Foreign Relations of the United States, 1969–1976, Volume XXIX, Eastern Europe; Eastern Mediterranean, 1969–1972

230. Response to National Security Study Memorandum 129¹

Washington, September 13, 1971.

[Omitted here are the Table of Contents and Section I, “Statement of US Interest in Yugoslavia.”]

II. Near-Term Measures to Strengthen Yugoslavia

A. Political

1. What We Have Done and Are Doing

The general comments which follow apply to succeeding sections, and the measures discussed of a primarily political nature should be read in the context of those covered in the economic and military sections.

The improved climate in US-Yugoslav relations after the Soviet invasion of Czechoslovakia significantly broadened the possibilities for meaningful bilateral exchange.² Visitors both ways have increased sharply, the high point being President Nixonʼs September 1970 visit to Yugoslavia. President Nixonʼs on-the-record indication of US understanding and respect for Yugoslaviaʼs non-aligned policy was highly valued by his hosts.

Consultations on both bilateral and multilateral matters have increased in frequency and frankness. Cooperation and responsiveness on our part to Yugoslav needs in the economic area (discussed below) have been the avenue for concrete expression of the developing political relationship.

Our information program in Yugoslavia, the largest by far among the European communist countries and one of the largest in the world, continues to expand with few restrictions.

2. What We Can Do—Preventive Diplomacy

A number of steps of a primarily political nature could strengthen the Yugoslav situation in the near term. They include a) a clear statement of the US interest in Yugoslavia, b) action to dampen émigré extremism which works contrary to US goals in Yugoslavia, c) steps to assure, through bilateral consultations, that Yugoslavia has a role in discussions on European security, d) the setting up of channels for exchange of intelligence information, e) moves to broaden the US presence in Yugoslavia, and f) the use of military-psychological moves to increase US visibility.

[Omitted here is Section 2a, “Statement of US Interest,” except for one paragraph, which reads as follows:]

First, the occasion of the visit of President Tito³ could provide a forum for a statement by President Nixon. This statement could make clear that we regard continued Yugoslav independence, sovereignty and territorial integrity as being important to the security interests of the United States.

[Omitted here are Section 2b, “Emigré Activities”; Section 2c, “European Security”; Section 2d on intelligence matters; and Section 2e, “US Presence in Yugoslavia.”]

f. Military-Psychological Deterrence.

Peacetime actions of our military forces could be used to increase the psychological deterrent to Soviet intervention. To this end, the US could exploit opportunities for (1) expanded personal contact through an increase in exchanges and visits by military personnel and enlargement of the military student exchange program; (2) ship visits at Adriatic ports; (3) vacationing in Yugoslavia by American servicemen; and (4) participation by US military delegations in Yugoslav sponsored international events. The recent participation by the USAREUR Band in Sarajevo ceremonies marking the 30th anniversary of the uprising against Nazi Germany is an example of this policy. In the event of another earthquake disaster of the magnitude of Skopje, Debar or Banja Luka, should an assistance program be undertaken the US could be prepared to airlift relief supplies and airdrop relief packages to rural areas—assuming GOY concurrence.

[Omitted here is the remainder of Section 2f.]

II. Near-Term Measures to Strengthen Yugoslavia

B. Economic

1. What we have done and are doing

In response to the political and social challenges of modernization, the Yugoslavs are embarking on an extensive program to restructure their political system and decentralize an already unique, hybrid system of market socialism. In order not to risk upsetting the political apple cart the Yugoslav Government has been cautious about imposing strict controls on imports and dampening inflation. A current account deficit of over $300 million is expected this year; inflation is currently running at 12–13% annually. We are ready to sign an agreement rescheduling $58 million in PL–480 and AID debts falling due this year and next; other Western major trading partners of Yugoslavia are following our lead. The IMF has authorized a standby to ease hard currency payment difficulties. We, other major creditors and the IMF have insisted on a tough stabilization policy. We will continue to press the Yugoslavs to take effective belt-tightening measures to overcome their international payments deficits.

Despite these measures, it is possible that Yugoslavia may need further such aid from its Western trading partners in about two years. We will continue to urge Yugoslaviaʼs major trading partners—primarily West Germany, Italy, the UK and France—to be forthcoming in helping Yugoslavia over its current balance of payments difficulties. We also plan to urge them to act jointly with us and the Yugoslavs in assessing and meeting future Yugoslav requests for assistance.

The success of President Titoʼs federal solution will depend in large measure on a stable economy.

In most respects, Yugoslavia enjoys the status of a Western nation. It is not affected by most of the problems which impede the improvement of our economic relations with other Communist countries. Yugoslavia receives MFN and Exim services. It is treated as a Western nation for export control purposes. It belongs to the IMF, the World Bank, and the International Finance Corporation. The IBRD has approximately $248 million outstanding in development loans in Yugoslavia. Yugoslavia is a member of GATT and has special status at OECD.

Since President Nixonʼs trip to Yugoslavia in September 1970, the US Government has had Yugoslav-American economic, scientific and technical relations under continuing review. The President has already approved important steps to widen and deepen these relations.⁴

Among them were recommendations: (a) to publicly and privately underscore our policy of desiring to expand economic, scientific and technical contacts with Yugoslavia; (b) to give high priority to trade missions, exhibits and an increased commercial presence in Yugoslavia, to give assistance where possible to the Yugoslav tourist industry, and to seek cooperative arrangements in the fields of marketing and management; (c) to seek language in legislative proposals on the establishment of the International Development Corporation and the International Development Institute that would not mandatorily exclude Yugoslavia; and (d) to continue efforts to expand military procurement in Yugoslavia on the basis of partial payment in US-owned dinars.

2. What we can do

We wish to continue our efforts to encourage Yugoslaviaʼs increasing economic ties with the West and support its internal progress towards a more open economic system.

The consequences for the West of not assisting Yugoslavia in its efforts to establish a decentralized form of market socialism could be profound. Yugoslavia sets an example for the political and economic reform movements in other Eastern European countries. Failure of its market-socialist, “middle-of-the-road” approach might mean a reversion in the direction of the command economy of the 1950ʼs. Soviet influence would be strengthened. Divisive strains between the richer and poorer sections of the country would be accentuated. Limited Western help now makes the need of a massive effort later less likely. The following steps could be taken to intensify and expand our influence on the economic situation in Yugoslavia. These steps would remove hindrances to the Presidentʼs ability to act if the situation warrants.

a. Overseas Private Investment Corporation ( OPIC). The Yugoslavs attach a high priority to attracting foreign investment. Accordingly, they have recently liberalized their foreign investment laws. For our part, legislation is currently before Congress to permit OPIC investment guarantees to US firms operating in these countries. Section 620(f) prevents OPIC from extending risk coverage for investment projects in Yugoslavia. A memorandum discussing US investments, the legislative restraints on them, and ways of overcoming them was sent to the President last year.⁵ If OPIC operations in Yugoslavia are approved, political risk insurance on equity investments and assistance in financing projects would be made available to US investors. Direct US investments in Yugoslavia could rise dramatically from their present level of $159,000.

In the absence of a Presidential determination to remove Section 620(f) restrictions placed on assistance to Yugoslavia, the President may wish to inform Congress of the importance of favorable action on OPIC legislation during the current session.

[Omitted here are the remainder of Section 2a and Section 2b, “Excess Currency Loans to US Investors.”]

c. Scientific and Technical Cooperation.

Largely due to our excess currency availabilities, we have had for the past decade an extensive, varied and successful program of scientific and technical cooperation with Yugoslavia.⁶ USDA has sponsored over 100 research projects in Yugoslavia and both countries are pleased with the results.US Government agencies have requested approximately $22.5 million dinar equivalent in their FY 1972 budgets for a wide variety of research projects. As with the Cooley-type loans proposal above, we are currently prevented by Section 620(f) of the Foreign Assistance Act (FAA) from using the much larger fund of dinars available from Development Loan Fund (DLF) and Mutual Security Assistance (MSA) sources for these purposes.

[Omitted here are Sections 2d, “AID Participant Training,” and 2e, “Offshore Procurement.”]

f. Export-Import Bank Activities.

Eximʼs present exposure in Yugoslavia stands at $166 million, most of it longer-term ($140 million). Outstanding and pending commitments, should they result in firm transactions, raise this figure to about $300 million. Authorization of long-term loans in FY 1971 was more than three times the combined figure for FY 1969 and 1970. Major long-term loans and guarantees authorized during FY 1971 were for aircraft (DC–9ʼs), a petrochemical plant, and oil field equipment. Exim expects the current high level of its activity to be maintained, contingent on Yugoslaviaʼs debt-servicing capabilities. The President may wish to continue to endorse Export-Import Bank support of US exports for sound transactions with Yugoslavia to the fullest extent possible.

g. PL–480 Title I Assistance.

Yugoslavia is virtually self-sufficient in agriculture except during poor harvests or periods of extreme economic distress. At such times, the possibility of buying foodstuffs from the United States on Title I terms would enable limited convertible currency resources to be used for economic development purposes. If it were available in 1971, Title I assistance would have been a major candidate for the US stabilization assistance program.

Yugoslavia is currently barred from PL–480 Title I transactions because ships registered under its flag trade with Cuba (Section 103(d)(3)—the Findley–Belcher Amendment). Amending Findley– Belcher would provide the President with discretionary authority to make PL–480 concessional sales. Yugoslavia could also become eligible for Title I PL–480 sales in the event it a) stopped trading with Cuba or b) made a bilateral commitment to us they would stop trading with Cuba. Both are unlikely to take place in the near future because of Yugoslav sensitivity about its non-aligned status. There are no legislative restrictions on the Presidentʼs authority to make Title II (Disaster Relief) PL–480 supplies available to Yugoslavia in case of need. Title II shipments were made to Romania in the wake of disastrous floods there in 1970.

If our ability to provide the kinds of assistance barred by these legislative provisions becomes critical in terms of our attaining US policy objectives, consideration should be given to ways in which Yugoslavia might be exempted from the restrictions.

h. CCC Export Credit Sales.

CCC programs have partially replaced concessional sales previously made under PL–480. The level of sales varies from year to year depending on weather conditions and harvest results. Sales so far in 1971 exceed $35 million, up from $7.2 million in 1969 and $4.3 million in 1970. USDA expects future CCC sales to Yugoslavia to average about $25 million annually. The current CCC line of $35 million was increased to $55 million in July of this year to accommodate further potential sales in the remaining months of 1971. Yugoslavia benefits from the most liberal credit terms currently afforded any country under the CCC program. All payments have been made promptly and the program is working well. The President may wish to support continuation of the CCC Export Credit Sales Program in Yugoslavia at favorable credit terms and support Yugoslaviaʼs inclusion among the beneficiaries of any future liberalization of the CCC program.

i. Expanded Commercial Program.

Yugoslavia now represents a sizeable and expanding market for US products. United States trade with Yugoslavia has increased substantially in the past two years. 1970 US exports to Yugoslavia totalled $160 million; up 73% from 1969. US exports to Yugoslavia for the first six months of 1971 are running almost 100% ahead of figures for the first six months of 1970. To exploit this opportunity fully, we should expand our commercial program. An expanded program would include more frequent US trade and investment missions, increased presence in Yugoslav trade exhibits and fairs, a larger number of business development offices at Yugoslav trade shows and conferences, and an increase in the commercial staff at our Embassy in Belgrade and Consulate General in Zagreb.

We plan to strengthen our efforts to help the Yugoslavs expand their commercial activities in the United States. The Yugoslavs feel a psychological as well as economic need to expand their commercial ties with the US and other Western countries. The President may wish to direct the Commerce Department to draw up plans to increase the level of our support for American commercial and investment endeavors in Yugoslavia.

II. Near-Term Measures to Strengthen Yugoslavia

C. Military

The United States has no purely military objectives in Yugoslavia. Our evolving and increasing military contacts are intended to strengthen Yugoslav independence and non-alignment.

Yugoslav independence is in our interest as well as that of the Yugoslavs. If controlled or used by Moscow, Yugoslav territory could be used to mount a threat to NATO. Political realignment of Belgrade with Moscow would be a major psychological setback with potentially serious strategic overtones.

We have indicated to the Yugoslavs that, in support of our national goals, we are prepared within limits to expand and increase military contacts, sales and activities between our countries. Since the Yugoslavs are best placed to evaluate their own circumstances, they should select the pace at which we move in this cooperative area.

1. What We Have Done and Are Doing

Current US military efforts in support of Yugoslavia emphasize expanded personal contact between the military officers of the two countries, e.g.:

a. The US Army Command and General Staff College at Fort Leavenworth now trains two Yugoslav military officers annually. The USAF Command and Staff College has agreed to accept one Yugoslav Air Force officer for the class convening in June 1972.

b. Under the Foreign Area Student (FAS) Program, one US Army officer accompanied by his family has arrived in Yugoslavia for a yearʼs study.

c. An exchange of visits by military officers of the two countries began on September 6, 1971, with the arrival of a Yugoslav Army major general and four field grade officers. A US Army delegation will then visit Yugoslavia. Reciprocal visits by other high ranking military officers in all services are envisaged.

d. The Assistant Secretary of Defense, International Security Affairs, visited Yugoslavia in 1970. A three-member service delegation attended and participated in the Yugoslavian observance of the 25th World War II victory celebration. The Under Secretary of the Navy and other high ranking military officers have subsequently visited Yugoslavia.

e. Periodic Sixth Fleet visits to Yugoslav ports promote military liaison and cooperation and provide an opportunity for mutual knowledge and understanding.⁷

f. A modicum of logistic support is currently provided.

g. The US Army purchases Yugoslav items for sale in European commissaries.

2. What We Can Do

In present circumstances, or in conditions following the departure of Tito in which the country remains stable and maintains its nonaligned policy, we judge it to be in the US interest to continue our program of military cooperation with Yugoslavia and to explore avenues for its possible expansion as mutual interests may dictate. However, we must at the beginning set the limits of our cooperation and clearly impress these limits on the Yugoslavs. They must be under no illusions that our actions imply any commitments beyond those agreed upon.

Any cooperation involving NATO would, of course, be undertaken only after full consultation and agreement within the Alliance.

Yugoslav interest in establishing a relationship in the military field with the Italian government was indicated in a proposal last spring for cooperation in joint defense planning, with the clear implication that the force to be defended against would be Soviet. More recently, however, they appear to have dropped the idea of a formal arrangement in favor of cooperation in military training and exchange of information. In any event, these approaches to Italy indicate a possible Yugoslav interest in a defense relationship with NATO, if only indirect.⁸

Thus, it seems clear that the Yugoslavs are seeking assurance of some military support by the US and/or NATO which would permit them to reduce their present dependence on the Soviets in military procurement. The Soviet Union might view such military support to Yugoslavia strictly in the terms in which it is given, or it might interpret this as implying an even greater commitment. Either interpretation could act as a deterrent to overt Soviet military threat against Yugoslavia, or it could elicit over-reaction by the USSR.

Taking the foregoing into account and in an effort to define the extent of our military cooperation with Yugoslavia, the following options are available:

• —The Department of Defense could continue and intensify the present program of broadening contacts with the Yugoslav military, with stress on exchanges which will provide the maximum opportunity for our senior officers to establish personal contacts with senior members of the Yugoslav military. These measures might include (a) increasing the number of Yugoslav trainees in training courses in the US, (b) increasing the number of military personnel studying in Yugoslavia, and (c) intensifying the program of exchange of visits by military officers of the two countries.
• —In the area of logistics, the Department of Defense could undertake, in consultation with the Intelligence Community, a study of how logistic support might be expanded with the Yugoslav armed forces, including informal discussions with the Yugoslav military authorities regarding their needs, after Yugoslav approval has been obtained through normal diplomatic channels.
• —The US could encourage continued study by NATO of the general situation in the Balkans, including possible measures of military cooperation with Yugoslavia. The ultimate objective would be to arrive at guidelines defining the extent and kind of cooperation which it might be desirable to undertake.

[Omitted here is Part III, “Post-Tito Alternatives and Contingencies.” The following alternatives are discussed: “A. A United, Independent and Non-Aligned Yugoslavia”; “B. A Divided Independent, Non-Aligned Yugoslavia”; “C. A Disintegrating Yugoslavia: A Military Coup”; “D. A Disintegrating Yugoslavia: Collapse.” Under “D” are two sub-options: “Contingency 1: Contested Secession” and “Contingency 2: Total Disintegration.”]

1. Source: National Archives, Nixon Presidential Materials, NSC Files, NSC Institutional Files (H-Files), Box H–185, National Security Study Memoranda, NSSM 129. Secret. Prepared by the NSC Interdepartmental Ad Hoc Group for Yugoslavia. NSSM 129 is printed as Document 227.
2. Intelligence Appraisal, Paragraph 26. [Footnote in the original. The intelligence appraisal is in National Archives, Nixon Presidential Materials, NSC Files, NSC Institutional Files (H-Files), Box H–185, National Security Study Memoranda, NSSM 129.]
3. Regarding Titoʼs visit, see Document 232.
4. NSC–U/DM 57, Under Secretaries Committee, Memorandum for the President, U.S.-Yugoslav Economic, Scientific and Technical Cooperation, February 5, 1971; NSC–U/DM 57A, March 4, 1971, and NSC–U/DM 57B, May 25, 1971. [Footnote in the original. None of the three is printed. They are in the National Archives, Nixon Presidential Materials, NSC Files, NSC Institutional Files (H-Files), Box H–271, Under Secretaries Decision Memoranda, U/DM 56–59, U/DM 57, U/DM 57A, U/DM 57B.]
5. Memorandum for the President from the Secretaries of State and Commerce, Measures to Promote Investment in Yugoslavia, April 2, 1970. [Footnote in the original.]
6. NSC–U/DM 57, Under Secretaries Committee, Memorandum for the President, US-Yugoslav Economic, Scientific and Technical Cooperation, February 5, 1971, pp. 10–14. [Footnote in the original.]
7. A sentence reading “An average of four ship visits are conducted annually” was struck out.
8. Telegram 148201 to Rome, August 13, reported: “Ortona on instructions spoke with Assistant Secretary Hillenbrand August 12 to report Yugoslav approaches to Italy for ‘some sort of military cooperation.’ Ortona said that over past several months, Yugoslavs on several occasions have sounded out Italian Ambassador to Yugoslavia Trabalza…. These approaches were by Yugoslav Defense Minister. Concurrently in Rome, Yugoslav military attaché and a visiting staff officer raised subject with Italian military. Defense Minister proposed general cooperation on technical level, exchange of information, and contacts between the general staffs. Military attaché apparently went further, talking about use by Yugoslavs of Italian air bases and reciprocal use by Italian army of certain Yugoslav facilities. Apparently military attaché suggested this arrangement might be organized in secret military agreement which would become operative if the situation warranted…. When Ortona pressed Hillenbrand for reaction to information provided, Hillenbrand said middle course between rejection and formal treaty seemed to him a reasonable position for the Italians, but added that we would consider this information and might have further views at a later time.” (National Archives, Nixon Presidential Materials, NSC Files, NSC Institutional Files (H-Files), Box H–185, National Security Study Memoranda, NSSM 129)