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.