521 Critchley to Department of External Affairs

Cablegram C31 THE HAGUE, 30 October 1949, 7.20 p.m.

IMMEDIATE RESTRICTED

ECONOMIC AND FINANCIAL Complete agreement has now been reached on items for inclusion in the Economic and Financial Agreement. [1] The Netherlands Delegation has given up its claims for interference in the Internal Economic Policy of the R.I.S. and the Indonesians have agreed to consult with the Netherlands before taking decisions on important matters in the Monetary and Financial field.

The following text has been agreed upon in connection with the most favoured nation and national treatment:-

'Netherlands Nationals, Corporate Bodies, Products, ships and other objects shall enjoy in Indonesia a treatment not less favourable than the one granted any third country. Foreigners of all nationalities shall enjoy equal rights in the participation in trade with Indonesia and in the economic activity and industrial development in that country. However, the R.I.S. recognises that full account must be taken of the special interests of Netherlands Nationals and Corporate bodies within Indonesia and recognises further that there shall be no discrimination against said interests without prejudice to the right of the R.I.S. to take such measures as will be necessary for the protection of National interests or for protection of economically weak groups.' [2]

The Netherlands Delegation continues to press the Indonesians for guarantees [3] in respect of their financial commitments to the Netherlands in the form of an Annex or covering letter to the economic and financial agreement. The Indonesians have made it clear that such guarantees as the 'tin pledge' are entirely unacceptable. [4] Hatta has assured the Netherlands, however, that as a union partner, he will discuss reasonable ways and means of relieving the Netherlands of the risks associated with the guarantees they have given on behalf of the R.I.S. The problem is largely one of face-saving for Lieftinck, the Netherlands Minister of Finance, who has been insisting on a continuation of the tin pledge and Hatta, and some of the other Indonesians will have personal discussions with him.

PART II MILITARY The following summarises the agreements5 on the main Military matters following compromise proposals by the Commission Surabaya Naval Base:

(1) The base belongs to R.I.S.

(2) Property rights will go to the R.I.S.

(3) Political, Military and Territorial responsibility will rest with the R.I.S.

(4) A Netherlands Naval Officer will be chosen by the R.I.S. from a panel of names to undertake technical management of the base with direct responsibility to the R.I.S. Minister of Defence.

(5) This Officer will be responsible for security within the base and will have under his direction a special R.I.S. Police Force which will function in accordance with Indonesian laws.

Netherlands Navy [5]

(1) Netherlands small craft and Corvettes will remain for the time being in Indonesia and a proportion of these will be transferred immediately to the R.I.S.

(2) Three Netherlands Destroyers will stay in Indonesian waters under the authority of the R.I.S. Government but under Netherlands command and under the Netherlands flag.

(3) Advantage will be taken of the presence of the Destroyers to train Indonesian crews as quickly as possible.

(4) At the end of one year, following the transfer of sovereignty, one of the Destroyers will be transferred in ownership and under the flag of the R.I.S.

Withdrawal of Netherlands Forces [6]

(1) Netherlands troops will be withdrawn from Indonesia within as short a time as possible after the transfer of sovereignty and advantage will be taken of all means available.

(2) Should it become evident as the Netherlands Government regretfully foresees that lack of shipping or other technical difficulties will prevent completion of the withdrawal within six months after the transfer of Sovereignty, the Netherlands Government will gladly give the R.I.S. authorities free access to details of the arrangements and endeavours of the Netherlands Government for repatriation of the troops.

(3) A Joint Technical Committee might be established to study the technical possibilities of repatriating the Netherlands Forces and ways and means of overcoming the difficulties.

(4) Under its terms of reference and as anticipated by agreement in the 22/6 memorandum [7] the U.N.C.I. or its successor should be in a position to assist.

Reorganisation and financing of K.N.I.L. (Royal Netherlands Indonesian Army) and transfer of K.N.I.L. Materials The Military Committee has agreed that K.L. (Royal Army) and K.N.I.L. troops should be concentrated in certain areas and that this should begin during the transitional period immediately after the termination of the R.T.C. The Netherlands Delegation has, however, pointed out that decisions on measures to be taken prior to the transfer of sovereignty are not the concern of the RTC. It has, therefore, been agreed that the leaders of the Delegations will discuss the matter outside the R.T.C. in the near future. Van Maarseveen has been consulting the High Commissioner of the Crown in Indonesia and will refer the proposals to Cabinet probably tomorrow. The Commission is maintaining pressure to have this issue settled as quickly as possible.

PART III POLITICAL Only two difficult political issues remain, the right of self- determination and New Guinea.

New Guinea This problem was discussed in detail in the Steering Committee yesterday afternoon and evening. A complete deadlock was reached, with the Netherlands Delegation emphatically protesting that sovereignty over New Guinea could not be transferred, and with the Indonesians in the mood to break off negotiations. To prevent a breakdown, the Commission informally and on its own initiative, made the following proposal:

'It is recommended:

(a) In view of the desirability of the Round Table Conference concluding successfully on 2nd November, 1949.

(b) In view of the important factors which should be taken into account in settling the question of New Guinea.

(c) In view of the limited research that has been undertaken and completed with respect to the problems involved in the question of New Guinea, and, (d) In view of the heavy tasks with which the Union partners will initially be [con]fronted, That the residency of New Guinea continue under the Government of the Netherlands with the stipulation that, by the end of the first year of sovereignty of the R.I.S., the question of the future political status of New Guinea be determined by negotiations between the R.I.S. and the Netherlands.'

None of the Delegations is happy with the proposal, but there is a good prospect that it will be accepted. Netherlands Trusteeship would have been a preferable arrangement but this seems politically impossible for the Indonesians. In any event postponement seems likely to lead to Netherlands Trusteeship as a final solution.

Self-Determination The Netherlands have put forward detailed proposals and indicated informally that they regard this question as politically most important. Romme will attend the Steering Committee discussions which will probably begin this afternoon.

PART IV PLENARY SESSION ARRANGEMENTS The final Plenary Session has been officially fixed for 2/11/49.

The Draft Resolution covering agreements reached at the R.T.C.

will provide for a transfer of sovereignty to take place at a formal ceremony at Amsterdam not later than 30/12/49.

1 The text of the Financial and Economic Agreement is given in United Nations, Security Council Official Records, Fourth Year, Special Supplement No. 6, pp. 109-121.

2 Article 2 of the Agreement.

3 The Government of the Republic of the United States of Indonesia concurred with the Netherlands Government's request on 2 November.

See 'Exchange of letters in respect of certain financial and economic matters', 2 November 1949, in ibid, pp. 122-127.

4 The Netherlands Delegation annulled the 'tin pledge' on 2 November and the Indonesian Delegations, in return, agreed to safeguard the Netherlands 'against risks emanating from guarantees given by the Netherlands in regard of debts of Indonesia'. See ibid, p. 127.

5 See Chapter V of 'Regulation concerning the Netherlands naval fighting forces in Indonesia after the transfer of sovereignty' in ibid, p. 132.

6 See 'Regulations concerning the land fighting forces in Indonesia under Netherlands command after the transfer of sovereignty, in ibid, pp. 134-45.

7 See Document 447. Section D of the 'Agreement on Time and Conditions of the Round Table Conference' of 22 June stated that 'The United Nations Commission for Indonesia or another United Nation agency shall observe in Indonesia the implementation of the agreements reached at the Round Table Conference'.

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