Foreign Relations of the United States, 1955–1957, Central and Southeastern Europe, Volume XXVI

285. Report Prepared by the Operations Coordinating Board¹

Washington, September 5, 1956.

PROGRESS REPORT ON “UNITED STATES POLICY TOWARDS YUGOSLAVIA” (NSC 5601)²

(Policy Approved by the President January 24, 1956)

(Period Covered: January 24 through September 5, 1956)

A. Summary of Operating Progress in Relation to Major NSC Objectives.³

1. OCB Judgment on Need for Policy Review.

a. The OCB makes no recommendation at this time regarding a need for review of NSC 5601 by the National Security Council.

b. In view of the rapidly-changing and still obscure Yugoslav situation, and in view of the possibility that the Presidential finding referred to in paragraph c, when made, may alter the terms under which U.S. policy may operate, it will become necessary for the OCB in the near future to consider whether to submit a further report and recommendations to the NSC with respect to a review of NSC 5601.

c. The Mutual Security Act of 1956, however, requires a separate review of Yugoslav policy apart from normal NSC requirements.

(1) Section 5 of the Mutual Security Act of 1956 amends the Act of 1954 as follows: “Sec. 143. Notwithstanding any other provision of law, no assistance under this title or any other title of this Act, or under any provision of law repealed by section 542(a) of this Act, shall be furnished to Yugoslav after the expiration of ninety days following the date of the enactment of this section, unless the President finds and so reports to the Congress, with his reasons therefor, (1) that there has been no change in the Yugoslavian policies on the basis of which assistance under this Act has been furnished to Yugoslavia in the past, and that Yugoslavia is independent of control by the Soviet Union, (2) that Yugoslavia is not participating in any policy or program for the Communist conquest of the world, and (3) that it is in the interest of the national security of the United States to continue the furnishing of assistance to Yugoslavia under this Act.”

(2) The Department of State will prepare the initial papers and, after the necessary coordination with other interested Departments and Agencies, will present the problem to the President. By the terms of the Act cited above, the Presidential determination is due not later than October 16, 1956.

d. The terms of 5602/1⁴ do not, in themselves, require modification of NSC 5601.

2. Summary Evaluations.

a. Yugoslav Independence. Despite the prospects of a continuing, and perhaps expanding, Soviet-Yugoslav rapprochement, one U.S. short-term objective—the maintenance by Yugoslavia of its political independence—has been realized up to now. However, Yugoslav willingness to accept and to become dependent on large amounts of Soviet bloc economic aid and to enter into expanding trade relationships cannot be overlooked and presents an increasing danger to Yugoslavia’s political independence. Denial of U.S. loan and grant assistance in the economic and, to a lesser extent, in the military fields may force Yugoslavia to turn further to the USSR as the only available alternative source for such help, thereby increasing the threat to Yugoslavia’s political independence.

b. Influence on the Soviet Bloc. Yugoslav interest appears undiminished in enhancing its own position of political and ideological influence in Eastern Europe, which, in turn, leads the Yugoslavs cautiously but persistently to seek to promote an evolution of the Soviet satellites toward greater independence from Moscow. However, since these efforts are largely cloaked in secrecy and since results can only occasionally be deduced from events, it is still impossible to estimate the extent of Yugoslav success and Western benefits therefrom. An example of this obscurity is furnished by the fall of Rakosi, in which development, according to the American Legation in Budapest, Yugoslav example and behind-the-scenes influence had a part.

When the Yugoslavs deal with bloc developments on an overt basis, their attitude becomes, if anything, harder to evaluate. The first Yugoslav newspaper stories dealing with the Poznan riots followed the Soviet and Polish line that they were caused by “foreign agents.” But when the Polish line diverged from the Soviet line—the Poles maintaining that the riots, although not good in themselves, were justified by hardships and shortages, while the Soviets maintained the “foreign agent” theory—the Yugoslavs followed the Polish line. It appears that the Yugoslavs, in supporting the Polish stress on the necessity for improvement of Polish living conditions, in opposition to the Soviet line, aimed to encourage the effort of the Polish Communist government to assert some independence and to improve living conditions—within the framework of Communism.

This event tends to illustrate both the strength and weakness of Yugoslav influence on the bloc. Because they are Communists, the Yugoslavs can get a hearing among those Communist ruling groups who desire improved living conditions and greater national autonomy. But because they are Communists, the Yugoslavs dare not espouse causes and movements which would threaten Communism itself.

In comparison with the other objectives set forth in NSC 5601, that of para. 15 appears in a relatively favorable light. The importance of Yugoslavia in the eyes of the Soviet bloc states of Eastern Europe may be measured in part by the inordinate amount of attention and economic aid given Yugoslavia by the Soviet bloc.⁵

c. Yugoslav Foreign Policies. Considered in relation to the objectives set forth in paras. 16 and 17 of NSC 5601, Yugoslav foreign policies do not give grounds for optimism. The visit of Tito to Moscow (para. 6) has resulted in a virtual identity of Soviet and Yugoslav foreign policies on many key issues, and there is no prospect for any substantial change for the better. Yugoslavia’s “neutralist” line also sets an example for other countries which is contrary to U.S. interests. However, Yugoslavia’s aim appears to be to reconcile differences between East and West in the interest of arriving at a less tense and less clearly divided world which may be safer for small powers, such as Yugoslavia.

Perhaps the most significant deterioration shown during the reporting period has been Yugoslavia’s willingness—as implied in Tito’s Moscow speech⁶ and in the recent Yugoslav-Soviet-East German aluminum deal (para. 4b)—to move close to full recognition of the East German regime (G.D.R.). In doing so it demonstrates a willingness to flout one of the central tenets of Western policy. It seems to do so from a combination of Communist sympathy with the G.D.R. regime, opportunistic economic interest, and a covert desire (shared by many other Europeans, Communist and nonCommunist alike) to see Germany remain divided.

d. Liberalization of the Regime. No further signs of political or economic liberalization of the regime have been forthcoming in the past half year. However, there has been no marked retrogression from such liberalization as did occur in the years 1951–54, except in the field of agriculture where, in an avowed attempt to attack the continuing problem of low food marketings, the regime has increased farm taxes and reemphasized its previous intention of ultimately “socializing” agriculture.

3. Progress in Meeting Commitments in Program Schedules. The U.S. has no commitments to the Yugoslav Government except for a possible contingent obligation to supply an additional 2,404 tons of cotton under the FY 1956 PL 480 program. Moreover, all prior agreed economic assistance programs (except for this cotton) have now been carried out or are in the pipeline (para. 8). Military aid programs have been resumed since March, after a stoppage of ten months, at a stretched-out rate per NSC 5601, para. 21.b. Further delivery of jet fighter planes, however, was suspended as of July 19 until the President decides the status of future aid to Yugoslavia.

B. Major Problems or Areas of Difficulty.

4. Yugoslavia’s Attitude on Aid. The Yugoslav attitude on economic aid from the West, as opposed to complete dependence on the Soviet bloc, is not clear. Many Yugoslav officials claim that they do not want to become further dependent on Soviet aid, but the GDR-USSR aluminum agreement (Para. 4.b.) tends to belie this. Whether the Yugoslavs actually feel that they need anything more than a mere “open door” to the West, to use as a bargaining lever against the Soviet bloc, is not yet clear. However, an outright denial of U.S. loan and grant assistance will probably cause the Yugoslavs to turn further to the USSR for such help.

a. Yugoslav Wheat Needs. In the absence of the Presidential finding referred to in para. 1.c., the Department of State has informed the Yugoslav Government that the United States will be unable to meet Yugoslavia’s short term urgent needs of wheat out of PL 480, or under other legislative authorities. The Yugoslavs, as a consequence, must make other arrangements, probably with the USSR, to import wheat to meet their immediate requirements.

b. Yugoslav-USSR Aluminum Agreement. The Yugoslavs have entered into a long-term agreement with the USSR and GDR for the development of 50,000 tons of aluminum capacity over a 5-year period starting [in] 1957 with the promise of a subsequent agreement for an additional 50,000 tons. The terms and ultimate significance of this agreement are by no means clear. Information on the agreement has been fragmentary and often contradictory. The arrangement seems to call for participation by both the USSR and the GDR, with the USSR furnishing 1,000,000 tons of wheat (and/or other commodities) for local sale and dinar financing of internal costs, and with the GDR providing most of the foreign credits needed to obtain imported equipment and technical assistance.

Shortly prior to this agreement, the Yugoslavs circulated a prospectus, inviting Western participation with Yugoslavia in the development of a combined hydroelectric and aluminum project. The West Europeans were to supply foreign exchange needs while the U.S. was asked to enter a 5-year wheat supply agreement with the Yugoslavs to provide local currency and to meet Yugoslav food needs. It is not clear now whether the announced Soviet-GDR-Yugoslav agreement is in addition to, or part of, the 165,000 tons of aluminum capacity envisaged in the prospectus. Until this situation is clarified Western consideration of the Yugoslav plan is unlikely.

In addition to the serious policy question of virtually entering into a long-term partnership with the Soviet bloc in developing Yugoslavia’s power and aluminum potential involving commitments on both sides over a considerable period, U.S. officials have serious reservations about its claimed future benefits to Yugoslavia’s balance of payments position and its implied dismissal of any attempt to create a self-supporting agriculture in Yugoslavia.

c. Majdanpek Copper Project. The request for a U.S. loan of abut $10 million to assist the development of a copper mining facility and related plants in Yugoslavia in conjunction with a French financial group is still outstanding. The Export-Import Bank is not favorably inclined to this project, but it will not act, in any event, until the President has made a decision regarding future aid. Alternative Western or Soviet bloc financing may be available to the Yugoslavs.

C. Listing of Major Developments During the Period.

5. Tito’s Visit to Moscow. Tito’s visit to Moscow in June 1956 directed world attention once more to his reconciliation with the Soviet Union. The final communiqué,⁷ showing a near identity of Soviet and Yugoslav foreign policy views, the agreement to reestablish bilateral party ties, and the strong and frequent pledges by Tito of his friendship for the USSR and the common goal of socialism have caused many free-world capitals to reassess Yugoslavia’s world position and Tito’s future role.

6. U.S. Military Assistance.

a. A fiscal year 1950–56 program in the total amount of $874.0 million has been programmed for Yugoslavia, including MDAP equipment and supplies, “excess” stocks, repair and rehabilitation of “excess” stocks, direct forces support, and packing, crating, handling and transportation. Of this amount, $681.6 million or about 78 per cent was delivered by June 30, 1956.

b. Following a review of past programs by the Department of Defense from January through March 1956, revised and only slightly reduced programs were approved in March, and MDAP shipments resumed. Yugoslav cooperation on operational matters has been improving, although the recent suspension of F–86E deliveries (para. 3) has resulted in a Yugoslav decision that additional assignments to AMAS should be held up pending determination of the status of military aid to Yugoslavia. The Yugoslavs have not, however, been willing to enter into any discussions with the U.S. (per para. 21 d of NSC 5601) on additional programs of military aid beyond those presently in effect.

c. The FY Mutual Security Appropriations Act forbids the use of new funds for furnishing any military equipment to Yugoslavia, except to maintain equipment already supplied or for spare parts. The Departments of Defense and State have interpreted this also to exclude use of the funds for ammunition. Six F–86E jet fighter planes have been delivered prior to suspension (Para. 3). A schedule of prior deliveries can be found in Annex B.⁸

7. U.S. Economic Assistance.

a. Cumulative economic assistance to Yugoslavia through June 30, 1956, amounted to approximately $605.9 million, while expenditures totalled approximately $581.4 million, leaving a pipeline of $24.5 million. Obligations and expenditures are as follows:

(In millions of U.S. dollars)

	Obligations	Expenditures	Pipeline
MSP—Defense Support (Inc. TE)	425.5	418.8	6.7
MSP—Direct Forces Support (FY 55)	10.5	10.5	—
PL 480 Title I Sales	123.2	106.3	16.9
PL 480 Title II (CCC prices)	46.7	45.8	.9
Total	605.9	581.4	24.5

b. During the period January 1–June 30, 1956, MSP Defense Support obligations were $30 million ($25 million Section 402 surplus agricultural commodities, $2 million coal, $2 million roadbuilding equipment and $1 million TE), while expenditures totalled $24.2 million. A PL 480 Title I program of $49 million was negotiated during this period and brought total PL 480 program in FY 1956 to $71.2 million. If the President authorizes continuation of assistance, the $15 million of Defense Support funds available for Yugoslavia will probably be primarily for surplus agricultural commodities; consideration is also being given to a Direct Forces Program of $3.8 million from funds carried over from FY 1956.

1. Source: Department of State, OCB Files: Lot 62 D 430, Yugoslavia 1956–1957. Top Secret. Attached to a covering memorandum from Charles E. Johnson, OCB Executive Assistant, which stated that the progress report was concurred in by the OCB on September 5 for transmittal to the National Security Council. The OCB noted a report by the Department of State that the Presidential determination regarding aid to Yugoslavia would probably be made just prior to October 16 and agreed to suggesting that the OCB report prior to that date. The NSC noted this progress report apparently without discussion on September 25. (Memorandum of discussion by Gleason; Eisenhower Library, Whitman File, NSC Records)
2. Document 270.
3. NIE 31–56, July 24, 1956—Yugoslavia’s International Position. [Footnote in the source text. NIE 31–56 is printed as Document 282.]
4. NSC 5602/1, “Basic National Security Policy,” is printed in vol. XIX, pp. 242–268.
5. See Annex A—Soviet Bloc Loans and Credits to Yugoslavia. [Footnote in the source text. Annex A is not printed.]
6. Presumably a reference to Tito’s June 19 speech at Dynamo Stadium in Moscow; see footnotes 2 and 4, Document 280.
7. See footnote 5, Document 279.
8. Neither Annex B, “Mutual Defense Assistance Programs for Yugoslavia for Fiscal Years 1950 through 1956,” nor Annex C, “Financial Annex,” is printed.