Memorandum of Conversation, by the Acting Officer in Charge of Eastern European Affairs (Truesdell)1
Subject: Position of the International Bank Concerning Loans to Yugoslavia.
|Participants:||Mr. Martin Rosen, International Bank|
Mr. Rosen called today in order to outline to the Department the new position of the International Bank concerning conditions [Page 1687] under which the Bank would be willing to extend a series of loans to Yugoslavia. A program of loans from the Bank has been the subject of discussions between the Bank and the Yugoslav Government for almost two years. These discussions came to a head, after Mr. Black’s visit to Belgrade and his talks with Marshal Tito,2 with the despatch by the Yugoslav Government of a special delegation headed by General Velebit to Washington to negotiate with the Bank.
According to Mr. Rosen, General Velebit, who returned from Belgrade last week, and Mr. Gouzina, Vice President of the State Planning Commission, called on Mr. Black on Monday for the first time since General Velebit’s return. General Velebit also called on Mr. Rosen on Tuesday. There are no fundamental disagreements between the Bank and the Yugoslavs which could not be ironed out, if the basic issue which now confronts the Bank were resolved. This basic issue, Mr. Rosen explained, is the extent of the deficit on current account in Yugoslavia’s balance of payments (the uncovered deficit in trade apart from capital goods) and how that deficit will be met. Mr. Rosen stated that the Bank has told the Yugoslavs that, unless the Bank is assured that the deficit, estimated at approximately $100 million over the next two years, can be met on a grant basis, the Bank cannot go ahead with the loan program.
Mr. Rosen then proceeded to outline the history of the last phase of the discussions between the Bank and the Yugoslav Government which began when Mr. Black visited Belgrade in September of last year. At that time, Marshal Tito and Boris Kidric, President of the Planning Commission, told Mr. Black that Yugoslavia’s total needs for foreign assistance were $500 million. Of this amount $300 million was needed for capital equipment over the next two years, $100 million for assistance in connection with the drought and $100 million for current account assistance during the next three years. They suggested that the $300 million for capital equipment and $100 million for current account should be in the form of loans and the $100 million for drought assistance in the form of a grant. If this assistance were received, the Yugoslav balance of payments would be in equilibrium on capital account by 1953 and on current account by 1954. Mr. Black stated that the maximum amount of loans for capital equipment which the Bank could approve would be $200 million. Moreover, this should be applied over a period of four years. As for the rest ($200 million), this assistance should be in the form of grants.[Page 1688]
Since that time the Yugoslav Government had approached the United States Government for $105 million assistance in connection with the drought. This amount was divided approximately evenly between food and raw materials. After receiving grant assistance for food totalling approximately $70 million, Yugoslavia presented a revised estimate of their needs for raw materials assistance which they estimated at $64 million. Of the $64 million approximately $24 million were for the last quarter of 1950 and $40 million for the first three quarters of 1951. The $40 million, which the Yugoslavs now estimate as their irreducible needs for raw materials assistance, must be considered as part of the $100 million which the Yugoslavs state is needed as a result of the drought. The second $100 million for current account assistance, the Yugoslavs have now cut down to $65 million. This must be added to the $40 million, making a total of $105 million current account assistance needed during the next two years.
Mr. Rosen estimated that, in fact, Yugoslavia will certainly need at least $75 million to $100 million current account assistance in addition to the capital loans from the International Bank. The raw materials needed by the Yugoslavs, he said, are more important to their economy than the food which we have given them. Moreover, the Bank feels that unless the Yugoslav deficit on current account is covered, further loans for capital equipment cannot be justified. In this connection, the Bank has asked the Yugoslavs to provide information on the effects on Yugoslav economy of their not getting the necessary current account assistance.
Mr. Rosen again stated that the Bank has told the Yugoslavs that unless their current account needs are covered on a grant basis, the Bank cannot go ahead with the capital development program. He went on to justify this position by saying that the Bank had reexamined Yugoslavia’s current position, which they found to be deplorable. They estimate that Yugoslavia’s obligations coming due during this year alone will be at least $30 million. These obligations consist primarily of repayments on the British loan and payments to Germany.
Mr. Rosen went on to say that the policy of further “belt-tightening” was not practical or acceptable to the Bank; that Yugoslavia was everywhere overextended and had already reduced its import needs to a bare minimum. Mr. Truesdell asked about the status of the French credit and Mr. Rosen replied that a $25 million credit had been agreed upon but that the French Government insists that this credit must be channeled through the International Bank. This credit is for investment goods.
Mr. Rosen stated that one of the primary difficulties the Bank had experienced in negotiating with the Yugoslavs was the practice [Page 1689] which the Yugoslavs followed of compartmentalizing the information which they presented to the Bank. When the Bank told General Velebit that, in order to undertake a rational consideration of Yugoslavia’s needs, they must have a total picture of the Yugoslav economy, including their overall investment plans, foreign trade position, and credit position, General Velebit countered by saying that the State Department had told them “not to give the whole picture”. Mr. Truesdell pointed out that General Velebit must have incorrectly interpreted the meaning of the Aide-Mémoire to the Yugoslav Government3 in which it was stated that we would be willing to continue to discuss with the Yugoslav Government Yugoslavia’s needs for raw materials obtainable only in the United States.