Foreign Relations of the United States, 1964–1968, Volume XXVI, Indonesia; Malaysia-Singapore; Philippines

283. Memorandum of Conversation¹

Washington, October 10, 1967.

SUBJECT

• Rubber and Malaysian Role in Viet-Nam

PARTICIPANTS

• The President
• Walt W. Rostow, Special Assistant to the President
• Joseph A. Califano, Jr., Special Assistant to the President
• Ambassador James D. Bell, American Embassy Kuala Lumpur
• Robert W. Barnett, Deputy Assistant Secretary (EA)
• Tun Tan Siew Sin, Minister of Finance, Malaysia
• Ong Yoke Lin, Ambassador of Malaysia
• Mohd. Ghazali bin Shafie, Permanent Secretary, Malaysian Ministry of Foreign Affairs

The Minister conveyed greetings from Prime Minister Tunku Abdul Rahman and referred to the warmth and joy of President Johnson’s visit to Malaysia. He said he had come to Washington because of difficult circumstances which had arisen in Malaysia because of the price of rubber. He explained the economy was heavily dependent on rubber and the price was the lowest in 18 years, causing budgetary and balance of payments problems. To illustrate, he said that rubber smallholders are—reminiscent of days of the Japanese Occupation—now getting only one meal a day. In short, rubber prices were having grave social and economic effects.

The Minister said although he did not want to burden the President with details, he did want to explain that Malaysia had brought to Washington three proposals. One was to buy up the rubber stockpile and here he said the United States and Malaysia had found a wide area of agreement, but none yet on the critical question of price. His second proposal was for Malaysia to have first refusal to buy the 17,500 tons we are now offering quarterly. This was not acceptable to the United States. The third was an offer to buy on the open market, the foreign exchange costs of which could be covered by a switch in Malaysian reserves from London. The present situation was a decision to continue the dialogue and not to close the door on further exploration of possibilities. He said he thought this was a useful step toward solving the problem.

The President asked how much surplus we had and how Malaysia would pay for it. It was explained that there was a 360,000 ton surplus and that it could be paid for through a financing arrangement with the Export-Import Bank. The President asked whether or not there would be a loss or a gain in the sale of rubber. Mr. Barnett explained how discount of the price from the current 19.5 to 13.5 might be possible. The Malaysians still said they could only pay 6 less than this. The calculations that went into our reduction from 19.5 to 13.5 represented savings to GSA by selling rather than storing, administering, and processing this deteriorating commodity. The Malaysians took into consideration in arriving at an offer of 7 a pound such additional factors as a discount for bulk sales, projection of declining price, and a certain “aid” factor. The President agreed immediately that we should not make such discounts. He would be obliged one day to justify sale to the Congress.

Minister Tan Siew Sin explained decline in value of our stockpile. We had bought when prices were very high during the Korean War. The current soft market price of rubber was due to an economic recession in Western Europe (he also included the USA), more Indonesian rubber in the market, closure of the Suez, and strikes in the United States.

The President said why didn’t we use rubber in tires purchased by the USG. Ambassador Bell said that we were using the rubber for USG purposes.

The President explained that he was faced with $30 billion deficit due to costs for the war in Viet-Nam. He said that the USG had estimated a revenue of $800 million from disposals on surplus commodities, but that in fact this was running at a rate of only $400 million. He asked Mr. Califano to take another look at how sales of stockpile items could be increased.

The President asked what Malaysia was doing to help in the Viet-Nam War, especially in regard to training, which he recalled he had discussed with the Tunku last October. The President said he had to show some more aid from Malaysia and from other countries in the area whose interests and safety we defended. Ambassador Bell explained that Malaysia was training 35–40 police officials at any given time. The President thought this was pretty small and expressed the hope that many more Vietnamese would be sent to Malaysia for broader training. We should step up this program.²

Referring back to the rubber stockpile, the President said that Mr. Moody³ should be asked to determine the lowest price at which we can sell the stockpile to Malaysia.

Minister Tan, referring to a recent talk with Mr. Eugene Black, expressed appreciation for the American contribution to the Asian Development Bank. The President expressed some doubt that he would be able to get the needed legislation from Congress this year.

As the Minister was leaving, the President asked him to tell the Tunku he would appreciate anything further that Malaysia could do to help in Viet-Nam. He said it wasn’t the number that counted but a really sincere effort.⁴

1. Source: National Archives and Records Administration, RG 59, Central Files 1967–69, POL 7 MALAYSIA. Confidential. Drafted by Bell and approved by Walt Rostow on October 17. The meeting lasted from 5:23 to 5:50 p.m. (Johnson Library, President’s Daily Diary)
2. In a memorandum to Walt Rostow, October 13, Wright stated that the Malaysian contribution to Vietnam was greater than this. Since 1962, Malaysia had trained about 2,000 police and had sent a high-level group to Saigon to discuss rural development, which got “the cold shoulder from the Vietnamese.” Wright suggested that the Malaysians’ best contribution was training high-level officials in implementation of economic development plans and getting political credit from it. (Ibid., National Security File, Country File, Vietnam, 5 D (2), Allied Troop Commitments and Other Aid, 1967–1969)
3. Acting Administrator of GSA Joseph Moody.
4. In a memorandum to the President, October 11, Goldstein reported that as a result of their meeting with Johnson, Tan and Ghazali had a “more realistic appreciation of the complexities and burdens” of the President’s position. This realization would make the Malaysian Government more reasonable and improve U.S.-Malaysian relations. (Johnson Library, National Security File, Country File, Malaysia, Vol. IV, Cables, 1965–1968)