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

274. Memorandum From Secretary of State Rusk to President Johnson¹

Washington, October 15, 1966.

SUBJECT

• Your Visit to Malaysia

Although Malaysia does not contribute to the collective defense of South Viet-Nam, and will not have been represented at the Manila Conference, you are visiting Kuala Lumpur following the Manila Conference because we wish to lend friendly support to this democratic country, which is recovering well from a severe dose of Communist guerrilla warfare.

Malaysia has become something of an economic and political showpiece in Southeast Asia, despite the drag of its troubles with Indonesia. Its leadership is responsible and Western-oriented. With the end of Indonesia’s policy of confrontation, Malaysia’s outlook is improved. However, it still confronts serious problems in fulfilling its five-year plan. Some arise because of uncertainty over the future of the British military commitments in Singapore and Malaysia upon which Malaysia’s security, and the viability of its economic development plans, depend.

During Deputy Prime Minister Razak’s conversations with you, Secretary McNamara and with me,² he laid out the three areas in which the Government of Malaysia now looks to the United States for sympathy and support: (1) military assistance; (2) support for Malaysia’s five-year development plan; and (3) restraint in United States Government rubber and tin stockpile disposal programs.

We do not recommend a military assistance program for Malaysia, at this stage. The costs of Viet-Nam are obvious. Our MAP resources are limited. We do not wish to precipitate a British withdrawal from responsibilities we wish them to carry in Southeast Asia.³

Last May, we participated in an IBRD Consultative Group set up to examine Malaysia’s needs in meeting the goals of its five-year development plan. In that context we outlined amounts and forms of assistance we were able to offer within the limitations of Food for Peace, A.I.D., and Export-Import Bank availabilities, in the amount of about $100 million for the next five years. The Government of Malaysia appreciated this expression of United States intention but was disappointed that we did not offer bilateral A.I.D. loans or grants.⁴ Since last May, developments—fund cuts and number of country limitations—do not help make possible enlargement of our aid to Malaysia even if the United Kingdom decides to reduce its level of support, military and economic.

Deputy Prime Minister Razak outlined to you Malaysia’s acute anxieties over the decline in rubber prices. He mentioned that United States Government disposals from stockpiles were regarded in Southeast Asia as contributing to a price decline. For a combination of reasons, rubber prices have dropped from 26 cents to 22 cents in the period between March and October, 1966. This price drop represents a loss of some $170 million a year of foreign exchange to Malaysia, Thailand and Indonesia. (Malaysia accounts for 40 per cent of world production; Indonesia and Thailand together, 40 per cent.) It was appreciated in Kuala Lumpur that the GSA suspended rubber sales from stockpile following Deputy Prime Minister Razak’s conversation with you. The rubber producing countries of Southeast Asia will be extremely sensitive to our disposal policy when sales from stockpile are resumed.

In view of our unwillingness to provide military or economic assistance to Malaysia, Bill Gaud and I believe strongly that, prior to your arrival in Kuala Lumpur, the Administration should declare its intention in 1967 to dispose of stockpile rubber at the 1965 level of 120,000 tons, rather then the March–October annual level of 170,000 tons, as our contribution to the stabilization of rubber prices at levels which can yield substantial foreign exchange earnings for three critically important Southeast Asian countries—Malaysia, Indonesia and Thailand.

We believe that the political and economic benefits of this decision to the United States would outweigh the proceeds of selling an additional 50,000 tons of rubber, i.e., $25 million.

We believe that if this decision were made and made known before your arrival in Kuala Lumpur, the impact would be strongly felt in Malaysia, Indonesia, Thailand, and noticed throughout the entire Far East as a reflection of your concern for the welfare of Asians engaged in production of primary products vulnerable to fluctuations in demand on the part of affluent societies. Rubber generates 17.7 per cent of Malaysia’s GNP and 38.6 per cent of its foreign exchange earnings. One quarter of the total Malaysian labor force works on rubber plantations. Rubber trees represent an investment of almost $1 billion, or four times investment in industry.

Recommendation:

We recommend that, prior to the Manila Conference, the United States Government should announce that for 1967 disposals from the United States Government rubber stockpile will be at an annual rate of 120,000 tons.⁵

There is no indication on the memorandum that Johnson approved the recommendation, but the United States announced a reduction in its sales of stockpiled rubber before the Manila Conference, and by September 1967 U.S. sales had been cut back from 170,000 tons to 70,000 tons per year; see Documents 276 and 280.

Dean Rusk

1. Source: Johnson Library, National Security File, Memos to the President, Walt Rostow, Vol. 14, Oct. 1–31, 1966. No classification marking.
2. See Document 273.
3. In an October 14 memorandum to the President, entitled “Matters of Substance for Your Country Visits,” Rusk stated that the United States had to be very cautious on military assistance. “We can guarantee limited military sales of such items as helicopters, but any program of concessional sales, much less any grant aid, is out of the question with the cuts in over-all MAP program, the 40-country limitation, and policy objections to our becoming a major assisting power for Malaysia. It should be left to the British.” (Johnson Library, National Security File, Memos to the President, Walt Rostow, Vol. 14, Oct. 1–31, 1966)
4. In his October 14 memorandum, Rusk noted that while the U.S. position at the May meeting of the Consultative Group was “sympathetic,” the Malaysians “have found difficulty so far in making much use of any of these offers. Proper commodities for PL–480 are hard to find, few EX–IM projects have opened up, and truly ‘regional’ AID projects are small in scale.”
5. In his October 14 memorandum to the President, Rusk stated that detailed proposals on the stockpile had been submitted to Califano and some actions might be taken before the President reached Malaysia. If not, Rusk wanted to review the issue before arriving in Kuala Lumpur. Rusk suggested that in view of the difficulties with these major issues, he was looking for smaller actions, such as regional education, transportation, and a possible COMSAT ground station, to “Improve the atmosphere.”