Foreign Relations of the United States, 1950, Central and Eastern Europe; The Soviet Union, Volume IV

601.6811/4–2050

The Chairman of the Export-Import Bank of Washington (Gaston) to the Yugoslav Ambassador (Kosanović)¹

[Washington,] April 20, 1950.

My Dear Mr. Ambassador: In signing the agreement for an additional credit of $20 million for Yugoslavia by the Export-Import Bank, I should like to review briefly, on the basis of previous discussions with you and other Yugoslav representatives, the purposes for which the credit was authorized and to outline the manner in which it is to be administered.

The Bank’s first credit of $20 million to Yugoslavia² had been intended solely for equipment, machinery, and parts needed by Yugoslavia to increase her production for exports, especially to hard currency countries. However, on the basis of urgent presentations regarding current Yugoslav imports, the Bank modified the original purposes of this credit by agreeing to the use of $5 million of the credit to meet Yugoslavia’s needs for United States industrial and other materials.

In subsequent discussions it became apparent that Yugoslavia would require further assistance during 1950 in order to counteract the effects of the economic blockade by Eastern European countries, and thereby to complete the reorientation of her economy so as to become self-sustaining with respect to essential imports.

On the basis of the information submitted, the Export-Import Bank, in consultation with other agencies of the United States Government, authorized an additional credit of $20 million in favor of Yugoslavia. The amount of the credit was established on a liberal basis.

There was mutual agreement that the purpose of the credit was to enable Yugoslavia to maintain the level of essential economic activity and to permit her to reestablish her complete independence of foreign assistance for the financing of current imports. On March 1, 1950 when I informed you of the decision of the Bank to extend an additional credit of $20 million, there was further mutual recognition of the facts just stated, and especially of the urgency of Yugoslavia’s becoming independent by the end of 1950 of further assistance to finance materials imported from the United States or paid for in United States dollars.³

At that time I explained that it was necessary for the Bank to have a complete picture of the present and prospective economic and financial position of Yugoslavia in sufficient detail and firmness to enable the Bank to be assured that Yugoslavia would achieve balance in her current accounts by the end of 1950.

The Yugoslav submissions to date on economic and financial conditions and prospects remain inadequate, and do not afford the necessary basis on which it is possible to hope for the closing of the dollar gap in the foreseeable future. In fact, the data presented would seem to indicate that this objective is further removed than we had been given to understand. From the available information it is difficult to assess accurately the factors responsible for the apparent deterioration in current accounts. One element would seem to be particularly important. This is the high and growing investments of Yugoslavia, especially for industrialization. Such investments tend to increase unduly the demand of the Yugoslav economy for scarce foreign materials, reduce the ability of Yugoslavia to divert an appropriate part of her domestic production to exports, especially to hard currency countries, and depress the amount available for domestic consumption.⁴

In order to adhere to the original purposes of the additional credit, the Bank proposes to administer the funds in such a manner as to cover only the most pressing requirements over the remainder of 1950. Purchases of materials under the credit will therefore be approved only from time to time⁵ and in a manner which assures that total Yugoslav purchases over any given time will be within the funds available both under the Bank’s credits and out of Yugoslavia’s current earnings from exports and other sources. The financing under the credit of equipment and spare parts will be approved for a limited amount and for projects which have immediate and substantial prospects of earning or saving hard currency.

Heretofore there have been understandable reasons for delays and inadequacies regarding the pertinent information submitted to the Bank. Until recently it has likewise been inevitable that much of the necessary information should be submitted through the Yugoslav Embassy in Washington.

However, the situation has now changed radically so as to warrant a more systematic and satisfactory basis for the collection, analysis and transmission of information essential to a realistic and reliable appraisal of Yugoslavia’s international financial position.⁶

It is the view of the Bank, therefore, that from now on the United States Embassy in Belgrade should be used by the Yugoslav Government as the focal point for all pertinent information desired by the Bank. It is requested that the United States Embassy in Belgrade be provided with every facility so as to have at all times full knowledge of the actual economic and financial position of Yugoslavia and prospective developments thereon.⁷

Yours respectfully,

Herbert E. Gaston

1. This letter was handed to Ambassador Kosanović on the afternoon of April 20 by Export-Import Bank Chairman Gaston at the time of the formal signing of the $20 million credit agreement with Yugoslavia previously approved by the Bank on March 1 (see telegram 142, March 1, to Belgrade, p. 1378).

   Telegram 321, April 21, to Belgrade, not printed, reported that the Export-Import Bank agreed, on April 21, with Department of State concurrence, to those changes in this letter indicated in footnotes 3, 4, 5, 6, and 7, below. (868.10/4–2150).

2. The Export-Import Bank credit under reference here was authorized on September 7, 1949.

3. In the revised version of this letter (see footnote 1, above), this paragraph was changed to read as follows:

   “The purpose of the credit was to enable Yugoslavia to maintain the level of essential economic activity and to permit her to reestablish her complete independence of foreign assistance for the financing of dollar current imports. On March 1, 1950 when I informed you of the decision of the Bank to extend an additional credit of $20 million I again stressed the urgency of Yugoslavia’s becoming independent by the end of 1950 of further assistance to finance raw and other materials imported from the United States or paid for in United States dollars.”

4. In the revised version of this letter (see footnote 1, above), the final three sentences of this paragraph were deleted.
5. In the revised version of this letter (see footnote 1, above), the phrase “only from time to time” was deleted from this paragraph.

6. In the revised version of this letter, this paragraph was changed to read as follows:

   “However, the situation now warrants a more systematic and satisfactory basis for the collection, analysis, and transmission of information essential to a realistic and reliable appraisal of Yugoslavia’s international financial position.”

7. In the revised version of this letter, this paragraph was changed to read as follows:

   “It is the view of the Bank, therefore, that from now on the United States Embassy in Belgrade as well as the Bank should be supplied by the Yugoslav Government with all pertinent economic and financial information needed by the Bank.”