130. Telegram From the Embassy in Yugoslavia to the Department of State0

2. Joint Embassy/USOM message.

Yugoslavs have renewed discussions with us with view completion negotiations for termination military aid and finalizing instrument providing for such termination. Yugoslavs greatly concerned at long delay reaching final agreement for termination aid. In informal discussions they have indicated that unless we can reach mutual agreement on terms for terminating military aid, they will have to consider possibility unilateral termination. They state they would not like terminate unilaterally and that government has not yet reached this position.

Unless Department has other points of which we unaware only outstanding substantive issue relates paragraph 8 of proposed termination memorandum. Purpose this paragraph was to commit us to continue provide local currency for projects which have been previously justified on military facility or common defense basis and which Yugoslavs now wish justify on economic development basis. Principal project involved this connection is Jadranski Put, matter which now on way to solution through exchange of notes authorized A–165.1 However, even after such exchange of notes, there still remains open disposition following three funds from other than PL 480 which envisages military use of dinar and which Yugoslavia would like to resolve in some manner prior conclusion agreement on termination military assistance:

1,459,500,000 dinars ($4,865,000) under section 550 agreement of May 12, 1955,2 which had been originally intended for off-shore procurement. As indicated paragraph 3, Embtel 1513,3 Yugoslavs wish use these funds for construction two highways and railroad line.
3,922,959,219 dinars ($13,076,531) of Section 402 funds under agreement of May 12, 1955. Agreement contemplates use these funds for defense projects and specifically indicates US favorably inclined use these funds for Jadranski Put and Zagreb–Ljubljana highway.
2,781,202,669 dinars ($9,270,676) of Section 402 funds under agreement of January 19, 1956.4 Latter agreement envisages use these funds for defense support but does not specify any specific projects.

Disposition of funds under items (B) and (C) would be covered by release of funds for projects envisaged in exchange of letters of April 25 and 28 between Popovic and Larson relating to general local currency problem.5 However, Yugoslavs are concerned with fact that this exchange of letters does not actually provide for release local currency and thus wish some further assurance on items (B) and (C) above. These items apparently not covered by exchange of notes authorized A–165. It was these items we were seeking to include in $30 million PROAGs6 concluded June 30 but which we could not include because of legal complications.

We have indicated to Yugoslavs that paragraph 8 proposed termination note is unacceptable. Yugoslavs have now suggested that if we could give them letter assuring them of our intention utilizing funds (A), (B) and (C) in paragraph 2 above for economic development projects, they would be prepared drop paragraph 8 from termination note and conclude termination agreement even though additional time might be required to complete steps necessary enable release funds in question.
Accompanying cable7 gives text of letter as amended by us in interest precision and moderateness. We have not yet shown this amended version to Yugoslavs and have given no indication as to whether this approach is acceptable even in principle.
We strongly recommend submission of some such letter to Yugoslavs and conclusion of memorandum for termination military aid soonest. This matter has dragged out far too long and is causing considerable irritation and suspicion on part Yugoslavs. Since funds under items (B) and (C) in paragraph 2 above are already intended for economic development projects pursuant Popovic–Larson exchange of letters, we would not be giving Yugoslavs any new concession by assurances stipulated in proposed letter. As regards item (A) of paragraph 2, we feel we should agree use these funds for two highways and railroad in view (i) relative soundness these projects, (ii) lack any other immediate, specific US use to which we wish to put these funds, and (iii) availability other funds for US uses when such needs arise.
Request reply soonest in view protracted delay which has already occurred and resulting impairment to US-Yugoslav relations. There is some indication that Yugoslavs may suspect US endeavoring, by dilatory tactics, to revert original US position that bilateral should be kept in force, a position which they felt we tacitly agreed abandon. Whatever may develop in reference military relationships pursuant present situation between Yugoslavia and Soviet bloc, we suggest it important in present state that Yugoslavs not gain impression US is endeavoring pressure them into continuation old military relationship which they are under heavy political pressure to terminate. Therefore, cannot overemphasize importance dealing with this matter as expeditiously as possible.
If Washington has any other points on either language or substance of proposed termination memorandum, please send soonest.8
  1. Source: Department of State, Central Files, 768.5–MSP/7–158. Confidential.
  2. Airgram A–165, June 6, reported that a Presidential waiver would permit the use of counterpart dinars to fund the Jadranski Put highway project and enclosed proposed texts of notes to be exchanged with Yugoslavia regarding funding. (Ibid., 411.6841/6–658)
  3. For text of this agreement for the disbursement of U.S.-owned dinars, see 6 UST 144.
  4. Not printed.
  5. For text of this agreement for economic assistance on a loan basis under the Mutual Security Act of 1954, see 7 UST 149.
  6. Not found
  7. Project agreements.
  8. The Embassy’s suggested revisions were sent to the Department of State in telegram 3, July 1. (Department of State, Central Files, 768.5–MSP/7–158)
  9. Telegram 23 to Belgrade, July 7, reported that delay in final termination of the military aid agreement was due to studies of the effects of termination on U.S. ability to continue military sales to Yugoslavia. It promised quick action in forwarding the text of the proposed termination and sales agreements. (Ibid.)