501.BC Indonesia/10–1149: Telegram

The Secretary of State to the Embassy in the Netherlands 1

top secret

894. Ushic 28. Hicus 57, T–927, Oct 11. Highly approve your view Neth proposal sound basis negotiation, particularly principle isolating external debt settlement from problems internal debt and monetary purge, and concentrating on examination external military expenditures. Unspecified but inferred from urtel that Indonesians understand reexamination does not entail discussion internal debt or internally met military expenditures. It wld seem as indicated fol para that debt burden involved Neth proposal not intolerable or unmanageable but nonetheless uncomfortable burden on USI. Particularly desirable ease or completely relieve burden next 3 or 4 years by extending moratorium or omitting amortization or by shift from first tranche to second tranche or combination. For debts such origin and settlement this character, interest rate also furnishes possible point of attack, as compare rates US and Canadian credits involved in settlement.

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Assuming reasonably stable and not grossly inefficient RIS Govt, Dept provisionally estimates Indonesian balance payments might be in approx balance 1952–53 without any govt debt service and assuming no inward capital movement which would expedite rehabilitation and improve Indonesian ability service debt. Forecast further future unavailable and not fruitful tho unlikely suggest worse position. Maximum yearly debt service in dollars implied by Neth proposal wld appear be about 45 million in 1956 or 7% of estimates 1952–53 export receipts 675 million or 8% of estimates same basis 1952–53 imports.

Altho as above wish abstract from internal monetary questions Dept wld like you consider desirability international monetary mission study and advise Republic re internal debt budget fiscal questions under auspices of say internatl monetary fund. No Dept position established and understand request wld have been made by one or both participants. Appreciate ur views substance proposal also usefulness to negots.

Fyi alone, Dept only wld place before Secy for consideration as last resort cancellation in whole or in part FLC credit if political factors warrant, that is, if absolutely necessary obtain RTC agreement or induce concessions other parties, aid peace, stability, increase probability free and viable Indonesia, etc. In view Dept’s past statements and commitments in congressional relations and otherwise such action wld be extremely difficult decision without congressional action. Problem similar debts other countries also involved. Wld consider approach Canadian and Australian creditors to aid achievement such objectives. Ur views desired.

  1. Repeated in telegram 549, October 18, 2 p. m., to New York (USUN).