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Minute of 19th December, 1950, from the Parliamentary Under- Secretary of State for Foreign Affairs to the President of the
Board of Trade
ECONOMIC AID TO YUGOSLAVIA
The Cabinet decided on 20th October that in an effort to avert a collapse of the Yugoslav regime owing to the present severe economic crisis, which would have the most serious consequences for our defence and foreign policy, we should offer the Yugoslav Government a credit of £3 millions for food, consumer goods and any consequential requirements, keeping a further £2 millions in reserve. The offer has been duly made and accepted. Meanwhile there have been developments which suggest that the £2 millions which we hold in reserve should be offered to the Yugoslavs immediately and should be devoted to the purchase of raw materials rather than food and consumer goods.
2.
The United States Government, whose co-operation in our relief enterprise the Cabinet made a condition of our own action, have offered and organised shipments of food more promptly than we had expected and on such a scale as to remove the danger of famine for the time being. The Yugoslav Government informed us in November that if they did not receive further credit facilities from the United Kingdom, they would have to default publicly in December on their sterling debts. Although we have managed, by relaxing certain stipulations regarding the credits we granted a year ago, to tide the Yugoslavs over their immediate difficulties, their shortage of sterling remains acute. This is critical because they have also informed us that they will have insufficient sterling to keep up a minimum flow of raw materials (e.g. wool, cotton, hides and rubber) into their factories in the early part of 1951. Some of these must be bought in January and February for seasonal reasons. It is therefore clear that the supply of raw materials is more urgently needed than that of food. This has a political aspect because a stoppage in the flow of raw materials would in due course lead to the closure of factories, unemployment and a consequent threat to the regime.
3.
My proposal deals only with Yugoslavia's minimum sterling requirements in January and February, but I feel bound to point out that the prospect for 1951 is very disturbing. Our knowledge of the Yugoslav balance of payments with the rest of the world is very incomplete as the Yugoslavs have not revealed the details to us. But in connection with their request for further credits they have disclosed information about their sterling balance of payments for 1950. This indicates a total deficit of £10 millions financed by credits from the United Kingdom. The sterling balance of payments for 1951 depends on Yugoslav trade policy, stocks, world prices and other factors which can only be evaluated after considerable further study by the Economic Mission which, in accordance with the Cabinet decision, we are sending out to supervise the distribution of food and consumer goods. The Yugoslav Government's own rough forecast, however, shows a deficit in the next few months of about £2 millions per month compared with just over £1 million per month recently, but pending investigation this should be treated with reserve.
Moreover the sterling
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