CAB129-45 — Page 166

Page 166 on current and on capital account. The Yugoslavs have been most co- operative and ready to disclose confidential information. The picture is not yet complete, but the estimates both of our Economic Mission and of the State Department suggests that, omitting any repayment of debts on "swings" or trade overdrafts (which are estimated to amount to about £ 20 millions), the Yugoslavs are faced with a world deficit in 1951 of which at least £25 millions is uncovered by credits now available. This figure of £25 millions is subject to a large margin of error either way.

4.

We are now discussing with the Americans at the official level Yugoslav current account difficulties and we hope later to discuss with them and the International Bank Yugoslavia's long-term investment pro- gramme. We also wish soon to discuss these problems with other countries in an effort to spread the load at least to the extent of per- suading these countries not to insist on the immediate repayment of debts due to them from Yugoslavia. In the light of these discussions and of an interim report which we have just received from our Economic Mission, we expect to put further proposals before our colleagues. These proposals will almost certainly involve further substantial credits or grants to Yugo- slavia from this country and the United States.

5.

Meanwhile we must decide on an urgent Yugoslav request for a further credit of £4 millions for the purchase of raw materials, such as wool, hides, rubber and cotton yarn. The United States Government have also been asked for a credit of 20 million dollars for the purchase of other raw materials; we understand that the State Department are taking urgent steps to meet this in full out of funds already appropriated. We and the Americans hope that these sums will tide the Yugoslavs over, pending detailed consideration with the United States Government of our future policy. We consider that this is a suitable opportunity to warn the Yugo- slavs that the continuance of British aid on anything like the present scale will depend on our being satisfied that the Yugoslavs are determined to balance their foreign payments in the near future and that their planning policy is such as will bring about this result.

6.

We recommend that, in advance of consideration of the main problem of how best Tito's short-term current account difficulties can be met, His Majesty's Government should agree to make available to Yugoslavia at once a further credit of £4 millions for raw materials on the same terms as the previous credit of £5 millions, and subject to the warning mentioned above.

2nd April, 1951.

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H.M.

H.W.

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