Canberra, 13 March 1950

The Government, on 14th February 1950, approved certain recommendations adopted by Foreign Ministers at the Colombo Conference concerning economic assistance to South and South East Asia. A copy of this Cabinet decision is attached.²

2. A meeting in Australia of the British Commonwealth Consultative Committee has been tentatively scheduled to take place in May. My Minister is anxious that Australia should then be in a position to indicate in greater detail to the other British Commonwealth countries the measures which the Australian Government is able and willing to put into effect in order to implement the terms of the Cabinet decision. The terms of reference of the proposed Consultative Committee are also attached³ for your information.

3. My Minister proposes to invite the Treasurer⁴ and Ministers for Commerce and Agriculture,⁵ Trade and Customs,⁶ and Supply and Development to consider detailed proposals to place before the Government. A letter will shortly be addressed to these Ministers by him. In the meantime, however, the Minister has instructed me to invite the Departments concerned to have exploratory discussions with a view to submitting material to Ministers.

4. The countries in the area defined for this purpose are Pakistan, India, Ceylon, Burma, the British Territories in South East Asia (namely Malaya, Singapore, British North Borneo, and Sarawak), Vietnam, Cambodia and Laos' (formerly French Indo-China), Thailand, and the United States of Indonesia.

5. The decisions appended were made by the Government against the background of an assessment of political developments in the area which, in the Government's view, represent a direct threat to Australia's security. There is the possibility that economic measures, particularly if coupled with military and political arrangements, will mitigate Communist-inspired unrest and stabilise Governments. Moreover, an initiative by Commonwealth countries is expected to have a favourable reaction upon the United States and it is the intention to keep the United States fully informed of the broad lines of Australian intentions. In many cases economic action can be reconciled with Australia's own commercial advantages. But it will also be necessary, in the view of the Government, to look beyond immediate commercial advantages. In these circumstances it will be necessary for each Department to relate its enquiries into the economic factors to the political situation in this area.

6. As a tentative basis for inter-departmental discussion we have endeavoured to set out in the following paragraphs the possible lines of economic action, under each part of the Cabinet decision, to which the Departments concerned might give their attention. No doubt the relevant Departments will themselves be in a position to suggest possible lines of action by Australia to implement the Government's decision referred to. The references which follow are to the paragraphs of the Cabinet decision.

1. (ii) International Bank

7. This decision is already under consideration by the Department of the Treasury.

1. (iii) Contribution to Technical Assistance Programme of the United Nations and Specialised Agencies

8. It is expected that a conference. will be held in May to receive offers of voluntary contributions from Member Governments. This Department intends shortly to prepare for submission to the Government a firm recommendation on the level of the Australian contribution. For your information the Department has in mind a contribution in the order of �150,000 to �200,000 for soft currency expenditure over the period of July 1st, 1950, to December 31st, 1951.

1. (iv) Supplementary bilateral arrangements for technical assistance

This Department is examining with the Commonwealth Office of Education the possibilities of absorbing an enlarged number of Asian trainees in Australia. In due course the Department will submit concrete proposals for submission to the Government. For your information the Department has in mind a fund sufficient to provide about �50,000 annually for the purpose of training an intake of about 70 trainees, plus a further sum to finance the despatch of Australian experts to Asian countries.

1. (i) (iv) (v) Financial assistance, and other types of direct assistance, and general proposals including the possibilities of mutual assistance

9. The purpose of this letter is to invite the consideration of Departments to the possible lines of action which might be taken under these sections of the Cabinet decision, and in the light of the terms of reference of the proposed Consultative Committee. I would suggest for your consideration that the following subjects might profitably be examined by the Departments concerned and made subsequently the subject of inter-departmental discussion:

(a) Review of (i) Australia's capacity to supply, on a commercial basis, incentive foodstuffs, urgently required equipment for agriculture, transport, communications etc., and (ii) any special measures available to the Government to assist the countries concerned to procure supplies in Australia;

(b) Measures necessary to interest Australian businessmen to establish trade or investment relations with the countries in the area;

(c) The need for any special agreements to protect Australian investment or trade interests which may be established (for example double taxation, exchange control, discrimination);

(d) The desirability of affording credit to any of the countries concerned;

(e) Determination of the Australian attitude towards commodity arrangements for the main exports of the area as referred to in the terms of reference of the Consultative Committee;

(f) Any other forms of bilateral or international economic assistance.

11. In this Department's view the determination of Australian policy should be guided by the following assumptions:

(a) Indo-China, Burma, Indonesia and Malaya are the territories under the most direct threat of Communist penetration, Thailand being less directly threatened.

(b) The United States Administration appears to be moving towards acceptance of some responsibility for affording economic aid in the region, but at the moment the Administration is confined to relatively small sums available to it from previous appropriations, and is only now assessing in detail the real needs of the various countries.

(c) Any aid given to South and South East Asia should be addressed as far as practicable to assisting Governments to maintain administrative control and to restore export production, much of which is of dollar-earning significance for Australia and the rest of the world.

(d) It would be in Australia's interests to concentrate any special measures of assistance which it makes available so that tangible results can be gained from the limited aid which it is possible for Australia to give.

(e) At the same time an effort should be made to give some assistance (for example through technical training) to British Commonwealth countries in the area.

12. It appears to this Department that paragraphs 10 and 11 have a particular application to Indonesia. Even without the recommendations of the Colombo Conference it would still have been desirable at this time to review all aspects of our future commercial and financial relations with the United States of Indonesia after the disruption of trade which has taken place, and the establishment of a new administration since the transfer of sovereignty. Apart from the great political and strategic importance of our future relations with Indonesia, that country represents a large potential market and source of raw materials for Australia. Moreover, there is evidence that properly directed international assistance may be a deciding factor in sustaining a moderate anti-communist government.

13. There are certain aspects of our future relations with Indonesia which we should like especially to suggest to you:–

(i) There is a need for an early formulation of an active policy towards Indonesia in the commercial and investment fields in the light of the following factors:

(a) Prospects for Australian trade appear to be good provided Indonesia's balance of payments difficulties can be overcome;

(b) Indonesia may prove valuable to Australian industry as a source of raw materials which are at present in short supply;

(c) Indonesia is a potential dollar earner. Estimates of the balance of payments of Indonesia over the years 1950-53 suggest that, given certain initial assistance, that country may be earning, by the year 1953, a substantial surplus of dollars. Special efforts to develop our trade links now might therefore given8 Australia a source of dollar earnings eventually;

(d) Information available suggests that Indonesian needs are not only capital equipment–which Australia would presumably have difficulty in supplying–but also incentive consumption goods which Australia may be able to provide;

(e) The Indonesians may be expected to welcome Australian businessmen who can present proposals for industrial development in Indonesia which will fit in with their own plans.

(ii) The Indonesian import programme for 1950 will be largely dependent on availability of foreign exchange. At present sterling resources are scarce and it is doubtful whether there would be much opportunity for Australian trade with Indonesia unless sterling credit is made available. It is therefore desirable to consider whether Australia should make available a credit. Some decision on this would be desirable before the Indonesians finalise their 1950 import programme.

(iii) The future of Indonesia's debt of �8.5 million to Australia might be examined with a view to affording Indonesia some relief. Any consideration of cancellation in whole or in part of the debt might be linked with the provision by Indonesia of some quid pro quo in the form of facilities for Australian government buildings in the country.

(iv) Some examination should be given to the desirability of sending a visiting economic mission to Indonesia in the near future.

14. My Minister will probably suggest to Ministers concerned that they have a joint discussion before the Easter recess, and probably before the Minister for External Affairs leaves Australia on March 24th. I would be glad to know whether it would be practicable for you to be represented at a joint meeting of Departmental representatives on Monday (March 20th) at 10.30 a.m. at the Department of External Affairs, to have an exploratory discussion on all aspects of the subject matter of this letter.

15. I am enclosing copies of some material which has been collected informally by a departmental representative now in Indonesia.

[matter omitted]

[NAA: A1838, 381/3/1/3 part lb]

1 Addressed to the Heads of Treasury, Commerce and Agriculture, Trade and Customs, and Supply and Development.

2 Document 29.

3 See Document 19.

4 A.W. Fadden.

5 John McEwen.

6 Senator Neil O'Sullivan.

7 Howard Beale.

8 The word 'given' should presumably read 'give'