502 Critchley to Department of External Affairs

Cablegram C20 THE HAGUE, 8 October 1949, 12.55 p.m.

IMPORTANT RESTRICTED

United States compromise debt proposals [1] 'on the calculation that the Foreign Debt of Indonesia is 3.3 billion Netherlands Guilders divided approximately as follows:

900,000,000 consolidated debt.

400,000,000 Foreign credits guaranteed by the Netherlands.

2,000,000,000 floating and other debts to the Netherlands.

3,300,000,000 [2] and that the Internal debt in Indonesia is approximately 3 billion Indonesian Guilders.

It is recommended that:

1. The Netherlands cancel the 'floating and other debts due to the Netherlands' to the extent of 2 billion Netherlands Guilders.

2. The Netherlands, as creditor of the consolidated debt and as guarantor on the Foreign credits assume the full contractual obligations for servicing the debt of 1.3 billion guilders comprising those two items for the period of four years from the date of transfer of sovereignty.

3. The Netherlands suspend the applicability of the 'tin pledge' for the same period of four years.

4. The Netherlands maintain lines of credit to Indonesia for a minimum of four years in the amount of ------ million guilders.

5. The Netherlands provide Indonesia with such technical experts and advice as may be helpful in securing an efficient and sound management of the finances and economy of Indonesia.

It is further recommended that:

(a) Indonesia continue responsible for the internal debt of 3 billion guilders.

(b) Indonesia take advantage of the readiness of the Netherlands to provide technical experts and advice and enter into consultations with the Netherlands in the sense on which there has already been a 'meeting of minds'.

(c) Indonesia consult with the Netherlands, and possibly with experts from the International Bank or Fund, with the view to determining what decisions should be taken by Indonesia in handling the internal debt.

Preparing for the assumption of management of the economy of Indonesia from the date of sovereignty transfer.

(d) No decision be taken at this time as to how tthe internal debt may be deal with-as for example by a consolidated loan or by a monetary operation.

(e) Indonesia undertake to follow economic and monetary practices approved by International standards and endeavour to achieve and maintain a sound economic and monetary system including a balanced budget.

(f) Indonesia consult with the Netherlands with a view to ascertaining whether there may be made available to Indonesia for application on reduction of its internal debt the sum of approximately 100 million Indonesian guilders on deposit in the Java Bank to the credit of the Netherlands bank and under the joint control of the Netherlands Government and E.C.A.

(g) Indonesia benefit from revival of E.C.A. aid which is to be recommended on the successful conclusion of an R.T.C. agreement.

(h) Indonesia be prepared as early as possible, with the assistance of the Netherlands, to submit pertinent data to International organisations or Foreign Governments which might normally be looked to for advice or credits. [3]

1 Cochran submitted his compromise proposals to the Steering Committee on 7 October on his own responsibility without US government endorsement. Drees and Stikker informed Cochran that the Netherlands Government governments could not accept the proposals as a basis for discussion and had considered resigning.

See Department of State, Foreign Relations of the United States, 1949, vol. VII, Washington, 1975, pp.505-9.

2 '3,300,000,000' guilders represented the total Indonesian debt in the US debt proposals.

3 In cablegram C21, dispatched on 8 October, Critchley informed the Department of External Affairs that the Netherlands had refused to accept Cochran's debt proposals as a basis for discussion.

[AA : A1838, 854/10/4/3, vi]