TRANSMITTAL OF MATERIAL

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01003A001700240001-6
• Release Decision: RIPPUB
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• Document Page Count: 17
• Document Creation Date: November 16, 2016
• Document Release Date: April 11, 2000
• Sequence Number: 1
• Publication Date: October 11, 1963
• Content Type: MF

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12 October 1963
MEMORANDUM FOR: Chief, Dissemination Control Branch, DD/CR
FROM : Chief, Publications Staff, OR?
SUBJECT : Transmittal of Material
It is requested that the attached copies of CIA/RR CB 63-79,
Impact of the Shop)e Earthquake on Yugoslav import Needs, 3 October
1963, Secret/NO FOREIGN DISSEM, be forwarded as follows:
State, INR Communications Center,
Room 7818, State Dept. Bldg.
For EMbassies in Berlin, Bucharest, Budapest,
Moscow, Prague, Sofia) Warsaw, Belgrade,
Bonn, Frankfurt, London) Paris, and Rome
Attachments:
Copies #181 - #193 of CB 63-79
cc: CGS/RB
aY:
Date: // e2
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SECRET
0 FOREIGN DISSEM
Current Support Brief
IMPACT OF THE SKOPJE EARTHQUAKE
ON YUGOSLAV IMPORT NEEDS
CIA/RR CB 63-79
3 October 1963
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
NO FOREIGN DISSEM
SECRET
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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-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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S -E -C -R-E -T
IMPACT OF THE SKOPJE EARTHQUAKE
ON YUGOSLAV IMPORT NEEDS
The extensive damage caused by the recent earthquake at Skopje has
prompted Yugoslavia to seek additional foreign aid to minimize the domestic
impact of the reconstruction program. The USSR is providing a factory for
the manufacture of prefabricated housing components, Czechoslovakia has
offered a credit of $7 million, and the US has transferred $50 million in?
surplus dinar "counterpart funds" from the US account to the Yugoslav
account -- a bookkeeping transaction that adds nothing to Yugoslav re-
sources. The earthquake also is being used to justify requests for addi-
tional surplus agricultural products from the US and for assistance from
international organizations and Western European countries. Yugoslav
officials estimate that required imports from the West, which they hope
will be covered largely by foreign aid, may average as much as $50 mil-
lion annually for 5 years.
Because of the urgent need for prefabricated houses at Skopje and the
difficulty of changing domestic programs quickly, Yugoslavia needs sub-
stantial aid this year to avoid balance-of-payments problems. In subse-
quent years, however, economic growth and the balance of payments
should not be affected seriously by the disaster even if the amount of
foreign aid is less than the Yugoslays hope. Reconstruction of Skopje
will be spread over at least 5 years, and surplus labor is readily avail-
able in Macedonia. Only part of the effort consequently need be at the
expense of other activities, and negative effects on these activities will
be widely dispersed.
L. Introduction
Skopje, capital of the republic of Macedonia and fourth largest city
in Yugoslavia, was largely destroyed by the earthquake of 26 July. More
than 1,000 persons were killed, and 80 to 90 percent of the dwellings were
demolished or damaged beyond use, leaving homeless mo.st of the popu-
lation of 210,000. Many factories, stores, and public buildings were
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destroyed, public utilities were disrupted, and normal economic activity
was brought to a standstill.
Foreign countries were quick to respond with emergency aid. A
US Army field hospital was flown in from West Germany 2 days after
the earthquake, making a striking impression on the people of Belgrade
as the truck convoy moved through the city on the way to the Skopje
area. The US and various countries in Western and Eastern Europe
speedily provided medical supplies, blankets, and other emergency aid.
The USSR promptly offered drugs and food, as well as cement and lumber,
but was slow, in delivering anything to the disaster area.
Four days after the earthquake the Yugoslav government formally
requested assistance from "friendly" foreign countries in providing
temporary housing at Skopje and in the long-term task of rebuilding
the city. The immediate task is the provision before winter of housing
for between 120,000 and 150,000 persons, who will operate essential
public services, get the city's economy functioning again, and start
rebuilding the city. This housing is to be obtained by rebuilding the
dwellings in Skopje that survived the earthquake and by erecting pre-
fabricated buildings in a number of peripheral settlements. Full-
scale efforts to build a new Skopje will begin next spring and continue
for a period of at least 5 years. Although the Skopje area has ex-
perienced several minor tremors since 26 July, Macedonian authorities
seem determined for political and economic reasons to build the city
at the same location.
2. Magnitude of the Reconstruction Program
Earliest Yugoslav estimates put the cost of rebuilding Skopje at the
dinar equivalent of between $500 million and $2.5 billion. More recently,
the regime estimated the cost at the dinar equivalent of $150 million
annually, during the next 5 years, for a total of $750 million.* The
* The conversion from dinars was made (by Yugoslav officials or the
American Embassy) at the official rate of exchange of 750 dinars to
US $1. This rate substantially understates the purchasing power of the
dinar for goods in general but appears to be of an acceptable order of
magnitude for investment goods.
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estimated annual cost of the program in dinars equals nearly 3 percent
of Yugoslavia's gross national product and about 9 percent of total ex-
penditures for fixed investment in 1962.
The earthquake destroyed or made uninhabitable about 35,000 dwell-
ing units, which amount to about 1 percent of the total Yugoslav stock of
housing and one-third of the number of dwellings constructed annually in
1961-62. Replacement of these dwellings during the next 5 years would,
in itself, require an increase of 7 percent in the recent level of housing
construction. Considerable damage also was done to industrial facilities
in the Skopje area, which normally account for about one-third of indus-
trial production in Macedonia but only about 1 percent of total industrial
production in Yugoslavia. Of the 45 industrial plants in the area, 37 have
now been put into partial operation, but the others remain severely
damaged.
The distinctive economic organization of Yugoslavia and frictions
among its six republics present some problems in rebuilding,Skopje
apart from the availability of resources nationally. Production and
distribution of individual products are not centrally planned in Yugo-
slavia, and a large share of investment activity is decentra,,lized. The
federal government accounted for only 30 percent of total investment
expenditures on fixed capital in the socialist sector in 1962, and its
ability to channel funds directly to a special project is correspondingly
limited. However, it can take steps to raise federal revenues for this
purpose. The federal government also exercises a large measure of
control over imports and can enforce priorities for Skopje.
Yugoslavia's "nationalities" problem -- which also embraces dif-
ferences in religion, language, and economic and cultural development --
makes itself felt even in disaster. Macedonian officials have made it
clear that they expect to have a leading voice in the reconstruction pro-
gram even though Macedonia, as one of the less developed areas of
Yugoslavia, has only limited funds for such a project. The other
republics reportedly are apprehensive about how the financial burden
of reconstructing Skopje will be borne, fearing th.at levies made on them
will restrict their own economic programs.
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3. Foreign Aid Already Promised
Yugoslavia already has received seve al commitments of foreign aid
for the rebuilding of Skopje. Czechoslova ia has offered the equivalent
of $7 million as a credit, and the USSR is rovidng a factory for the manu-
facture of prefabricated housing components. Soviet technicians arrived
in the Skopje area in mid-August to make reparations for construction
of the factory, which has a planned annual capacity of 35,000 square
meters of floorspace, or roughly 800 dwe ling units of. average Yugoslav
size.
The US is making available for appro ed projects the equivalent of
$50 million in "counterpart funds"r that ar se from the sale for dinars of
US surplus agricultural products and wer earmarked for US use but are
not needed. This assistance is of little v lue, however, because it adds
nothing to Yugoslav resources. Even the psychological effect: of the
gesture is dampened by the fact that only ne-half of the $50 million is
a grant, the remainder being offered as a long-term loan.
The UK has promised Yugoslavia a 1 ng-term credit equivalent to
$1.4 million for reconstruction needs at kopje. Various other countries
have sent small cash donations and other types of aid that were directed
more to emergency needs than to the ion -term task of rebuilding the city.
4. Need for Additional ForeLgn Aid
Yugoslavia is actively seeking additi nal foreign aid for the recon-
struction of Skopje. Yugoslav officials have indicated that goods to be
imported from Western countries for Sk pje may account for up to one-
third of the total cost of the program during the next 5 years and that
the program will also cause some loss o exports. They estimate the
combined effect on the balance of payme ts at $70 million i.n 1963 and
$89 million in :1.964 on the assumption th t domestic programs are not
changed greatly and that foreign financing will be available.
The Foreign Assistance Act of 1962
US aid to Yugoslavia under the program
prohibits new extensions of
administered by the Agency
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for International Development. An exception could be made only if the
President determined that Yugoslavia is not controlled by the inter-
national Communist conspiracy, that extension of aid would promote
Yugoslav independence from international Communism, and that such
aid is vital to the security of the US. It seems likely that this prohi-
bition, which applies to all Communist countries, will be retained
in the foreign aid program now before Congress. There is no legal
impediment, however, to credits from the Export-Import Bank or to
deliveries of surplus agricultural commodities under Public Law 480,
and Yugoslavia is exploring both possibilities.
Yugoslavia has requested delivery under Public Law 480 of 500, 000
metric tons of wheat, 100, 000 metric tons of soybeans and other fodder,
30,000 metric tons of edible oils, 30, 000 metric tons of cotton, and
1, 000 metric tons of butter. The total value of these products is at
least $60 million. The regime claims that it was planning to buy
these goods in the West but that it must now obtain them under Public
Law 460 to avoid serious strain on the balance of payments.
The Yugoslays would like a moratorium on payments of interest and
principal arising from their debts with the US and Western European
countries -- especially if new credits are not available. In addition,
Yugoslavia is seeking a 2-year postponement of a $15 million obligation
due the International Monetary Fund in January 1964 plus a new drawing
of $30 million and is interested in special credits from the International
Bank for Reconstruction and Development. Although the appeal for aid
has been directed largely to Western countries, Tito also appears to be
working the other side of the street. The regime reportedly hopes that
the USSR will replace seven destroyed industrial plants that had been
producing such goods as cement, glass, textiles, plastics, and certain
types of industrial equipment. According to this report, the cost of the
seven factories would be between $25 million and $30 million.
Yugoslavia obviously is trying to maximize the amount of foreign
aid for Skopje and to minimize adjustments in the domestic economy.
Substantial aid is required this year to avoid serious strain on the
balance of payments because of the urgent need for prefabricated
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houses and other goods at Skopje and the difficulty of changing domestic
programs quickly. Over the long term, however, the rate of economic
growth and the balance of payments should n.ot be affected seriously
even if the campaign for aid is only partly Successful.
The Skopje program involves largely the building or rebuilding of
dwellings, various public facilities, and a limited number of industrial
plants. The principal need ?thus is for conStruction labor, ordinary
construction materials, and simple types of machinery and equipment.
As one of the least developed areas in YugOslavia, Macedonia probably
has a considerable amount of excess labor that could be used at Skopje
with little adverse effect on other economie activities. . Requirements
for expensive, technically advanced industrial equipment should not be
particularly large, because the area is not a major center of industry.
Most of the needed resources can be obtained within Yugoslavia if the
regime will make the effort.
The repercussions of the program can be dispersed widely, limiting
its impact on the Yugoslav economy. The principal effort at Skopje is
.planned to be spread over the next 5 years and may well be. stretched
out beyond that. .Marginal adjustments can be made in both imports
and exports, in expenditures for both prodU.ctive and nonproductive
investment, and in the relation of total investment to the gross national
product.. Yugoslavia's need for substantial aid this year may .be con-
ceded. But the regime's estimate that recOnstruction of Skopje will
require .an extra $59 million in imports and will cause a loss .of $30 mil-
lion in exports in 1964 implies a minimum domestic effort.
5. Financing the Reconstruction of Skopje
Plans for financing the work at Skopje
Petar Starnbolic, Chairman of the Federal
already are taking shape.
Executive Council, indicated
recently that a federal fund will be created for this purpose. :During
1963-64 the Skopje reconstruction fund tentatively is scheduled to
receive 30 billion dinars in general federal. revenues; 30 billion dinars
from a national loan to aid Skopje; 10 billiOn dinars in voluntary contri-
butions of enterprises and individuals; 65 billion dinars from a special
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tax on the incomes of economic enterprises and individuals and on the
expenditures of local units of government; and 21 billion dinars in
foreign aid. At the official rate of exchange the scheduled total is
$208 million, of which $28 million is expected to be provided by foreign
aid.
Aside from the local labor and materials obtainable within Macedonia,
most of the burden of rebuilding Skopje unavoidably will fall on the larger
and more developed republics -- Slovenia, Croatia, and Serbia. These
three republics provide a large share of federal revenues, and they have
a large share of the economic activity subject to the special tax.
The regime clearly wants the main burden of the reconstruction effort
to fall on the consumption of the population rather than on productive in-
vestment. According to Stambolic, people will have to reduce their con-
sumption by 1 or 2 percent at most, and they may be able to offset the tax
through a more rapid growth of labor productivity. The regime hopes that
this tax can be eliminated or reduced after 1964. In contrast to the urgent
appeals that Yugoslav officials have made for foreign aid, Stambolic
recently told the Federal Assembly that none of the measures contemplated
will change perceptibly the plans of political organs or economic enter-
prises or will threaten their prospects of development.
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Analyst:
Coord:
Sources:
1. Yugoslavia, Federal Institute for Statistics. Statistical Pocket-
book of Yugoslavia, 1963, Belgrade, 1963. U.
2, State, Belgrade. Airgram A-159, 24 Aug 63. OFF USE.
3. Ibid., Air ram A-130, 10 Au 63. OFF USE,
STATS P EC 4.
5.
6.
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7.
8. State, Belgrade. TOAID 62, 16 Aug 63. OFF USE.
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3 October 1963
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SGBJECT Distribution of Current Support Brief No. 6367% linPoet of
kvatt Earthirokoen Timootav Import No 412 --- 3 October 1963
(SECRET/NO roanaN DISSEM)
Recipient
0/DDI, Room 7E32, Hdqtrs.
3
4 - 11 OCI Internal
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St I A/Do.7urnen7r4 Svpport Sectler, ?Dl.strrn,,nt.i.an, of" (;.1,r-retil
likltimpact of the ..Skopje Earthquake On Yugoslav import
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Project No. 16.1?30
Report Series CIA/RR CB 63-79
Title Impact of the Skopje Earthquake on Yugoslav Import Needs
--3-0-ertatrerre163-1Sarratt-NO FOREIGN DISSEM)
Responsible Analyst and Branch
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