Foreign Relations of the United States, 1952–1954, East Asia and the Pacific, Volume XII, Part 2

400.56D9/10–2554: Telegram

No. 297
The Chargé in Indonesia (Steeves) to the Department of State¹

secret

Djakarta, October 25, 1954—2 p.m.

664. Excon. Re Deptel 501, October 19, repeated Hong Kong 1416, UNNY.²

1. According local trade sources and government officials Indo is having no difficulty moving all its rubber. Present monthly production averages 70–75,000 tons most if not all of which being exported (see Embdesp 147, September 23).³ All of rubber exported to free world except for that going directly to Poland and Czechoslovakia. It must be assumed however that some rubber reexported from Netherlands to USSR and other East European countries.

2. There is no known surplus stock on hand. Trade circles assume some rubber is being bought and hoarded by speculators, but quantity not large since “hot money” now being invested in pepper and tea, warehousing of which is simpler, and gold. Reports are heard occasionally that Indo has surplus of 15,000 tons but trade circles discount them. Reports also not supported by local prices which now higher than world market. Local exporters able compete profitably in world market only by use devious methods.

3. Government officials with whom UN embargo discussed from time to time consider China potential rather than present market. Although Chinese delegation sought include rubber in trade agreement it is believed no definite figure was mentioned.⁴ Indos feel industrialization of China offers large attractive market which Indo would like enter. Any increase exports would tend, they feel, increase production, and thereby improve foreign exchange position.

4. Figures 20–50,000 tons used by Foreign Minister higher than those usually heard here. Figures result of following reasoning: China’s present rubber requirements for non-war industries said to be approximately 60–75,000 tons; Ceylon supplying 50,000 tons, therefore there is a market for 10–25,000 tons.

5. To blame UN embargo entirely for Indo’s present economic difficulties is to ignore certain basic fact and appears to be effort to cover up government’s mistakes by blaming someone else. Monthly average rubber exports, and therefore presumably production, for first 7 months 1954 better than any other year since 1949, or prior Korean war. Exports smallholder rubber better in 1954 than any other year same period except 1951. Average monthly exports, with export smallholders rubber in parenthesis, as follows: 1949–33,127 (19,730); 1950–55,826 (19,400); 1951–62,760 (45,833); 1952–62,778 (38,132); 1953–55,582 (31,565); 1954–68,099 (43,477). Monthly average value received for export rubber first 7 months 1954 (rupiahs 248 million) exceeded only in 1952 (rupiahs 403 million) and 1953 (rupiahs 257 million) and more than double that for 1950 (rupiahs 107 million). Indo has of course lost foreign exchange as result drop in world market price of rubber, but government’s policies seem to be major cause depletion foreign exchange and gold reserves. Deficit financing, inflation, rising prices consumer goods, granting of special import licenses, importation of luxury and unnecessary items such as large expensive cars, MGs, etc, for government officials and privileged characters, corruption in Ministry Economic Affairs cannot be overlooked nor explained away by attributing present economic difficulties to United Nations embargo. Lifting of embargo might, as Indonesians believe, increase production and exports of rubber, and result additional foreign exchange, but solution present economic difficulties will require some soul-searching and house cleaning on part of Indos themselves.

6. Best solution would appear to be that recommended in Embtel 540.⁵ Indos would then no longer be able blame all their economic troubles on UN embargo, and government might be placed in position of having to face realities of situation.

Steeves

1. Repeated to Hong Kong and the U.S. Mission at the United Nations.
2. In this telegram, the Department reported that the Indonesian Foreign Minister had suggested to the U.S. Delegation to the U.N. General Assembly that some way should be found to compensate his country for the cost of the U.N. embargo which was depriving it of the opportunity to export 20,000 to 50,000 tons of rubber to mainland China. The Department indicated that it felt Indonesia could at this time dispose of all its rubber in the United States and other “free world markets”. It inquired whether Indonesia was having any difficulty in moving its rubber in such markets and whether any burdensome and abnormal stock situation had developed in Indonesia. (400.56D9/10–1954)
3. Not printed.
4. Reference is to a trade agreement concluded in September 1954 between Indonesia and the People’s Republic of China. The commodities listed in the agreement did not include petroleum and rubber.
5. Document 295.