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

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

9305.

Belgrade, November 10, 1984, 1035Z

SUBJECT

• Yugoslav Leadership in Crisis Over Multi-Year Refinancing.

1. S—Entire text.

2. I met for lunch November 9 with Deputy Foreign Secretary Loncar at his request. A gloomy man at the best of times, he was even more bleak than usual in his comments on the Yugoslav leadership. While the current intellectual dissident trial² was on his mind, his real purpose in seeing me was to seek quick and strong USG support for a multi-year rescheduling of Yugoslavia’s 20 billion dollar foreign debt. Without such support, he predicted that the Yugoslav leadership would move radically toward a more conservative course and possibly a debt moratorium.

3. Loncar said he had discussed the entire situation with Prime Minister Planinc for hours the previous evening. She is, he said, fully committed to a moderate, free-market economic course but fears she will lack sufficient force to push through economic reforms and to stick to the present IMF/commercial bank/official creditor package unless some multi-year refinancing formula is found fast. Both she and Loncar are convinced, as are most others in the leadership, according to Loncar, that no acceptable formula is possible without a lead role by the USG. The other creditor countries are all waiting for the U.S. position.

4. Loncar said this conclusion has led Planinc to propose that Loncar go to Washington as a “special envoy” next week, as early as November 13³ to meet with Vice President Bush, Secretary Shultz and Secretary Regan. The purpose would be to underscore in the clearest possible terms the political/political consequences the Yugoslav leadership would face if there were no USG support for a multi-year debt solution.⁴ He said that he could not begin to predict the consequences if the U.S. failed to come through at this juncture.⁵

5. Loncar stated that such failure would be viewed as a complete change of policy by the USG,⁶ which had done so much to support the Yugoslavs economically and politically in recent years. The failure would permit the minority which had always opposed the Western financial package to move against the moderates and reformers. Were this to become the case, then many of the latter, including Mrs. Planinc, would probably be swept from office. Loncar noted that he too would be finished professionally but that this was not the key point. The important result would be that the Yugoslav drive toward a more Western oriented politico-economic system would be halted and indeed reversed for an unforeseeable period of time.⁷

6. Loncar added that the perceived outside “pressure” on the current trial of the Belgrade Six was also causing the leadership to unify in an aggressive way. He said some (a minority) in the leadership had created this “dissident” trial program but now had the majority on its side simply because of the perception that they all would be viewed as vacillating if they did not come down hard on the six intellectuals. Loncar said there were some in the leadership who were linking the outside pressure on the dissidents with the pressure on multi-year refinancing. I told him this was nonsense and he knew it. He conceded the point but said the fact it was being made in high circles showed the degree of paranoia now prevalent at the top.

7. Loncar concluded by asking for my informal views as to the advisability of his trying next week to see the U.S. leaders he had mentioned. I said the concept was certainly novel but that I had several reservations. First of all, I was sure that the USG had no firm position as yet on a MYRA for Yugoslavia.⁸ If he went to Washington and received an unclear answer or a negative response, then he and the rest of the moderates would be worse off than they seem to be now. Secondly, I said that a “serial” rescheduling, based on some form of super goodwill clause from official creditors, might be all the USG could manage at this point. Loncar said this would not be acceptable politically to the GOY.⁹

Third, I noted that he was suggesting a visit to Washington hard on the heels of an election and the prospect of getting some hard decisions made during this period seemed very slim to me. Finally, I suggested to him that the GOY hold off any such “special envoy” approach until after the Geneva meeting of official creditors on November 26.¹⁰ If the Yugoslavs could make a convincing pitch at that meeting, then the creditors might well be willing to take a new look at the situation. Loncar said this would be too late, that the Yugoslav leadership was looking for real movement at that meeting. His proposed visit was designed to help the USG formulate a positive position for the Geneva gathering. I repeated that this approach seemed premature to me at this point. However, I undertook to check very/very informally to see whether there was any chance of the meetings he had proposed.

8. Loncar said he hoped to hear from me by Monday¹¹ with some ideas as to the merits of the proposal as well as the possibilities of obtaining the meetings he was seeking. He added that he would be meeting with President Djuranovic on November 11 to review the proposal. (FYI. This remark suggests to me that Planinc and Loncar do not yet have formal top-level approval for the mission. However, Loncar is close to Djuranovic and I have little doubt he would receive it. End FYI.)

9. Comment. Loncar’s remarks could be taken as the usual pressure tactics that the GOY has tried to apply during other rescheduling operations in past years. However, his concern rang true to me. He was nervous and extremely grim throughout the conversation. Also, his remarks on the importance of a MYRA and the suspected linkage with the trial of the intellectuals fits exactly with what we have been hearing from other reliable sources in the past few days. The atmosphere in the upper levels of the leadership is emotional, we are told, as the leaders feel pressure on their internal political system (via the Western publicity given to the trial and attendance by U.S. Embassy and other Western observers) and on their economic system (via Western refusal to consider a MYRA). We can argue about whether the Yugoslavs are not over-reacting to random events. The fact is, unfortunately, that they perceive a pattern of outside pressure and are reacting in bull-headed Balkan fashion to cover up their nervousness and lack of self-confidence.

10. This analysis does not solve the basic problem of a MYRA. We have come to the crunch on multi-year refinancing slightly earlier than I thought it would happen. However, the ingredients for a confrontation have been present for months (see Belgrade 5192 of 6/27/84).¹² The sad fact is that the entire matter has become so politicized and that the USG is now, as in the past, being placed in center stage to make some magic formula appear.¹³

11. My position as of this writing is that we should accept Loncar’s visit when it is formally proposed but that we should try to delay it for as long as it takes us to work out some early compromise formula on a MYRA. This solution should suit USG and Yugoslav interests and still allow him to return to Belgrade being able to claim success for the GOY. Unfortunately, I think this visit will have to occur prior to the November 26 meeting. I know this is not good news, but my conclusion is that Loncar is not overstating this case for a MYRA in terms of the effect on our bilateral relations and, perhaps more importantly in the long term, on where Yugoslavia will head politically and economically in coming years.

12. Late item. I was reliably informed late November 9 that Loncar has been given the function of political coordinator for the refinancing effort by the Yugoslav leadership. His approach to me was therefore based on a firm position within the leadership and did not represent a high-flying effort to push himself to the fore (a thought that had crossed my mind).

13. I will be submitting by septel¹⁴ some ideas that might be helpful in responding to Loncar and in reassuring other moderate Yugoslav leaders that U.S. policy remains firmly on the side of a viable and stable Yugoslavia.

14. Action request: Please provide Department’s views on Loncar’s informal proposal and on merits of an early politically-oriented visit to Washington. I realize this is a holiday weekend but an early response would be appreciated.

Anderson

1. Source: Department of State, Ambassador Robie Mark Palmer’s Files, 1972–1985, Lot 87 D 177, Yugoslavia 1984. Secret; Immediate; Nodis.
2. Reference is to the trial of the “Belgrade Six,” dissidents who were allegedly in possession of government documents and had links to the Italian Red Brigades. Telegram 8486 from Belgrade, October 15, and telegram 9279 from Belgrade, November 9, describe the trial. (Department of State, Central Foreign Policy File, D840656–0535 and D840720–0436)
3. An unknown hand underlined “as early as November 13.”
4. An unknown hand underlined “a multi-year debt solution.”
5. An unknown hand highlighted this sentence with two lines drawn adjacent to it in the margin.
6. An unknown hand highlighted the portion of this sentence beginning with “Loncar should” and ending with “by the USG” with a line in the margin.
7. An unknown hand highlighted this sentence with two lines drawn adjacent to it in the margin and wrote, “can’t take as credible tech issue.”
8. An unknown hand highlighted this sentence with a line drawn adjacent to it in the margin and wrote, “not right.”
9. An unknown hand highlighted this sentence with a line drawn adjacent to it in the margin.
10. An unknown hand highlighted this sentence with a line drawn adjacent to it in the margin.
11. November 12.
12. In telegram 5192 from Belgrade, June 27, Anderson reported that Yugoslavia was seeking longer-term solutions to its debt crisis, as opposed to annual rescheduling. (Department of State, Central Foreign Policy File, D840412–1000)
13. An unknown hand drew two lines in the right-hand margin adjacent to the phrase “being placed in center stage to make some magic formula appear” and wrote, “not in our interest to perpetuate.”
14. Not found.