768.5 MSP/1–1053: Telegram
No. 671
The Ambassador in Yugoslavia (Allen) to the Department of State1
954. For Harriman. Summary requested Depcirtel 7222 follows:
I. Political.
MSP in Yugoslavia is directed towards increasing defense potential of Yugoslavia in event Cominform aggression, assuring active Yugoslav participation in maintaining the Balkan defense link between Italy and Greece, and encouraging general westward orientation of Tito regime. Our economic and military aid has enabled significant progress to be made towards achievement of these goals during the second six months of 1952. Our realistic policy, based on calculated risk, appears to be paying off. Tito and his top leaders succeeded, during Yugoslav Communist Party congress in November, in carrying their followers considerably further toward goal of orienting Yugoslav foreign policy westward, and in overcoming previously stated antipathy to the concept of regional pacts.
[Page 1337]Military discussions with Greece and Turkey have advanced substantially as far as they can go in the absence of government level commitments. These military developments are one phase of striking improvement in over-all Yugoslav-Greek and Yugoslav-Turkish relations. Similar improvement, without military aspect, has occurred in Yugoslav-Turkish relations. On negative side, Yugoslav-Italian relations have deteriorated. Two chief causes for this have been Yugoslav belief that Italy has been trying to persuade us to discontinue economic and military assistance to Yugoslavia, and unresolved Trieste problem. The western anchor of the Balkan defense line is therefore still not secured.
MSP has fortified Yugoslav will to resist Cominform aggression by supplying needed equipment and supplies (see below). But more important, they no longer believe they will be standing alone in a future conflict. Visits of American military leaders and especially General Handy have been important morale factors among population, even though Yugoslav Government officials were disappointed with results of talks.
Internally, regime proclaims its Marxist orthodoxy. Publicly abjuring bureaucracy and police methods, Yugoslav officials have proclaimed education and propaganda methods for achievement “pure communism”. These developments, together with economic and administrative decentralization, have resulted in less tension and fear, but inefficiency of authoritarian Communist state remains. Outcome of regime’s efforts to gain increased popular support is still far from clear, particularly in view of religious question, highlighted by severance relations with Vatican. However, there is popular belief that reduction of repressive measures and amelioration of conditions have their origin in American economic and military assistance.
II. Economic.
Economic aid to Yugoslavia during period July–December 1952 ($50 million exclusive of $20 million supplemental aid) is being directed toward strong military establishment capable of withstanding Cominform aggression and toward development of an economy sufficiently productive to support it. This program has enabled Yugoslav Government (a) to support, at necessary levels, its military establishment, and (b) with supplemental aid, now approved, to meet minimum economic requirements following 1952 drought.
Severe impact drought not only wiped out expected achievements balance payments position but necessitated unusual food import program. If drought impact had not been relieved by supplemental aid, Yugoslav Government would have been required divert funds earmarked for defense and defense-support production to food imports. [Page 1338] Resultant defense weakening, unemployment, and injury to national morale would have been serious threat to US objectives in Yugoslavia.
Consequently, Embassy Mission recommended additional grant $20 million sufficient meet approximately 50 percent extraordinary food deficit in balance payments position. Yugoslavia will have to absorb balance of deficit by curtailing investments and imports, expanding exports, and use short-term credits, if possible while retaining liberalization internal economy reflected in discontinuance forced grain collections and other restrictive controls.
Recent actions by Yugoslav Government have resulted in decentralization national government administration to component republics, local government, and individual enterprises. Problems production, pricing, marketing, and investment now largely handled locally within broad policies established federal government.
While ultimate effect decentralization on economic affairs uncertain, there are two immediately discernable trends. On favorable side, competition being introduced between individual enterprises and financing plant investment plans are responsibility local enterprises as to use funds, interest and principal repayment. Investment priorities and credit controls, determined by federal agencies. On unfavorable side, this procedure introduces for first time east-west trade problems, as local enterprises, looking for favorable foreign exchange, less likely exercise required concern ultimate consumer. Recent government action promises effective resolution this problem.
Current OSP program still in planning stage. Yugoslav Government now preparing bids on ammunition (75 and 105 mm.). Possibility including Yugoslav shipbuilding capacity FY 1954 program being studied. In addition to usual question of “price, quality and delivery date” strategical considerations must be taken into account.
Recent Yugoslav Government/Mission discussions indicate gradual improvement in Yugoslav Government willingness provide more detailed information, discuss fully matters mutual concern, and utilize TA potential more effectively.
Two major problems are faced. First is long-term cost supporting defense establishment currently planned. Second is cost Yugoslav Government debt service to creditor nations during next two years.
III. Military.
The military equipment thus far received in Yugoslavia has strengthened the armed forces thus enabling them to better resist Cominform aggression.
[Page 1339]The forces in the JCS force basis establishment for Yugoslavia for each service are in general already in being or planned for activation. The equipping of selected units of this force is the objective of the military aid program for Yugoslavia and is progressing satisfactorily.
In general the necessary facilities for utilization of and training with US equipment are adequate in this country. Maintenance facilities leave much to be desired.
Yugoslavs are utilizing to the best of their ability military end-items programmed. Unfamiliarity with technical equipment, lack of technical knowledge and a reluctance on the part of the Yugoslav Government to utilize technical assistance from the outside have retarded the effective utilization of other than the simpler items being received.
Continued reluctance on the part of the Yugoslavs to permit free and unrestricted observation of American military aid equipment on hand precludes our assurance that all this equipment is being properly maintained and utilized as required in US directives pertaining to military aid.