Foreign Relations of the United States, 1961–1963, Volume XVI, Eastern Europe; Cyprus; Greece; Turkey

112. Memorandum From Secretary of State Rusk to President Kennedy⁰

Washington, November 21, 1961.

SUBJECT

• Proposed PL 480 Sales to Yugoslavia

Background

At the NSC meeting on October 13 you requested that I review all assistance programs to Yugoslavia and make recommendations to the Council on these programs on the basis of a review and restatement of United States policy toward that country. In your memorandum of November 16, you asked to be informed about the status of this study.¹

Discussion

Status of Review of Yugoslav Policy

We have virtually completed within the Department the reexamination of United States policy towards Yugoslavia. In essence, our review reflects that the United States policy, maintained since 1949, of assisting Yugoslavia to build a firm base of national independence and of exerting our influence upon the evolution of the Yugoslav system has shown striking successes. Yugoslavia today maintains its national sovereignty and is wholly independent of Soviet control. Economically and culturally it is tied to the West. Internally, the Yugoslav system remains essentially Communist; but in the years since its break with the Soviet bloc, the system has evolved in the direction of decentralization and liberalization, so that today Yugoslavia bears little resemblance to the model Soviet satellite it was 13 years ago. Internationally, Yugoslavia is more likely to support Soviet positions on international issues, but it does not invariably do so. Its over-all position is more akin to leftist non-aligned countries, such as Indonesia, rather than to Soviet bloc states.

Yugoslavia’s principal significance remains that of an independent Communist regime which successfully resisted Soviet imperialism. The dramatic economic growth achieved by this regime, along with the evolution of its system, has fortified its role as a disruptive element in the international Communist movement and as a source of encouragement to nationalist anti-Soviet tendencies in the bloc.

Our reexamination concludes that it is important for the United States to continue to pursue basic United States objectives towards Yugoslavia, including the continued development of our economic relations so as to continue to derive benefits from Yugoslavia’s unique position. Our efforts to develop recommendations on specific programs have, however, been complicated by factors which transcend Yugoslavia. Given the world-wide demands on our limited aid resources, we have not yet agreed whether Yugoslavia should be eligible for development-type assistance and if so the amount which should be programmed for Yugoslavia. We are concerned about the impact on our relations with Yugoslavia, as well as on Yugoslavia’s relations with the West, of any abrupt termination of assistance programs. We are planning on consultations with some of our principal allies in this connection. The one program which presents no problems from the viewpoint of available resources concerns sale of agricultural commodities under PL 480. The Department and Ambassador Kennan strongly believe that we should proceed at this time with agricultural sales under PL 480, irrespective of the decisions taken regarding development-type assist-ance. Moreover, from the viewpoint of timing, it is the question of a PL 480 program that requires immediate consideration. I urge, therefore, that a decision be reached on this matter at once, in advance of the over-all review of policy towards Yugoslavia by the NSC.

The Role of PL 480 United States Policy Towards Yugoslavia

On August 4, the Yugoslav Government requested a further Title I program made up of the following commodities:

	Metric Tons	Millions of Dollars
Wheat	1,000,000	$ 63.6
Cotton	35,000	18.9
Tallow	6,000	1.1
Edible Oil	30,000	9.2
Ocean Transportation		9.5
Total		$ 102.4

The large amount of wheat requested in the program results from the poor harvest, complicated by a late summer drought which, for psychological reasons, is affecting the deliveries by peasants.

Ambassador Kennan has recommended a program which, he estimated, would carry the Yugoslavs through to June 30, 1962 without any increase in reserves. Specifically he has recommended a maximum of 500,000 tons of wheat, 5,000 tons of cotton and no tallow or edible oil. The Ambassador has also recommended that the Yugoslavs be informed that we can give no assurance that a PL 480 program will be available for them next year and they may therefore wish to take account of this possibility.

The provision of agricultural commodities has represented a major ingredient of our assistance programs to Yugoslavia, over the past eleven years, comprising $1 billion out of the total of $1.3 billion in economic assistance provided to Yugoslavia between 1949 and 1961. By helping to assure the regime of its essential requirements for foodstuffs, we have contributed rather directly to the change in Yugoslav agricultural policy from one of forced collectivization and coercion to a more reasonable policy of voluntary cooperation and incentives.

Failure to proceed with a PL 480 agreement at this time will not of itself induce the Yugoslav leadership to return to the old agricultural policies; they might, however, be led to introduce harsher regulations in order to obtain necessary supplies from the peasantry. A more predictable and, from our viewpoint, disturbing effect, is the likelihood that the strain on the Yugoslav balance of payments would lead to a postponement of certain of the trade liberalization measures planned earlier this year in connection with a foreign trade and foreign exchange reform. Since we have provided $100 million in support of this reform, as part of a $285 million multilateral program, such a development would not be in the best interests of the United States.

It is our conclusion, therefore, that the United States should provide further PL 480 assistance, although in a somewhat different form from previously. We would recommend the provision under Title I (sales for Yugoslav currency) of up to 500,000 tons of wheat and 30,000 tons of edible oils. Such a program is estimated at about $45 million. This should enable the Yugoslavs to meet their requirements through June 30, 1962 with stocks on hand at that date equivalent to one month’s consumption for wheat and two months’ consumption for oils. In view of the tighter cotton supply situation in the United States and its consequent ineligibility under Title I we would propose to finance up to 50,000 bales of Yugoslavia’s cotton requirements under Title IV (sales on long-term dollar credit basis). We would similarly offer to supply the 6,000 tons of tallow requested under Title IV. If cotton should become unavailable under Title IV we would propose sale of cotton under normal Commodity Credit Corporation credit terms.

Ambassador Kennan has also recommended that we inform the Yugoslavs we can give no assurance in regard to PL 480 assistance after this year. In our view it would be advisable to avoid this step since the situation in Yugoslavia may develop so as to make such assistance desirable. Instead we believe it would be more in keeping with our policy interests in Yugoslavia to inform the Yugoslavs of our intention in future years of shifting increasingly away from Title I transactions (sales for local currency) in favor of those under Title IV (sales on a dollar loan basis).

Tito’s November 13 Speech

In speech at Skoplje on November 13, Tito stated that “certain capitalist circles” in the United States and “other reactionary minded people are persistently spreading propaganda against Yugoslavia, saying that every form of aid to Yugoslavia should stop, that the Yugoslavs should not be fed, that wheat should not be sold in our country, that no aircraft should be given to us, that our people should not be admitted there, and so forth.” He charged that economic pressure has thus been brought upon Yugoslavia when it has been severely hit by drought and when it is in an unpleasant situation. Tito went on to say that if no aid were given to Yugoslavia he would be prepared to buy wheat.

I agree as you have noted in your memorandum of November 16 that Tito’s speech complicates matters. I do not believe, however, that our actions should be based solely on what Tito says. His speech was directed primarily to his own people and was probably intended to dispel anxieties arising from the bad drought and reports of a change in United States policy. Tito was also reflecting sensitivity to the attacks on his regime which have appeared in the United States press. These attacks have engaged his prestige. Further delay in concluding agricultural sales arrangements will undoubtedly aggravate this situation by supporting the view that these attacks represent United States policy. Tito may thus be led to take some action which could engage our prestige in a way to make it increasingly difficult if impossible for us to pursue policies which have proven to be in our national interest.

Despite Tito’s recent statements on economic relations with the United States which tend to be obscure on some points, I believe we should proceed as soon as possible to inform the Yugoslavs of our readiness to provide wheat and other available agricultural commodities. Otherwise unnecessary damage may be done to United States-Yugoslav relations and to the position we have built up in Yugoslavia.

Recommendation²

I recommend that Ambassador Kennan be authorized to inform the Yugoslavs as soon as possible of our readiness to conclude an agricultural sales agreement and to initiate negotiations in the nearest future. Negotiating instructions should be prepared in consultation with the Department of Agriculture with a view to arranging sales of agricultural commodities as indicated above.

Dean Rusk

0. Source: Kennedy Library, National Security Files, Yugoslavia. Secret. A notation on the source text indicates it was taken from the President’s weekend reading book.
1. See Documents 103 and 110.
2. A handwritten notation in the margin of the source text reads: “approved by JFK.”