YUGOSLAVIA'S INTERNATIONAL POSITION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01012A005700020001-8
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 16
• Document Creation Date: December 23, 2016
• Document Release Date: September 19, 2013
• Sequence Number: 1
• Publication Date: September 7, 1955
• Content Type: NIE

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cr. ci
NIE 31-2-55
7 September 1955
ONF TIAL.
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z
NATIONAL INTELLIGENCE ESTIMATE
NUMBER 31-2-55
(Supplements NIE 31/1 and supersedes
portions thereof)
YUGOSLAVIA'S INTERNATIONAL POSITION
Submitted by the
DIRECTOR OF CENTRAL INTELLIGENCE
The following intelligence organizations participated in the
preparation of this estimate: The Central Intelligence Agency
and the intelligence organizations of the Departments of
State, the Army, the Navy, the Air Force, and The Joint Staff.
Concurred in by the
INTELLIGENCE ADVISORY COMMITTEE
on 7 September 1955. Concurring were the Special Assistant,
Intelligence, Department of State; the Assistant Chief of
Staff, G-2, Department of the Army; the Director of Naval
Intelligence; the Director of Intelligence, USAF; and the
Deputy Director for Intelligence, The Joint Staff. The Atomic
Energy Commission Representative to the IAC, and the Assist-
ant Director, Federal Bureau of Investigation, abstained, the
subject being outside of their jurisdiction.
DOCUMENT NO.
1
?
NO CHANGE IN CLASS. I ?
L.: DECLASSIFIED
CLASS. CHANGED TO: TS S 0
NEXT REVIEW DATE: j 7/ /
AUTH: HR 70-2
DATE:12._-.1111-- REVIEWER:eel/2 3'6 4
238
COPY -NO.
ASSISTANT DIRECTOR , ONE
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CENTRAL INTELLIGENCE AGENCY
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WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
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Olt
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CONFIDENTIAL'
YUGOSLAVIA'S INTERNATIONAL POSITION
THE PROBLEM
To reassess Yugoslavia's present and future international position and to estimate
the probable effects of possible US courses of action with respect to Yugoslavia.
CONCLUSIONS
1. We believe that the dominant concerns
of the Yugoslav regime, at least so long
as Tito remains alive, will be to insure its
own survival free of foreign domination
and to advance its own influence and
prestige on the world scene. Despite
Tito's Marxist world outlook, we believe
that he will continue to regard his inter-
ests to be best served from a flexible posi-
tion in which Yugoslavia can achieve
benefits from both power blocs with a
minimum of commitments to either.
(Paras. 23, 25)
2. We have carefully considered the pos-
sibility that Tito may have decided that
his interests can best be served from a
position within rather than outside the
Communist orbit, and that he has made
an agreement with Moscow to rejoin the
Bloc. His present maneuvers might thus
be designed to prepare the way for open
1 This estimate re-examines Yugoslavia's interna-
tional position in the light of developments since
publication of our last full-length treatment of
Yugoslavia, NIE 31/1-55: Yugoslavia and its
Future Orientation, 19 May 1955. It is designed
to supplement rather than completely replace
that estimate.
acknowledgment of such an agreement.
We consider it unlikely, however, that Ti-
to has come to this decision or has made
such an agreement with Moscow. Even
if he were fully convinced that the USSR
was prepared to take Yugoslavia back, not
as a Satellite but as a partner, a position
in the Bloc would still offer Tito and his
key associates great personal danger and
would be unlikely to offer any great ad-
vantages to compensate for the loss of
world-wide influence and prestige which
Tito's independent policies have won for
him. (Para. 24)2
3. Tito will continue to take advantage of
opportunities to profit by the USSR's
The Deputy Director for Intelligence, The Joint
Staff, believes that this paragraph fails to con-
sider the possibility that a covert arrangement
with Moscow for partnership in the Soviet Bloc
may have been made. He believes, therefore,
that the third sentence should be deleted and
the following substituted:
"We consider it highly unlikely that Tito has
come to a decision for overt acknowledgment
of a partnership in the Soviet Bloc. However,
the existence of a covert arrangement to this
end cannot entikely be discounted."
He further believes the word "overt" should be
inserted between "a" and "position" in the fourth
sentence.
?
1
-doifIDENT I ALI
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present show of friendship, to test Soviet
good faith, and to encourage the readjust-
ment of Soviet relationships with the
Satellites and with the non-Communist
world which he hopes is in the making.
This process is likely to be marked not
only by further economic and cultural co-
operation but also by cautious moves to-
ward re-establishment of party-to-party
relations. (Paras. 26-30)
4. However, we believe that as long as Ti-
to is in power this process of political
rapprochement will not result in Yugo-
slavia's realignment with the Bloc unless
the USSR proves willing to make such
modifications in the nature of its rela-
tionships with the Satellites as to con-
vince Tito that he would have real oppor-
tunities for independent leadership and
influence in the Communist world. We
feel safe in estimating that there is a pro-
Soviet element in the Yugoslav Commu-
nist Party that is now pressing for closer
ties with Moscow, but we are uncertain as
to its leadership and extent. However,
Tito is clearly in firm control. In the
event of Tito's death such a pro-Soviet
element could well exert dominant influ-
ence, especially if a confused struggle for
power took place. (Paras. 31-34)
5. Given a continuation of the USSR's
present conciliatory behavior, Yugoslavia
will probably continue to preach "peace-
ful coexistence" and may toy with the
idea of some form of buffer alignment
in Europe. It will support various So-
viet and Chinese Communist diplomatic
moves, and will display increasing indif-
ference toward its military ties with the
West. However, it will still wish aid and
trade ties with the West, will display con-
tinuing interest in economic regional co-
operation with Western states, and will
look to the West as a potential source of
support against possible Soviet designs.
(Paras. 32, 35-37)
6. Yugoslavia's adherence to its Balkan
Alliance commitments in time of war is
doubtful, and its wartime usefulness to
the West is uncertain. We believe that
the Yugoslav regime would endeavor to
remain neutral in a general war, at least
until the situation clarified. We also be-
lieve, however, that Tito would fight If
directly attacked, and might also enter
the war, not because of his Balkan
Alliance commitments, but as a conse-
quence of his judgment as to the course
of hostilities and as to the advantages
which he might gain from participation.
Ultimately, Tito might consider it advan-
tageous, and perhaps even essential for
the survival of his regime, to join the win-
ning side before the end of hostilities.
(Paras. 37-38)
7. Present US ability to affect the process
of readjustment in Yugoslavia's interna-
tional position is limited:
a. Although the Yugoslays desire addi-
tional US military and more particularly
economic aid, they would almost certainly
refuse to make more than minor conces-
sions to obtain it. They are probably pre-
pared to accept a substantial reduction in
military aid. (Paras. 40-41, 44)
b. Should a substantial reduction in
economic aid actually take place, Yugo-
slavia's ability to pursue major economic
goals would be severely limited, and its
tendency to look to the Bloc for increased
trade and credits, which will in any case
be evident, would be intensified. How-
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ever, such a cut would not critically en-
danger Yugoslavia's economic viability if
the regime accepted the need for austerity
measures, and we do not believe that Tito
would allow himself to become economi-
cally subservient to the Bloc. (Paras. 41-
43)
C. A substantial reduction in US eco-
nomic aid would cause considerable Yugo-
slav resentment and would somewhat im-
pair Tito's bargaining position as against
Moscow, though it would not in itself im-
pel the Yugoslays to move politically
closer to the Bloc. (Para. 44)
DISCUSSION
I. YUGOSLAVIA'S PRESENT INTERNATIONAL
POSITION
8. Yugoslavia's position vis-a-vis the two ma-
jor power blocs is in process of readjustment.
Until approximately a year ago, the combined
pressures of economic necessity and Soviet ag-
gressiveness and hostility tended to force Yu-
goslavia in the direction of increasingly close
association with the West, despite the Tito re-
? gime's continuing dedication to Communism
and its nationalistic reservations about such
a relationship. Even before this pro-Western
trend had culminated in the conclusion of the
Balkan Alliance in August 1954 and in Yugo-
slav acceptance of a Western-backed solution
of the Trieste dispute two months later, how-
ever, the death of Stalin had led to some
easing of the pressures on Yugoslavia.
9. In the past year, with the stepping up of
the Soviet drive for "normalization" of rela-
tions with Yugoslavia and with the unfolding
of the USSR's current campaign for a general
relaxation of tensions, signs of a change in
Yugoslavia's appraisal of the world situation
and of a consequent effort to develop a posi-
tion more independent of the West became in-
creasingly apparent. Yugoslav interest in
joint defense preparations, even within the
limited Balkan Alliance context, declined.
Frictions with the US increased over the ad-
ministration of military and economic aid,
particularly since the US has endeavored to
obtain full compliance with aid requirements.
The Yugoslays displayed increasing interest in
the concept of "peaceful coexistence" and in
the possibility of developing some kind of
"third force." Meanwhile, the "normaliza-
tion" of relations with the Sino-Soviet Bloc
proceeded apace.
10. The four months since our last estimate
have witnessed an intensification of these
trends. The Yugoslays have confirmed their
unwillingness to extend their present defense
commitments to the West and, although they
have continued some military coordination
under the Balkan Alliance, have indicated
that under present circumstances they have
little interest in pushing ahead with Balkan
Alliance military planning. They have re-
mained difficult to deal with on the admini-
stration of military aid. The transmission of
Soviet-Satellite intelligence information to the
West has been stopped on the ground that it
is no longer consistent with Yugoslavia's inter-
national position.
11. The resumption of Yugoslav ties with the
Communist world has now proceeded to the
point where Tito is openly talking of a restora-
tion of party-to-party as well as government-
to-government contacts with the USSR and
the Satellites, despite the statements by some
Yugoslav leaders at the time of the Belgrade
Conference at the end of May of this year that
no such relationship was contemplated. ? A
preliminary move in that direction has al-
ready taken place in the recent visit to Moscow
of a Yugoslav parliamentary delegation in-
cluding 10 members of the party Central Com-
mittee and one member of its Politbureau.
A Soviet-Yugoslav economic agreement an-
nounced on 1 September 1955 provides for
more than doubling trade between Yugoslavia
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and the USSR during the next three years, an
increase which would bring Yugoslav trade
with the Bloc as a whole up from approxi-
mately 17 percent to 23 percent of total Yugo-
slav foreign trade. The agreement provides
for the extension to Yugoslavia of Soviet cred-
its for 10 years at two percent, including $54
million earmarked for raw materials imports,
a $30 million loan in gold or Western currency,
and a probable additional amount for the
financing of certain key investment projects.
Implementation of this agreement would
make the USSR Yugoslavia's largest creditor
and one of its four chief trade partners.
12. Yugoslavia has continued to insist that it
will not compromise its independence as a sov-
ereign state. The Tito regime has indi-
cated continuing interest in the economic and
cultural aspects of the Balkan Alliance and in
such Western organizations as OEEC and the
Council of Europe. The Yugoslays have con-
tinued to assert their interest in Western
friendship and in Western economic and mili-
tary aid. However, even though the Yugo-
slays probably remain interested in improving
their military establishment, they appear to
have become increasingly convinced that the
threat of Soviet aggression against the non-
Soviet world in general and against Yugoslavia
in particular has been sharply reduced, at
at least for some time to come. Under these
circumstances they see no necessity to proceed
with military planning which might limit their
freedom of action and might jeopardize their
developing relationship with the Communist
world. In fact, they view the present situa-
tion as affording unique opportunities to re-
duce what they had almost certainly regarded
as undue dependence on the West.
13. It is evident that the events of recent
months have greatly strengthened the Yugo-
slav leadership in its belief that a significant
change has in fact taken place in Soviet at-
titudes and policies. In particular, Soviet will-
ingness to confess the error of Yugoslavia's
expulsion from the Cominform in 1948 and to
give formal recognition to Yugoslavia's status
as an independent and genuinely socialist
state has encouraged Yugoslav leaders to
4
hope for a loosening of Soviet control over the
Satellities. Tito believes that the existence
of a group of states in Eastern Europe, all
pursuing policies substantially independent of
either of the present major alignments, would
greatly reduce the precariousness of Yugo-
slavia's position. In his view, it would also
open up the possibility of Yugoslav leadership
in Eastern Europe, particularly the Balkans,
and of fulfillment of long-cherished aspira-
tions toward Balkan federation. The Yugo-
slav leaders may hope, perhaps wishfully, that
some such prospects are in view as a result of
the recent changes in Soviet policy. In any
event, the Tito regime feels that it has been
remarkably successful in assessing the devel-
oping world situation and that it has profited
by its firmness in dealing both with the West
and with the USSR. All these factors have in-
creased the regime's confidence and self-
esteem.
14 Developments of recent months, however,
have produced little new evidence regarding
the most perplexing aspect of the Yugoslav
problem: (a) the question of the extent to
which major elements in the regime may now
tend to identify themselves once again with
the Sino-Soviet Bloc; and (b) the related
question of a possible secret Soviet-Yugoslav
deal. Despite the speed of Yugoslav-Soviet
rapprochement, the Yugoslays still appear to
be moving cautiously, with a wary eye to So-
viet policy, especially toward the Satellites.
Moreover, they appear anxious to avoid prej-
udicing either their own sovereignty or their
present ability to deal with the West and to
develop their influence as an independent
power among neutralist countries and socialist
parties. While reports of a comprehensive So-
viet-Yugoslav understanding continue, these
reports remain unsubstantiated.
II. PROBABLE DEVELOPMENTS
15. Major ambiguities regarding Yugoslavia's
international position are likely to persist for
some time to come. Although some clarifica-
tion of Yugoslavia's immediate intentions vis-
a-vis the West may emerge out of the present
discussions over US military and economic aid,
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the regime will probably require one or more
Years of probing and maneuver before it can
determine Yugoslavia's ultimate relationship
with the Bloc. The nature of this relation-
ship will be deeply affected not only by Yugo-
slav and Soviet intentions toward each other
but also by the course of developments in the
Satellites, Western policy toward Yugoslavia,
and the trend of developments in the interna-
tional situation as a whole.
Probable Soviet and Satellite Policies
16. Moscow almost certainly hopes that Yugo-
slavia will ultimately come back as a loyal
member of an international Communist Bloc
in which dominant leadership continues to be
exercised by the USSR. In pursuit of this ob-
jective, however, the USSR's present leaders
have proceeded in a far more realistic and
flexible way than did Stalin. At the time of
the Belgrade visit of May?June 1955 the Soviet
leaders not only openly confessed the error of
Yugoslavia's 1948 expulsion from the Comin-
form but also formally recognized both Yugo-
slavia's independent and equal status as a na-
tion and the validity of its claim to be a gen-
uinely socialist state.
17.. Moreover, the Soviets apparently recognize
that even these new tactics of persuasion will
not succeed overnight. Although they were
probably disappointed by the firmness of Tito's
initial response to their Belgrade overtures,
they will probably continue in their efforts to
woo the Yugoslays. They probably hope that
these policies will eventually succeed either in
overcoming Tito's fears of old-style Soviet
domination or in producing a sufficient revival
of pro-Soviet loyalties among other Yugoslav
leaders to bring about Yugoslavia's return to
the Bloc. Short of achievement of this maxi-
mum objective, the USSR probably hopes to
achieve a number of minimum objectives
which would support the general line of pres-
ent Soviet policy. For the present, the Soviet
leaders will probably be satisfied if they can:
(a) disrupt relations between Yugoslavia and
the West, in part by arousing Western suspi-
cion of Yugoslav good faith; (b) arrest the de-
velopment of the Balkan Alliance, in particu-
lar its military implementation; (c) provide
the West with an additional demonstration of
Soviet "reasonableness" and flexibility; and
(d) encourage the belief actively fostered by
Tito and Nehru that the policy of noncom-
mitment to either power bloc will serve the
cause of peace. The Soviets probably also
hope that their new tolerance of the Yugoslav
brand of Communism, which they formerly
branded as heretical, will tend to break down
the isolation of the Communist parties and
permit the reestablishment of ties with social-
ist parties, particularly in Western Europe,
in the interest of a revival of popular front
tactics. The latter maneuver would assist
greatly to achieve a principal Soviet aim, the
disruption of NATO and other free world
alliances.
18. There are a number of ways in which the
Bloc can further woo Yugoslavia. Trade can
be expanded even further, and substantial
loans on easy terms have already been nego-
tiated. The recent cancellation of Yugoslav-
ia's pre-1948 debt to the USSR may be followed
by similar gestures on the part of the Satel-
lites, including even Hungarian payment of
World War II reparations to Yugoslavia. The
Yugoslays state that the USSR has discussed
licensing the manufacture of MIG's by Yugo-
slavia. And, as announced in the Belgrade
Declaration, there are possibilities of increased
cultural and "information service" inter-
change, and of cooperation in the field of
peaceful uses of atomic energy. There is no
evidence of Soviet attempts to make military
agreements with Yugoslavia at this stage, but
the USSR might offer a nonaggression pact.
19. In the Soviet view, however, the most
promising opportunities for influencing Yugo-
slavia probably lie in the cultivation of party-
to-party relations, an area in which Tito now
appears willing to cooperate. Such relation-
ships would enable the Soviets to exploit com-
mon bonds of Communist ideology and of
hostility to capitalism, to draw on latent
loyalties to the USSR among Yugoslav Com-
munists who have never been comfortable with
one foot in the Western camp, and thus to in-
crease the internal pressures on the regime to
move east of center.
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20. Moscow will probably supplement party-
to-party overtures with invitations to the Yu-
goslays to join or rejoin various international
Communist-front organizations. At the same
time, the USSR might elect to dissolve the
Cominform, an organization symbolic of Mos-
cow's efforts to dominate Yugoslavia. Dis-
solution of the Cominform could be presented
as additional evidence that the objectionable
policies of Stalin have been repudiated by his
successors. Moreover, such a move would cost
the USSR little, since the Cominform has been
reduced to a kind of propaganda center, and
effective Soviet control over the Satellites
would continue to be assured by other means.
21. In seeking closer ties with Tito, partic-
ularly in the party and ideological fields, the
USSR would of course be confronted with the
problem of continuing to assert control over
the Satellites while apparently accepting
Tito's thesis that each country can pursue its
own road to socialism. This dilemma may
cause the Soviets some difficulty in re-estab-
lishing relations with Tito.
22. Despite the obvious difficulties which most
Satellite governments face in suddenly re-
versing their long-established line on Tito, a
general Satellite reconciliation with Belgrade
already appears to be in the making. Im-
proved commercial relations, in particular,
would be advantageous to both the Satellites
and Yugoslavia, hard-pressed as the latter is
over trade debts to the West. On the other
hand, the growth of more cordial relations be-
tween Yugoslavia and Hungary, Bulgaria, and
Albania will be impeded by long-standing mi-
nority and territorial disagreements not off-
set by ideological reconciliation.
Main Elements in Yugoslav Policy
23. Although continuing ambiguities make it
difficult to chart the future course of Yugo-
slav foreign policy, we believe that certain
general considerations will continue to govern
Yugoslavia's outlook at least so long as Tito
remains alive. The dominant concerns of the
regime will almost certainly remain those of
insuring its own survival free of foreign dom-
6
ination and of advancing its own influence
and prestige on the world scene. It will al-
most certainly continue to insist, to the Com-
munists as well as to the West, that it be ac-
cepted as an independent and equal entity and
will take pains to guard against any infringe-
ment of its own sovereignty and control with-
in Yugoslavia. And while Tito will be in-
fluenced in his judgments by his Marxist world
outlook and by his sense of emotional identity
with the cause of Communism throughout the
world, his actions in the final analysis will
probably continue to be based on his own self-
interest and desire for independence.
24. We have carefully considered the pos-
sibility that Tito may have decided that his
interests can best be served from a position
within rather than outside the Communist
orbit, and that he has made an agreement
with Moscow to rejoin the Bloc. Thus, he
might now be engaged in a covering operation
designed to ease the economic disruptions at-
tendant on a break with the West, to prepare
Yugoslav public and Communist party opinion
for the change, and to extract maximum con-
cessions from the USSR. We consider it un-
likely, however, that Tito has come to this
decision or has made such an agreement with
Moscow. Despite the apparent cordiality of
some recent Yugoslav-Soviet exchanges, Tito
almost certainly continues to harbor suspi-
cions about the USSR. He would almost cer-
tainly not return willingly to Satellite status.
Moreover, even if he were convinced that the
new Soviet leadership had fully accepted the
necessity of refraining from interference in
Yugoslav internal affairs and of according
Yugoslavia a status of genuine partnership,
a position in the Bloc now would offer few
advantages to compensate for the loss of in-
fluence and prestige throughout the world
which Tito prizes. Yugoslavia would be in a
distinctly weak bargaining position vis-a-vis
the USSR, particularly since it would no long-
er have the leverage which its present un-
committed position now affords it. Moreover,
given the existing tight Soviet control over
the Satellites, Yugoslavia would have little
real opportunity for extending its ideological
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and political influence in Eastern Europe by
joining the Bloc.3
25. We therefore believe that, under present
world conditions, the Tito regime will continue
to regard its interests to be best served from a
flexible position in which Yugoslavia can
achieve benefits from both power blocs with a
minimum of commitments to either. The
Yugoslays will probably continue to place
great emphasis on relaxation of international
tensions, not only because a general war be-
tween the Sino-Soviet Bloc and the capitalist
West would pose an extremely grave threat
to the regime's survival but also because an
easing of tensions would tend to increase
Yugoslavia's freedom of maneuver.
Probable Yugoslav-Bloc Relations
26. Tito will almost certainly welcome addi-
tional conciliatory moves by the Soviet Bloc,
both toward his own regime and in the larger
arena of East-West relations. At the very
least, he will wish to encourage the USSR in
its new-found willingness to accept Yugoslavia
as a friendly state, to take advantage of eco-
nomic opportunities within the Bloc, and to
further the cause of "peaceful coexistence."
At the most, he probably hopes that circum-
stances are forcing the new Soviet leadership
toward an even more thorough-going aban-
donment of Stalinist policies and practices.
This developing situation, he probably ex-
pects, will provide Yugoslavia with new op-
portunities to achieve beneficial relations with
the USSR, to advance its long-standing ambi-
tions in the Balkans, and to enhance its stand-
8 The Deputy Director for Intelligence, The Joint
Staff, believes that this paragraph fails to con-
sider the possibility that a covert arrangement
with Moscow for partnership in the Soviet Bloc
may have been made. He believes, therefore,
that the third sentence be deleted and the follow-
ing substituted:
"We consider it highly unlikely that Tito has
come to a decision for overt acknowledgment
of a partnership in the Soviet Bloc. However,
the existence of a covert arrangement to this
end cannot entirely be discounted."
He further believes that the word "overt" should
be inserted between "a" and "position" in the
sixth sentence.
7
ing in the Communist movement and in the
world. Over the next year or two at least,
Tito's Soviet policies will probably be designed
to profit by the USSR's present show of friend-
ship, to test the sincerity of the USSR's pro-
fessed willingness to accept Yugoslavia as an
equal and independent state, and to encour-
age a further modification of the Soviet sys-
tem, particularly with respect to control over
the Satellites.
27. In the field of trade and economic rela-
tions, Yugoslavia's heavy import needs, its de-
teriorating balance of payments, and its finan-
cial arrears with Western nations will prob-
ably make Soviet offers appear extremely
attractive. Yugoslavia has welcomed the cur-
rent year's expansion of trade with both the
USSR and the Eastern European Satellites
and probably hopes to see the trend continue.
In the wake of the Soviet-Yugoslav economic
agreement of 1 September, Yugoslavia prob-
ably hopes for similar liberal treatment from
the Satellites. It has indicated that it con-
siders continued compliance with Battle Act
restrictions to be inconsistent with its new
status vis-a-vis the Bloc. In cultivating im-
proved trade and economic relations with the
Bloc, however, Tito is not likely to forget the
catastrophic economic consequences which en-
sued after 1948 as a result of his previously
one-sided dependence on the Bloc. According-
ly, he will probably continue to desire counter-
vailing Western trade ties and economic sup-
port.
28. Tito will probably go ahead with various
forms of closer governmental, economic, and
cultural relations with the USSR as envisaged
in the Belgrade Declaration of June 1955.
Concurrently, he may reduce Western cul-
tural and information activities in Yugoslavia.
In developing contacts with the Bloc, however,
he will be cautious lest he jeopardize his inde-
pendence and open the door for Soviet domi-
nation. For example, Yugoslav cooperation in
cultural and information service exchanges,
called for in the Declaration, would probably
be marked by active insistence on Yugoslavia's
position as an equal and by precautions
against Soviet subversive efforts. In the field
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of technical cooperation, such as peaceful uses
of atomic energy or the grant of a license to
Yugoslavia to manufacture MIG's, the Yugo-
slays would probably restrict the numbers and
activities of the Soviet personnel required as
technical advisors.
29. The most critical aspect of the developing
relationship between Yugoslavia and the Bloc
is that of party-to-party contacts. The incen-
tives to development of contacts are probably'
strong on both sides. The Soviets desire them
as a means of drawing Yugoslavia away from
the West and eventually back into the Orbit,
and the Yugoslays are intrigued by the possi-
bility of being able to assert their influence
on the Communist regimes of Eastern Europe.
They are proud of their own contributions to
Communist ideology and governmental tech-
nique and have a certain amount of mission-
ary zeal as well as underlying self-interest in
their desire to regain entree to party circles
in other countries.
30. Nevertheless, the development of close
party-to-party ties would pose dangers to both
sides. Yugoslavia's openly expressed desire
for a loosening of Soviet control over the Sat-
ellite governments and parties directly chal-
lenges what has been thus far one of the
cornerstones of the Soviet system. The Yu-
goslays themselves, however, face the problem
of how to achieve a significant degree of influ-
ence in the Communist world without resub-
j ecting themselves to Soviet discipline and po-
litical penetration and without unduly com-
promising their position vis-a-vis the Western
powers, the neutralists, and the Western so-
cialist parties. As a result, the delineation
of Soviet-Yugoslav party relations is likely to
involve considerable maneuvering on both
sides. The USSR will probably continue its
efforts to play on the emotional and ideologi-
cal bonds of Communism. The Yugoslays, for
their part, will probably continue to utilize
their special position to agitate for a lowering
of the barriers to the development of Yugoslav
influence among the Satellites. Initially, at
least, such party relations as may develop be-
tween Yugoslavia and other members of the
Bloc are likely to be confined to cautious prob-
ings, probably in the guise of parliamentary
and cultural delegations, with each side mov-
ing warily to avoid undesirable commitments.
31. How far the process goes will depend
mainly on the extent to which the USSR
manages to satisfy Yugoslavia's hopes and
aspirations about future developments in the
Communist world. Insofar as the USSR
proved willing to accord Yugoslavia a real
voice in Communist affairs, and as a necessary
corollary to permit a significant weakening of
its hitherto tight control over the Satellites,
Yugoslavia's present leadership would proba-
bly be progressively tempted to resume a place
in a Communist Bloc whose character had
thus changed. Should there meanwhile be a
further relaxation of present East-West ten-
sions, the temptation to participate more fully
in Communist affairs would be more intense,
since the Yugoslays would probably estimate
that they could go further in that direction
without alienating those whom they wished
to influence outside the Bloc. A weakening
of the USSR's fundamental control over the
Satellites, however, would require a basic shift
in Soviet policy which it would almost certain-
ly not adopt merely in order to woo Yugoslavia
and which, under present circumstances,
would be extremely difficult to reconcile with
the USSR's continuing requirements for se-
curity and control along its Western ap-
proaches.
32. Unless the USSR becomes convinced that
it can fundamentally modify the nature of its
hegemony over Eastern Europe, it is likely to
stop short of according the Satellites anything
approaching genuine internal independence
and real partnership status in the Bloc. Under
these circumstances, the Yugoslays in turn
will probably stop short of a full commitment
to the Bloc, and will at the most adopt a kind
of leftist-neutral or fellow-travelling position.
In line with such a policy, Yugoslavia is likely
to continue to preach "peaceful coexistence"
and to decry the existence of blocs. It may
toy with the idea of some form of buffer area
separating the Soviet Bloc from Western Eu-
rope. It will probably support Soviet policies
on such subjects as disarmament and a gen-
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eral European security system. In addition,
it will probably continue to support Commu-
nist China's claims to UN membership and
sovereignty over Taiwan.
33. So long as tight control of the Bloc re-
mains in the hands of the USSR, it is unlikely
that Yugoslavia could be brought to relinquish
its present independent status by a Soviet pro-
posal, such as Yugoslav leadership of a Balkan
federation within the Bloc. However, Yugo-
slavia would be increasingly interested in such
a proposal if Soviet policy toward the Satel-
lites and the general European situation de-
veloped so as to offer real opportunities for Yu-
goslavia to function without being subject to
Soviet veto.
34. Meanwhile, however, the danger will exist ,
that Tito may overestimate his ability to con-
trol domestic forces set in motion by his own
policies. There almost certainly is a doctri-
naire element among Yugoslav Communists
which has strong leanings toward the "first
land of socialism," though we are uncertain as
to its leadership and extent. While the pres-
ent strength of such elements is probably not
great, the reversal by the Soviets of Stalin's
vindictive policies toward Yugoslavia may
work to encourage this school of thought and
increase its appeal on the lower levels of the
regime and party. A resumption of party-to-
party relationships, for example, would en-
courage the doctrinaire element and offer op-
portunities for it to expand. And while Tito
and his .immediate circle are clearly in firm
control of the regime, they cannot entirely
ignore party pressures from below. In the
event of Tito's death, a pro-Soviet element in
the party might well be able to exert dominant
influence, especially if his leadership were re-
placed by a weaker sort, or if his disappear-
ance resulted in a confused scramble for
power.
Probable Yugoslav Policy toward the
West
35. We believe that Tito, while accepting
closer ties with the Soviets, continues to want
a beneficial relationship with the West. De-
spite increasing signs of an unyielding Yugo-
Slav stand on various points of controversy in
dealings with the West, Western economic aid
and trade will remain extremely important in
the investment program, in supporting the
defense program, and also to cover chronic
shortages of food. Moreover, Tito will prob-
ably continue to count on Western political
and strategic self-interest to provide counter-
vailing support for Yugoslav independence
against possible Soviet designs. Finally,
Tito's efforts to advance the cause of "peace-
ful coexistence," and to enhance his own in-
ternational prestige and influence in the proc-
ess, will require continued friendly relations
with the West as well as with the East.
36. To this end, Tito will probably continue to
assert his gratitude for past Western support
and to protest his continued good will toward
the West. He will also probably express con-
tinued interest in organizations such as OEEC
on the grounds that broad European coopera-
tion is a desirable goal. He is not, however,
likely significantlyto modify his present stand
on outstanding issues in his relations with the
West simply to please the latter. His arrange-
ments with Western powers were never more
than marriages of convenience at best, and
he is likely to be extremely confident of his
ability to maneuver toward his present objec-
tives without undue risk of burning all his
bridges to the West. So long as the USSR con-
tinues its present conciliatory behavior, Tito
will almost certainly increase his resistance to
further military ties with the West and in fact
is becoming increasingly indifferent to such
ties as he now has. He will show even less in-
terest in the military aspects of the Balkan
Pact and, in the face of probable Greek and
especially Turkish misgivings over the Yugo-
slav attitude, even the nonmilitary aspects of
that alliance would be likely to atrophy.
37. Under these circumstances, Yugoslavia's
adherence to its Balkan Alliance commitments
in time of war is doubtful, and its wartime
usefulness to the West is uncertain. Should
the USSR return to more generally aggressive
policies, thereby reviving the threat of gen-
eral war, Yugoslavia might be impelled once
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again to look to the West for support, and
might be willing not only to revive past com-
mitments but actually to make more binding
arrangements in the interests of effective joint
defense. However, the extent to which these
factors operated would depend on whether the
developing world situation appeared to pose
direct threats to the Yugoslav regime. Tito
would almost certainly not feel it necessary
to commit himself to the West again if he
came to believe that the changing nature of
warfare had removed the necessity for cam-
paigns through Yugoslavia and that the USSR
was in fact willing to respect Yugoslav inde-
pendence and territorial integrity despite its
renewed hostility toward the West.
38. We believe that the Yugoslav regime would
endeavor to remain neutral in a general war,
at least until the situation clarified. We also
believe, however, that Tito would fight if di-
rectly attacked, and might also enter the war,
not because of his Balkan Alliance commit-
ments, but as a consequence of his judgment
as to the course of hostilities and as to the
advantages which he might gain from partic-
ipation. Ultimately, Tito might consider it
advantageous, and perhaps even essential for
the survival of his regime, to join the winning
side before the end of hostilities.
III. EFFECTS OF POSSIBLE US COURSES OF
ACTION
39. Although the Tito regime continues to rely
on foreign economic aid, primarily from the
US, in recent months Tito has become increas-
ingly outspoken in insisting that all such aid,
while welcome, must be offered without politi-
cal and military strings. While there are al-
most certainly elements of bravado and doc-
trinaire suspicion in this attitude, we continue
to believe that the regime is in fact willing to
sacrifice Western assistance rather than ac-
cept it at the price of significantly modifying
its present international behavior. Yugo-
slavia, indeed, probably feels more able than
at any time in recent years to make the ad-
justments which a loss or reduction in West-
ern assistance would entail. Increasing trade
with the Bloc and large-scale Soviet loans on
favorable terms will lessen the regime's de-
pendence on the West, and have almost cer-
tainly led to a greater sense of confidence and
bargaining power in economic relations with
the West. Perhaps more importantly, Tito's
belief that Soviet policy under the new leaders
has largely dispelled the Stalinist threat of
aggression against his regime would make it
easier for him to cut his burdensome defense
expenditures.
40. Accordingly, the leverage once afforded
the US by Tito's urgent need for economic and
military assistance alike has significantly de-
clined. Particularly in the field of military
aid, it is highly unlikely that the threat of
curtailment or termination of current US pro-
grams would be effective in altering Yugo-
slavia's present determination to resist mili-
tary ties with the West, to play down the mili-
tary aspects of the Balkan Alliance, and to re-
fuse to meet US requirements on inspection
and administration of military aid.
41. The loss or curtailment of economic aid
would be a more serious matter, requiring
some internal readjustments and changes in
foreign economic policies. The bulk of ship-
ments under the current aid program are
cotton and wheat, essential imports which
Yugoslavia would have to obtain elsewhere ?
probably having to use its already critically
short supply of foreign exchange. Lacking
Soviet aid, Yugoslavia would probably be faced
with some combination of cuts in domestic
consumption, the investment program, the
operation of already completed plants, or in
the military program. In addition, current
delicate negotiations over the rescheduling of
Yugoslav debts to Western nations would
probably be adversely affected if not totally
disrupted by a US decision to curtail or with-
draw economic aid. For these reasons Tito
will probably make a greater effort to convince
the US of the desirability of continuing the
economic aid program than he will with re-
spect to military assistance. Nevertheless, he
will probably remain unwilling to make sig-
nificant concessions to this end.
42. Yugoslavia could probably sustain a se-
vere curtailment of US military and eco-
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nomic assistance without direct and immedi-
ate threat to its independence and stability,
although a sharp reduction of military aid
would necessitate a slowdown in the improve-
ment of Yugoslav defense capabilities. And
while the loss of economic assistance would
necessitate retrenchment, the worst effects
could probably be averted through some com-
bination of expedients, possibly including: (a)
a default on Yugoslavia's debts to Western
nations sufficient to ease the balance of pay-
ments without endangering essential trade;
and (b) a stimulation of internal production
and marketing through price increases and
tighter credit and investory controls.4
43. We consider, therefore, that a substantial
reduction of US economic aid would not criti-
cally endanger Yugoslavia's present viability
provided it were prepared to undertake the
necessary austerity program. However, it
would severely limit Yugoslavia's freedom of
action, particularly with respect to invest-
ment, and would bar the attainment of foreign
exchange and food reserves which the Yugo-
slays appear to consider essential to their in-
dependence. The Yugoslays will in any event
turn to the Bloc for increased trade and cred-
its, and possibly ultimately for military equip-
ment as well. However, should a severe cut in
US economic aid take place, this process would
almost certainly be accelerated. Although Yu-
goslavia's most important import items under
the aid program are commodities which could
be readily obtained from the West once again
if Yugoslav policy should require it, Tito would
probably become enmeshed in some economic
relationships with the Bloc, as in procurement
of capital goods and military equipment,
which he would find difficult to change.
44. These factors, however, are unlikely to
have a decisive effect on Yugoslavia's position
'Since 1950, Yugoslavia has had chronic external
payments deficits which reached a high of $213
million in 1952-1953, and are estimated at about
$112 million in 1954-1955. These have been
covered by: (1) grants from the Western Powers
(chiefly the US) totalling more than $600 million
through FY 1955; and (2) by loans amounting to
about $400 million, of which approximately $40
million comes due this year.
11
In July 1955, Yugoslavia submitted a memoran-
dum to the tripartite powers in support of its
current efforts to obtain a rescheduling of its
medium term debt, and presumably also in order
to make a case for continued Western aid. The
document projects normal external payments
deficits for the next three years, and also postu-
lates substantial additional deficits based on
special expenditures for foreign exchange and
food reserves and for equipment imports.
(Approximate figures, millions of dollars)
1955-1956
1956-1957
1957-1958
Receipts
Exports and noncom-
mercial payments
283
298
319
Normal
Expenditures
Imports (raw materials,
semimanufacture,
maintenance, etc.)
246
259
264
Imports (food)
77
54
42
Debt Servicing
38
40
37
DEFICIT
78
55
24
Extraordinary
Expenditures
Additional foreign ex-
change reserves
30
35
35
Food reserves (wheat
and lard, three
months supply)
15
15
0
Import of capital equip-
ment
50
'75
75
GRAND BALANCE
-173
-180
-134
With respect to the FY 1955-1956 projection, the
Embassy/USOM Belgrade notes that the Yugo-
slav estimate fails to mention already available
means of financing any deficit (viz., approxi-
mately $30 million carry-over from previous US
aid; at least $20 million drawing rights on exist-
ing credits; $10 million under Italian reparations,
etc.) . Taking these availabilities into account,
the Embassy estimates that the regular deficit
(i.e., exclusive of the Yugoslav extraordinary ex-
penditures category) could be reduced to about
$13 million. This figure could be reduced to $4.2
million if medium term debts were rescheduled
as requested by the Yugoslays and every avail-
able resource utilized during the coming year.
The mission also describes the projected extra-
ordinary expenditures deficit as evidence of Yu-
goslav determination to carry out deliberately
chosen policies of building up reserves and un-
dertaking new investments. It suggests that
these policies demonstrate that the Yugoslays
have no intentions of restricting domestic con-
sumption and investment to levels which can be
accommodated within their own resources.
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SECRET XY--t-trAlte. INT 11
nomic assistance without direct and immedi-
te threat to its independence and stability,
\
although a sharp reduction of military aid
woad necessitate a slowdown in the improve-
ment of Yugoslav defense capabilities. And
while the loss of economic assistance would
necessitate rtrenchment, the worst effects
could probably\be averted through some com-
bination of expe?dients, possibly including: (a)
\
a default on Yugoslavia's debts to Western
nations sufficient to\ea\
se the balance of pay-
ments without endangering essential trade;
and (b) a stimulation olVternal production
and marketing through price . increases and
tighter credit and investory eontrols.4
43. We consider, therefore, that\ a substantial
reduction of US economic aid would not criti-
cally endanger Yugoslavia's presen1/4/iability
provided it were prepared to undertake the
necessary austerity program. Howei\ex?', it
would severely limit Yugoslavia's freedorh\of
action, particularly with respect to invest-
ment, and would bar the attainment of foreign
exchange and food reserves which the Yugo-
slays appear to consider essential to their in-
dependence. The Yugoslays will in any event
turn to the Bloc for increased trade and cred-
its, and possibly ultimately for military equip-
ment as well. However, should a severe cut in
US economic aid take place, this process would
almost certainly be accelerated. Although Yu-
goslavia's most important import items under
the aid program are commodities which could
be readily obtained from the West once again
if Yugoslav policy should require it, Tito would
probably become enmeshed in some economic
relationships with the Bloc, as in procurement
of capital goods and military equipment,
which he would find difficult to change.
44. These factors, however, are unlikely to
have a decisive effect on Yugoslavia's position
'Since 1950, Yugoslavia has had chronic external
payments deficits which reached a high of $213
million in 1952-1953, and are estimated at about
$112 million in 1954-1955. These have been
covered by: (1) grants from the Western Powers
(chiefly the US) totalling more than $600 million
through FY 1955; and (2) by loans amounting to
about $400 million, of which approximately $40
million comes due this year.
In July 1955, Yugoslavia submitted a memoran-
dum to the tripartite powers in support of its
current efforts to obtain a rescheduling of its
medium term debt, and presumably also in order
to make a case for continued Western aid. The
document projects normal external payments
deficits for the next three years, and also postu-
lates substantial additional deficits based on
special expenditures for foreign exchange and
food reserves and for equipment imports.
(Approximate figures, millions of dollars)
1955-1956 1956-1957 1957-1958
Receipts
Exports and noncom-
mercial payments
Normal
Expenditures
Imports (raw materials,
semimanufacture,
maintenance, etc.)
Imports (food)
Debt Servicing
DEFICIT
Extraordinary
Expenditures
Additional foreign ex-
change reserves
Food reserves (wheat
and lard, three
onths supply)
ImK)rt of capital equip-
met
GRA\N\D BALANCE
283
298
319
246
259
264
77
54
42
38
40
37
78
55
24
30
35
35
15
15
0
50
75
75
-173
-180
-134
With respect to the FY 1955-1956 projection, the
Embassy>USOM Belgrade notes that the Yugo-
slav estim te fails to mention already available
means of financing any deficit (viz., approxi-
mately $30 *lion carry-over from previous US
aid; at least $20 million drawing rights on exist-
ing credits; $10 million under Italian reparations,
etc.). Taking these availabilities into account,
the Embassy estim\ts that the regular deficit
(i.e., exclusive of the Yugoslav extraordinary ex-
/ penditures category) ?vuld be reduced to about
$13 million. This figur4ould be reduced to $4.2
million if medium term \debts were rescheduled
as requested by the YugoIkavs and every avail-
able resource utilized during the coming year.
The mission also describes the projected extra-
ordinary expenditures deficit Is evidence of Yu-
goslav determination to carry\t deliberately
chosen policies of building up reserves and un-
dertaking new investments. It?yuggests that
these policies demonstrate that tie Yugoslays
have no intentions of restricting domestic con-
sumption and investment to levels Which can be
accommodated within their own res(iurces.
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and policies. Sd'long as Tito wishes to pre-
serve his independence of action, he will al-
most certainly take advantage of any oppor-
tunities to check the development of undue
economic dependence on the Bloc and will
probably expect Western cooperation to this
end. Moreover, the psychological impact of
curtailment of aid is likely to be reduced by
the fact that Yugoslav leaders have always
believed that Western support was motivated
12
by self-interest rather than by any real sym-
pathy for the Tito regime. They are probably
prepared to accept a substantial reduction in
military aid. A substantial redubtion in eco-
nomic aid as well would probably cause con-
siderable resentment and would somewhat im-
pair Tito's bargaining position as against Mos-
cow, though it would not in itself impel the
Yugoslays to move politically closer to the
Bloc.
?8-E-eirE"T""
nAririlVevimri A e
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CONIPIVENTTAtil
-4EGRET?
'corpttExTrAU
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