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Yugoslavia to Get Aid From Western Nations

By Dan Morgan
September 18, 1971

Belgrade, Sept. 17 -- A simultaneous effort by the United States and at least five other Western countries is under way to arrange approximately $600 million in various forms of financial aid for Yugoslavia.

Western diplomats, in defining the purpose and scope of the assistance, make clear that it serves a central Western policy aim of promoting a strong Yugoslavia capable of weathering political pressures after the departure of President Tito from the scene.

They say the economic health of Yugoslavia is a key factor in the country's independence from the Soviet influence and, indirectly, in European relaxation and security.

Engaged in the assistance effort along with the United States are West Germany, Italy, Britain, Switzerland, France and the International Monetary Fund. Others in the "club" of rich industrial countries, such as Japan, and the Netherlands, may also be asked to help, diplomatic sources report.

The immediate thrust of the aid is to stabilize the economy, now showing many of the erratic, inflationary trends of rapid development, and to improve the country's worsening balance of payments deficit. The trade deficit is running at more than $1 billion this year, and the payments gap may become worse, economists say.

Western financial experts say that unless Yugoslavia gets the substantial; credits and refinancing of debts it wants, its rate of growth would probably have to be sharply cut back. The concern is that this could produce domestic unrest, sharpen economic rivalries between republics and invite outside interference.

Yugoslavia's credit problems are essentially those experienced by all developing countries at the threshold of economic takeoff. The usual remedy, outside aid, is complicated because of Yugoslavia's unique position as a non-aligned communist nation.

Yugoslav officials are extremely sensitive to suggestions that the country is watering down its independent posture. A proposal for a Western consortium to work out a "package" through the International Monetary Fund was rejected by the regime. Instead the government insisted that the aid be worked out bilaterally, between Belgrade and each of the Western capitals.

Some Yugoslavs believe the Soviet Party leader Leonid I Breznev will appeal to local Communists on his visit here next week to reduce their growing dependence on the West, and offer a lure of Soviet economic aid.

According to one report that appeared last week in the press here, the Soviet Union already has offered to negotiate a $100 million loan for development to of lead and zinc resources in Yugoslavia.

According to foreign sources Western loans to Yugoslavia between 1965 and 1969 amounted to $730 million. At the same time loans of $543 million were negotiated with the Soviet Union and other Communist countries. Trade with the Soviet Union has increased from $112 million in 1956, when the two countries achieved a temporary reconciliation of differences, to $374 million in 1969.

Moscow is now helping to finance construction of major power installations in Yugoslavia, such as the Iron Gates hydroelectric station on the Danube Rivers. However, ever since 1949, when Stalin abruptly stopped all economic aid to Yugoslavia, Soviet credit to Belgrade has been subject to political fluctuations. In May 1958, for instance, Moscow suspended credits of $285 million that Yugoslavia had counted on for building aluminium plants and other industrial installations, after political relations cooled again.

The bulk of the loans from the West have come from the World bank. However, Yugoslavia also has full facilities of the American Export-Import basnk, including both lines of credit and guarantees.

According to diplomats, the lynchpin of the present Western assistance effort is West Germany, which until this week had been moving extremely slowly in meeting Yugoslav requests.

Unofficial estimates of the German "share" of relief have been set at $200 million. However, the regime of Chancellor Willy Brandt is believed to be moving slowly because of continued conservative criticism of alleged concessions to Communist regimes in the context of his Eastern detente policies.

Another difficulty is that the credit issue has become embroiled with Yugoslavia's long-standing claim on Bonn for compensation of living victims of Nazi persecution. Yugoslav officials say these are seperate issue and blame Bonn for trying to finesse the reparations question by lumping it together with financial aid. They also contentd that Bonn's initial offer of compensation, rumored to be around $25 million, was "insulting."

However, there were indications that Bonn had come up with a significant new financial assistance offer this week. One of Brandt's closest advisers, Herbert Wehner, met in Zagreb with president Tito and with Yugoslav officials who have been involved in the assistance effort.

Much of the Western aid being considered now would take the form of postponement of debts.

This summer Italy pledged to refinance $75 million of old, mainly commercial credits.

United States officials hope that an announcement of the American contribution can be made before President Tito travels to Washington next month. This is now expected to take the form of postponing repayment of some $60 million in Public Law 480 assistance loans, and of some other development loans. They are repayable in dollars and have drawn down the Yugoslav reserves.

Administrative and legislative steps have also been started to induce direct investment in Yugoslavia and ease imports from here.

Legislation is now before the U.S. Congress authorizing the president at his discretion to give guarantees against expropriation to businessmen who invest here and in some other countries. American officials think the political uncertainties of investing in a small Communist country have kept out a number of "big boys."

The net effect of these combined moves would be to take pressure off reserves and reduce Belgrade's payments deficit. Yugoslavia, which prides itself on always paying its international debt punctually, uses about 15 per cent of its foreign exchange intake each year for debt servicing.

Yugoslavs now are concerned that the American import surcharge, and the revaluation of West European currencies in which Belgrade has debts outstanding, will undo the effects of the assistance measures.

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