181. Telegram From the Embassy in Yugoslavia to the Department of State1

1712. Ref: State 96794, Belgrade 1666.2

In December 6 call on Boris Krajger, Vice President of Federal Executive Council, I reviewed with him current status of GOY requests for financial support of economic reform, with particular reference to effects of Findley Amendment. Purpose my call was mainly to respond, even though inconclusively, to Yugoslav views which he had communicated to me prior my return to Washington (Belgrade 1427).3 I sought give Krajger a balanced appraisal of possibilities for repeal of the amendment, noting President’s public statement regretting its inclusion in Food for Peace Act.4 Concerning possibilities of interpretations that would be helpful to economic reform, I had little to add to views conveyed to Nikezic (Belgrade 1589)5 with which Krajger already familiar, but sought reassure him on administration’s continuing interest in economic reform and generally in good relations with Yugoslavia. In course of conversation I took occasion to suggest desirability GOY viewing present problem against background of very heavy US assistance extended over long period, with many projects just now coming to completion—e.g., recently dedicated hydroelectric projects and Sarajevo-Ploce Railway. Referring favorably to Tito’s private statements that GOY does not intend to dramatize situation arising from Findley Amendment,6 I suggested, as my personal view, that it would be important avoid new issues or sources of irritation to Congressmen whose support needed for repeal of Findley Amendment.
In course of discussion, Krajger made following points:
Acknowledged magnitude and usefulness of past US assistance to Yugoslavia. This helped overcome many problems and provided [Page 482] foundation for current economic reform. Past assistance, always without any political conditions, had promoted good relations.
Stressed importance of assistance in 1966 and 1967, which to be used to carry out reform, not for expanded development. All signs indicate 1967 most important year, with many fundamental problems to be met in first half year. These include new foreign exchange regime (import liberalization) subjecting many firms to pressures of foreign competition, and restrictive credit policy, to counter inflation and force firms to export.
Measures to be taken in 1967 should perhaps have been carried through earlier, but it was necessary to make political preparations. Recently there have been “minor disturbances” due to this delay (pre-sumably referring to recent strong upward pressure on prices, wages and investments) but he believes possible overcome these in January and February.
If U.S. Food for Peace credits not forthcoming, or some alternative form of US financing, GOY would need to compensate internally for loss of 100 million (old) dinars (i.e., in revenues from sale of agricultural imports) and for balance of payments loss of some $60 million, taking account of higher payments required if purchases made on CCC credit terms. Problem is one of financing, rather than physical availability of commodities.
GOY greatly interested in interim assistance from rescheduling or new credits during period in which Findley Amendment remains on books, i.e., at least through first half of 1967.
GOY will have to consider all possible measures for compensation for restrictions of Food for Peace credits, but such measures will inevitably aggravate problems encountered in carrying out of reform.
He confirmed that GOY does not wish dramatize issue of Findley Amendment as a deterioration in economic relations with US. Internally, however, will need to dramatize “intense” problems encountered by economic reform in order mobilize all forces to limit economic demands and exercise greater self-discipline. Period 1966–1967 therefore being characterized as the “battle” for the economic reform. The greater the help from the US, the less dramatic this internal “battle” will be.
  1. Source: Department of State, Central Files, POL 15–1 YUGO. Confidential.
  2. Telegram 96794, December 5, provided instructions for discussions with Krajger. (Ibid.) Telegram 1666, December 5, requested the most current information on the Findley Amendment. (Ibid.) Regarding this amendment, see footnote 7, Document 125.
  3. Telegram 1427, November 4, reported on a meeting between Elbrick and Krajger concerning economic assistance. (Department of State, Central Files, POL 15–1–4 YUGO)
  4. For text, see Public Papers of the Presidents of the United States: Lyndon B. Johnson, 1966, Book II, pp. 1373–1374.
  5. This telegram, subsequently renumbered 1559, reported on Elbrick’s conversation with Nikezic. (Department of State, Central Files, POL US–YUGO)
  6. In telegram 1623 from Belgrade, November 29, Elbrick reported that Tito had stated he was hesitant to “dramatize publicly” the problems arising from passage of the Findley Amendment. (Ibid., POL 17–4 YUGO)