501 Critchley to Department of External Affairs

Cablegram C19 THE HAGUE, 8 October 1949, 12.55 p.m.

IMPORTANT RESTRICTED

My immediately following telegram contains the text of a compromise for the solution of the Debt problem as informally recommended to the Netherlands and Indonesian delegations by Cochran.

2. The Netherlands Delegation appears to have been thinking in terms of a debt cancellation of about one billion guilders, but under pressure, may accept compromise.

3. The Indonesian delegations, or at least the Republican delegation, intend to make counter proposals suggesting:

(a) Cancellation of the complete debt to the Netherlands of 2.9 billion guilders, (b) Cancellation of the tin pledge.

(c) The transfer of military equipment of the K.L. Royal Army to Indonesia when the Dutch Forces withdraw.

(d) That the Netherlands be offered 'most favoured nation treatment' but not 'national' treatment in Indonesia.

As an alternative to the cancellation of the debt, they will suggest a debt-commission to investigate Indonesian liabilities to the Netherlands after deducting the cost of the Netherlands military campaigns.

4. In making these proposals, the Republican delegate will stress the difficult budgetary problems which will face the new State and the importance of reducing the burden on the R.I.S. in the early years so that not only the financial problems can be tackled, but steps taken to improve the standard of living in Indonesia and create political stability.

[AA : A4357/2, 252, ii]