219. Memorandum From the Presidentʼs Assistant for National Security Affairs (Kissinger) to President Nixon1


  • Encouragement of U.S. Investment in Yugoslavia

You asked for a report on U.S. industrial investment in Yugoslavia, indicating that the U.S. Government should work harder to encourage it, particularly since this might be a device by which we could work with Romania and other East European countries.

The Secretaries of State and Commerce have submitted a joint report on the situation and prospects (Tab A), focusing on what the U.S. Government can do to increase U.S. private investment. Henry Kearns [Page 534] has forwarded a separate report on the role of the Export-Import Bank (Tab B).

In July 1967, Yugoslavia passed legislation permitting minority holdings by foreign investors, with some restrictions on repatriation. Though the Yugoslavs have stressed their interest in foreign investment to Western officials and businessmen, the response has so far been small.

Only two arrangements with American firms have been concluded so far, totaling less than $2 million. However, four U.S. banks are participating in the International Investment Corporation of Yugoslavia, a joint effort by forty financial institutions under the aegis of the International Finance Corporation, the World Bank affiliate which promotes private investment. And U.S. firms—including Kaiser Aluminum, Ashland Oil, National Distillers and possibly Ford, Pan Am and U.S. Steel—are negotiating on new projects totaling perhaps $100 million of U.S. investment.

The reasons for the relatively slight investment success so far are:

  • —Lack of business confidence in such a new experiment.
  • —Yugoslav vagueness in seeking specific ventures and administrative red tape.

The agencies have already used a number of devices to encourage investment: articles in Commerce publications, talks with businessmen, and publicity about visits by U.S. officials to Yugoslavia. Commerce and State believe that the following additional actions by the U.S. Government would also be useful:

The Administration should seek changes in legislation to allow the new Overseas Private Investment Corporation (OPIC) to issue insurance and guarantees on private U.S. investments in Yugoslavia. (These are now prohibited by our aid legislation.)
The Ex-Im Bank should finance as much of an investment project as it legally can.
We can assist the Yugoslavs in preparing and promoting competent investment proposals.
We can encourage the Yugoslavs to allow U.S. investors to make wider use of U.S.-owned excess currencies (Cooley loans).2
We should urge the Yugoslavs to cut their red tape.

Mr. Kearns points out that Yugoslaviaʼs large debt service burden means that Yugoslavia needs long-term development loans and equity investments, like many other developing countries, but that Yugoslav [Page 535] limitations on capital investment are not particularly encouraging to capitalists. Consequently, private investors limit their equity investment and seek a maximum in loans. But lenders, noting Yugoslaviaʼs large debt and its frequent efforts to reschedule, are similarly loath to extend large new commercial credits. The Ex-Im Bank, despite these hindrances, issues guarantees and insurance on private loans. However, direct Ex-Im loans present bigger problems since they come in large chunks ($10 to $90 million each). In the last few months, inquiries have been made on a total of more than $200 million of possible new Ex-Im loans.

The Bank would find it easier to lend if U.S. companies participated in management of Yugoslav enterprises, and if additional development loans were forthcoming from other organizations. It proposes to continue its current program of encouraging U.S. exports to Yugoslavia, and it recommends that the U.S. Government consider investment guarantees and insurance facilities for private equity investments in Yugoslavia.

Both reports thus point toward an Administration effort to get legislation to allow OPIC to guarantee and insure U.S. investments in Yugoslavia.

Legislation forbids issuance of OPIC and AID guarantees and insurance to any Communist country except where “such assistance is vital to the security of the U.S.” (Yugoslavia is not affected by the Cuban and North Vietnam stipulations.)3 However, the agencies believe that a legislative proposal should be presented as part of a package of amendments affecting OPIC, perhaps as part of the over-all revision of the aid program, rather than by itself now. Mr. Timmons concurs.


That you approve the recommendation by State, Commerce and XE–IM to seek legislative changes at an appropriate time, allowing OPIC to extend investment guarantees and insurance to Yugoslavia.
That Ex-Im Bank be encouraged to step up its program in Yugoslavia.
  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 733, Country Files—Europe, Yugoslavia, Vol. I through Jul 1970. Secret. Sent for action. Tabs A and B are attached but not printed.
  2. The Cooley Amendment to P.L.–480 (P.L. 85–128, approved August 13, 1957; 71 Stat. 345) authorized the U.S. Government to provide up to 25 percent of local currency proceeds for loans through the Export-Import Bank to U.S. private firms for business development and trade expansion and for activities supporting the sale of U.S. farm products.
  3. Reference is to Section 620 (a) and (f) of the Foreign Assistance Act of 1961. The prohibition on Cuba was introduced in 1961. For text, see 75 Stat. 424. The prohibition on trade with Vietnam was written into the law in 1966. For text, see 80 Stat. 806.
  4. A handwritten notation on the memorandum reads: “See Tab A.” The President initialed his approval of the recommendations made in the report from Secretaries Rogers and Stans, which were the same as in Kissingerʼs memorandum. Kissinger informed Rogers and Stans of the Presidentʼs decision in a June 2 memorandum. (National Archives, Nixon Presidential Materials, NSC Files, Box 733, Country Files—Europe, Yugoslavia, Vol. I through Jul 1970)