PROSPECTS FOR CLOSER YUGOSLAV ECONOMIC RELATIONS WITH THE USSR

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• Collection: General CIA Records
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• Document Creation Date: November 16, 2016
• Document Release Date: May 17, 2000
• Sequence Number: 3
• Publication Date: January 10, 1963
• Content Type: BRIEF

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CONFIDENTIAL -4U
Current Support Brief
PROSPECTS FOR CLOSER YUGOSLAV ECONOMIC RELATIONS
WITH THE USSR
CIA/RR CB 63-6
10 January 1963
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
CONFIDENTIAL
GROUP i
Excluded from automatic
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This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Sees. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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CONTENTS
Page
Summary and Conclusions . . . . . . . . . . . . . . . 1
1. Recent Developments . . . . . . . . . . . . . . . 3
a. Trade and Aid . . . . . . . . . . . . . . . . . 3
b. Economic Systems and Ideologies . . . . . . . . 4
2. Prospects .
a. Motivating Factors . . ? ? ? ? ? ? ? ? ? . .
b. Limiting Factors . . . . . . . . . . . . . . .
3. Influence of Western Aid on Yugoslav Policy
Table s
1. Yugoslav Foreign Trade with the USSR, 1958-62 . . . 10
2. Yugoslav Foreign Trade with the European Satellites, 11
1958-62 . . . . . . . . . . . . . . . . . . . . .
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PROSPECTS FOR CLOSER YUGOSLAV ECONOMIC RELATIONS
WITH THE USSR
Summary and Conclusions
The recent rapprochement between Yugoslavia and the USSR has entailed
Soviet recognition of the respectability of the Yugoslav brand of socialism and
agreements calling for a substantial increase in Soviet-Yugoslav trade. Both
sides appear to be playing down ideological differences. At the same time,
neither the USSR nor the Yugoslavs have taken any important steps to reduce
the actual differences in their economic systems. The new Yugoslav trade
agreement with the USSR, if implemented, would bring trade well above the
depressed level of the past 2 years, but there are no firm indications that
the USSR has extended new credits to Yugoslavia, and Yugoslavia has not as
yet gained association with the Council for Mutual Economic Assistance
(CEMA).
The Yugoslav regime undoubtedly favors increased economic relations
with the USSR to derive economic benefits and to protect the country against
the uncertain prospects for Western trade and aid. The regime, however,
would be reluctant to increase these relations to the point of threatening
Yugoslav independence; the uniqueness of the Yugoslav economic system,
the benefits of good economic relations with the West, including credits and
a better quality and greater diversity of imports; and the special advantages
of a "nonaligned" status in relations with underdeveloped Free World coun-
tries. Moreover, the decentralized economic system of Yugoslavia makes
it difficult for the government to increase greatly imports from the Soviet
Bloc even if it so wishes, because of the preference of Yugoslav producers
and consumers for Western manufactured goods.
Tito no doubt hopes that closer Soviet-Yugoslav relations can be achieved
without endangering the US aid program under Public Law 480 and Western
European credits. If his actions should provoke suspension of US aid and
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supporting measures in Western Europe, he faces a serious short-term
problem of maintaining food consumption at a satisfactory level, for the
Bloc is in a weak position to help him in tis
be expectedngor
term, loss or curtailment of Western ass
lower significantly the rate of Yugoslav economic growth unless com-
pensating credits are obtained from Bloc countries.
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1. Recent Developments
a. Trade and Aid
Recent indications of improvements in Yugoslav relations with the
USSR -- such as the exchange of visits by Presidents Brezhnev and Tito
and subsequent statements by Khrushchev and Tito suggesting a broadened
area of agreement -- raise the possibility of a closer economic relation-
ship between the two countries. Such a change presumably would involve
a substantial increase in trade between the two countries -- possibly with
the stimulus of Soviet credits and technical assistance for Yugoslav indus-
trial development. The USSR might also offer Yugoslavia some form of
participation in CEMA.
Yugoslav trade with the USSR has recently declined to only 5 or
6 percent of its total turnover compared with a share of 9 percent in
1959, and trade with the European Satellites has declined moderately,
to about 16 percent of Yugoslav turnover (see Tables 1 and 2). Expecta-
tions of increased Yugoslav trade with the USSR and the Satellites rest
largely on new trade agreements for the next several years. A new
agreement with the USSR, covering 1963-65, projects a trade turnover
of $750 million during the 3 years compared with the old agreement for
1961-65 that scheduled a turnover of $800 million during the 5 years and
was not being fulfilled. The Soviet-Yugoslav trade protocol for 1963
schedules a turnover of about $180 million -- an amount about three-
fifths larger than turnover in 1960 (a more normal year than 1961) and
much larger than turnover in 1962, judging from data for 9 months.
Whether or not any such growth of trade with the USSR will actually take
place remains to be seen, for earlier agreements specifying large in-
creases in Soviet-Yugoslav trade sometimes were not realized. Yugo-
slav complaints that the USSR would not deliver the desired types and
qualities of goods have been common. Even if both governments agree
that a much larger volume of exchanges is desirable, the carrying out
of the policy may be hampered by the freedom that Yugoslav producing
and trading enterprises have in deciding what to produce and where to
market it most profitably.
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There is little firm evidence so far that the USSR has extended or
soon plans to extend credits to Yugoslavia. Since the suspension-in 1958
o of
of Soviet and other Bloc credits extended during the preceding t e riod
rapprochement, Yugoslavia has received no new
tries except possibly for one credit from Poland. The efforts last July
of a Yugoslav economic delegation in Moscow to arrange reinstitution of
the suspended Soviet credit do not appear so far to have been successful.
The Yugoslav regime has been interested for some time in gain-
ing observer status in CEMA, apparently believing that such an associa-
tion would further the country's development and would be accepted by
Western countries without a violent reaction if it were accompanied by
efforts to obtain some form of association with the European Common
Market. So far as can be determined, however, Yugoslav participation
in CEMA has not yet been approved.
b. Economic Systems and Ideologies
The recent Soviet-Yugoslav rapprochement has involved Soviet ciali recognition of the respectability of the Yugoslav
by bransided
desf so
The Sovietand
the playing down of ideological differences
regime once again has formally recognized Yugoslavia's status as a
socialist state in spite of the differences in approach and in economic
systems. The USSR has strengthened Yugoslavia's ideological position and.
Finally in agricultural policy by accepting a similar deviation in discussion in the olUSSR and the
by greatly widening the area of acceptable
m
European Satellites on possible ways of reforming the eco omch c ysted
(for example, the discussion of the "Liberman proposal, USSR has
give greater freedom of action to enterprise managers), the
made the unique aspects of Yugoslav socialism outside agriculture more
s
ze For its part
respectable within the Bloc.
ideological differences with heaBpoc but
to be willing to deem,p
without retreating from its established ideological line.
The main ideological differences between the USSR and Yugo-
slavia, however, still exist. Moreover, recent institutional changes
in the two countries have done little to make the two systems more
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similar, and a sharp contrast remains between Yugoslav decentralization
and workers' management and the strong central control and detailed
planning of the Soviet system. In the USSR, recent changes have been
wholly administrative in character and, if anything, have tightened
central controls over the economy. The Liberman proposal and other
liberal proposals, if adopted, would indeed bring the Soviet system
closer to the Yugoslav, although none of the proposals would go so far
as to allow the market to regulate an important part of economic activity
as in Yugoslavia. These proposals, however, have not been implemented,
and the prospects for any drastic changes in the Soviet economic system
in the near future are small.
The Yugoslav system, which had been further liberalized in 1961
with the adoption of a uniform foreign exchange rate and a reduction of
controls over the expenditures of enterprises, appears to have weathered
a period of faltering industrial growth and stagnation of exports in 1961
and the first half of 1962 without any major damage, and the economic
situation, except in agriculture, has improved considerably, in the past
few months. Some restrictions over enterprise activities and foreign
exchange spending were reimposed, but the regime apparently relied
mainly on indirect methods of control such as a tightening of bank credit,
resisting the temptation to attack current economic problems through
direct intervention by the state. In agriculture, however, economic
pressure on private farmers to enter into some form of association with
cooperatives increased considerably, although there was only a small
increase in the area under socialized farming.
2. Prospects
a. Motivating Factors
The Yugoslav regime has both ideological and economic reasons
for seeking closer relations with the Bloc. Communist ideology fosters
a desire on the part of the Yugoslav leaders to have the "socialist"
status of their country accepted by other Communist countries. It is
probable that profitable opportunities exist for increased trade and other
forms of economic cooperation with the Bloc that have been slighted in
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the past for political reasons. Finally, increased economic relations
with the Bloc are also sought because of the uncertainties of Western
policies concerning trade and aid. Prospects for aid from the US must
seem uncertain to the Tito regime. Whether or not the loss of most-
favored-nation status for Yugoslav exports to the US can be reversed
in the near future is also uncertain. Boycotts and demonstrations in
some US communities against goods from Communist countries have
caused concern in Yugoslavia. The Common Market seems certain to
have adverse effects eventually on Yugoslav trade with Western Europe
e amp merxibrship can
unless some special status
Germany, associate
eseems
present
arranged -- a step that to oppose.
b. Limiting Factors
Although the Yugoslav regime wants to expand its economic rela-
tions and improve its ideological relations with the Bloc, it is apparently
as determined as ever to maintain Yugoslavia's full independence and the
distinctive economic system evolved over the last decade. Moreover, the
regime would be reluctant to forego the economic benefits which have re-
sulted from "nonaligned" status and from extensive trade with the West --
US and other Western aid, a wider variety and better quality of imported
for trade with the Bloc, and the ability
goods, a good bargaining position to sell "socialism" and expand trade in underdeveloped countries without
the onus attached to membership in a "bloc. "
It seems unlikely that Tito is willing to make any substantial changes
in the Yugoslav economic system to accommodate the Russians, and he is
deeply committed to an independent Yugoslav approach to Communism.
Neither is it likely, however, that a Yugoslav retreat in these areas would
be made a condition of closer relations with the USSR. Acceptance of the
avoid-
respectability of the Yugoslav both sides seem to constitute an adequate
ance of ideological attacks by
basis for closer economic relations.
Yugoslavia probably could above increase
relatively lowylethe share f vel of reoeuthe
Soviet Bloc in its foreign trade
years without risking its independence but not without some economic
cost. If the increase in trade with the Bloc occurred at the expense of
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trade with the West, Yugoslavia would suffer a loss in the quality and
diversity of its imports. The rapid expansion of trade with the West,
as well as Western credits, has been an important stimulus to Yugoslav
economic growth, which averaged 10 percent annually during 1957-61.
Moreover, a large expansion of trade with the Bloc would be dif-
ficult to achieve -- even if the regime wished it -- with present institu-
tions, which permit Yugoslav enterprises to choose their markets. The
preferences of Yugoslav buyers usually are for Western goods, at least
with respect to manufactured goods. Bloc countries can promote trade
with Yugoslavia by making more attractive goods available, but in many
instances they are not in a good position to compete. Bloc exports of
raw materials, however, generally do not suffer from a disadvantage.
The Yugoslav regime can arrange for the equipment for centrally planned
investment projects to come from the Bloc, even though Western equip-
ment might be more profitable. Such an arrangement was made to ex-
pand the Zenica steel mill. The regime could also discriminate in favor
of the Bloc by means of tariffs, quotas, or multiple exchange rates, but
by so doing it would be retreating from the reforms of early 1961 and
thus impairing its chances of receiving favorable treatment in the West.
In seeking a rapprochement with the Soviet Bloc,..:the':Yugbslav.
regime probably will try to retain the influence its nonaligned status
gives it among the underdeveloped countries of the Free World. So long
as Yugoslavia is not regarded as an instrument of Soviet power, its
influence, bolstered by a program of trade and aid for these underde-
veloped countries, seems unlikely to be much affected by a rapprochement
with the USSR.
3. Influence of Western Aid on Yugoslav Policy
The effects of possible expansion of Yugoslav economic relations with
the USSR depend not only on the nature and extent of the measures taken
but also on the reaction of Western countries, especially the reaction of
those that have been sources of grants and credits. Tito no doubt realizes
that at some point his foreign policy -- which increasingly seems like
nonalignment against the West -- may lead Jthe US to discontinue its aid
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program and to urge supporting action by Western European countries.
An important volume of aid is at stake, including not only US deliveries
of surplus wheat under Public Law 480 (valued at about $90 million for
the 1962/63 crop year), but sizable credits from Western Europe, in-
cluding a $78 million credit obtained. from Italy last summer, another
$78 million credit obtained from a British consortium last November
for construction of a steel works in Macedonia, and a $30 million French
commodity credit covering 1963-65. Yugoslavia's trade deficit with the
US -- a rough measure of total US aid -- rose from. $50 million in 1960
(when US aid reached its low point) to $145 million in 1961. The deficit
during the first 9 months of 1962 was $130 million.
Suspension of US aid at this time probably would soon have a serious
effect on the level of Yugoslav food consumption. What the continuing
effect might be is difficult to foresee, as it would depend on future har-
vests and Yugoslav success in importing grain from other sources. It
is clear, however, that Bloc countries are in a poor position to replace
Yugoslav imports of wheat from the US. US deliveries of grain to Yugo-
slavia under Public Law 480 -- the mot important element of US aid --
declined substantially several years ago but have again become large.
The grain deliveries scheduled for 1962/63 make up an estimated one-
fourth of the average daily Yugoslav food consumption of about 2, 900
calories per capita. The Yugoslav regime has wanted to dispense with
these deliveries for some time and did succeed in reducing them to a
low level in 1960 after the excellent harvest of 1959. Reduced grain
harvests since 1959, however, have again impelled the regime to re-
quest large deliveries, as shown in the following tabulation:
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Yugoslav production
(thousand metric
tons)
Wheat, rye, and corn
Wheat and rye only
US deliveries of wheat
under Public Law 480
(thousand metric tons)
US deliveries of wheat
as a percent of Yugo-
slav production
Wheat, rye, and corn
Wheat and rye only
1958/59
1959/6o
1960 61
6,641
11,065
9,963
2,691
4,395
3,803
838
241
148
13
2
1
31
5
4
1961/62 1962/63*
7,910
8,000
3,360
3,200
942
1,400
12
18
28
44
Unless grain production in 1963 recovers to something like the 1959 level,
cancellation of US deliveries could cause an extremely difficult temporary
situation for Tito. The weather so far during the 196Z/63 crop year has
not been particularly favorable, but much depends on crop conditions next
spring and summer.
Western grants and credits to Yugoslavia have increasingly become a
factor supporting an unusually high rate of investment and economic growth
rather than emergency assistance facilitating the estrangement of Yugo-
slavia from the Soviet Bloc. The main long-term effect of loss or reduc-
tion of US assistance probably would be a significant lowering of the rate
of growth unless substantial credits were obtained from Bloc countries.
* Preliminary figures for production and scheduled amount of US deliveries.
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Table 1
Yugoslav Foreign Trade with the USSR
1958-62
Jan-Sep
1958
1959
1960
1961 .
1962
Value of trade (million US $)
Turnover with the USSR J
94
105
log
83
59
Imports from the USSR
58
58
57
32
38
Exports to the USSR
36
47
53
51
22
Deficit with the USSR J
-21
-10
-4
-16
Share of Yugoslav totals (percent)
Turnover with the USSR
8.4
g.0
7.9
5.6
5.2
Imports from the USSR
8.4
8.4
6.9
3.5
5.6
Exports to the USSR
8.2
9.9
9.3
8.9
4.6
Deficit with the USSR
8.8
4.9
1.6
b
7.8
a. Because of rounding, components may not add to the totals shown.
b. Yugoslavia had a trade surplus of $19 million with the USSR but an
over-all trade deficit of $341 million.
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Table 2
Yugoslav Foreign Trade with the European Satellites
1958-62
Jan-Sep
1958
1959 9
1960
1961
1962
Value of trade (million US $)
Turnover with the European
Satellites a/
221
212
283
262
183
Imports from the European
Satellites
135
112
154
137
93
Exports to the European Satel-
lites
86
99
129
125
90
Deficit with the European Satel-
lites
-49
-12
-25
-12
-3
Share of Yugoslav totals (percent)
Turnover with the European Satel-
lites
19.6
18.2
20.3
17.7
15.9
Imports from the European Satel-
lites
19.7
16.E
18.7
15.1
13.7
Exports to the European Satel-
lites
19.5
20.9
22.8
21.9
19.0
Deficit with the European Satel-
lites
2.0
5.9
9.6
3.7
1.5
a. Because of rounding, components may not-add to the totals'shown.
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Analyst:
Coord:
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25X1A
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