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39 Letter from Spender to Menzies

Canberra, 16 March 1950

As you are aware, Cabinet on 14th February 1950 approved the recommendation adopted at the Colombo Conference concerning economic assistance to South and South East Asia. A copy of this decision is attached.1

I am planning for a meeting of the British Commonwealth Consultative Committee in Australia in May. It is necessary for the success of the first meeting of the Committee that Australia be in a position to indicate to the other British Commonwealth representatives the broad measures which the Australian Government is able and willing to put into effect in order to implement the terms of the Colombo recommendation.

It is evident that the main responsibility for strengthening their resistance to communism lies upon individual Asian countries themselves. Their own internal economic, social and political policies will be more important than the form or level of aid provided from outside. I consider we should emphasise this to them, without of course making any specific condition in respect of whatever assistance we might give. In addition it is my view, and I think that Australia should express this attitude wherever appropriate, that the countries can only strengthen themselves individually by a collective aid programme of mutual aid among themselves. They can do this through the stimulation of intra-regional trade. There is already a high level of trade in rice and other foodstuffs, but expansion of intra-regional trade in raw materials as well, as a result of progressive establishment of basic manufacturing processes for local consumption needs, would lessen the area's exposure to fluctuations in world markets.

There is little doubt that Australia has the opportunity to share in such an expansion of trade within the region, provided our commercial policies are directed to this end. At the same time it is evident that the present dispute between India and Pakistan is working to the detriment of the mutual aid principle, and that efforts should be made to bring it to an end.

However, it is clear that self-help and mutual assistance alone are not enough, and that South and South East Asia needs urgent help from outside in order to stabilise governments and maintain basic consumption standards, leaving aside more ambitious longer-term projects for the economic development of the area.

To some extent this assistance can come from general international measures. Such measures include the organisation of international commodity agreements to stabilise prices of the exports such as rubber, tin, copra, tea, upon which the Asian countries depend. Although Australia's interest in most of these commodities will be as an importer rather than as an exporter, I believe Australia should adopt a sympathetic attitude towards proposals in this field, bearing in mind the serious implications for Asian countries whenever there is a fall in prices of these commodities. Our own territories would benefit from greater stability in world prices of some of these commodities.

International assistance can be afforded through international machinery such as the International Bank for Reconstruction and Development and the International Monetary Fund. I understand that the Treasury has now conveyed to the Australian representative on the Executive Board of the International Bank, the Government's decision that Australia should 'support as high a priority as possible for projects presented to the International Bank which would contribute to the economic well being of the area and would be in accordance with the Bank's objectives'.

A further form of international assistance is through the organisation, by international agencies such as the Food and Agriculture Organisation and the World Health Organisation, of teams of technicians to go to these countries to demonstrate modem scientific methods, and of training of administrators and technicians in more advanced countries.

The Government decided to give effect to paragraph (iii) of the Colombo recommendation and I propose to submit shortly a recommendation as to the sum of money which Australia should contribute to the international organisations engaged upon this work. It will be desirable for the Australian representatives on these various organisations to ensure that as high a priority as possible is given for the needs of South and South East Asia.

More generally, Australia should encourage the development of better statistical and other information on the economic situation in these countries and the development of joint planning of economic development wherever this is practicable.

Turning from the various types of assistance which can be encouraged by Australia through international organisations, there is a clear necessity for a greater measure of bilateral aid direct to South and South East Asian countries by the United States, Australia and other British Commonwealth Governments.

There are prospects that the United States will expand the level of economic assistance which she will afford to the area, and decisions are already being made about the allocation of the relatively small sums which the administration has at its disposal at the moment. It is my view that action by the British Commonwealth, quite apart from the tangible effects it could have in the region will be an important encouragement to the United States Administration and assist it in persuading Congress to increase the level of American assistance on an international sharing basis. I am keeping in closest touch with American developments. The United States Administration is providing us with full information and I am simultaneously keeping the Americans informed on the progress of British Commonwealth thinking in this field.

It appears to me that the two broad fields in which Australia, along with other British Commonwealth countries, can take concrete action are technical assistance and more general financial and economic aid.

The question arises immediately as to which countries should be the recipients of any assistance which Australia decides to make available. The whole area from Pakistan in the West through to our own territories in the East is of great strategic significance to Australia. It would be in line with the Government's general policy to pay particular attention to British Commonwealth countries and territories in this area. There are, however, practical reasons why it might not be possible for Australia to devote her attention to these countries alone. Pakistan, India and Ceylon are not immediately threatened by Communist disorder. They have the most stable governments in the area. Moreover, all three have substantial sterling balances and if any financial assistance to their development is to be provided it could only be provided by a decision, made by the United Kingdom, to hasten the release of the sterling balances which they already own. But, at the same time, these three Commonwealth countries need technical assistance, and advice, and there is no doubt that Australia is in a position to give them some help. The British territories in Malaya are more directly threatened by Communist infiltration and influence. Here Australia can no doubt assist the British Administration by special efforts to make supplies available on a commercial basis, and by providing some technical assistance in the form either of experts and training in Australia of Malayans, but in the main whatever special measures may be necessary to strengthen the economic situation in Malaya would appear to be within the province of the United Kingdom itself.

Apart from Malaya, the main trouble spots are Burma, the three constituent territories of Indo-China which are in the front line of Communist penetration, and Indonesia. As you know, Australia has already participated in a small stabilisation loan to Burma.2 The economic situation in Indo-China is not clear at the moment. While it is evident that some aid to this region is called for, it would not appear desirable for Australia to decide at present to provide assistance except on a very limited scale such as through the provision of technical training facilities. The situation in Indo-China is being discussed by the French with the United Kingdom and the United States and it seems likely that these three countries will assume responsibility for whatever aid can be provided. In Thailand also the United States is considering a technical assistance programme. Australia's attitude will be affected by the outcome of the present negotiations for settlement of war damage claims. This general picture suggests that it will be desirable for Australia to limit its field of interest. What Australia can do will be small in relation to the needs of the area. It would therefore appear to be wise policy for Australia to concentrate in one or two countries where it will be possible to see some tangible results and where, in addition, it is possible to foresee some direct advantages to Australia. Other countries will presumably follow a similar policy and it will be a purpose of the British Commonwealth Consultative Committee in the first place to co-ordinate these separate efforts.

Against this general background I should like to bring the following proposals to your attention.

Firstly I propose, after my Department has had some further consultations with the Commonwealth Office of Education, to bring before you suggestions for a substantial increase in the size of the trust fund, already created, for the purpose of increasing the number of trainees who can be brought from selected Asian countries to undertake short courses in Australia in administrative, agricultural, industrial, medical and scientific techniques generally; and for the purpose of financing the cost of sending some Australian experts to countries which need them. A policy along these lines was inaugurated by the previous Government, but I believe that it needs adaptation to new circumstances and adoption of a new method of selection of the countries which are to benefit.

Secondly I would invite your co-operation in the study of possibilities of giving tangible aid in the field of commercial and exchange policy. I would suggest, for example, an immediate review of Australia's capacity to supply, on a commercial basis, urgently needed goods to Malaya, Indonesia, Indo-China, Burma, Pakistan, India and Ceylon. It will no doubt be generally accepted that any measures which can be taken to aid any of these countries to restore their export industries are likely to contribute to a solution of the dollar problem, either by developing dollar-earning exports or by increasing the supplies available to soft currency countries from non-dollar sources.

Even without the Colombo Conference resolution it would still have been necessary at this time to review all new aspects of our future commercial and financial relations with the Republic of the United States of Indonesia and the remaining Dutch Territories of New Guinea. Following the transfer to Indonesia of complete sovereignty, economic relations will become a more important avenue for the expression of Australia's general policy than hitherto.

I do not need to emphasise that the maintenance of stability in Indonesia is politically and strategically of great importance to Australia. Properly directed international assistance may be the deciding factor in sustaining a moderate anti-communist government which will seek friendly relations with the West. Moreover, the existing goodwill towards Australia among Indonesian leaders creates a favourable political atmosphere for the establishment of future commercial and financial relations on a basis beneficial to Australia as well as Indonesia.

I believe that it is in Indonesia and Dutch New Guinea that Australia will be able to make its major contribution in the joint British Commonwealth plan, and at the same time gain maximum political and economic advantage.

There are certain general questions concerning policy towards Indonesia which I therefore feel should be brought to your attention:

(1) 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 give Australia a source of dollar earnings eventually.

(d) Information which my Department will make 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) From the information I was able to gather it appears that the Indonesians will welcome Australian businessmen who can present proposals for industrial development in Indonesia which will fit in with their own plans.

(2) The Indonesian import programme for 1950 will be largely dependent on the 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. My own impression is that a credit would be justified, but this would have to be examined in the light of availability of supplies in Australia.

I would suggest that the general problems referred to above indicate the need for Ministerial discussion. Such a discussion might initially be directed towards the following specific points:

(a) The extent to which Australian export surpluses of foodstuffs or manufactured goods can be directed to countries in the region, consistent with our other commitments and dollar-export policy.

(b) The desirability of affording a credit to Indonesia. The United Kingdom Government, in telegram 13790 of March 14th,3 informed us that they had commenced discussion with Indonesia of payments arrangements and stressed that Indonesia is potentially a valuable source of dollar saving goods and the United Kingdom has a strong interest in developing her export trade with Indonesia.

(c) The desirability of sending a general economic mission to Indonesia.

(d) The availability of Australian supplies in relation to Indonesian demands on the basis of two alternative assumptions:

(i) that Australia will make a credit available;

(ii) that no credit will be made available by Australia

(e) Measures necessary to interest Australian businessmen to establish trade or investment relationships with Indonesia.

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

(g) the future of the �8,500,000 wartime debt to Australia, bearing in mind that Australia might offer to give relief from this debt, if it can be used as an instrument of bargaining.

I am sending copies of this communication to the Treasurer and to the Ministers for Commerce & Agriculture, Trade & Customs, and Supply & Development, since I consider this question should be the subject of joint ministerial discussions.

I am anxious that our ministerial discussion could begin before the Easter Parliamentary recess, during which I shall be absent from Australia, so that the Departments can examine some of the issues in greater detail and have a report ready immediately after the recess. I therefore suggest to you that we have a meeting next Wednesday, March 22nd, in the Cabinet room at 9.30 a.m.

[matter omitted]

[NAA: A1209, 1957/5406]

1 Document 29.

2 On 25 March it was announced that the five countries of the Commonwealth were contributing a loan of �6 million to Burma. An agreement was signed on 28 June 1950. The United Kingdom contributed �3� million, India �1 million, Pakistan and Australia each �.5 million and Ceylon �� million.

3 Not published.

Last Updated: 10 January 2017

Category: International relations

Topic: History