No. 829

868.03/1–1251: Telegram

The Secretary of State to the Embassy in Yugoslavia 1


673. Dept concerned over increasing evidence Yugos failing make determined effort reduce their need for fin assistance arising from drought by realistic adjustment their apparently inflexible econ plans. Prelim data on Yugo raw material requirements recently handed us by Yugo Emb indicate figures derived by merely subtracting value actual agri exports from value planned agri exports and labeling difference as value import requirements resulting from drought. On basis this data and conversations with Yugos here, we see no evidence at present YuGov has 1) examined possibility reducing imports all types including both capital equipment and raw materials; and 2) explored fully every conceivable arrangement with important trading partners in order insure continuing deliveries essential raw materials. On contrary, strong impression created YuGov expects US meet major share losses occasioned by drought. This connection, Dept informed major portion recent $16 million net Ital reparations payment Yugo committed for machinery, [Page 1682] although several items on their list of “raw material” requirements (Deptel 4510 Dec 22 to Frankfort rpt Belgrade 5872) are available in Ital (Rome’s 2775 Dec 29 rpt Belgrade 812). Of course, we unfamiliar with position Itals during negot.

As you aware, Dept’s position on Yugo raw material needs set forth in Aide-Mémoire handed Filipovic Nov 22 (Deptel 434 Nov 252). See also Memo Conversation between Perkins and Popovic Dec 73). Most liberal interpretation last sentence Aide-Mémoire wld imply 1) Yugos must exhaust every means payment for such materials; 2) they must demonstrate they had done so and prove remaining materials were absolutely essential Yugo economy; and 3) only then wld US be prepared discuss fin assistance for this purpose. Dept has at no time contemplated US providing major share Yugo raw materials needs. It was hoped we wld only need provide such aid as wld enable Yugos purchase cotton and perhaps certain POL products in US and that remainder existing Eximbank loan cld be used help finance such purchases.

Position Yugo Emb now however, 1) YuGov has already exhausted every possible means fin purchase needed raw materials and 2) US accordingly will somehow make arrangements fin these purchases, valued by Yugos at approx $41 million (see list Deptel 4510 rpt Belgrade 587 Dec 222).

Only sources funds for further assistance Yugo are Eximbank, ECA, Congress. Dept believes loan this magnitude and for such purpose fr Eximbank out of question. Any loan to Yugo for raw materials wld also place heavy burden on Yugo debt-carrying capacity for purposes which wld not create additional debt-servicing ability. This particularly serious if, as likely, such loan wld reduce development program which might result fr current Yugo discussions with IBRD.

In view Cong reaction ECA arrangements with Ger and Ital re flour shipments, Dept believes impossible this time consider using existing ECA appropriation further assistance Yugo thru conditional aid third countries, such as suggested Frankfort’s 5345 Jan 2 rptd Belgrade 75.4

Thus, even if we desired, for pol considerations, meet Yugo request, sources necessary funds appear limited to grant thru Cong. In view apparent failure thus far Yugo make econ adjustments necessary [Page 1683] solve econ difficulties compounded by drought plus lack concrete data on Yugo econ and proof needs, we believe impossible approach Cong. Cong opinion this matter already reflected by insertion sub-section f Sec 3 Yugo Aid Bill.

FYI appears Dept possibility exists and shld be explored for at least partial utilization by Yugos for raw materials 1) West Ger credit; (Deptel 4510 Dec 22, rptd Belgrade 587); 2) Austrian credit; (Vienna 1159 Dec 11, rptd Belgrade 32); 3) Ital reparations payments; (Rome 2839 Jan 3, rptd Belgrade 83);5 and 4) $4 million credit recently extended Yugo by Bank Inter Settlements (Brussels Toeca 363 Dec 21, being rptd Belgrade6). Brit Emb here has indicated possibility UK credits Yugo for raw materials in addition to recent offer 2 million pounds this purpose. FYI Eximbank also approved Dec 11 release 6.5 million fr remainder existing loan enable Yugos purchase cotton (5.), non-ferrous mining equip (1.3) spare parts blooming mill (.2) in US.7

View this background, Dept now considering informing Yugos here 1) we not in position at this time to furnish YuGov any grant assistance fin procurement raw materials; 2) we believe YuGov well advised examine every possible reduction in its imports all types including both raw materials and capital equipment and explore fully every conceivable arrangement with other countries.

We recognize that, even if Yugos make determined effort along lines point 2 proposed approach, some further US aid may well be necessary during first half 1951. During next few months, however, YuGov itself will have opportunity show it making genuine “self-help” effort overcome effects drought and shld be able provide more comprehensive picture bona fide Yugo requirements. Dept also planning concerted effort basis such data as available toward analysis Yugo long-term econ position, priority being given effect substitution raw materials for capital items now sched for Yugo under credits with Yugos important Europ trading partners.

Ur comment and views this problem, including possible YuGov reaction contemplated approach, urgently requested. Also desire ur reaction Toeca 363.8

  1. Drafted by Charles G. Stefan and Peter C. Walker of the Office of Eastern European Affairs and cleared with Campbell, Truesdell, WE, GER, E, and H. Repeated by airgram to London, Paris, Frankfurt, Rome, Brussels, Bern, Vienna, and Cairo.
  2. Not printed.
  3. Not printed.
  4. Not printed.
  5. The memorandum summarized a conversation during which Perkins told Popović that while the United States appreciated Yugoslavia’s difficult raw material situation it was unable “at the present time” to undertake anything more than the emergency food program. (868.10/12–750)
  6. Not printed.
  7. Telegram 5345 reported on negotiations between Yugoslavia and West Germany for a credit to finance Yugoslav purchases in West Germany. (868.10/1–251)
  8. None printed.
  9. Not printed.
  10. Presumably a reference to the loan of $15 million authorized by the Export-Import Bank on August 10, 1950. See the editorial note, Foreign Relations, 1950, vol. iv, p. 1438.
  11. In his telegram 912 from Belgrade, January 17, Ambassador Allen expressed the opinion that a maximum effort on the part of the Yugoslav Government to meet its needs through its own efforts could be produced by an early statement to the Yugoslav Ambassador in Washington that apart from the possibility of utilizing a further portion of the present Eximbank credit, there was no practical possibility of American financing any 1951 Yugoslav requirements for raw materials. Allen believed that a flat but friendly negative reply without any accompanying lecture would cause the Yugoslav Government itself to examine the shortcomings in its economic system. (868.10/1–1751)