868.00/4–2050: Telegram
The Ambassador in Yugoslavia (Allen) to the Secretary of State
525. Embassy believes that such economic assistance as we have given Yugoslavia to date or contemplate giving in relatively near future in support its resistance to Soviet Union and satellite pressure is small price pay for benefits already enjoyed and expected from Yugoslav independence of Kremlin dictation which such assistance has bolstered. Relaxation of export controls has merely removed some of obstacles to Yugoslav dollar purchases; moderate credits extended will have to be repaid with interest. Increased trade made possible by these two moves benefits American manufacturers and exporters and users of Yugoslav raw materials. They have also helped improve relations generally, smoothing way for such tangible results as the civil aviation and visa agreements. Tito’s regime has considerably improved its relations with west without thus far compromising its independence, concerning which it is hypersensitive, as recent events such as matter of Ho recognition have demonstrated. This independence [Page 1405] from west as well as east is, in my opinion, essential to our immediate purpose of promoting disharmony in ranks of world Communism and thus weakening Kremlin’s aggressive power. We therefore should, I believe, guard against temptation try to push regime into position which world Communists and fellow travelers could interpret as compromising [comprising?] dependence on west, we should not expect nor seek to establish close economic relations we have with OEEC countries for example.
It is against this background we have considered Deptel 300, April 15.1
We appreciate difficulty of obtaining from Yugoslavia full and detailed data customarily expected from applicants for Eximbank or IBRD loans. But Yugoslavia is police state which has (1) failed organize collection and analysis of economic data along west lines and (2) made such data as exists subject to state secrets law. Added to these limiting factors is shortage of qualified personnel. In these circumstances gaps in information and delays to be expected on grounds other than reluctance reveal data in hand. That there is also some such reluctance I have no doubt, largely because of fear revelations of weak points in economy of government organization will leak out and be used against them by west as well as east. They may also suspect requests for certain data inspired more by curiosity about Yugoslavia’s strategic position than by desire obtain facts relevant to credits and their utilization.
We also suspect Yugoslavs may be counting more heavily than facts warrant on further dollar credits. Any over optimism can however be dealt with (1) in general terms as occasion requires in both Washington and Belgrade and (2) specifically in connection with requests for new credits or drawings on established ones. Patient insistence in Washington demonstrably pertinent data really needed as basis for intelligent decision may involve delays but Yugoslavs themselves will be responsible and suffer any losses entailed by such delays. When important data unreceived Washington we could take matter up here with Minister Foreign Trade or other appropriate Minister on telegraphic advice from Department.
In order be of greatest possible effectiveness here, Department might send Embassy air pouch pertinent background documents already available (e.g. copy loan agreements, Yugoslav presentations and interagency studies) and keep Embassy currently informed. Regardless size economic staff, Embassy not in position prepare Yugoslav balance payments estimate, but with present staff could use estimate prepared in Washington together with that submitted by Yugoslavs, to seek clarification of important discrepancies as suggested in my letter of March 6 to Yost. With full background material, supplemented [Page 1406] by telegraphic information and instructions, we here should be able to elicit desired data, if available at all, more quickly perhaps than Yugoslav representatives Washington.
I strongly urge further effort along these lines before serious consideration given to more drastic changes in procedure. In particular doubt wisdom of sending team of US officials for purpose making “complete study” Yugoslav economic and financial prospects. Yugoslav reaction would we feel be strongly against this, not so much because of unwillingness give access to information Yugoslavia considers pertinent to credits and their use as of fear of giving credence to Cominform propaganda which would seize upon it as evidence of subservience. (Moreover, Yugoslav officials remember only too well that when Soviet Union sent teams of experts to look into all aspects Yugoslav economy espionage and domination were in fact their purpose.) Occasional visits by experts in various pertinent fields, singly rather than as team, might on other hand be willingly received and be useful. Eximbank for example might inform Yugoslav representatives Washington it would like send an expert to Yugoslavia for first hand look at current nonferrous mining needs as distinguished from longer-range aspects covered by IBRD.
As to Foreign Office instruction shown by British Embassy difficult comment without knowing what “essential information re state economy” British want us help them pry loose (commercial secretary British Embassy here unable answer this question but mentioned raw material stocks and foreign exchange reserves as possibilities); said whole idea generated in London not Belgrade. In any event we are certain Yugoslavia would balk at undertaking as price for continuing US assistance to answer any and all questions put by US or UK economic experts. An attempt use this kind pressure would certainly be resented and might backfire with result we would get less rather than more really essential information. Also as British Embassy here has already pointed out to Foreign Office this proposition involves at least moral commitment to continue giving assistance provided Yugoslavs loosen up further with economic data which UK may not be in position undertake. Suggesting this argument may not apply equally to US which may be able extend further credits, British Embassy has recommended that in any event proposition be kept on ice until about September when Yugoslavia apt to be in more urgent need of dollars than now. From earlier conversations it seems possible behind British proposal is thought that one or two well qualified economists could make suggestions (e.g. postponement or abandonment major portions of industrialization plan in favor raw materials and consumer goods) which if adopted would greatly improve Yugoslavia’s current and future balance payments and general economic situation. We believe this largely wishful thinking in view political control over economic [Page 1407] planning and execution, apart from questions of economic competence of Yugoslav officials, we doubt economic efficiency anywhere near west standards could be quickly achieved by best advice in world even if baited with hundreds of millions in credits or grants. Yugoslavs think, however erroneously, own economic planning and management quite good, and almost certain to reject suggestion of outside economic planner or group of planners. They are however willing make changes indicated by own experience and welcome specific suggestions on technical matters. We believe many such suggestions from private and official sources, particularly in connection with credits, will gradually help to improve Yugoslav economic thinking and action; and experience gained in dealing with west will also help.