not impair their debt-carrying capacity. The implication was clear that [Page 1681] the bank felt that the Department should include in its over-all request for Congressional appropriations a sufficient amount for financial assistance to Yugoslavia.
Mr. Lipkowitz further said that he thought it was important that the Department should appreciate the necessity for a sound financial approach to the long-run stability of the Yugoslav economy rather than continue to allow the Yugoslavs to force upon us a piece-meal approach to the problem: i.e. every three months approach the Department for a loan of some $10 or $15 million which they need “yesterday”. I said that he must realize that although the Department had a somewhat different interest in the matter, namely the short-run military-political importance of Yugoslavia, nevertheless, our interest in keeping Yugoslavia “in fighting trim” was not incompatible with the bank’s interest in the long-run approach to a sound Yugoslav economy. In other words a sound Yugoslav economy in the long run demands that they put their house in order in the short-run.