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

868.10/2–850

Memorandum by the Assistant Secretary of State for European Affairs ( Perkins ) to the Secretary of State ¹

secret

[ Washington ,] February 8, 1950.

Subject: Financial Assistance to Yugoslavia

Problem

To determine the source of future financing for Yugoslavia and thereby enable the Eximbank to provide interim financing without delay.

Discussion

On February 3, 1950 the NAC ² approved consideration by the Eximbank of $9.3 million raw material financing for Yugoslavia, but with the understanding that, prior to Eximbank action, a determination would be made by the Secretaries of State and of Treasury, possibly in consultation with the President,³ as to the source of additional funds likely to be required during 1950 and 1951.

In view of Yugoslavia’s problem of suddenly redirecting its trade from East to West and of the possible lessening of its ability to export in the event of increased Russian pressure, it is impossible closely to estimate the funds likely to be required. Nevertheless for planning purposes it is advisable to assume that the funds required for raw material financing will approximate $30 million for 1950 and possibly between $10 and $20 million for 1951. With respect to capital equipment financing, it appears likely that, were the raw material financing problem to be solved, the International Bank and the Eximbank would together cover Yugoslavia’s requirements. The problem is therefore to determine a source of some $20 million to cover raw materials during 1950, in addition to the $9.3 million contemplated by the Eximbank, and possibly an additional $10–$20 million during 1951.

Three possible sources have been considered, viz., the Eximbank, participation in ERP, and a special Congresssional appropriation. The question has also been considered as to whether the financing should consist of credits or grants.

It is suggested that, of the three, the Eximbank constitutes by far the preferable source, at least during 1950, for the following main reasons. To maximize U.S. political gains from the Yugoslav secession from the Soviet bloc, it is believed that the aim should be to enable that nation to continue as an independent state, able to maintain itself and to show some improvement in economic conditions. Yugoslavia would thereby continue to establish before world opinion that the primary target of U.S. foreign policy is not any particular economic system per se but Soviet imperialism; and its continued existence as an anti-Soviet but still Communist state should create the maximum amount of dissension within and magnetism upon the other satellites. In order to achieve this aim, it seems certain that the kind of financing required consists of balance of payments credits, rather than grants. The latter would involve, inter alia, public acknowledgement of a relationship of dependence of Yugoslavia, upon the United States. As to whether credits had best be extended by the Eximbank on a piecemeal basis or possibly under ERP on a fixed basis as a result of Congressional action: it is suggested that, in view of the special and rather fluid nature of the political relation between the U.S. and Yugoslavia, it would be much more practicable were credits to be extended as circumstances warrant by the Eximbank in close collaboration with the Department. Finally, were credits to be extended by the Eximbank, it would obviate the necessity of formal Congressional action and public debate which, it is believed, both the Department and the Yugoslav Government would prefer to avoid at this time.

As to ERP, in estimating the funds required during 1950 account has already been taken of possible Yugoslav dollar earnings under offshore procurement by ECA, including such procurement as would entail a major change in ECA’s present policy. In order that ERP be a source of additional funds, Yugoslavia would have to become a participating country. Even if attempted on an informal basis, this would involve the agreement of the OEEC countries, the willingness of the Tito regime to adhere to a joint program and to enter into an ECA bilateral agreement with the U.S., which is published by the U.N., and public debate vis-à-vis Yugoslavia, including exposure of the facts of its economic situation. It is considered inadvisable that Yugoslav participation be considered at this time. Its participation would be out of line with the aim of Yugoslavia continuing as an independent Communist state. Furthermore, it is unlikely that at this time the Tito regime would be willing to risk participation and to submit to the exposure of its economic situation. However, in case other sources are not found, the legal aspects of a separate title appropriation under the Foreign Assistance Act⁴ as well as possible Yugoslav membership in the proposed European Clearing Union⁵ are being explored.

With respect to a special Congressional appropriation, in view of what has already appeared, it is suggested that this source be considered only as a last and rather desperate resort.

During the past month the NAC has considered a possible Yugoslav drawing on the IMF. This has been dropped for the time being. The Yugoslav dollar exchange and raw material situation has meanwhile become so critical that assistance is necessary without further delay. What the Yugoslavs require, partly to strengthen the civilian economic situation, and partly to be better prepared for a possible increase in Russian pressure this spring, are dollars which may be spent for cotton, gasoline (including aviation), chemicals (including explosives) etc. The Eximbank up to now has hesitated to finance such items. In the absence of a Yugoslav drawing on the IMF, it is believed that

such items must be promptly financed if the maintenance of the Tito regime is to be assured.

Recommendation

It is recommended that the Secretary confer with Secretary Snyder and, if desirable, with the President, indicating that Eximbank balance of payments credits appear to constitute the preferable source and kind of financing.⁶ The desideratum would appear to be sufficient assurance that the Eximbank will be prepared to extend up to $30 million of credits to Yugoslavia in 1950 if necessary. This assurance should not be announced at this time, either publicly or to Yugoslavia, but the Bank should be prepared to make available immediately a $10 million balance of payments credit and to extend additional financing similar in kind later in the year as needed.

1. This memorandum was drafted by Gustavus Tuckerman of the Office of Eastern European Affairs and was cleared with Leroy D. Stinebower of the Office of Financial and Development Policy.
2. The National Advisory Council on International Monetary and Financial Problems was composed of the Secretary of the Treasury (as Chairman), the Secretary of State, the Secretary of Commerce, the Chairman of the Board of Governors of the Federal Reserve System, and the Administrator of the Economic Cooperation Administration. The Council coordinated the policies and operations of the representatives of the United States on the International Monetary Fund and the International Bank for Reconstruction and Development, the Export-Import Bank of Washington, and all other agencies of the Government participating in the making of foreign loans or engaging in foreign financial exchange of monetary transactions.
3. According to his memorandum of conversation with President Truman on February 2, not printed, Secretary of State Acheson discussed the problem of financial aid for Yugoslavia with the President in general terms. The Secretary pointed out that it might be necessary to bring the problem before the President for decision if it proved impossible to reach agreement as to which government agency would be responsible for furnishing funds for Yugoslavia. The President stated that he was willing to deal with the matter and recognized the overriding importance of providing financial aid to Yugoslavia (Secretary’s Memoranda, Lot 53 D 444, Memoranda of Conversation—February 1950). Lot 53 D 444 is a comprehensive chronological collection of the Secretary of State’s memoranda and memoranda of conversation for the years 1947–1953, as maintained by the Executive Secretariat of the Department of State.
4. A marginal handwritten notation on the source text at this point, probably written by Assistant Secretary of State Perkins, reads as follows: “this would also involve a bilateral.”
5. For documentation on the proposed European Clearing Union under reference here, see vol. iii, pp. 1 ff.
6. According to a memorandum of February 17 by Lucius D. Battle, Special Assistant to the Secretary of State, not printed, Secretary Acheson stated on his return from the Cabinet meeting that morning that he had discussed the question of financial aid to Yugoslavia with Secretary of the Treasury John W. Snyder. Snyder was perfectly willing to concur with Department of State views on the matter and agreed that the Export-Import Bank was the proper place for the loan. Snyder suggested that he and Secretary Acheson visit the Export-Import Bank and discuss the question with its officers (Secretary’s Memoranda, Lot 53 D 444, Memoranda of Conversation—February 1950).