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

281. Memorandum From Marshall Wright of the National Security Council Staff to the President’s Special Assistant (Rostow)¹

Washington, September 29, 1967.

SUBJECT

• Your meeting at 5:00 p.m. on September 29—rubber, Malaysia, and Finance Ministers²

I thought it might be useful for you to have this background prior to the meeting.

The Malaysians are continuing their all-out efforts to get Finance Minister Tan Siew Sin in to the President. They have sent Foreign Ministry Permanent Secretary Ghazali here as an advance man charged with the task of getting the appointment.

In meetings at State and here, Ghazali has made a very vigorous presentation, the essence of which is:

(1) The Malaysians greatly value their friendship with the U.S.

(2) The Malaysian future is based on the success of current development efforts largely based upon stability in the rubber market.

(3) The decline in the rubber market is an extremely serious problem for Malaysia, and Communist propagandists are attempting to poison U.S./Malaysian relations by using our stockpile disposals as “evidence” that the U.S. is not really helpful to Malaysia.

(4) The Malaysian government wants to remove, once and for all, this irritant in U.S./Malaysian relations.

(5) The Malaysians, therefore, want to discuss a series of proposals for ending the stockpile problem.

(6) In the meantime, it is essential that Tan see President Johnson and that the President indicate that he has instructed his government to work “together” with Malaysia in regard to the rubber problem.

(7) This will then enable the Malaysian authorities to handle their public relations problems with Communist agitators.

Ghazali stresses that, for the time being, concrete steps are not as important as the atmospherics of a presidential meeting.

Of the various Malaysian proposals for dealing with the stockpile, only one has any possible merit from the U.S. point of view—that the Malaysians purchase the entire stockpile. We have had several meetings with the technicians on this possibility, and Ed Fried has come up with a package which all agree is worth considering from our point of view. Briefly, the package is:

(1) The Malaysians would convert $100–$150 million of their reserves into 5-year Treasury bonds. Thus we get an immediate balance-of-payment effect to the value of the stockpile.

(2) EXIM extends a credit to the Malaysians to enable them to purchase the stockpile. This is a washout from the budgetary point of view in that it is a debit to EXIM and a credit to the stockpile account. The loan agreement would provide for repayment within three years. Thus, we would get a net favorable budget effect, either immediately by selling the paper at a discount, gradually through the amortization of the loan or, at worst, in lump-sum repayment after three years.

We do not know whether this idea is even in the ball park, so far as the Malaysians are concerned. Bob Barnett is informally sounding out the Malaysians on this. Thus far, all agree that if the Malaysians are not serious about a previous agreement on something concrete, Tan should not see the President. State, however, is giving at the seams and will, I think, eventually recommend the meeting, even if it is only for cosmetic effect.

My own instinct is that the Malaysians are really engaged only in an effort to get Tan in to see the President. I believe they will take the position that nothing concrete can be agreed upon without extensive study, but their hearts are in the right place, and we should show that our hearts are in the right place by having the President receive Tan and make noises on working together on the rubber problem.

An additional complication, of which you should be aware, is that the Indonesian Finance Minister, Franz Seda, will be in town at the same time (next week) as Tan. Seda also wishes to see the President to deliver a letter from President Suharto.³ State is much concerned with the damage that could be done if Seda were to see the President while Tan was refused. I agree that this is a problem. One way out would be for you to see Seda on the President’s behalf.

Marshall

1. Source: Johnson Library, National Security File, Country File, Malaysia, Vol. IV, Memos, 1965–1968. Confidential. A copy was sent to Jorden.
2. No memorandum of conversation of Rostow’s meeting with Ghazali has been found, but in a September 30 memorandum to Rostow, Wright described the results of the meeting. Wright wrote: “prior to the meeting with Ghazali in Ernie Goldstein’s office [a Special Assistant to the President specializing in domestic issues] Malaysian Finance Minister Tan was planning to follow his meeting with the President with a speech in New York in which he would call for complete suspension of our sales from the rubber stockpile. It [an attached cable from Kuala Lumpur] also shows that exposure to reality in Ernie’s office has led the Malaysian Government to order the suspension of GOM statements attributing the rubber price decline to U.S. stockpile releases.” Wright considered this a “move in the right direction,” as well as evidence of the danger of connecting the President with the rubber problem and the need for “courteous but complete candor” with the Malaysians. (Ibid., Cables, 1965–1968).
3. Seda met with Vice President Humphrey; see footnote 2, Document 245.