868.00R/10–950
Memorandum by the Deputy Director of Mutual Defense Assistance in the Department of State (Ohly) to Major General Lyman L. Lemnitzer, Director of the Office of Foreign Military Assistance, Department of Defense
Subject: Evaluation of the Military and Strategic Consequences of the Anticipated Economic Crisis in Yugoslavia
Every shred of information before the Department of State indicates that in the absence of rapid and extensive remedial measures, Yugoslavia will be faced with an economic crisis of very major proportions during the coming winter. This crisis results primarily from the serious drought of the last summer, which will cause a short fall in grain production of the following amounts: 1,000,000 tons of corn; 500,000 tons of wheat. The anticipated shortages have already caused a marked increase in the rate of slaughter of livestock.
The Yugoslav Government has taken certain preliminary measures to control the situation. First, they have cut the bread ration an [Page 1463] average of 10%; secondly, they have stopped all exports of foodstuffs; thirdly, they have introduced regulations for the systematic control of livestock slaughter; fourthly, they have formally requested the United States Government for $50 million in grant aid for the purchase of foodstuffs and $50 million in grant aid for the purchase of industrial raw materials for which the loss of food exports has made it impossible for them to pay. Under “The Tied Price System” in Yugoslavia the amount of consumer goods made available to agricultural producers is tied to the deliveries to the state of agricultural produce. Similarly, the amount of food available to industrial workers is tied to the rate of industrial production.
The general effect of the drought on the Yugoslav economy will be to place an immediate strain on the price system, to dislocate the industrial sector of the economy and to increase the growing unrest and disaffection in the peasant areas, particularly in those more backward agricultural areas such as Montenegro and parts of Macedonia and Bosnia, as well as in Croatia, an area which has been particularly hostile to the regime. Economically, the most serious menace to the Yugoslav position seems to be the possible breakdown in the distribution and price system and in industrial production. Politically the most serious internal menace to the Yugoslav position would seem to be the possible disorder among the peasant population. The Cominform will certainly not fail to attempt to make use of this situation.
In order to determine what action, if any, the United States should take to help avert or minimize this crisis, it is imperative that the Department of State have, at the earliest possible moment, either informally or formally, the views of the Department of Defense on two factors which affect the seriousness of the situation from the standpoint of the United States. These two factors are:
- (1)
- An evaluation of the probable effect, if any, of such an economic crisis on the military capabilities of Yugoslavia and, more particularly, on the specific capabilities of its armed forces to deal with the kind of internal and external threats which represent the most likely probabilities in the near future; and
- (2)
- The strategic importance from the standpoint of United States security, of the effects referred to in (1).
Since the problems referred to herein are being given the most urgent attention at the present moment, both in this department and elsewhere in the Executive Branch of the Government, I would appreciate your views at the very earliest possible date, even if they must be preliminary and informal in character.