2. I told Mr. Kardelj that while our crop report indicated a good harvest, our government operates in all matters under authority of Parliament and I did not know whether any authority at present exists to grant a credit of the kind he had mentioned. I promised, however, to transmit his request at once and assured him, that in view of emergency, we would endeavour to give his government an early reply.

3. Some general observations. In order to avoid possibility of an approach to Canada for help such as this I have been careful not to make any enquiries from the Government as to the extent of the drought but I am satisfied that it has been exceedingly severe. The United States Agricultural expert considers the country requires not one hundred and fifty thousand tons but at least two hundred thousand tons in addition to the amount already under procurement to avert real distress. The loan if made could doubtless be repaid by arrangements from 78, repeat 78, million dollars being granted to Yugoslavia this fiscal year by the United States under agreement to be signed shortly and should be good business. The consent of the Tripartite Powers would, of course, be necessary before any formal agreement is signed whether the loan would be repaid from the United States slice of the tripartite aid or not. Such consent would, however, be readily forthcoming. I should add if wheat were bought from the United States at support prices under the Whiddon MSA amendment it would cost Yugoslavia about four million dollars more and in any case the money that will be immediately available from the first slice of the United States aid is earmarked for the purchase of coke, cotton and other industrial raw materials essential to keep the factories running. Undoubtedly the value of Yugoslavia to the West, both because of its strategic position and because of its example to other satellites, is immense. They have received and are receiving very much less aid than Turkey, Greece, Italy etc., whose contribution to Western security is less and in my opinion their situation merits sympathetic consideration.