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

127. Memorandum of Conversation⁰

Washington, June 9, 1958.

SUBJECT

• US-Yugoslav Economic Relations

PARTICIPANTS

• Mr. Franc Primozic, Minister of the Yugoslav Embassy
• Mr. Vasilije Milovanovic, Economic Counselor of Yugoslav Embassy
• Mr. Foy D. Kohler, EUR
• Mr. Robert B. Hill, EE

Mr. Primozic called with Mr. Milovanovic to introduce Mr. Milovanovic to Mr. Kohler and to raise informally the general question of US-Yugoslav economic relations. Mr. Milovanovic, he said, is about to return to Belgrade for brief consultation. Mr. Primozic asserted that his government is interested in expanding economic relations with the US and, although he had no intention of raising any specific question at this time, he would appreciate any comment which Mr. Kohler might care to offer.

Mr. Kohler said he would like first to raise a few questions. He had been reading a number of reports about Yugoslavia recently, he said, and had been particularly interested in the Soviet postponement of credits to Yugoslavia.¹ Was his understanding correct that these credits applied solely to specific economic development projects? Mr. Milovanovic said this was correct, that of $285 million promised by the Soviets approximately $110 million were for two fertilizer plants and some mining development, with the remaining $175 million earmarked for an aluminum project. Mr. Kohler said he understood that the fertilizer and mining projects were already fairly well advanced while the aluminum project was still in its very early stages. Mr. Milovanovic confirmed this understanding and explained that his country was especially interested at this time in developing its agriculture and hence placed much emphasis on fertilizer production. Agriculture, he said was perhaps the most important field of activity at present in Yugoslavia. Mr. Kohler then asked if Yugoslav trade with Italy, West Germany, France and the United Kingdom was proceeding normally, and expressed satisfaction when both Mr. Primozic and Mr. Milovanovic assured him that it was. Mr. Primozic noted that, although Yugoslav political ties with West Germany had been broken the economic ties continued.²

Referring to Mr. Primozic’s opening remarks about economic relations, Mr. Kohler proceeded then to point out that any economic assistance which the US might extend has, of course, certain political objectives. He noted that we appreciate Yugoslavia’s desire for aid without strings but said he was sure Mr. Primozic understood that our aid depended on Yugoslavia maintaining its independence. So long as Yugoslavia did so he felt certain that we could continue to enjoy the kind of economic relations we have had in the past. Turning then to the subject of US Congressional activity Mr. Kohler said that we have, of course, encountered some difficulty recently particularly with the so-called Kennedy Amendment.³ In fact, of course, the dispute over the Kennedy Amendment was more or less academic since other arrangements had been worked out for Yugoslavia and Poland and no other countries would at present be affected. He wished to emphasize, however, that our troubles are not yet ended, particularly since the MSA appropriations bill has not yet passed the Congress. He did not wish to be misleading with respect to the volume of US assistance which might be available in the future.

Mr. Kohler pointed out further that we hope this year to increase the money available to the Development Loan Fund (DLF) and he suggested this would be something which Mr. Primozic might watch closely. There is, of course, considerable competition for the relatively limited resources of the DLF and the Yugoslavs might therefore be well advised to examine the projects they have already submitted with a view to assigning priorities. The Yugoslav Government could be assured that we would consider its projects sympathetically, but it is not possible at this time to give any indication of the magnitude of any loans which might eventually be made. Speaking purely in speculative terms Mr. Kohler thought that, while the Yugoslav aluminum project, if submitted, probably would not receive favorable consideration, the prospects for helping in completing other projects, particularly those on which a good start has already been made, seemed reasonable. In this connection the US would be interested in the extent to which Yugoslavia might be able to supplement US help through West European suppliers in West Germany, Italy, the UK and France.

Mr. Primozic expressed understanding of Mr. Kohler’s remarks and said that Yugoslav economic experts are now engaged in attempting to analyze the effect of the suspension of Soviet credits, and he repeated his remark that he and Mr. Milovanovic had not called with any specific request but had merely wished to emphasize Yugoslavia’s desire for broadened economic relations. Mr. Milovanovic said he was interested particularly in possibilities of exploiting further the Eximbank, pointing out that Yugoslavia had borrowed $55 million some time ago when its exports to the US were only $15 million; since then exports have risen to $43 million with possibility of further increase, thus improving Yugoslavia’s ability to repay dollar loans. Mr. Kohler replied that while he did not exclude the possibility of Eximbank loans there were certain gradients in this respect, ranging from the relatively “soft” loans of the DLF through the Eximbank and the IBRD, to the relatively “hard” loans of US commercial banks. The matter of loans also raises the question of what is called international credit worthiness, he said, which is in turn related to the economic viability of the loan recipient and, of course, its international debt position.

As they rose to leave after again expressing appreciation for Mr. Kohler’s remarks Mr. Primozic said he would like to refer briefly to an earlier conversation he had had with Mr. Kohler in which they discussed Mr. O’Shaughnessy’s talks with Mr. Rukavina in Belgrade.⁴ Perhaps, he said, there had been some misunderstanding and he was perfectly willing to say no more about it. He would like to note, however, that at this time particularly a country might feel it could take advantage of Yugoslavia’s situation to impose additional conditions on any assistance which it might extend. This would be, he said, wholly unacceptable to his Government and most unwise. Apparently satisfied that he had made his point Mr. Primozic and Mr. Milovanovic then took their leave without awaiting any comment from Mr. Kohler.

0. Source: Department of State, Central Files, 611.68/6–958. Official Use Only. Drafted by Hill.
1. A 5-year suspension of credits by the Soviet Union was announced on May 28.
2. The Federal Republic of Germany broke diplomatic relations with Yugoslavia on October 18, 1957, following the recognition by the Yugoslav Government of the German Democratic Republic on October 15.
3. An amendment by Senator John F. Kennedy to the Foreign Aid Appropriations Act of 1959 proposed that the President be allowed to grant aid to any Communist nation except the Soviet Union, the People’s Republic of China, or North Korea. The amendment was defeated in a Senate vote on June 4.
4. In a May 28 discussion with Kohler, Primozic stated that O’Shaughnessy had informed Yugoslav officials that the Feighan amendment to the Mutual Security Act, which toughened existing requirements of Section 143 and which the Yugoslav Government disliked, would probably be passed and the Yugoslav Government would “simply have to swallow it.” Kohler denied that a difference of opinion existed between the Department and the Embassy in Belgrade on the undesirability of this amendment. A memorandum of Kohler’s conversation with Primozic is in Department of State, Central Files, 768.5–MSP/5–2858. The Feighan amendment required the President to report to Congress on the independence of Yugoslavia prior to the release of mutual security aid to that nation. It was defeated.