Foreign Relations of the United States, 1958–1960, Eastern Europe; Finland; Greece; Turkey, Volume X, Part 2

116. Memorandum of Conversation⁰

Washington, January 24, 1958.

SUBJECT

• Call of the Yugoslav Ambassador Concerning Delays in Releases of Local Currency

PARTICIPANTS

• Mr. Leo Mates, Yugoslav Ambassador
• Mr. Dillon, W
• Mr. Katz, EE

The Yugoslav Ambassador called at his request to bring Mr. Dillon’s attention to the difficulties arising from the considerable delays involved in releases of funds generated by PL 480. The Ambassador cited two current cases, the 1957 program release and the so-called Jadranski Put (Adriatic Highway), which have caused particular difficulties. The 1957 release is now one year behind schedule. Because of the long delay in approving this program, the Yugoslav Government has had to proceed with the projects with credits from the National Bank. Now, however, ICA cannot finance the projects because of the regulation prohibiting debt retirement. As a result, there seems to be an impasse on this question.

The experience with the Jadranski Put is even more discouraging, the Ambassador stated. The U.S. committed itself in January of 1955 to finance this project. At a later date more detailed information was requested from the Yugoslav Government. In March 1957, the Yugoslav Government supplied the most precise information on the project but to date it has not been approved. In fact, the U.S. Government, Ambassador Mates said, appears to have changed its position, since Mr. Weiss, Deputy Director of the USEP, informed the Yugoslav Government that the U.S. now wished to shift its financing from a grant to a loan.

It was explained to the Ambassador that the U.S. originally agreed to finance the Jadranski Put as a military project. In view of the proposal of the Yugoslav Government, however, to terminate military assistance in any or all forces, it was considered appropriate that the project be financed not as a military facility, but as an economic development project. Furthermore, in view of Vukmanovic-Tempo’s recent statements reiterating that Yugoslavia wanted loans not grants,¹ it was considered that putting the project on a loan basis was consistent with the desire of the Yugoslav Government. In presenting this explanation, it was emphasized that we were not asking to justify the inexcusable delay in approving the project.

The Ambassador seemed somewhat taken-aback by the above explanation and stated that Belgrade had not explained this background to him. He said he would, of course, report this conversation back to Belgrade.

Mr. Dillon commented that the local currency problem was not peculiar to Yugoslavia. It was a general problem, although the problem appeared to be particularly serious in Yugoslavia. He stated that he intended to look into this general problem personally and that perhaps Yugoslavia would serve as a test case. He was therefore glad to leave [have?] the information presented by the Ambassador.

Ambassador expressed appreciation for Mr. Dillon’s personal interest in this matter and hoped some way could be found to expedite release of local currency.

0. Source: Department of State, Yugoslavia Desk Files: Lot 65 D 121, Investments and Loans. Official Use Only. Drafted by Katz.
1. In a January 10 address to the Federal Council of the Yugoslav Socialist Alliance, Vukmanovic-Tempo also praised the United States for providing assistance to Yugoslavia without attempting to interfere in its internal affairs.