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

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

5536/Depto 3003.

Belgrade, June 7, 1988, 1318Z

SUBJECT

• Deputy Secretary Whitehead’s Meeting With Yugoslav Foreign Secretary Loncar.

1. C—Entire text.

2. Summary: On June 6 Deputy Secretary Whitehead met with Yugoslav Foreign Secretary Budimir Loncar. The Deputy Secretary expressed support for the changes that Yugoslavia is introducing and said that the U.S. recognizes that Yugoslavia is an important country that deserves U.S. support. Loncar expressed appreciation for U.S. support but urged the U.S. to be present politically “earlier” in ongoing financial discussions. Yugoslavia has made important changes in its economic system and it needs the support of its foreign creditors to get back on the right track. The Deputy Secretary welcomed the increase in U.S.-Yugoslav trade. He urged Yugoslavia to reduce barriers to investment and to take steps to put U.S.-Yugoslav trade in balance. Yugoslav Ambassador to Washington Kovacevic said that the U.S. Treasury Department sometimes does not seem to have the requisite degree of understanding and support for Yugoslavia. Some U.S. allies are also trying to make the U.S. a scapegoat for delays in rescheduling. The Deputy Secretary expressed confidence that Yugoslavia would obtain an acceptable agreement from the Paris Club. Some things that Yugoslavia was seeking, however, were probably not possible. There were other things, such as rescheduling of interest payments, that might be possible but that the GOY was not seeking. The U.S. provided a briefing on the Moscow Summit and Loncar described Yugoslav views on the process of change underway in the USSR. Loncar described changes under consideration in the NAM and stated Yugoslav interest in a conclusion of the Vienna CSCE meeting by the end of July. End summary.

U.S.-Yugoslav Bilateral Relations and Debt Rescheduling

3. Loncar welcomed the Deputy Secretary on his third visit to Belgrade and stated that he had been happy to read in the Deputy Secretary’s speech at the Split meeting of the U.S.-Yugoslav Economic Council (USYEC)² that the U.S. Government recognizes that Yugoslavia is determined to move in the right direction in its economic policy and that the USG further recognizes this program is a good prerequisite for governments and financial institutions to support Yugoslavia. The Deputy Secretary responded that he wanted to inform Loncar that the USG firmly desires to develop its relationship with Yugoslavia. The U.S. considers Yugoslavia an important country that deserves more, not less, attention. The U.S. looks with respect on the economic and social changes that Yugoslavia is making. The U.S. realizes that such changes require courage and will also require sacrifices. The U.S. is confident that Yugoslavia is moving in a direction that will lead to the resumption of growth in the Yugoslav economy. The movement to free markets is occurring throughout the world. It is not a matter of ideology but rather of what works, as is proved by the U.S. experience and by the experience of other countries such as South Korea, Taiwan and Singapore. The process also begins to be seen in the USSR and China. It constitutes a recognition that economies develop more effectively where individual initiative is rewarded.

4. The Deputy Secretary continued that when the U.S. sees this process happening, we support it. The Deputy Secretary stated that Yugoslavia can count on U.S. support with the IMF, where we have assisted in the package that is being put together; with the World Bank, where Yugoslavia has only begun to tap the assistance that is available and which is eager to give more support than Yugoslavia has yet requested. The U.S. has also instructed its people at the Paris Club to provide support for Yugoslavia. The U.S. is also working with Kuwait to try to get that country to participate in the loan.

5. The U.S. is also pleased with the way our relations are developing in other areas. The Deputy Secretary said he was pleased to be able to sign the consular convention that was initialed during his last visit to Yugoslavia.³ This allows the resolution of the problem of dual nationals on a mutually satisfactory basis. We are pleased at the initial reports that we have heard about the U.S.-Yugoslav consultations on counterterrorism that were recently held in Washington.⁴ The U.S. and Yugoslavia recognize that it is in our mutual interest to combat terrorism around the world and we are developing that mutual interest into real cooperation. Yugoslav representatives to the talks had expressed considerable interest in U.S. methods for obtaining information about terrorist actions. The Deputy Secretary pointed out that we have succeeded in reducing the number of terrorist acts around the world, although unfortunately there continue to be a small number of states that act outside all civilized standards in supporting terrorism.

6. The Deputy Secretary stated that he had been impressed by the USYEC meeting, where about 500 U.S. and Yugoslav representatives had discussed ways to increase economic cooperation between the two countries. An impressive number of projects in trade and investment are either in progress or on the drawing board. Total U.S.-Yugoslav trade reached the level of about $1.4 billion last year. This is an increase of 20–30, and first quarter figures show an increase of about the same magnitude. The Deputy Secretary particularly stressed opportunities for direct investment, noting that investment has special advantages for a country like Yugoslavia because it does not represent a loan that must be repaid. It would only lead to a payout if the investment were a success. Investment also brings with it technology and know-how. The Deputy Secretary urged Yugoslavia to find ways to allow foreign investment to flow more freely into Yugoslavia. Unfortunately, there continue to be impediments to foreign investment in Yugoslavia.

7. The Deputy Secretary also pointed out that U.S.-Yugoslav trade continues to be imbalanced. The U.S. wants to increase trade on both sides. The Deputy Secretary urged Yugoslavia to devote greater effort to purchase its necessary imports from the U.S., to avoid a permanent imbalance in our trade.

8. In response, Loncar particularly welcomed the Deputy Secretary’s statement of interest in increasing political, economic and consular cooperation. Loncar said that the GOY also wanted to encourage cultural and non-governmental contacts and exchanges in both directions. Loncar said that Yugoslavia attaches the highest priority to its relations with the U.S.; this is a permanent factor. Good relations, however, need permanent efforts on both sides, including a dialogue at all levels. Yugoslavia considers the recent visit to the U.S. by Presidency member Vrhovec, and particularly his warm reception by President Reagan, to be a new element in our mutual understanding. Loncar expressed appreciation for the statements by the President and Secretary Shultz that conveyed their warm outlook toward U.S.-Yugoslav relations. Loncar also expressed personal appreciation to the Deputy Secretary for his third visit to Yugoslavia and for his efforts to understand Yugoslav developments.

9. At the present moment, Loncar continued, Yugoslavia needed special attention and understanding. Yugoslavia was now facing two contradictory problems. The country badly needed more innovation and reform in its economic structure. At the same time it needed to correct its net capital outflow. Yugoslavia needed understanding from its creditors to create the proper economic climate. But Yugoslavia also needed more political understanding from countries such as the U.S. that play a decisive role in world affairs. The U.S. needs to look at Yugoslavia not only in its capacity as a creditor but also in its capacity as a world power. Yugoslavia, of course, recognizes that the biggest burden in correcting its problems will have to be borne by itself. Loncar added, however, that the GOY had the impression that the U.S. had played a more active role in taking the lead to arrange the first IMF package than it has in this one. Perhaps that is why Yugoslavia had expected more from the U.S. than it saw now. Loncar added that the Deputy Secretary could discuss this with Finance Secretary Rikanovic. He pointed out, however, that fresh money and bridging finance were Yugoslavia’s most urgent needs now. In order to get back on the right track, Yugoslavia would appreciate it if this support could be given quickly and under the most favorable conditions. The “three liberalizations” (note: of prices, foreign exchange and foreign investment) had been a courageous step. In this context, Loncar urged the U.S. to be more present politically in the on-going financial discussions.

10. Loncar said that the GOY was satisfied with the improvement in cooperation against terrorism. The Yugoslav delegation in the U.S. had reported a fruitful exchange of views, and had returned saying an increase in cooperation might be in order. At the present moment, Loncar said, there are no major bilateral problems between Yugoslavia and the U.S. Yugoslavia would like a visit by Secretary Shultz and also looked forward to another visit by the Deputy Secretary.

11. Yugoslav Ambassador to the U.S. in Washington, Kovacevic, pointed out that the Deputy Secretary had said that the U.S. wanted to be helpful but there had been little evidence of this attitude at Treasury. EB DAS Milam’s recent conversation with the Yugoslav DCM had been “too tough.”⁵ Kovacevic said that Rikanovic would have more to say on the subject but he pointed out that the GOY wanted to avoid a repetition of the events with the BIS. Noting that one of the virtues of the U.S.-Yugoslav dialogue was its frankness, Loncar stated that it appeared to the GOY that it was supposed to give special attention when the U.S. spoke, but that the U.S. appeared unconcerned when the GOY articulated its views.

12. In response, the Deputy Secretary pointed out that because the U.S. plays a leading role in international economic bodies such as the IMF, the World Bank and the GATT other countries sometimes take advantage of this to blame the U.S. for inaction and to assert that they are prevented from being more generous by U.S. opposition. The Deputy Secretary also pointed out that for all its wealth U.S. funds were not inexhaustible. The U.S. has to work with other nations to supply Yugoslavia’s needs. Congress has reduced the funds available for foreign aid, and the U.S. deficit also limits what it can do. In any case, the U.S. had no reason to be ashamed of its contributions of $50 million in CCC credits and $50 million to the bridge. U.S. banks are active, with Manufacturers Hanover taking the lead.

13. Loncar stated that Yugoslavia did not expect the U.S. to do more than it could. The U.S. and Japan would have the decisive role, but in spite of U.S. economic difficulties its political presence was still the most important factor. The Deputy Secretary said he was not going to negotiate the terms of an agreement with the Paris Club. That is the responsibility of our people in Paris. He expressed confidence, however, that a good agreement would be reached, although this did not mean that there was no hard bargaining ahead. The U.S. wanted Yugoslavia to reach a successful debt rescheduling agreement and was working to achieve this result, but the U.S. had to be concerned about precedent. Some of the specific things the GOY had requested, such as the long stretchout period are not possible. However, the Deputy Secretary said the U.S. was puzzled about why the GOY did not seek to reschedule interest payments. This is an avenue the GOY might want to pursue. Loncar asked the U.S. to understand the psychological backdrop in Yugoslavia. Negotiations with the IMF had been difficult, but the IMF had said that what would come after would be easier. Although Loncar acknowledged that he had always doubted the IMF on this point, the process is still discouraging to many in Yugoslavia. Kovacevic added that the U.S. should be aware that, as the Deputy Secretary had stated, many countries, including U.S. allies are spreading the word that the U.S. is responsible for delays in rescheduling. The U.S. is being made a scapegoat. Kovacevic added that the Yugoslav Embassy felt cut off from any significant contact with Treasury in Washington.

The Moscow Summit

14. The Deputy Secretary said that U.S.-Soviet relations are improving, and the recent summit in Moscow had made an important contribution to that process. As in all meetings with the USSR, the U.S. had fully covered all points on its four part agenda. On human rights there had been definite progress. It is a regular topic of conversation, and the Soviets now avoid a confrontational approach. There is more openness in the USSR. Emigration numbers are up; some refuseniks are being allowed to leave, although there are still many who would like to emigrate who cannot do so. On arms control, the INF agreement has been signed and ratified with important inspection procedures to ensure compliance. There was some progress on START, although a number of important issues remain. The U.S. had expressed its intention to continue working on a START agreement up to the end of the administration.

15. On regional issues, the U.S. had said it was watching the Soviet withdrawal from Afghanistan. We were pursuing Gorbachev’s comment that Afghanistan could provide the model for a solution in other areas, such as Angola, Cambodia and Nicaragua. The Deputy Secretary stated that bilateral relations had been an area of progress in the last several years. A whole series of exchange agreements in education, science and culture had been achieved. In sum, the Deputy Secretary concluded, U.S.-Soviet relations are good and improving. This is of great significance to the entire world.

16. At the Deputy Secretary’s request, NSC Staffer Perina added a few remarks on the summit. Perina highlighted the joint statement.⁶ It covered in a detailed fashion all issues under discussion between the two countries. He added that the U.S. delegation to the summit had decided that the meeting had been characterized by change, consistency and continuity. The President had made it clear both privately with Gorbachev and in public that the U.S. welcomed and supported the process of change underway in the USSR. At the same time we also made it clear that we believe the basis for U.S.-Soviet relations laid over the past seven years was working and we do not intend to change the assumptions on which we are working. We had opposed—to Gorbachev’s publicly expressed disappointment—the Soviet attempt to introduce a statement of general principles that to us appeared to harken back to the era of detente in the 1970’s. The President had also informed the Soviets that they should not expect great changes in the U.S.-Soviet relationship no matter what administration took office next year.

17. Assistant Secretary Dusan Strbac asked whether the U.S. believed that sufficient progress had been made in U.S.-Soviet relations to preclude setbacks in the future. Perina responded that Gorbachev clearly had hoped there could have been movement and was disappointed we did not accept the Soviet public principles. Americans are pragmatic; we look at the facts and then attempt to draw a conclusion. The Soviet approach is more to devise a sweeping statement of principle and then from there move to more practical matters.

Toronto Summit

18. In response to Loncar’s question, the Deputy Secretary briefly described preparations for the Toronto summit.⁷ There would certainly be considerable discussion of protectionism. The U.S. was prepared to discuss and step up to the burden of eliminating agricultural subsidies, on which all are guilty. Joint efforts against drug trafficking would also be high on the U.S. agenda. In response to Loncar’s question on the Middle East, the Deputy Secretary said that Secretary Shultz believes that he should keep trying. The U.S. wants to keep the process going, to keep the peoples of the region focussed on the possibility of a peaceful settlement. The U.S. recognizes that any settlement must provide the Palestinians a say in their future. We insist on direct negotiations between the parties involved: Israel, Jordan and the Palestinians in some fashion. An international peace conference could serve as an umbrella but cannot dictate solutions.

Yugoslav Views on Soviet Developments

19. Loncar said that perestroika provides the framework for Gorbachev to pursue domestic reforms. These are proceeding but not as fast as Gorbachev had hoped. There is resistance and Gorbachev will need to remove some conservative opponents. Glasnost provides the atmospherics within which perestroika is pursued. Here the changes have been most dramatic. There has been real improvement in openness in the USSR. Gorbachev is also introducing “new thinking” in foreign policy. This has involved changes both in the image and substance of Soviet policies. The USSR has had great success in changing its image and in reducing suspicion, particularly in Western Europe but also in the U.S. In sum, Loncar said there is no question but that Gorbachev will succeed in introducing change in the USSR; the only question is how fast and to what degree.

NAM Developments

20. Loncar said that the recent meeting of NAM foreign ministers in Havana had been the occasion for discussion of the need for the NAM to adapt its policies to the changes in the world, including the improvement in U.S.-Soviet relations. Many NAM members, including Yugoslavia, believe that the NAM needs to adopt a more constructive approach. This view is not shared by all NAM members, however. The NAM also needs to improve its procedures. Speeches and NAM documents need to be shorter and more focused on specific issues where the NAM can play a constructive role. The Deputy Secretary welcomed these developments. He urged the NAM to devote greater effort to defining what it is for rather then what it is against.

CSCE

21. Loncar pointed out that the NNA had recently introduced a draft concluding document in Vienna.⁸ Yugoslavia and other NNA believe it meets the interests of all parties. Some additional work is required to complete it, but Loncar said that Yugoslavia advocates an end to the Vienna meeting by the end of July.

22. Moscow minimize considered.

Scanlan

1. Source: Department of State, Central Foreign Policy File, D880485–0772. Confidential; Immediate. Sent immediate for information to Paris; sent for information to Eastern European posts, Moscow, and Vienna.
2. The text of the speech was not found.
3. See Documents 245 and 246.
4. Telegram 179786 to Belgrade, June 4, provided a summary of the consultations. (Department of State, Central Foreign Policy File, D880817–0171)
5. A memorandum of conversation of this discussion was not found.
6. For the text of the joint statement, see Department of State Bulletin, August 1988, pp. 25–31.
7. Reference is to the G–7 Summit held in Toronto from June 19 to June 21.
8. Not found.