Office of the Historian

868.00/7–754: Telegram

No. 698
The Secretary of State to the Embassy in Yugoslavia1

secret
Washington, July 23, 1954—9:14 p.m.

102. Ref: (1) Belgrade despatch 864, (2) Belgrade despatch 5, (3) Belgrade tel 15.2 Joint State–FOA message.

1.
Following is preliminary answer above refs. Fuller elaboration follows by pouch.3 Your views requested.4 Discussion these questions with Yugoslavs should not be initiated until Washington-Belgrade views concerted. At that time, question relationship these talks to Trieste and Balkan Alliance negotiations can also be considered.
2.
Re level of participation and situs talks. Our present thinking is that discussions be handled most satisfactorily Belgrade by Ambassador and Chief OM/Y with Tempo, Crnobrnja and other YuGov officials. Note para 2 ref 1 Tempo indicated he be chief spokesman. We would keep Mates advised of progress.
3.
Yugos tactic seek bilateral discussions with US for economic aid and other assistance as preliminary, if not condition, to debt conference, not received sympathetically here. Believe YuGov acting against own best interest in seeking assurances US financial assistance in advance debt conference in order determine Yugo position at conference vis-à-vis creditors. Basic continuing purpose US aid is to strengthen Yugoslav economy. Creditors at debt conference should be persuaded provide terms their debts consistent this objective. As matter of principle, use US aid to relieve Yugo creditors of burden granting more lenient terms medium-term debt objectionable to US.
4.
Even if bilateral talks economic aid held, do not consider debt conference should be delayed pending their outcome. Status of economic aid FY 1955 not likely change in near future. YuGov was informed during Trieste negotiations proposed FY 1955 assistance, achievement of which depends on final Congressional action. Current expectation re mutual security legislation is for little if any latitude permit increase illustrative FY 1955 figure and in fact, reduction illustrative figure more likely. Possibility, if any, for upward revision not be known until some months current fiscal year have elapsed.
5.
Applicability of Agricultural Trade Development and Assistance Act under study. FYI Three year commitment sales surplus agricultural commodities for local currency might be possible under Title I if such sales are for quantities of commodities which are in addition to usual consumption of such commodities. Additions to stock considered expanded consumption provided such additions 1) are used to maintain permanently higher stock levels or 2) will themselves be used for expanded consumption in the future. However, no such commitment can be given YuGov pending general policy determination and examination applicability Yugo case under Act. End FYI
6.
Re proposal ref 1. Ex-Im grant loan to fund short-term debt. Question basic wisdom YuGov substituting dollar obligation for present soft currency debt. We and Ex-Im Bank opposed to this type refinancing and Ex-Im Bank considers it contrary to purposes and spirit of Ex-Im Bank Act.
7.
Re para 5 (a) ref 1. US prepared in principle give strong support at debt conference to Yugo proposals for rescheduling by creditors of short and medium-term debt.
8.
Re para 5 (b) ref 1. We anxious avoid becoming involved on Yugo behalf in prewar debt problem. Prefer leave matter Yugo, IBRD and private creditors.
Dulles
  1. Drafted by Gonlitz and Scoll (E/ED), Kleine (FOA), and Colbert and cleared with FitzGerald (S/MSA), Turnage (OFD), and Marcy and Katz (EE). Repeated to London and Paris by pouch.↩
  2. Regarding despatch 864, see despatch 5, Document 695. Telegram 15 is supra.↩
  3. The Department of State elaboration on its views regarding the question of possible bilateral economic discussions with Yugoslavia is in CA–897 to Belgrade, Aug. 5. (868.00/8–554)↩
  4. The Embassy in Belgrade submitted its detailed comments in despatch 103, Aug. 18. (868.00/8–1854)↩