OVERVIEW--IN 1985, HUNGARY, ROMANIA, AND YUGOSLAVIA HAD MORE IN COMMON THAN THEY WOULD HAVE LIKED.

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T01058R000405670001-4
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 21
• Document Creation Date: December 22, 2016
• Document Release Date: April 27, 2010
• Sequence Number: 1
• Publication Date: December 11, 1985
• Content Type: REPORT

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Memorandum for:
The attached memorandum was prepared
at the request of Secretary of State
Shultz in preparation for his trip to
Hungary, Romania and Yugoslavia.
Contributions to this memorandum
were made by EURA/EE/SE, EURA/EE/CE and
EURA/EE/QA branches.
It was prepared on 6 December and
sent on 7 December.
E -;,U R A,
Office of European Analysis
Directorate of Intelligence
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Central Intelligence Agency
6vashi. D. C. 20505
(Jyerv i ew
In 1985, Hungary, Romania, and Yugoslavia had more in common
than they would have liked. Each struggled with a faltering
economy aggravated by energy shortages and large debt obligations
to Western creditors. Illness, advanced age, and Tito's legacy
have produced leadership uncertainties in the three countries.
And all are uneasy about what the Gorbachev era means for their
future. At the same time there is a prevailing view in these
ruling circles that they are uniquely Dlaced to build bridges
betw
th
E
een
e
ast and the West.
Although they share similar problems and worries, their
strategy to cope with them and the political settings in which
these attempts are made are dramatically different. Romania's
Ceausescu has responded to shortcomings in his Stalinist, highly
personalized system by introducing even more centralized control
and coercion. Hungary enjoys the most liberalized system within
the Warsaw Pact, but has reached the point where it must introduce
more reforms--more than Moscow apparently is prepared to tolerate-
-if it is going to get out of its economic doldrums. Yugoslavia
has the good fortune to be outside the Warsaw Pact, but it has not
developed an efficient governing system that will both protect the
interests of its rival nationalities and preserve the leading role
of th
C
i
e
ommun
st party.
All three countries regard the West and the US in particular
as both the cause and the solution to their problems. They badly
need Western technology to improve economic growth and raise
living standards. To get the modernization process started they
borrowed heavily from the West, but for a variety of reasons--
including bad management--they have not achieved the desired
results. They now blame Western institutions and governments for
their debt problems and resent creditor demands for rity
r
th
p
ograms
at could provoke social unrest.
But the alternative--even closer relations with the Soviet
Union--is not regarded as an attractive option in any of these
countries. They would prefer to reduce their dependence on the
USSR and become more engaged in Western commerce. To be
competitive in that environment, however, the authorities would
have to loosen controls, but they have not discovered a way to rtes
that while preserving their Communist party-states.
is memorandum was prepared by the East European Divison, Office
f E
o
uropean Analysis. Questions and comments may be addressed to
Chief, East European Division,
LvrtrioJ - luCUll.
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Hungary
Succession and Reform
The two most recurring topics heard in Political
conversations in Budapest are the succession question and the
prospect for introducing additional economic reforms. At 73,
party leader Janos Kadar shows signs of running out of steam and
has appointed a deputy to lighten his workload. But Kadar remains
involved in all major policy decisions and, despite rumors of
declining health, has maintained a very active schedule in ecent
months inc1 d'
ing a trip to London in October. 25X1
Prime Minister Thatcher used that opportunity to ask Kadar
who his successor might be, but she did not get a straight
answer. Last month Kadar told Ambassador Salgo it would be a
mistake to name a successor because ensuing political intrigue
would destroy whoever was designated. Kadar undoubtedly is also
sensitive to the possibility that a designated successor might
create condition that would hasten his own departure from
power. 25X1
While there appears to be little doubt that Kadar is in
charge, the leadership remains divided over .the need for further
economic reforms. The deliberations at the Hungarian party
congress last March seemed to refl
t th
ec
is stalemate, reasserting
the party's commitment to reform but t
ki
a
its pace. ng no action to quicken 25X1
The lack of enthusiasm for additional
f
re
orms is related to
uncertainties about the impact of th
e expansion of private
enterprise and price liberalization. Reforms to date have created
income inequalities and inflationary pressures that seem to have
increased public dissatisfaction with the quality of life, and
hence, with the regime. There appears to be a widespread
perception among Hungarians that they need to work two jobs (some
have three) just to maintain their present standard of living;
most do not believe that significant improvement is possible.
Workers are concerned that greater efforts to rationalize industry
will lead to unemployment. The regime seems concerned that such
economic developments might lead to open opposition and perhaps
even to social instability, in contrast to the heretofore
compliance of the populace These fears may be well foundedssive
It also is likely that the Hungarians wanted to sound out the
new Soviet leader before launching a new series of reforms.) i
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The prognosis for an expansion of serious reform in Hungary,
therefore, is doubtful. If measures already implemented continue
to create as many problems as they solve, the leadership may even
order a short-term retrenchment despite the reported willingness
of most of Hungary's top-level leaders to give the reforms a
chance to succeed. In the post-Kadar period, it is possible that
competing elites will stake out pro- and anti-reform positions as
a means of winning supporters for their candidacies. Under such
circumstances, Hungary's reformist course could be reversed if
social problems attendant on reform become the central issue over
-.,.,
K.
which the strug
le t
eed
g
o
A Troubled Economy
Hungarian authorities have r
!1 V
increasingly pessimistic
about their economic situation this""
year. They initially blamed
the unusually harsh winter for the slowdown in economic growth and
deterioration in hard currency trade performance. But--as
Budapest now acknowleges--the real culprits were longstanding
inefficiencies and cutbacks in investment over the past several
years that prevented the economy from sustaining last year's
modest recovery. 25X1
The decline of hard currency exports--caused by soft world
prices for agricultural products and weaker West European demand
for low--quality Hungarian manufactured goods--has been a major
disappointment. The USSR has compounded the problem by reducing
its special hard currency purchases from Hungary. Budapest in
fact may have had to divert some goods from Western markets to
eliminate its soft currency trade deficit with the USSR. As a
result, the hard currency current account may now be in deficit
for the first time in three years. 25X1
Hungary, however, does not seem to face an imminent financial
crisis. Thanks to its good access to Western credit markets,
Budapest has built reserves to a record high and lengthened its
debt maturity structure. Western bankers seem increasingly
concerned about Hungary's large borrowings, however, and may begin
to resist new credit requests. And in the years ahead, Hungary
will face large debt service payments and will be vulnerable to
liquidity problems
h
ld
s
ou
short-term credit lines dry up.
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Wooing the West
Hungary is probably the most Westernized country in the
Soviet Bloc. It has learned to live and prosper (at least
compared with most of its Allies) within the limits of what Moscow
will tolerate. Most of its policymakers seem convinced that
future progress depends on growth in trade with the West. These
conclusions are colored not by ideological preferences, but by a
realistic appraisal of their own needs, particularly in
Hungarian policymakers are constantly striving to maintain a
positive image and dialogue with Western officials and
businessmen--as Kadar did in the UK in October and Premier Lazar
in Japan in September--in order to expand exports and to obtain
credits. Hungarian authorities use every opportunity to remind US
officials that the lack of multiyear MFN treatment, tighter COCOM
restrictions, and protectionism hamper their efforts to expand
Hungarian leaders also are sensible enough to realize that
their chances of establishing closer economic contacts with the
West are greater when the overall East-West relationship is
relaxed. In recent years Budapest has been promoting the notion--
in concert with East Germany--that small nations have an important
role to pla in seekin peaceful solutions to East-West
problems.
Saluting the East
The same sense of realism that makes the West an attractive
trade partner compels Hungarian leaders to coordinate all
important questions with Moscow. The Hungarian regime remains
fundamentally dependent on Soviet support. Given its limited
natural resources, Hungary is dependent on the USSR for energy and
a wide variety of raw and semi-finished materials. Soviet exports
meet more than 75 percent of Hungarian crude oil consumption, 40
percent of natural gas consumption, and 25 percent of electricity
consumption. The USSR also meets most of Hungary's import
requirements for iron ore, tin, copper, timber, cotton, and
fertilizers. In turn, the USSR is the principal buyer of products
from Hungarian industry and agriculture, absorbing 45 percent of
engineering exports, 40 percent of food Pxnnrtc and about one-
third of consumer goods exports.
Trade figures for 1985 indicate that Hungary has responded to
Soviet pressure to reduce its hard currency trade surplus and
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balance its ruble trade with the USSR. In our opinion the USSR's
insistence on better quality goods and large investments in Soviet
energy and raw material development limit the resources Hungary
has to increase trade with the West. Moreover, Moscow's pressure
for closer ties between Soviet and Hungarian enterprises may
reduce the scope rian managers to pursue contacts with 25X1
Western firms. ~ 7
But the Hungarian regime's dependence on Moscow goes beyond
economic matters. The Kremlin is, as manifested by the presence
of Soviet troops on Hungarian soil, the ultimate guarantor of a
Communist regime in Hungary. Kadar and many of his closest
associates owe their current positions to the Soviet intervention
in 1956. Individual Hungarian leaders recognize that their
espousal of a policy significantly at odds with lead
to demotion or removal in extreme situations. 25X1
Differences with Moscow over an expanded role for private
enterprise and national interests notwithstanding, the Hungarian
leaders share a common Marxist-Leninist outlook with their Soviet
counterparts. Although their beliefs are tempered by Hungary's
particular circumstances, Hungarian leaders are reluctant to
deviate too far from Soviet wishes. The CPSU is seen by the
Hungarian regime as the founder and leader of the world 1 7
ist 25X1
movement, of which it remains a willing member.
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Romania
Unpopular Autocrat
President Ceausescu has dominated the Romanian political
scene for two decades, but growing discontent over his economic
mismanagement and autocratic style has forced the regime into
greater dependence on the security apparatus to enforce his
rule. Although the population has remained relatively passive,
Romanians appear to hold Ceausescu personally responsible for the
economic austerity that has brought about a sharp decline in
living standards since 1980. Disaffection among Romania's large
Hungarian minority, which numbers nearly two million and is
concentrated in the north-central region of Transylvania, has
become especially worrisome and caused strains with neighboring
Hungary. Harsh security controls imposed since a rash of civil
disturbances in 1980-81 have limited protests in recent years
mainly to grumbling, occasional anti-regime pamphleteering and
graffiti
and increas
d
k
,
e
wor
er absenteeism.
Disaffection also appears to have spread among the lower and
middle ranks of the party and state bureaucracy, but the threat of
"cadre rotations" and intimidation by the secret police seem to
have prevented open opposition to the leadership. Nevertheless,
he recently had to militarize the electric power sector)
changes this fall, includin the appoint
t
men
of Foreign Minister
party secretary in charge of the economy, appear
designed to jolt the bureaucracy into greater obedience as the
country heads into and consecutive potentially punishing
winter.
Ceausescu appears capable for now, with the backing of the
security apparatus, of preserving his political supremacy and
maintaining domestic tranquillity. Reports that he is seriously
i l l however, cloud
Romania's political outlook. A though Ceausescu s condition does
not appear life-threatening, there is enough uncertainty about the
nature and gravity of his illness to raise the possibility of a
leadership successi h
on
t
in
e next year or so.
Succession Possibilities
Ceausescu's departure in the near future would create an
enormous power vacuum that would be difficult for any one
individual to fill immediately. His wife, Elena, has become a
powerful figure over the past decade as his closest adviser and
overseer of personnel appointments. She appears to have the
inside track to succeed her husband--especially if Ceausescu has
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time to preside over the transition. She would need the support
of the inner circle that now backs her husband, however, and she
could face an early challenge for the top position. We think
Party secretary for cadres Emil Bobu and Prime Minister Constantin
Dascalescu, both hard-nosed products of the party apparatus, are
th
t
e nex
strongest contenders--along with security chief Tudor
P
ostelnicu, who could also play a kingmaker role.
The lack of a clear-cut heir apparent creates a potential for
instability and Soviet meddling. Infighting among contenders for
power could hobble or even paralyze the policymaking process. If
the population's hopes for better times are dashed under a weak
and divided leadership, its long-suppressed anger and frustration
could quickly boil to the surface and threaten serious unrest.
Under such conditions, the Soviets would be tempted to try to
regain influence in Bucharest by offering economic assistance in
return for political and military concessions and by playing
diff
t
eren
contenders off one another.
The Soviet Factor
As long as Ceausescu remains in control, Romania is unlikely
to succumb to Soviet pressures to temper its maverick foreign
policies. Although he has sought closer economic relations with
Moscow in recent years in an effort to gain additional energy
deliveries and other economic concessions, he has been able to
avoid paying a political price that would compromise his
relatively independent policies. Moreover, Ceausescu has
continued selectively to resist Soviet initiatives in Warsaw Pact
councils. He reportedly balked at a proposal to increase military
spending at the recent Pact summit in Sofia, and he lately has
accorded more even-handed public treatment to US and Soviet
positions on disarmament issues. Party-to-party ties remain
limited, and the Romanian military continues to have relatively
few con+a
+
('-.._ -- --
i
h
its
c
s w
t
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Because of the decline in Romania's trade with the West since
1981, socialist countries now have a larger share of total trade,
especially of imports. The value of this trade, however, has not
increased much. Trade with the Soviet Union fell off somewhat in
1982-83, but picked up modestly in 1984-85.
Romania has remained less dependent on
Soviet energy supplies than most East European countries, with
Soviet oil accounting for only 4 percent of supply and imports of
Soviet gas for 3 percent of domestic consumption. Soviet-Romanian
trade levels are lik
l
e
y to grow slowly in the next 5-year plan
period
as som
,
e cooperative projects get underway.
Depressed Economy
Romania's strategy for dealing with its Western debt problem
has imposed a heavy burden on the economy and population.
Bucharest has cut its debt from $10 billion in 1981 to $6 billion
in 1985 through harsh austerity measures and deep cuts in Western
imports. We estimate that the austerity program has cut the
standard of living by 20 percent between 1980 and 1985. Energy
shortages and a poor harvest this year threaten to accelerate the
country's economic decline. President Ceausescu, wedded to rapid
debt reduction despite the resulting economic dislocations, has
responded to his mountin nrnhl ems with a series of increasingly
coercive measurPc
Ceausescu has enacted several measures to avert another
energy crisis this winter. He implemented an energy conservation
program early this year, declared a state of emergency in the
electric power system in October, placed it under military
control, and later replaced several senior party and government
officials responsible for the energy sector. In our opinion,
however, such actions will give little boost to electric power
production. Because industry has priority in energy use,
electricity and heat for households, even with average weather,
are likely to fall ort of last winter's painfully inadequate
supplies
.
This year's harvest prospects are bleak, partly as a result
of energy scarcity. Shortages of electric power prevented
sufficient irrigation to offset drought conditions. Shortages of
fuel, fertilizer, and pesticides--all items exported for hard
currency--also reduced crop yields. We estimate that this year's
crop will be about 12 percent smaller than last year's and the
smallest harve
t
i
1
s
s
nce
975.
The domestic food supply has worsened this year. Meat and
milk are nearly unobtainable for ordinary citizens, and rations of
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basic staples have been reduced from last year's meager amounts.
The usual improvement in vegetable and fruit supplies did not
occur during the summer. Bread rationing was reimposed in some
localiti
Th
es.
e regime responded in September by purchasing
foreign
rain ildi
g
, nc u ng the first US grain in two years.
Ceausescu's measures have become more coercive as the economy
has deteriorated. In addition to militarizing the energy sector
he has ordered students into coal mines, issued a more punitive
system of wage reductions for managers who fail to meet production
goals, launched an anticorruption campaign in the agricultural
sector, and threatened to confiscate crops from farms. He has
also
k
b
spo
en a
out redistributing the rural population, and
I n d i c t d +64 . t h
I_- a e may resettle urban elderly to rural towns.
Ceausescu, intent on reducing Romania's debt 1d
b
, wou
e loathe
to accept another debt rescheduling and consequent IMF
"interference" in regime economic policy. He has, however, eased
his ban on new bank borrowing. Romania raised an $80-million loan
earlier this year and is close to signing a $160-million credit
needed to cover some of its debt repayments. Bucharest probably
will approach Western banks for more credits in order to meet
obli 4- 4
if trade surpluses fall short of needs next year.
Welcomes the West
Ceausescu values good relations with the West--including the
US--as a political and economic buffer against Soviet
interference. Romania's relations with the West have been hurt in
recent years, however, by Ceausescu's increasingly evident
Stalinist proclivities, especially his dismal record on human
rights. Bucharest' persecution of religious dissidents has
aroused indignation in many Western countries. In addition, its
harassment and ' t
l
v'I ua
ransoming of ethnic Germans wishing to
emigrate to West Germany has provoked the West Germans, causing
some friction du ' C '
ri
ng eausescu s visit to Bonn last year.
Bonn
as year expe a 1, F ive omanian diplomats caught planning a bomb
attack against Radio Free Europe headquarters in Munich, and
public revelations in 1982 by a Romanian intelligence officer sent
to assassinate two emigre dissidents living in Paris caused a stir
in the French press and chilled French-Romanian relations for
cat)
a I
t
mo n
er
h
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Ceausescu is anxious to improve relations with the United
States, as reflected by the unusually long and warm initial
interview he gave Ambassador Kirk last month. Ceausescu covets
the economic benefits close ties with the US can bring--especially
as a result of its MFN trading status--and relishes the prestige
they bring to him personally. He is particularly sensitive to any
hint of "outside interference," however, and we believe he would
reject any advice to alter economic or human rights policies, even
at the expense of im
r
v
d
a2___
p
o
e
rela
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 Yugoslavia
. lull ~.a
with its 1985 standby program by the end of the?year. 25X1
Tito's Legacy
The highly decentralized political system inherited from Tito
has made federal action in addressing economic problems more
difficult. To prevent one region or ethnic group from dominating
the country, the regions have been granted a high degree of
autonomy and virtual veto power over numerous central decisions.
The system has succeeded in keeping in bounds age-old rivalries
and competing interests. But, coupled with the annual rotation of
national state and party leaders in collective bodies, it has
often produced deadlocks rather than solutions to pressing
problems. The regional bureaucracies also have been able to water
down implementation of central decisions. 25X1
On specific issues, the differences among the factions often
are so entrenched--and the factions so evenly balanced--as to 25X1
Yugoslavia has also had difficulty sustaining last year's
improvement in hard currency trade and payments. Through October,
the country's hard currency trade deficit totaled $1.1 billion, up
30 percent compared with the same period in 1984, with exports up
3 percent and imports up 7 percent. Nonetheless, Yugoslavia is
expected to achieve a convertible current account surplus of $500
to $600 million (versus $865 million in 1984), its third surplus
n n ........ TL - Tiir
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,
output is expected to decline by more than 12 percent. 25X1
e
%__%. Z. ast winter s severe weather and the effects of this
summer's prolonged drought. Growth in industrial output is
expected to be half that achieved in 1984
and total agricultura
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thus far in 1985, moreover, has risen to the highest level in six
years, and one out of six Yugoslavs is jobless. Meanwhile, large
d
Economic Trends
Yugoslavia's domestic concerns continue to be dominated by
economic problems. The modest success Belgrade has had with its
external finances has meant little to the man in the street.
Inflation has accelerated to an annual rate of 80 percent, real
incomes have fallen by more than 30 percent since 1980, and
personal consumption is expected to fall sharply for the fifth
year in a row. The number of economically motivated labor strikes
ispa'uu s in wealth remain among republics and provinces.
Although there was a modest economic recovery last year,
total gross social product--roughly equivalent to GNP--is again
expected to decline this year by 1 percent. The downturn largely
r
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prevent major shifts in policy. The less-developed southern
republics have taken the lead in pressing for changes in the
system, advocating steps to restore to Belgrade some of the power
it has lost in recent years. But the richer northern republics,
notably Slovenia and Croatia, resist moves that would centralize
decisionmaking. They fear a return to earlier days when Serbia,
the largest republic and seat of the national capital, dominated
the federation. A legislative battle this year over distributing
foreign exchange earnings highlighted these splits. Disputes are
also taking place on ideology and cultural issues. The military
is playing a role as a conservative, unifying force.
In recent months, however, there have been some tentative
signs that the national leadership bodies are reasserting some of
their authority. The assertiveness has often shown itself as
increased one-upsmanship among the main power centers. With the
party congress approaching next June, the Presidium and Central
Committee have been meeting more often and intervening on occasion
in the legislative process. The party leadership has pushed for
passage of a controversial foreign exchange bill in the Federal
Assembly and moved to contain some inter-regional disputes. Some
of the party's economic statements have supported government
policy; others have reflected concern about the impact of
government and IMF measures on the public.
Other leadership bodies have tried to avoid being outdone.
The nine-member State Presidency, which normally performs only an
oversight role on domestic economic issues, recently called
special meetings to demand government' action on rising inflation
and falling living standards. The target of some of the criticism
from the party and Presidency, Premier Planinc has defended her
administration's record but stressed that the government alone
cannot bring about economic improvements. Much of the
responsibility, she believes, rests with the regions and firms,
many of which still favor autarkic, inefficient practices.
Much of the assertiveness shown by the party leadership and
State Presidency is posturing designed to shore up their
lackluster public images. In practice, neither body is likely to
supplant the government's economic management role. The main
economic decisionmaker, Premier Planinc, is widely credited by
Yugoslavs for her forthright and decisive stands. When her
nonrenewable term expires in May, however, there are few
candidates for the job likely to carry her clout and conviction.
Relations among some of the country's many ethnic groups
remain tense but thus far are not threatening stability. Ethnic
coexistence is maintained by periodic crackdowns on nationalists
and by the complex collective leadership system that gives a
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proportional voice to each group. The greatest strains are in the
southern province of Kosovo, where ethnic Albanians took to the
streets in 1981 to protest domination by the Serbs. The regime
has since kept the lid on Albanian nationalism but has been unable
to resolve the deeper, historical issues. The country's
potentially most destabilizing ethnic rivalry, between Serbs and
Croats, remains fairly muted.
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E
Relations With The Soviet Union
Belgrade's ties to Moscow have not changed since Gorbachev
took power. Yugoslavia continues to stress a balance in its
relations with the superpowers. Yugoslav Foreign Secretary
Dizdarevic will go to Moscow later in December following your
visit, according to diplomatic sources. Similarly, Premier
Planinc visited the USSR last July following her stay in
W h' F__ I
a
t
s ing
on.
Planinc's visit to Moscow, the last major Soviet-Yugoslav
contact, apparently was the occasion for cool, correct talks with 25X1
the new Soviet leader. Moscow reaffirmed formal respect for
Yugoslavia's independence, but relations are unlikely to get much
closer. While the Yugoslavs seem impressed with Gorbachev's
dynamism, they are aware it cou work against them, particularly
on economic issues. 25X1
Yugoslavia has close economic ties with the Soviet Union, its
largest trading partner. The USSR provides about half of
Yugoslavia's total energy imports, including more than half of its
crude oil imports and 90 percent of its n'atural gas imports.
Energy imports typically account for about 60 percent of all
Yugoslav imports from the USSR. Trade is valued at world market
prices but is conducted on a clearing account basis, thus reducing
hard currenc ex d
en
t
i
J p
ures.
Belgrade also views Moscow as a stable market for a variety
of exports--machinery and equipment, ships, footwear, and other
consumer goods--some of which cannot be readily sold in Western
markets. In 1984 the USSR absorbed 28 percent of total Yugoslav
exports. Despite the USSR's importance as a trading partner,
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there is no evidence that Belgrade accepts linkage between
economic and political cooperation; indeed, there is little real
evidence that Moscow has tried to exert economic leverage in
recent years. Since 1979, when trade ties expanded, Yugoslavia
and the USSR have differed on a number of key international
issues, including Afghanistan, Cambodia, and the course of the
Nonaligned Movement, in which Belgrade is a leading moderate
mamh ar
Ties to US
Belgrade's ties to Washington have shown gradual improvement
over the years, although there are recent hints of nervousness
over the level of US support. The Yugoslavs particularly
appreciate signs of American resolve in combatting anti-regime
activities by Yugoslav emigres. Strains in relations have
resulted mainly from differences over Yugoslav debt reschedulings,
Belgrade's sometimes spotty human rights record, and terrorism-
related i
id
nc
ents such as the Abu Abbas affair.
Topping US-Yugoslav economic issues is Yugoslavia's hopes for
obtaining a multiyear rescheduling agreement (MYRA) from official
creditors next spring. Belgrade believes a MYRA is warranted by 25X1
last year's economic turnaround, progress in correcting external
trade imbalance, and a series of economic reforms that we think
the Federal Parliament will pass before the first of the year.
Belgrade clearly views the US as the key to obt
i
i
a
n
ng this
agreement. It knows that some European governments are now
leaning against a MYRA and are skeptical that proposed economic
reform measures will be fully implemented. According to the
Yugoslavs, however, these governments would probably approve this
concession if the US
t b
go
ehind it.
A MYRA would demonstrate US support and strengthen the hand
of the more moderate elements of the regime which support the IMF
stabilization measures. At the same time, without some type of
strict financial oversight or leverage, Belgrade may not actively
pursue economic reform. The departure of-Premier Planinc next
spring could heighten this risk because her surressor may not have
her commitment t
IMF
o
measures.
Other important economic issues include the recent US
imposition of a countervailing duty on imports on Yugoslav steel
pipe and Treasury Secretary Baker's proposals on global debt at
the recent IMF/World Bank Meetings in Seoul. Belgrade reportedly
welcomes US government involvement in the global debt problem and
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appreciates the concept of the plan, but it apparently does not
understand how the plan would be applied and is likely to push for
On the political side, Belgrade seems eager to set the Abu
Abbas affair behind it, although it is unlikely to take any new
steps to jeopardize its good ties to the PLO. This relationship
began in the early 1960s, when Tito first articulated formal
Yugoslav support for national liberation S.
We believe the Yugoslav government--claims by Yugoslav
officials notwithstanding--made a conscious decision to allow Abu
Abbas entry. Belgrade appears to have assumed that the US
extradition request was only pro forma and that no lasting damage
I.,nu l d
l
resu
t
Belgrade provides this assistance for a variety of reasons:
-- Military sales to Arab states are a lucrative source of
hard currency for Yugoslavia. Belgrade does not want to
lose access to this market by denying sales to
Palestinian terrorist factions.
25X1
25X1
25X1
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Belgrade does not want to jeopardize its access to Middle
Eastern oil.
Yugoslavia cooperates with radical elements to keep them
from staging terrorist acts on Yugoslav soil.
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_ I I
SUBJECT: Hungary, Romania and Yugoslavia
Distribution:
Copy 1 - Secretary of State
Copy 2 - DDI
Copy 3 - NIO/Europe
Copy 4 - D/EURA
Copy 5 - D/OEA
Copy 6 - DI/PES
Copy 7 - EURA/PS (File Copy)
Copy 8 - EURA/PS (Sourced Copy)
Copies 9 thru 14 - CPAS/IMC/CB
Copy 15 - C/EURA/EE
Copy 16 - DC/EURA/EE
Copy 17 - EURA/EE
Copy 18 - EURA/EE/SE Branch
Copy 19 - EURA/EE/SE
Copy 20 - EURA/EE/CE Branch
Copy 21 - EURA/EE/CE
Copy 22 - EURA/EE Production File
Copies 23 thru 25 - EURA/EE
25X1
25X1
25X1
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Economic Indicators '
Domestic Performance
Percent Change
Yugoslavia
12
Hard Currency Trade
Billion US $
......................
-6
1980 1981 1982 1983 1984 1985
eat.
Romania
-6
1980 1981 1982 1983 1984 1985
earL
Hungary
--Z
1980 1981 1982 1983 1984 18
GNP
REAL PERSONAL CONSUMPTION
4
1980 1981 1982 1983 1984 1985
eat.
9-1
' ?i
4
1980 1981 1982 1983 1984 1985
est.
.........?
3
1980 1981 1982 1983 1984 1985
eat.
EXPORTS
r
IMPORTS
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Regional Distribution of Trade in 1984
EXPORTS
Yugoslavia
1 Romania
16.7%
Hungary
AV - Socialist
IMPORTS
16.0% --1
Developed
Imo- West
- Developing
A Countries
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