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

398.14/9–1950: Telegram

The Ambassador in Yugoslavia (Allen) to the Secretary of State

secret

Belgrade, September 19, 1950—3 p. m.

259. I spent last evening in long discussion with Black and Rosen, International Bank, at their request, concerning Yugoslav loan application.¹ Black made clear to me his strong opposition to loan, due basically to his conviction that only feasible means of keeping Tito afloat is through grants along ECA lines rather than additional dollar loans, which he does not believe Yugoslavia could repay without drastic reduction in heavy industrialization program. Black said Velebit’s² characterization of Yugoslav program of $300 million capital investment program as “irreducible minimum” made it practically impossible for bank to grant loan since bank must insist upon “collaboration” between bank and Yugoslav Government on size of Yugoslav investment program. (Black rejected my remark that bank seemed to demand veto over program. He preferred to say that bank and Yugoslav Government must “work program out together” if loan materialized.)

Rosen, who spent two weeks here last year, is firm in belief that Yugoslav Government worse off now than then despite their $55 million credits extended by Export Import Bank. He claims Yugoslavia is running $100 million annual payments deficit and that additional dollar loans would do more harm than good. He believes only solution is either sizeable grants from Congress or immediate shift from long-range heavy industry program to manufacture of consumer goods as incentive for Yugoslav workers to increase production.

While foregoing were basic arguments, Black also said Yugoslavs must decide whether International Bank or Export Import Bank are to be their bankers. He added that as long as Ambassador Popovic maintained attitude that International Bank was obligated to extend credit and that some of bank’s demands were irrelevant, no progress could be made. He says Yugoslavs had been fully cooperative with bank investigators until Popovic entered picture few months ago.

I pointed out that question of International Bank loan had become important matter of prestige for Yugoslav Government both internally and externally. While I heartily welcomed his visit to Yugoslavia, I believed adverse political as well as economic reaction to refusal now would be much more pointed and severe than before. I recognize difficulties of dealing with regime such as this but thought international character of bank would be admirably demonstrated if its portfolio included loans to members states from left to right, thus belying Moscow allegations that bank was tool of Wall Street. I referred to unfortunate publicity regarding this loan during past year, Yugoslavs had been led to believe loan had been approved. Black replied that Yugoslavs themselves were responsible for statement last November that loan had been approved in principle.

As regards grant, I pointed out that it was by no means certain that Tito would request or accept a grant and that he would hardly do so in any form which implied Yugoslav assimilation to Marshall Plan bloc. Black said Tito might have to make some disagreeable but unavoidable decisions and wondered whether direct US grants of food and military supplies might not be made palatable. I said talk of grant was probably academic since Congress was hardly in mood to make grant to Yugoslavia at present. Black expressed personal view, as American, that if Congress would not approve such assistance, continued loans through Export Import Bank were improper unless Congress indicated its concurrence.

As regards Yugoslav choice of International Bank as their banker, I said if we adopted this suggestion and International Bank loans failed to materialize, Yugoslavia might well fall under Cominform domination again. Moreover, Export Import Bank was able to grant medium term loans quickly whereas International Bank was not.

Discussion was friendly throughout, but inconclusive. Tito has insisted that Black talk to him before anyone else and is seeing him today.³

Yugoslavs have come to put so much stock in International Bank loan that failure now might mean their withdrawal from bank and would certainly lessen their support of UN in general. Their disillusionment with UN would furnish excellent material for anti-UN propaganda among Cominform states.

Allen

1. Eugene R. Black, President of the International Bank for Reconstruction and Development, accompanied by Bank Loan Director William A. B. Iliff and Martin Rosen, arrived in Belgrade on September 18 for a visit.
2. Maj. Gen. Vladimir Velebit, Yugoslav Deputy Minister for Foreign Trade.
3. For Black’s account of his various conversations with Marshal Tito during his visit to Belgrade, see Campbell’s memorandum of conversation, October 10. p. 1464.