195. Telegram From the Embassy in Yugoslavia to the Department of State1
578.
Belgrade, January 25, 1982,
1436Z
SUBJECT
- The Yugoslav Economy and Western Banks.
- 1.
- (C—Entire text.)
- 2.
- Summary. I saw Federal Executive Council member Boris Snuderl on January 21, a few days before he departs for meeting with Van Lennep2 and others in the OECD about the Yugoslav economic situation. I have rarely had a more gloomy conversation with a senior member of the government on the domestic political effect of the Yugoslav economic-financial condition and about what Snuderl considers abandonment of Yugoslavia by its major OECD trading partners. End summary.
- 3.
- Snuderl began by claiming bitterly that the drawn out and unsuccessful balance of payments loan syndication among North American, British and Japanese banks is a continuing embarrassment that is harmful to Yugoslavia’s international reputation. Yugoslavia is not seeking charity or gifts but had hoped that the relationship with major Western trading partners (and creditors) could be expanded to include temporary financial assistance for Yugoslavia’s stabilization program. However, the Western banks have in effect walked away from Yugoslavia. Snuderl mentioned that the French and Dutch in particular have begun looking on Yugoslavia as an Eastern European country having problems similar to those in Poland; Yugoslav assistance requests are being viewed in the light of that [garble].
- 4.
- Snuderl said that Yugoslav stabilization efforts, are in fact beginning to show solid results, thus making Western neglect all the more puzzling. The final 1981 balance of payments figures are not quite complete, but at this point look better than expected. The current account deficit has been held to the 1.8 billion dollar target figure and 1982 and 1983 plans call for further drastic reductions. Snuderl added that Yugoslavia’s other main problem, inflation, is still serious but that he was convinced that in 1982 this too will be sharply reduced, probably not to the 15 percent official target figure but still by a satisfactory amount. Snuderl also pointed out that foreign skeptics looking at Yugoslav inflation rates ought to look at those prevailing in some other countries such as Turkey, where the West has not distanced itself from that country’s economic problems as it has in Yugoslavia.
- 5.
- Snuderl went on to say that 1982 loan prospects in Germany are looking better and some progress is definitely being made. The Deutsche Bank had been more forthcoming in recent meetings; Snuderl was encouraged that the German banks’ evident nervousness about Poland could be overcome and a satisfactory loan agreement concluded. He indicated however that the GOY is still far from happy with German bank attitudes.
- 6.
- Snuderl went on to say that Yugoslavia’s unfavorable treatment in the West also extends to the press, which had been unfair in its criticism and analyses of both the Yugoslav situation and the country’s economic system. Snuderl alleged that Western reserve on helping Yugoslavia has provoked a very sharp political reaction, even at the grassroots among his Slovene constituents. He hopes that he can induce Van Lennep to encourage OECD members to make a balanced, positive approach toward Yugoslavia, give them a clearer picture of its economic performance and program, and reaffirm the OECD’s belief in Yugoslav progress and stability.
- 7.
- In conclusion Snuderl pointed out that under the current GOY austerity program there have been sharp reductions in real worker incomes, public consumption, consumer credits and pensions. This, combined with rent hikes and commodity shortages, adds up to political trouble for the GOY in 1982, when living standards will continue to decline. He stated that income reductions and supply difficulties might well provoke a political reaction or “excesses”, with demonstrations and civil protests. Yugoslavia needs Western support and not neglect to help avoid these difficulties, he said, once again explicitly linking loan prospects to the political relationship.
- 8.
- Comment: Snuderl’s asperity surely reflects frustration caused by the feeble response to the B/P loan syndication. I am however surprised that Snuderl places so much blame on the West’s alleged lack of political will and so little on the acknowledged effect of Poland on the money markets, particularly as regards EE borrowers. Snuderl’s dire remarks about loans and possible political reactions to austerity-shortage conditions were probably designed to underscore for me that there is a political as well as financial desirability in encouraging maximum participation by the New York banks. Nevertheless, while I still am convinced that economic and financial conditions here are not even remotely as serious as those in Poland, the Yugoslavs are after all facing a three-four year austerity cure for their economic problems. Under those conditions no one should be surprised if strike activity increases or if the Yugoslavs exercise their relative freedom of speech to grouse even more than usual and raise the volume of economic policy debate publicly.
- 9.
- The main problem for the Yugoslav leadership is going to be, if Snuderl’s assessment is correct, to keep any possible wrangling [Page 559] between the richer and poorer republics. Perhaps as important, if the Yugoslavs are (as I believe) as concerned about their international image as Snuderl suggests, will be the necessity for the Yugoslavs to keep Western press speculation from interpreting the unrest as signifying the beginning of the end of Yugoslav unity. I do not believe the latter to be in any way endangered, but that does not get around the fact that the Yugoslavs are in for a hard year economically, financially and within limits, probably also politically.
Anderson