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

134. Memorandum of Conversation⁰

Washington, September 12, 1958.

SUBJECT

• Mr. Franc Primozic, Chargé d’Affaires, Yugoslav Embassy
• Mr. Vasilije Milovanovic, Economic Counselor, Yugoslav Embassy
• Mr. Slobodan Martinovic, First Secretary, Yugoslav Embassy
• Mr. Beale,E
• Mr. Katz, EE

The Yugoslav representatives called this afternoon at their request to seek what information might now be available on the status of proposals made to Mr. Dillon on July 10.¹ The proposals of July 10 concerned financing of certain Yugoslav investment projects by the Development Loan Fund and the Export-Import Bank. Mr. Primozic recalled that he had gotten the impression from Mr. Dillon that we might be in a position to make a reply in about two months. Furthermore, since Mr. Martinovic was about to depart for Belgrade on consultations, Mr. Primozic wished to have some information which could be conveyed to his Government.

Mr. Beale acknowledged that almost two months time had elapsed since Mr. Primozic’s meeting with Mr. Dillon. During this time the Yugoslav proposals have been given serious consideration.

One of the proposed projects, the fertilizer plant at Pancevo was expected to come up before the DLF Board next week. While we could not anticipate the Board’s decision, we were hopeful. Two other projects, the hydro-electric plant at Trebisnjica and the thermo-electric plant at Kosovo are under technical review by the DLF. Because of the limited funds available to the DLF, however, and the need to balance many urgent requirements, we are unable to express any judgement of how quickly these projects can be considered. As regards the remaining projects on the list presented to Mr. Dillon by Mr. Primozic, Mr. Beale stated that we are unable to consider them at this time.

In response to Mr. Primozic’s question about the Export-Import Bank as a source of financing, Mr. Beale indicated that while he had not had an opportunity to discuss the matter with the Board of the Bank, there had been some questions raised about Yugoslavia’s ability to service dollar loans. Mr. Beale could therefore offer no encouragement with respect to the willingness of the Bank to make further loans to Yugoslavia.

Mr. Primozic expressed great disappointment at Mr. Beale’s remarks about the Export-Import Bank. He was especially surprised to hear that questions had been raised about Yugoslavia’s dollar repayment capacity since Yugoslavia was actually better able to service dollar debt now than when the first Export-Import loans were granted. Furthermore, Yugoslavia had maintained its service on the existing loans and had reduced the original $55 million to about $42 million. Mr. Primozic indicated also that at the suggestion of Mr. Dillon, he had thus far refrained from making any approach to the Bank. He appeared to be waiting for advice from the Department as to when an approach might be propitious.

Mr. Beale explained that it was not his intention to indicate that Yugoslavs should not approach the Bank. He merely wished to point out that the projects submitted by the Yugoslavs had been passed to the Bank by the DLF as a matter of routine procedure, and the Bank had indicated no interest in them. Furthermore, on the basis of the practical banking approach of the Export-Import Bank, he could not be optimistic. It was agreed, however, that there was no reason why the Yugoslavs could not approach the Bank directly. Mr. Beale undertook to provide Mr. Milovanovic with the name of the Bank Director to whom an approach should be directed.

In response to Mr. Primozic’s inquiry about the status of PL 480, he was informed that Yugoslavia was among the countries for whom programs were being considered on a priority basis. It was indicated that we intended to offer a proposed program at an early date.

During the course of the meeting Mr. Primozic referred to signs of a Soviet economic blockade, specifically the fact that the Soviets are refusing to deliver wheat which was provided for in the commercial agreement. He was asked about reports that the Soviets were also refusing to deliver coking coal. He stated that he had not heard this, although he would not be at all surprised.

0. Source: Department of State, Central Files, 768.5–MSP/9–1258. Limited Official Use. Drafted by Katz on September 15.
1. At their meeting with Dillon, Yugoslav representatives outlined the effects on their development programs that the suspension of Soviet aid would have and sought the support of the Department of State for an increased package of U.S. loans to Yugoslavia. (Memorandum of conversation, July 10; ibid., 768.5–MSP/7–1058)