503 Aide Memoire of the Indonesian Delegations

THE HAGUE, 10 October 1949

AIDE MEMOIRE OF THE INDONESIAN DELEGATIONS

1. The Indonesian delegations are of the opinion that the discussions on the subject of economic and financial relations between the Netherlands and Indonesia have reached a crucial stage. Reference is made to the numerous discussions among the delegations of the Netherlands, the BFO and the Republic in the four sub-committees of the Economic and Financial Committee. The Indonesian delegations beg to refer to the Eighth and Ninth Sessions of the Steering Committee held respectively Friday, September 24, 1949, and Tuesday, September 27, 1949 which were attended by the UNCI as well as by the three delegations of the Committee for Economic and Financial affairs. At those sessions, a summary of main points of agreement and disagreement [1] in that Committee was presented to the Steering Committee by the Chairmen of the Week of the Economic and Financial Committee.

The Indonesian delegations further refer to the weekend meeting among the three delegations at the Hooge Vuursche. [2]

Both at the informal discussions among the three delegations as well as the formal extraordinary session of the Steering Committee on Sunday, October 2 at the Hooge Vuursche, the entire situation in the economic and financial section was reviewed. With particular reference to the issue of debts to be assumed by the government of the RIS at the moment of transfer of sovereignty, it became apparent that no meeting of the minds could be reached between the Indonesian delegations and the Netherlands delegation.

The Indonesian delegations also beg to refer to the exchange [3] of Oral Notes on October 6, 1949, which Oral Notes confirmed the positions verbally stated at the weekend meeting at the Hooge Vuursche.

2. It is clear that the issue of debts to be assumed by the government of the RIS at the moment of transfer of sovereignty is the nucleus of the complex problems in the discussions on economic and financial relations between Indonesia and the Netherlands.

With due respect to the position taken by the Netherlands government in relation to the debt issue, the Indonesian delegations on their part submit that they adhere to the principles which formed the basis for their approach on this problem. A solution to this vital issue will therefore be possible if a practical approach is being followed.

In their sincere desire to seek a solution in a spirit of compromise and accommodation to the benefit of the future partners of the Union, the Indonesian delegations beg to present this Aide Memoire. It is hoped it will receive due consideration of the Netherlands delegation.

3. The Indonesian delegations believe that a solution to the issue of the debts to be assumed by the government of the RIS at the moment of transfer of sovereignty should be based on a reasonable distribution between the Netherlands and the government of the RIS of the liabilities of the present government of Indonesia (former NEI).

In view of the tremendous increase of the debts both external and internal as compared to the pre-war situation, the present conditions of monetary inflation, and the huge budget deficits, the future government of the RIS will be faced with a complex of great difficulties in its endeavours to achieve a sound economic and monetary system. The devaluation of the currency will be an additional drain on the budget as it is anticipated that for a number of years to come Indonesia will have an import surplus because of the present circumstances.

As a consequence of the financial policy of recent years resulting in the present critical situation, the new government of the RIS will, from the moment of its inception, be dependent upon new loans in order to be able to cope with the economic and monetary problems. If one desires a clear picture of the debt position of the RIS at the moment of its inception, these new loans which are necessary and which are a consequence of the inheritance of the past should be included in the present debt. It is estimated that to be able to achieve a sound economic situation resulting in a stable budget position, a period of at least five years will be required. Even so, to achieve such aim within the period mentioned, new resources in the form of loans to the amount of 4 billion guilders will be necessary. The actual burden faced by the government of the RIS would thus amount to 10 billion guilders.

All these factors should be taken into account when the issue of debt assumption by the government of the RIS is being considered.

Furthermore, it will be appreciated that it is to the detriment of all parties concerned, both the Netherlands and Indonesia, should the new government start functioning with too heavy a burden.

4. The Indonesian delegations therefore propose:

(a) The Netherlands will cancel the 'floating and other debts due to the Netherlands' in the amount of 2 billion Netherlands guilders and the consolidated debt in the amount of 900 million Netherlands guilders, totalling 2.9 billion Netherlands guilders.

(b) Indonesia will assume the 400 million Netherlands guilders in foreign credits guaranteed by the Netherlands. Indonesia also continues to take the responsibility for the internal debt of 3 billion guilders. The total amount of debt which the government of the RIS has to assume at the moment of transfer of sovereignty will thus not exceed 3.4 billion guilders.

(c) The Indonesian delegations deem it unacceptable to reserve for the benefit of the Netherlands, percentages of its proceeds of exports in hard currency for the purpose of repayment of eventual debts. It will be appreciated that such a regulation would consequently set limitations to the trade movements between Indonesia and other countries.

(d) The Indonesian delegations are of the opinion that the 'tin pledge' as collateral-established only on January 4 of this year- cannot be accepted, as under the circumstances such 'tin pledge' is considered to be unwarranted.

(e) The Netherlands agrees that all the military equipment in Indonesia of the Royal Netherlands Army, after its early withdrawal from Indonesia, will be retained by the RIS. Although the initial military equipment in the form of light arms only of the Royal Netherlands Army has been paid for by the Netherlands, it should be kept in mind that after having been utilized in two military actions, the greater part of such equipment is of limited value because of obsolescence. Out of the foreign credits in the amount of 400 million Netherlands guilders mentioned in sub- paragraph (b) of this paragraph, transportation equipment, the greater part of which was intended for civilian purposes, has been financed. This transportation equipment, however, has been subsequently requisitioned for military purposes in the course of the two military actions.

5. The Indonesian delegations beg to point out that the proposals as contained in Paragraph 4 are to be considered as one coherent whole.

6. As an alternative solution to that mentioned in Paragraph 4, the Indonesian delegations propose that:

(a) A special commission be set up to investigate the nature and size of military and other expenditures connected with the military actions carried out by the Netherlands against the Republic of Indonesia. Such commission should be a joint commission comprising representatives of the Netherlands, representatives of Indonesia and representatives of an impartial party, assigned by an agency of the United Nations.

(b) The transfer of sovereignty and the moment of such transfer not be dependent upon the work and outcome of the investigations carried out by such debt commission as mentioned in sub-paragraph (a) of Paragraph 6.

(c) In order to expedite the transfer of sovereignty to Indonesia which clearly is in the interest of all parties concerned, the Netherlands and Indonesia will agree to a formula that a reasonable distribution of the liabilities shall take place between the Netherlands and Indonesia and that each of the two parties commits to abide by the results of the investigation of the commission mentioned hereinbefore.

7. The alternative solution mentioned in Paragraph 6 is without prejudice to the position taken by the Indonesian delegations in sub-paragraphs (c), (d) and (e) of Paragraph 4.

8. Indonesia agrees to enter into consultations with the Netherlands on important matters of economics and finance and in the sense on which there has already been a 'meeting of minds'.

Indonesia will also be glad to take advantage of the readiness of the Netherlands to provide technical experts and advice.

9. Indonesia undertakes to follow economic and monetary practices approved by international standards and endeavours to achieve and maintain a sound economic and monetary system.

10. It is the considered opinion of the Indonesian delegations that aliens of all nations should be accorded equal rights in the participation of trade with Indonesia and in business activities and industrial development therein. The Indonesian delegations fully appreciate that due account should be rendered to the special interests of Netherlands nationals and Netherlands corporate bodies within the territory of Indonesia and that no discrimination of a substantial nature be applied to such nationals and corporate bodies. This proviso is without prejudice to such regulations which are necessary for the protection of the national interests of the respective partners as well as for the protection of economically weak groups.

11. Without prejudice to Paragraph 10, nationals and corporate bodies of each of both partners in their respective territories will receive treatment not less favourable than that of nationals and corporate bodies of third countries.

12. Indonesia will in principle recognize all concessions, legal rights and licenses granted by the NEI government to natural persons and corporate bodies provided those concessions, legal rights and licenses have not in the meantime been modified, withdrawn or cancelled. The government of the RIS reserves the right to investigate important concessions, legal rights, licenses, long-term contracts on land granted by the NEI government after 1942 which may have a substantial impact on the economic policy of the RIS.

13. The Indonesian delegations are fully aware that capital invested in Indonesia should receive reasonable remuneration and be able to transfer such remuneration in cases where such capital originates from abroad. Indonesia will facilitate in principle the transfer possibilities in the following instances:

(a) Transfer of profits;

(b) Transfer of depreciations for purchases of new capital goods to replace obsolete items;

(c) Transfer of compensations in case of nationalization of properties and/or rights. Indonesia will adhere to the principle that such nationalization of private properties should be done only when the public interest is involved. Furthermore, nationalization will be carried out by law. Indonesia will refrain from nationalization of private property without fair compensation. In principle, it will be possible to transfer mentioned compensation should the invested capital originate from abroad.

(d) Transfer from the gross surplus above operations costs of:

(1) payments for the current year out of funds for the necessary social security arrangements for the personnel domiciled in Indonesia who will ultimately leave Indonesia permanently;

(2) interest for the current year for loans committed outside Indonesia and on behalf of the enterprise within Indonesia.

It will be appreciated however that especially in the initial stages of the new government of RIS, a moderation in the size and tempo of the transfers should be pursued to prevent economic disintegration of the young State which would not in the least affect the creditors and investors. Especially in the transitional years during which the balance of trade has not become sufficiently active resulting accordingly in an unfavourable position in the balance of payments, the position of the foreign exchange would not allow an integral arrangement of transfers.

Therefore, certain restrictions on the transfer possibilities as outlined in this paragraph will be necessary if the position of foreign exchange of the country so requires.

1 The Chairman of the Committee for Economic and Financial Affairs, Indra Kusuma, issued a 'Summary of the Principal Points of Agreement and of Non-Agreement in the Committee for Financial Economic Affairs' on 27 September.

2 The Steering Committee met on 2 November in the Hoge Vuurse.

3 See Document 500.

[AA : A1838, 403/3/1/1, xxv]