Foreign Relations of the United States, 1981–1988, Volume X, Eastern Europe

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

5590.

Belgrade, July 15, 1982, 1035Z

SUBJECT

• Yugoslav Borrowing: The Numbers Crunch.

REF

• A) State 191710,²
• B) Belgrade 5555,³
• C) Belgrade 5572.⁴

1. C—Entire text.

2. Summary. The GOY has given us balance of payments and loan data which they are providing to their Embassy in Washington as backup for the appeal in Stambolic letter (Ref A). We believe the assumption behind some of these figures may be overly optimistic. If current efforts to find emergency financing should fail, we think the consequences could be even more severe than the Yugoslavs are willing to consider at this time. End summary.

3. Subsequent to Charge’s call on Smole (Ref C), Director of FonOff Economic Section Djordje Stojkovic provided Econ Counselor with following data he said was being prepared to transmit to Yugoslav Embassy in Washington:

A. Total repayment obligations second semester 1982, including long-, medium- and short-term, principal and interest: 2.4 billion dollars (rounded upward). Breakdown among above headings had not been requested by Ambassador Loncar, Stojkovic said. Breakdown by months, which had been requested, was difficult because interest rates were uncertain due to rollovers of short-term credit at new interest rates and some variable interest rate loans. Nevertheless, July is month of heaviest repayments, nearly 600 million dollars, with August almost as heavy. Asked about December, Stojkovic said he had not been given the data but knew independently that it would be virtually the same as July. He also agreed that the gross figure of 2.4 billion dollars would be subject to fluctuation with changing interest rates.

B. Planned medium-term borrowing for all of 1982, 1.65 billion dollars; secured to date 1.1 billion dollars; remaining, 550 million dollars. This assumes a balance of payments deficit for the year of 500 million, Stojkovic said; it could be less. Since medium-term borrowing is not going according to plan, current efforts are being oriented more toward the short term, hence the request conveyed in Washington for 300 million in short-term credits to be followed by 200 million dollars in medium-term. Some of the latter would be used to repay some of the former, Stojkovic said, so that the total short- and medium-term borrowing for the remainder of 1982 would be less that 500 million dollars. (Embassy note: This is apart from supplier credits). No effort is being made to duplicate certain financial information already being supplied on a monthly basis to the IMF, Stojkovic said, which in any event omits interest and short-term loans. Stojkovic did not have in front of him a complete itemized breakdown of the 1.1 billion dollars in loans already obtained, but mentioned from memory: IMF standby, 700 million dollars (less repayments); Kuwait loan, 250 million dollars; FR Germany DM (rpt DM) 150 million; and Italian and IBRD credits in amounts he did not recall.

4. Embassy comment: From our discussions with Smole and Stojkovic, we have the impression that it should be possible to obtain a more detailed breakdown of the above figures if needed. Data on reserves, however, might be another matter. The assumptions behind the projected B/P deficit of 500 million dollars for all of 1982 were not spelled out, nor was it made clear whether they are on track as of mid-year. We think the deficit projection may be low, however. We are already seeing signs of substantial slippage in planned-for increased exports to hard-currency areas and increased tourism receipts; we suspect disappointments may also be forthcoming in workers’ remittances from abroad. At some point, therefore, the GOY’s heroic intention of cutting imports to bridge any B/P gap it cannot cover by borrowing could prove actually impossible to carry out. Extraordinary import cuts are already dampening production, including some production for export. We can envision a point at which further cuts not only fail to close the payments gap but also, by crippling exports, would cause it to open again. Thus, if the current search for emergency financing should fail, the Yugoslav economy could head into a vicious downward spiral.

Gilmore

1. Source: Reagan Library, Executive Secretariat, NSC Country File, Europe and Soviet Union, Soviet Bloc Economic & Financial Situation Updates (07/30/1982). Confidential; Noforn; Immediate; Exdis.
2. Telegram 191710 to Belgrade, July 11, documented the July 10 meeting between Loncar and Eagleburger. Loncar delivered Stambolic’s letter to Reagan, which is printed as Document 198. (Department of State, Central Foreign Policy File, D820359–0767)
3. Telegram 5555 from Belgrade, July 14, outlined efforts by Citibank to raise from North American banks a $200 million to loan to Yugoslavia. (Department of State, Central Foreign Policy File, D850470–0300)
4. Telegram 5572 from Belgrade, July 15, reported Citibank’s trouble in raising the full amount for the loan to Yugoslavia. (Department of State, Central Foreign Policy File, D850478–0823)