119 Critchley to Department of External Affairs

Cablegram K108 KALIURANG, 25 April 1948

The Economic and Financial Committee met on April 22.

A. CORRIDORS FOR CIVIL TRAFFIC AND JOINT USE OF PUBLIC WORKS Sub Committee 2 presented preliminary technical reports on Highways, Irri-gation, Railways and Public Roads and Bridges.

These show a large measure of agreement on principles. Details are still to be worked out.

B. RESTORATION oF ECONOMIC INTERCOURSE ACROSS THE STATUS QUO LINE The report of sub-committee 4 expressed the agreement of both parties that the existing regulations of the Netherlands Indies Government and the Republican Government remain in force. These regulations provide for (a) prohibition on the movement of currency over a certain value and of military stores.

(b) special arrangements for border trade.

(c) licencing control of other trade.

The Republic will not permit the export of textiles nor will the Netherlands as a rule permit trade in estate products. Traffic will be conducted along routes agreed by the respective governments. Trade will normally be on a barter basis. Regulations for movement of persons are also being considered.

2. The Republic has stressed the the urgency of a liberal implementation of the agreement. The Netherlands agree but are prepared to modify existing regulations. Only gradual improvement in trade can be expected.

3. At the suggestion of the Committee of Good Offices the parties also agreed that (a) sub-Committee 4 should continue throughout the truce period as a sub-Committee for the 'reopening of trade and communications'.

(b) the parties should take up with their respective governments all matters of implementing of the agreement.

(c) naval experts from the parties should assist the sub-Committee in working out regulations for sea traffic so as to facilitate trade by sea.

4. From informal talks I learn the Republic is optimistic about the reestablishment of internal trade between the areas controlled by the two governments. They are not so hopeful of obtaining a free movement of persons which is important to relieve overcrowding in the Republican areas and to spread Republican sympathizers in Netherlands held territory.

5. Main Republican concern however, is with foreign trade. The Republic urgently requires reconstruction and transport goods.

Reconstruction minister Laoh who has just returned from America is reported to have made arrangements there for the purchase of suitable goods in exchange for native produce such as kapok and rubber. Outside pressure or a political settlement will be required before the Netherlands permit Republican foreign trade.

Perhaps the approach of your telegram No. 18 [1] could be followed up. Once the principles were established it would be comparatively easy to arrange trade with Australia. Meanwhile it is too early to get a satisfactory reaction to proposals on the lines of your 77.

[2] informally both parties have shown interest in the suggestions particularly of course the Republic. Van Hoogstraten thought trade with Australia might begin in September. He obviously had in mind the conclusion of a political agreement satisfactory to the Netherlands. I shall take the proposals further with both parties as opportunities arise.

C. GENERAL ECONOMIC PROBLEMS CONNECTED WITH THE FUTURE POLITICAL SETTLEMENT

Sub Committee 3 reported agreement on the general purpose of a future settlement, namely: an economic unity of the future federation-which will be strong externally and which will permit internally the greatest possible freedom of economic intercourse.

The following principles were also agreed upon:

(a) Unity of currency for the whole of Indonesia and a central bank of issue. (The Javasche Bank' subject to necessary modifications in management and supervision would act as a central bank of issue as long as no other bank were appointed by the United States of Indonesia).

(b) Unity of trade policy.

(c) Unity of foreign exchange regulations and a central foreign exchange fund for the whole of Indonesia.

(d) Unity of customs territory and of customs regime.

(e) Unity of policy with regard to the supply of goods, especially for primary commodities and with regard to price control for the whole of Indonesia as long as this is considered necessary.

2. Difficulties are arising over the implementation of these principles. The Republic not unjustly claims the Netherlands is preoccupied with looking backward to the pre-war regime.

1 Dispatched on 2 February, it reported to Critchley that the Department of External Affairs had advised the State Department that the Republic should be allowed to control its own external trade and to strengthen its economic position by the acquisition of foreign exchange.

2 Dispatched on 25 March, it asked Critchley whether discussions on trade, reported in the press as having been held in the Financial and Economic Sub-Committee, had any bearing on the policy of the Australian Government to press for the resumption of trade between the NEI and Australia on the basis of the Gani - Van Hoogstraten Agreement.

[AA:A4357/2, 48/254, iii]