INSTITUTIONAL IMPEDIMENTS TO PRIVATE US INVESTMENTS IN SOUTHEAST ASIA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP58-00453R000100260001-6
• Release Decision: RIFPUB
• Original Classification: R
• Document Page Count: 32
• Document Creation Date: November 17, 2016
• Document Release Date: August 1, 2000
• Sequence Number: 1
• Publication Date: March 6, 1952
• Content Type: REPORT

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Intelligence Report
INSTITUTIONAL IMPEDI1\ TS TO
PRIVATE US INVESTMENTS IN
SOUTHEAST ASIA
DEPARTMENT OF STATE
Office of Intelligence Research
latq: March, 6, 1952
~ ~ EM T TMENTAL POLICY
S 1 J
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State Dept. declassification instructions on file SECURITY INFORMATION
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!L CT?DD
ii, .e report w, pre;vx d Zroz Information available thro
",n?c, 3., X9522 by the 7)iv''dt$t of Rovurrel for Far East? The
saotic n r:`z": M-Ang, to Inds .; . was eontribut . by the Inroeeim;+eW.
a Dovelo ent Staffs 0fsic6 of F r.a r_ete . and Development P621OV9
Department of : ,e4 The soe on pertaining to the Pbi .i.pplnee
~:iae v~?ntribute:' by the Far Division, 0ff. of Internatioea].
Trade, Unfte-d >.t tai; . Depa -tnn~a of Cci erg. e.
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REST:4:;TED
SECURITY V FOiU TION
AI3STI'RM
Even If U.S. investors rind economically attractive
opportunities in boutheast Asia, internal insecurity and the threat
of Chinese Coi.iaunist invasion weigh rvavily against. U.S. investments
In the area, The countries cf Southeast Asia have acknowledged a
need for foreign capital but for the ;:lost ;,art have not actively
encouraged stew a.nvast.ient frcnv.Liroad. Ingeed, the investiaient milieu
they have established tench to ianpode large scale private U.S.
invest. dent: ?
The antipathy of the GoTtirnaont.of Iiurcia and Indonesia toward
foreign capital is based largely on nationalism and, the desire to
socialize i:.iportant sectors of the economy. (especially natural re-
sources and utilities), anC tas resulted in constitutional and
legislative limits on foro .gn jmrost;ion.t or extralegal favoritism
toward their ovm nationale* Thailand has encouraged U.S. investment
but at the throe time it has been rapidly nationalizing industry.
No Bolen Govornrient oorpo ?atiE-.s compwb with private capital in
major Phil-ippine industrio. In, the Federation of Malaya, the Crown
colony of. Singapore and the Associated States of Indochina, the
Advantageous positions of priv &te British and French capital handicap
the potential U.S. investor. W'r.?.ile U.S. capital is not officially
precluded from those countries, British. enterprise in Malaya and
Singapore and the French inn I>6oohina are, insulated by administra-
tive practices, established co:atrarcial patterns and the concern of
metropolitan Governments over 1 t:6luable exchange- earners.
Foreign capital usually,receives equal legal treatment in
the economic activities it'is pci?:aittod to enter. Investment from
abroad is raruly tYhe objeo_t of :discriminatory taxation but taxes on
all corporate enterprises are re- lc:tively hig;h in several oou;itrive
and nowhere in southeast Asia ill U.S. capital relieved from double
taxation. i.Iost of tiro c: ut tries:, . of Southeast Asia have exchange'
control sjstoiis that could, limit profit re.:iittances as well as the
withdrawal of capital. Thu fjk , however, only the Philippines has
rigidly restricted the repe:vr**iom of earnings on foreign invest-
i ents and disinvest.,ient is, rola,:ivoly free.
The :.tost favorable envj ::lent for private U.S. invest:.ient
appears to exist in the Philippines ar.d in Thailand. Close political
and economic associations . ith" the U..;., constitutional discrimina.
tions in favor of U.S. citizens and corporations cud its insular
position, favor the ili.ilip irtesc Ti-ailand has a baok1.;round of
indopen, dence, internal security, reasonable treat,:ient to foreign
investrent and fiscal Stability. In addition '11hc iland's political
ali ;iuaent with the rlestwould be er.ct?uraL;ing to U.S. investors.
I E. STNI CTED
SECURITY .1NFOIL.IATXUN
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7ttlO1 JA.'TION
It;bTITt;'t`Z JN*i. I4 i DIA4' Ml TO !I HI
THE ASSC It~Ti p STATES OF WOOL i wl
iL Political
opea warfare thzro ;ho4 the aa jor pert Of the three /r elated
Static of Indochina pz aeuati ~ constituteb a decisive impedi> at to
nowt i'orei rz it vasiziont. Tho o is no proupect that warfare will
tvr.zinater in the Herat :'ui"ura= #vun under theab r.-ost :unfavorable
conditions there has you a It:.,ited a-uut tzt of 'ranch inacastxncnt,
directed for t: o .-toot part c.t eeeonatruotinC a*u oxiunding exietlrtg
rrieter sriae . This '.tra.s I+ r; , c,sit.le lars;aly t:pcause of wear damage
ay.:.ents alloc;..4u i b Vret ce to Frunolu nations s. The it'reneh military
effort has -1on dirootcd bt hi 7srint; to ..oat t,toauotive areas of
Inuatrlina, i.~c1u ing audit r J. industrial iua+1lations and an
important I tion of tAn, an_
pluntationa. ittb;. invoat.acnts whi
ah
total at .r st,sbout .,`115 2 ,8 a :,lion are repros4nted all i.et ezztirety
in r)otroluUu is stklla,tior tiwh h area oub joot to this case protect-.Ian
Bo Adis ini trativio
h'rorcl~ 'vmaxxit e Pali hoes, in the Inot-s prooludad ortew:tive
invert : eruiisz 'c ;,+ other ti=ane ?rec h z:ationuls. 't'his
o1ioj i antfeat d
p
itzolf not to ?iuch ii: tart;, off" Gi,eciric roatrict:ioha on foreip
capital durt;cipation ix. t ho 2 tior:al econornie i of the Wee associated,
stutoi (Vietnam, Ltros untl~'Cc,al dia are, in faoib, c axao riled by tea
absence of #;r::oh re;rvtricti rts) ae; by ' privilela& rt rated to French
firms? The xantinued oporjtiorf of those privile on is a,uaranteed tr;r
a number of provic ions oft the *i;reorLuat betsre u France axW the
A :rociated Ltatos and b, atinuod presences of French administra-
tors in theg E;ovormtents o1 theyt three stutos. The ton year develop,.
..writ prol;rae for Inaochin (.~a :4zut Pla )does it eenviDe- e, the use
of private 1'orei capital f r* non-Fronoh sotaeea,
As flpr the /,usooia ,d 4 to,G thunsolveo, Vietnaa'eesee officials,
at loasts hover indicated ?3air etc siro to sue f oiga capital otter
than: ?ranch invostod i-n ti coib-t:ryo. In his ':e* Year's addroaa on
February
14 10 Duo IJni aoc1erod? "Fronoh and forei ?i tachnictau3
a
d
a
it
l
nn
c
pp
a
}rill: be ere~londC itllli
c~:~.. ~>c+,a. wi fld in Vlutnam a free
field for i s activities efficiently co,ip1oaent the
Vjctn*leese gii'orts." ae a ent r tostate that f' rei rz capital a at
be rain ject
110 reaac,nablea t ..xaton and that trap fiira of profits
-AA U_ 4P-
ItEST*ICTED
sECt TY FCrx /,TIc3
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Sl t.uIITy I;'I'OIII AT1{)27
C o Le al
I!y terns Of tlloi,r a,;roe. at uts r;ith France tb Associc.ted States
are co; ;fitted to r;ive first call to Frez.ch Union nationals whenever
they regrtiro tochtniciant: or`Eidviuora. ;iovrevor, there is no indioa-
tio i that t1d-s require;-er,t w,: uld apply to firms not under E;ovor;n::eent
contract.
Whereas Fronch tikion` nationals and nationals of states with
which 1 rr noo has r.pocisi trt atieo (at present only China) are subject
to the jurisdiction of, .ixod tribunals, other fore i ri- nationals are
subject to ti:e re4;ular Viettwirrese courts.
Only eo;1:pa:iius it corporated in France or French colonies
and in which three quarters of the directors Aral adminls trators
are 1-'ranch nationals or r`res-..hsub je ate ::ray engage in n it ing ent. rr
priseso
Do Financial
Little local ca; ;.tal is avui.latle for Investment, and an
unrealistic official vxohantc: rate inhibits the import of capital
from the dollar area. arnne?'or of foreign e2cchanDo It severely
restricted, usfpocially a is c.'..e the franc areeo Sxchar,(;e control is
in the hands of an orE;sr of} the newly established Institute of Issue,
which incorporates the Xublic financial function forYnerly exercised
by the flan}: of Indoclhi.. 'Fria body consists of representatives of'
the hrtsoofated ,.,totes; and I'F noe with recisions in most Important
.aattors, includine the celo tion of its chair:. n, ::oquirinC mutual
consent, Thus, Frrrice is it a por:ition to provide protection to
existing French inter-oots.
There is no tax discrimination ai,ainst foreign invest sent,
but U.S. invc-si;,ront is ar=b joet to acautie ttrxationa
IWST1I CTED
SEGU1 T.1 x Iir"FCJIWkTION
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tail:: a 1 id.;3h I .' a
A o T'=aek3;round
Private Torsi, n iaavj-stx a:_at in Bur= han boon relatively =all
in recant y-sur a and is probubl r' U 1 ainitahinf p l,6 of 1947 totu1 f'oroiM
direct invest'uent in t.uima, r.a L ly . ritiath owned, was estimated at
;03;.330 mll li.o. o Two-thirds of i a.rdi t ct-ait l eras invested in potrcu
leum (production, roi'iniz: j ana ulstribution) t5xtta ir.;aining (leado tin
and silver). The r?e.:aine':sz- of t}.a 1*orei,~;r. }.ittxl was invested
lart;off in traiyra;,or?tr,-tir., .1`acil.itlu& (-inland waterways and railwaycr),
banks rA%d otter cc:.-,orcial `r.t:t'3.tut tone, lavatxr (etueeially teak
cutti.nf; encz :.iliira ;), ::.-.d in e:;riculturral Atu;,,tationu (uspocially
rubber anc tea)? na v:rrc.sst .r.;eil tude of ?.'or^ui,-n private invest,
r out IL; riot: i;nov+r?o
1T,So private iavoo-1 ent in I ' urmt heat never been extensive
tsxzc! tact decline cdurinb t1w postwar fears,, As of 1947, U,S, direct:
pr's vute i nvestmtr:t was about 4,,U an and by the end or 19,50
this ewa li 4 been reduoad to a ,nuxiraum of aOo8 milliono U.S. firers
havv ocncertrtxtcd m inl,r ir. the c;is?1,xibutwcrn of U.S. products (sego
sxatr+71e ur su tint uactainea,t, 1,uV:ineuz ,.arachiuea)o The Voss receipt,.
of the :lar et Jnvonto.r on .y c> ar.ralos about: aoti aillion yearly.
Since the buz, inuc&. of Uo;ao t .rt;:k iLi usually conducted through
brunt ;;h off ices or a enc:Ies nc;tin ; for U.S. principals, inventories
are s.aall and preporty hols.iin are of ::iinor importance, None of
the .larGer U,S, iav st3ra ovrz real e: Cato in $-,u-ma, A surreary of
tt.a five lcadinG U.S. firm cap t -tins In Wra:zf during IM showed
only or,.ea resident ?Jt,e natoria)n,
roroiL-n final would o raste under to yinC conditions in Dunr::s,a
Ltw income levels and livi ..f uttAndur;ie have precluded the developm=ant
of bride ntirkat.; for proves :=tc; :~..,c,::;o 'j'ito lack oi' a skilled labor
force, iria 3.eq: *;o !eour:inf;e u, h ,,,h incielozico of aiaunsos an under-
d.ovcio,pcd t:zt e.c,po iLiivo trx.a:ea ,rtaL. or. :iyrstv;,t nriai poor oocuaunics.tion
ft ci.1itius rcpr o&ent addit;.onv abet asides to invoataent For tJ.So
r:ve tors, the r buorcc of nnr iipo)rican bu.,~.nese conraunity, a history
of Dri-Lich do-11nerece esiorf orts's :;;n investors,, and a local framew 0J r.
baz,ec:.~ .ea. 1'riti sh and Ind ,tax ; ce is>? po:o t.pvcial r oblemsa
Irisur ;ont warfare (a,ith- Cornnux ist and racial minority group:;)
in iiurr.aa Inn purr:.i.ateat Eyes to lives, property, transportation
ts::d cosr:.iuznication a Daooitj, as proble.n of long-standing in rurma,
has been unocura ,ed by the uncbttl.ed security conditions in the
ootntryo Revievrin , the cfaocts in incur ;onoy upon the Burmese
MISTRICTND
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acontoy in 19SO, the chary ax --of tho l;urm Ch aber of dam aeroo
nrtod that civil rfaro = had rovented tine op*atioaa of the two
ls~r ;c t nines in the CO ry ad huh ;3grlcusIy reduced out
ut in
p
the o{.lrioldas, In timbergc t1 nil and..aillingA tin and ltram
prodWution and in co.aent .. r+uctitn, In 1943 the unsattled ooav
ditions moiled investor$ to !:tition the.. Go?vznntent to hasten
Sorest nutionuliuation. 'tBvx. Ic continental ptoximity to Cvauatmist
China is a dsti rrent to ore4 *%a in Vesat4ent scatcely ldss iraportant
than z the conti.Oaa,us inte itul isordert:, The nlaars.future proupeots
,t'rzr lrrtaaru l a;ta1}ility atric: eli;axution of the aaxternai threats
to Burna?e= r ecurity cro t~t.ftt} i ig ht.
Since 1945, the C. ,'orr eont of furma has, been oor Utte4 to
n policy of ultimate ?tat ' amp rship of extractive, public utility,
and heavy rzufa cturin~ ir. us rigs, and.to the oncoura g ..lent at
coupon+tivou. Swiltual jt ver :lent ownerthip aid o}xrx t an has been
azpecit'ied for r?ailroadc, 5nla ei hater transport, the veneration and
Iraa.,aas3.:iw >ioza of el(umotric ty, r:uta~r.cfar.l radio trans:aiso .one oo&).
1r in"d;r?lu ar~?c cal tic.tr ra on cr,rriuos, and the r:;anufaoture of t* n,
Although it ha. beau 1 s explicitly ut4tod, the t,ovorrun+e>,t
irkenU ta,uiri?A ae the a 'xac&,a. power o; forego ers ns rapidly a,
pousiltle. i}toth natioru.li :a a4U the Socialist doctrines supported
by tt goliticaxl elite ink Sur have Concraated -a;tapicion of foreign
ecctnnsaac. it a eata:. t-LZ .'a 44,jutral" forui}?,n policy has entorpe
its op~.ouil vn to any ccaponi ties with the ,rest that would support
vtr;t. r Fe of p liancy to "We trarz capitalism"o T1 Goverment is will-
ire;; h ot cvt r= to -eiaporari moc ruts its positiai t and to permit
torui zz capital to opczat :.n oae uoctors of.' Vie econo r. A partner.
ship with t' ra tgn private ep ai is considered to. be the a:aost
prolog biv ao.,tpr?o;aisu poui --idrr rrith the ox;;ec# tion that the Sorc iga
caa
l
it
?
d
?
p
aa
t
ou
1 r
autlally L41 61# -linatod in much of the a:czonotzgr,
The gcve ,;.iont ;rrxs ext Ave 1e1;al poti erc to nationalise
onterpriseef (sue Section bog w), but it ; no t utht to assure
fcroign i.r.vsutar-a shat -u#? 1e expr'opriatiou vrill be avoided.
In e,n , r ttc r.t t to attract flute iaal invoators the Government has
ftr rrouncud twat it is prepared o i uaraantee prit to operation for
a pored sufficient to ea 4n "at reasonable retur a on -1nvOst ent"o
To t'ta they : oUi3'y foreif;$ inv .tors, the Cover. ent has indioato'
its rocdine's to L;runt .7Lozic.*po1 :a and to assist ?orei firms to
their arl?.:etin;g problems.
In t to ix st four y rs, .,uraaa has natiortilized the Irrawaddy
ri
t
ver
rt-xza rt syaste , a acct all teak: oxi:ract on and pS a azs
'Cho l-az:,,oon _ n1ophone. Coztj .ny and is acquiring One-heJX interest
E;EJ STttICTED
SEC U TY a ~'OR iAT TON
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!!: A".R i, C e4D
SJ CUitI F " I' f rs R !AT Ol
6-
is: the harms Corporation and a cne-third interest in the Burma Oil
vv::.pazrl~y, In all. cases cosrp!rasa':ion hrt. :Yon granted= haerevora
ne6atiation> have boon 31a;r; and the atiat>.rth he.ve not matched the
inventoraa dix.pectationev The as-tort to which nationalisation has
been ach-ovdd Ir also a ppaa~r s zat froru cilta on the Government's role
in the eccao ty. (;ovornuent entc-r;prise accounted for 11 percent
of groaws nationul product s.ra 1908 and. 18 pr rccnt in 1)49. In 1938,)
24 pproant of dtx.iestio inwjstiOr,t irsa rcad3u by &overnment af:;enciesf
between 1:a46 and 1950,9 E3 peraII~.t was fror. government sources* The
possibility of even broader x;U#e.rrunazrat'iuvcstoaut in the future is
inaicatod by tho sizeable re cPves L irag acounu1. ted by public
authorities a=;i.d boards. accort,".ng to bureaase official finanuial
dstaz0 picblia 3&vin;u betvr r. lei,?r aid. 1950 .fs.r exoeedsd.public
investents with the aurpltua: to be used :n part. to finswe a future
nationalization program of aaLout Rupees; G4O million (U,So 4135
:pillion at the official rate }.
Co 3-0V
Burmafa Gvnstitutr rize r;i n t attempt
ve =,nd to hnio jobs. Foreign
n in Burma fuse three years dux" lair
'co trainedo Thies restriai;ion away
quota ; yetem ox-its,, but it has
-4&1!: teat L 1 t i a? ns of a c
omprise
and. 75
sk, forcis in all iaaterprisea.
d upon aritis}s 1 r-azatios and does
cnterprisee, _ oreign employers
i uruersc A in that appeals to
;,ra l:aovonts di ieeal of workers
buxi' :woes or ank ation and the
gnu h llc s3 Inid:its law and does not
Pr?r 0Avas or Var.-t.aerships0 incoar ca.-
feau are uomina ., L*wam ,i"etulaatJAc
.ru tow and then are rarely enforoc do
i.a - but in praoi oe (there is no
i o? rtheless? k.ura .as limited
oast rrxu:keee' the ucoying'of inventlora
t f oroin capital arise because
ia o include the following$
CTEI)
 to The declared pol .oo- if the Government :that it will, vlia*re
it soon fit, protedt doziestic, enterprise against foreign competition,
Igo Foroi n bueineaspa List adhere olosoly to rot-ulations on
coaoroial practices Mle those re6ulations are lees rigidly
applied against local bbaineaswn.
Z. A en employment is auitrolled by an ad hoc system of entry
visas and stay permits.` ."...`~'.
40 lfo legislation Lars *oroign professionals but the use of
English In Rurtaese courts ii limited and alian doctors cannot practice
in j;overn*ment hospitals,
bo In principle f or are licensed according to their importance
to ]3urma. Actually considble weight is given to domestic political
pressure froups and to the avenue possibilities of custom dutioso
6o TUB tax system ipo, 4 general, not discriminatory (see bdotion
F below) but foreign bupine yes bear an iaegv}itable burden beoarase
avoidance of taxes.ar,ioi Bu -aans is widespread,
Ho Financial
All foreign oxch1knige ltrensaoticns are subject to complete
Gover=w t controls which l it foreign investment and trade. The
p. -*sent, lioy permits free ro ittan.oes of profits, dividendfs' and
otbpr investment income if. inor qualifications are 'a!to Capital
is :lore a iff cult to with . AAocordine to a policy stateeas nt by
the Natioaal Economic. C ouM (an official sub.?cabinst group),
Burma intends to favor nha*pered re:..ittanoes in the future.
AertiOnt financial re,;uatiplas are as .follows:
le Foreign oaterpri es ,ust be self-sufficient in their 'exchange
requirements for capital puposes.
2. All transaotiona +.us bo iiade at the official rate (buying:
84.75 a 1, selling R4J76 sQewen though the uurnese open market
rate is more favor le the dollar (MG a *1).
3. All oo:amodity ex ortI are rigidly controlled. host exports
are made through Government=aonopoly, w few exports are prohibited
and all ether exports z'equi licensos. Lic nses are granted
literally but the; exporter at aGree to surrender foreign exchange
ua ings
i TItICTED
VC 7 URI I14FO iIATION
S
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 Approved For 040ase 2000/08/21: CIA-RDP58-53R000100260001-6
Import controls prehibi7 "non-ersaertials" and restrict the
entry :of so:ae z;c;o(t$ Ie.E,. ;cer
Steriin1, Ara u countries arc: Ja
a.uthoriiatiOns (Opon at)laert,.l
Payfacz%ta+ abroad on i.nvis its e s
fica;on that ta`x obliggttc.a
Troia Bunua ;aunt by a,anrova d.
AXcc3 cUifital -trarisfersa 1tu ;o
a.icoar for stiff resiatu aoe o
in i;rttdea of cotton textiles) to
.no Other ,-oods require license
c.on8e) vi,ich are =asually ;ranted.
coount ruguiro licenses and oertip
:ve bceia met. Trsnsfurs or capital
ile the Government allows i nvisiblo
u L le capital emil;ration mould probably
5. The potential t:appaat ofj Lurmese finanoieal controls is
i11u.3tratod `by the expurie' ce U.S0 . lotion picture distributors.
For several yours the oitrr iraGs of U.S. distribu ors (suppliers of
about 75 porcent of all fi .as t.cnan in Ituruaa)a lore Clocked.. After
lonf; :u:;;otict 0a the Guy e niao>-'I: of. 1 uri, e~._.recd In late 1950 to
permit con v era3io a to dollars t rough free non-stor lin , countries
at open mar1et rates. The l03 involv~cd in the conversion from
iiterli G to baht (most U.S,D fi :a firma are usaine, the I)eanekok money
::aarirut) to c4ollars is octi.:ate at about 9 pert nt. In addition
1:o tint aonr tt-A.ry bnrrier9 `end a and Pakistani films receive pro-
ferantial cUEtox treatawnt c'vet i3.S* and other film prints.
SQ Burma K.e a "Scheduled T rritory" in the Sterling Area and is
required to cioposit ;collar Bari inj;s OU the Lond5n pool. Since dollar
earain;e ruuultang from U.~. i tirostmont would not be directly avail-
able to Burria, there is Is" in ntive to encourage U.L oapitalo
DUcrimitatcny taxes haft boon imposed in postwar years by
special leg slatio;a and this t4c~hniaue is still --used by the Govern?lent.
Among 1365, inve:.rtors* the i;ost i otevorthy experience has been the
gross rocoipto tax lovied n a l.ibitc)rs of U.S. fiLLne. A 1947 tax
of 80 puroe t of gross rec 1pt i loviod solely o* U.b. films e
chanE;e+d (in, =1950) to a tat of $i3 1/3 percent a. ;tinst cross receipts from
all foreign filmso Receipts fre a Burraese films are taxed at 12-25 poroehto
}
The relativolr highs ta.xtLurc:on on all business would,
e pocially 41 view of the t1iff $ ?enee . in, tax enforcement noted
above (::oe otion t) aboveU ,a d ;sr foreij;n investoruo t'o af;reouent
exists between luarm and the U W.ted States to r?lieve U.S0 investor s
from the double taxation t :.e;j tir face on earnings.
Taxes imposed on a fore ;n corporation is Durma (along with
daaostic fiz .a includes the fo ? a.wing:
E4 O TED
sscu 1TY ;H'URI1ATION
....E
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SBCIf.R iY liar''}Ri:`AT7:owe
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i CU''11TT u AMMATION
1. A "4,uuin.es: 'pral IW tae: of 1G 2/3 percent of not income
over 8100,040 (021,QOO)
20 Corporate inconi-n taxes t:ctallin.i; 50 percent of not inc*
ortsul izod in Lur E+. aftor d6ddacf l n;; "business profits" tax payments,,
3o A Gross sales tcrx oaf 64-1.5 perconto bxeqpticnc ii_oltidi food,
fuel, clothing and tho saes p-I" anall merchants,
4. A "luxury" tax of C v2 i _ porcont is ieviod on extensive lists
of t;oode rri -n they first cn- tr daa
bo bttuap taxei on virtuit1 f alll.cLQaumontso
Iron-rebI..uerit:s are sub ct to a por-sons.l income tax on income
arising or occurring wit in B t'zm, The rates are graduated and in
1950 reached 9'/ on, taxablo 14csocie our ~300,0O0
(ipfi3 QOO),
PX. j RIGTED
ik CU jtI TY '111FO iUk T IOTt
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 Approved For tse 200049
03R000100260001-6
lQ.e ,
X110 BE PEDNR TIC N , op 1 L6YA ANI) TAE COIIfNT OF SXNC#APOB
Background
U direct
private irvVeaatraezst in ~alaya is Snail but
a
ears
pp
,
to be gr ring at a nocgrate, recto. At the end of 1950 there was
US 080,77MiIlion of U.4. pr veto Capital in lialaysi as compared with
no more. than US 424 ui limta, in 1945. This irnresst east is concentrated
in rubber plantations and t$n mine holdings.. D.S. 'interests also
operate f ide variety of e4stributivo enterprises including sexing
whine cutlets, notion pi ure firma, svbuuineas maahLne companies*
US .owned product_on faoi lit es are
British holuinga s hoa~vvvr, small compared to
.
Us Goverment atr 1 ft vors
publicly invited f arei 4?~ii Y private invoat,,eont and hae
kfi capita], Although the econe>my- is now subject
to extensive coutrols, It is the declared. policy of the Government
to roduoe or abolish them a soon as economic conditions 'permi.t,
1-ya is in a favored position with regard to basic service
facilities and living conditions, as compared with other countries
in Southeast Asia. 2ev arthgt .ess it :a eieticient in skilled personnel,,
power, and railroad tr s
o
ti
p
a
on. The traaaaportat~ on problem
would be especially serious in the exploitation of new areas.
Poli z oat
Ceapmuaist guerrijla groups have been a
ti
f
c
ve
or more than
three years and there if lido hope that internal security Can be
restored In the near future., Guerrilla violence has been directed
pritaarily a:ainst forgign-o ed installations and has prevented
expanaian *of rubber and tin operations*
I
Although other foreigp investment is not specifically excluded,
British o pital is in a favored position because ;,talaya I a lams and
coarmercia practices are pattorned after those of the UK and the
lea4ing ad inistrators s nd, eOonoraic. advisors are British subjects.
Malaya is _Britaiaes largest 41o1lar earner and it is unlikely that
and Sin a _ore re ^ardin foreign investment are alaost. identical.
.Sinjpore is a Crown colony wile the Federation of Malaya is a
state
Brit iuh oteet ..mitedt
this discussion Malaya refers to
both
'.
oll i
s
p
ca
RCRICTED
SEC'VRI TY INPORBN/ATION
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~Titl CTEI?
SECUk Y INFORMATION
11 -
Britain would be palit1call r passim tavards new large-scale Uo ,
invostme*ts in extractive o distributive industries even if seourity
couditicas were favorable tp suoh investment,
several public Utility industries, in ludiug railways and
water transportation are state awned and ope ated. All other
industries are open to sriv to invewbnont, his of the begiaming of
1981, no'naticnalisati n o? foreign e4terprie?a was being Qaaaidare4
There is?little doubt that,-If private foreign inves t were
nationalized in the fu#ureo OOUpensation would be arranged,
Legal
Restrictions pertinot to ,foreign investment area
1. 114 resident oompcny Pan be. sold to aliens without consent of
the Gover'nmento
The sale of seoijriti$o to persons residing outside the Sterling
Area requires Government ocosent.
.3. A4l foreign oompuniex must reel;ister and furnish information
as to their operations.
4. b cry foreign beelkin company must be licensed,
b. Nan-British inatraanc companies are required to make substantial
deposits of approved securities.
1 l
$. All businesses "t Obtain government` consent prior to the
issuanceot capital stack, .-All trur.t companies must deposit approved
securities with the Gowrrmento
to forei0p investment,, In view of their commercial and national
affi.liatiens, it is lile~ly that I3ritish, investors receive more
fa orablei oonsideratioo the other i'oreipneria
There uo not appear to be any overt administrative obstacles
D. Adrtijistratiye
holdings,
There is no resbriot can. upon the percentage of foreign capital
in any firm or induntry. Foreign firms are not compelled to-employ or train nationals. Nam?UA_ yawn investors are free to expand their
R . `'TRICTED
bidX:URITY INFORMATIOIJ
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 Approved For MWIbase 2000/08/2 y fiIb6 P58-( 53R000100260001-6
S3DURI' Y I1,FOk TIon
412-
Ff na o t1
t' di dc:nd6, intoreat:and current profit
e&zinga xie per witted 4tho l.isuitation ns to the wswunt transferred.
There area, hovrevor, tv,o irap rtant rostriotioais on U.B. invost;;lonts
1. fk3 ,ina1 invoetuea
outside i*e Sterling Aria.
2e Doalar earriings Jon orts uuet be deposited in the London
pool of the Sterling l zyea k re subject to Dritish control.
F. Taoal4oa.
ThOre is no tax liso*miziation acainst roreign oorporationa.
Individu4 non?resiciezltj, o er than British -subjects, hawaver, are
not pen wi tad the persco al coductioms and allowances established
under the, personal inc *o tic. Relief from double taxation has been
arranged with the Urzitel Kiz*dcm and can be obtained by other nationals
if their governments re$iproo -te.
- RICTED
SECLTRIT* IMUATION
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 Approved For Iayease 2000/08/22: CIA-RDP58-53R000100260001-6
xr.STRICTE.D
s. CUturn itIFORi1M ION
13-
Ao f3uokground
The Thai Government has; repeatedly emphasized that U.So
oapital is particularly welcome in Thailand and that foreigners
wishing to invest will be extended the same protection and rights
as those 61-4on Thai natioaaaiso Thailand's lone; history of.independ
enoeb its political aliga~aent w5 th the -"ieet, and its past perfor. shoe
in respect to foreign investors are favorable indications that U.S.
invoutors will be uooorded fair treatmento 'were industry nation'.
alised, compensation would probably be arranged.
Principal foreign investors it 'Thailand are Chinese,, 'Britiaha
and Australiano American i vEt-.iont has boon amall in value,, but is
increasing. Direct investnepts of Umsa private profit organizations
amounted to 5$1.6 :aillion in 1943 and an esti+;.ated $3o8 million at
the end of 19500 The largest so nont of this investment is in export-
import trade* although A.,erieuns also share in the distribution of
petroloum products and :aotiof picturou, uEmufacturing, air transport,
and '),lining.
Thailand is in a strong; financial position and has sizeable
foreign exchange reserv u hlthoukh oo. ;er for assistance under this
various U.S. aid programs, the government has been financing its
own aevelop^-ent program, investini; directly in bubiness enterprises
and also ostonding financial aid to Thal firms to encourage Thai
participation in businaeso
Invest*.iont opportunities are probably confined to mining,
the prooeasing or agricultuts.1 and forest products, light Industries
serving the domestic t=rkots Arid trriaing activities. Lack of
adequate information on these opportunities handicaps prospective
investorse
As in :Host undeveloped countries, Thailand has a shortage
of trained local porsonna1, cspcially engineers and other technicians,:
and lacks udequato service C oilities o i'nrticular impediments are the
lack of roads and pcrwor. Even Frourld Lungkok, where electric p,.-war
protuction is concentrated, a, large new industrial user proLabl
c mnot be served from oxistirLC or proposed facilities for several
years*
R&TRICT.CD
SECU:tIT:i j?1r.D t.;V TION
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I''~ )itr2(1TTV~1
Sp,!:-~ T Y
B6 Political
Thc.i.lvzidts proxi.rity to China, the existence within the
country of an economically powerful Chinese r-inority comprising
15 percent of the populaticr!, and thotradit ional Government
proclivity. for "bonding th 7 wind" c~ nstitute political hazards
of z;orae concern to foreign inveaitors. Frequent changes in govorn+
:iont in Thailand usually by unconstitutional means result from a
jockcyint; for control on the part of individuals and cliques rather
than from the uxictenco of internal unrest? There is no '.nsur,ent
activity. Political instal-411t% is a 6Lelaying and aisturbing
factor in negotiations rLy for oit;n in vefitors,thou ,h. probably not a
corioucs impediment. BarrinG fo;roign invasion political changes
are not likely to cSfect the Government's sense of responsibility
toward .:oreif,n invysystem: or its international camiit aonts.
Private foreign ia4 r>ttit nt opportunities in Thailand are
being reduced by the inora_%c,. t ,ly rapid trend toward government
pRrticupaticn in, and control o:', productive enterprise. For
instance, nationalization of t.,ei k production, in which there is
extensive British invu th ont, Is scheduled. Details on the fields
of l;ovcrnmont control as e given in Section C. Increased government
participation iU duo to a cosirle;.4ntirt; government policy on foreign irivestaent.
1. 2jMqj; of n.e rnraro, 1acgucsrb~are cc.ri -naves o . ' u 4 at roe
and salt farming, driving buses and pedioabs, barbaoring, and type-
sottinG in the Thai lan~;uagre.
RESTRICTED
SECURITY II:FORMATION
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 Approved For FiWease 2000/08/22 : CIA-RDP58-4QJ53R000100260001-6
SWU _ T :ll;.ITo"aIIAT1oN
a 16 -
Delays rs.:r?e Grcor-ntc red tl rcugh the necessity of n.3gotiating with the
:fie ,rris~ ant t3 '.l. , ^? - i ~htb! ante -prise In u ich tie invest:..ent is to
be rt da.
Tt;e Goverment 1 as -+,o el early defined poJ ie r in regard to
r equlrc, . Thai pcrrticipatior. in forei.gr. investr :ant. Legally there
are few l_ir? its to V e oxtert of forci?r,, ownorsi-ip. 1'owev(r, the
Gc vcrnr cart stated in January 1915O that "in certain 1wainessea and
inc'rxstries t) e Govern ent ay pnrtictpate as partners or. s)~areholdera
if t)~ey see fit, and t)o detai1a, as to t1:e percentage of stares for
ea%:h cov tractinlT party and tre ccrpcsition cf the staff will be
nmtraally a;road upon. It is also t) a policy of 1,),e Goverment to
oncrlura a Joint participation between foreign investors and private
Thai irdividvuls". Goverment officials have indicated a desire
for Thai control of 51 percent of the caps :a2 of public service
iradustr{ es? Equal. participation in joint r.rining ventures t.as also
hoer proposed? In spite of professed eaeorness for American capital,,
however., the vacillation of Thad officl.ala sr1th ;t!;o1 some American
firms have dealt,, t1 s lacS _ of a favorable goveri went policy regar ling
Thai participation,, and the red tape involved have been impediments
to U, ,S. inves"=ent,, pa.?. tictlarl Tr in mining,
Licensing and permit issuance are frequently complicated by
obo-oiete p rocodUrea and overlapping jtuiadiction of government ageeicies,
Ea _anIla
Profits arjJ dividez,ds r,:rry be remitted abroad freely and capital
may also be exec rt2, Thailand's exchange rate structure gives prow
ferential tre t ert to govor mzes t cnterprisas which are able to obtain
foreign excbongi for imports at the official rata (12,5 befit to 135 ,$1)
as contrasted to p:ivat3 T1ai and foreign firms which must finance
imports at tl_e open market rate (22 baht to US 11). Thailand?e foreign
oxc)-ange regulations, which require tin exporters to surrender 40
percent of excl?ange earnings to the Goverment in local currency et
the official rate., amount to a. tax on tin investcrso
Fo YM
TaR rates are not generally burdensome in Thailand and i,ith
one exception are the same for Thai and foreign firms. A recent
revision om re;a the tax bc: a appi3'o1e to foreign shipping and air
transportation osompanies with ' e reset that they now rust pay the
goverment 1 percent of 0--it gross revenue. Thai companies pay a
slightly low tax ~_sed on their net :income, This revision was made
L,;; s'4e mi 4e large-scale tax evasion by European companies and has
not been contested by American firms,
RESTRICTED
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 Approved For Rcrdse 2000/08/22: CIA-RDP58-0Qp3R000100260001-6
aCLfiI:TY IT1FOREATION
Corpcm `e tc.`xx3 range to a r Lmuni of 20 percent on net iroome
of over "501,t ('0 par year. For individuals, taxes range to a maximum
of not, inco s over 06,000.
Tbeiland has rot entered into any interr. tional arrangements
for do.'h1-: t:atation relief?
Whir g co cn1es in T} 'Hand )'tLve complained about high
r e` Z0.'.1 r tees fcr tin wile high indi,vtdual iincorte taxes have beam
o. 'w :as .n excessive burden on foreign firms who can secure foreign
^rsonno1 only at very J igh sa7.x .riea.. Sufficient information is
wt nvai : ',hlc tc evultaat:i cdogtie,tely tl!e tax impedimenta,, but in the
o 1nnion of the US Emb ssy they tare not onerous.
RESTRICT]D
SECURITY IPNFO]! ATION
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 Approved For Pip ase 2000/08/22: CIA-RDP58-( 53R000100260001-6
SEGU"il' i fl fOI1 u`lT iON
V. II TSiA?L
A. clc A
Ii.pedi :crta to privt::t+er Vreign invo3tnent in Indonesia sY:ould
be vievod in the context of the recency of that country's attain'-
merit of sovarair-:nty. . I:xior:: gilt became a soverei,-n nation late in
December of 194>9 and, for the rot part, tl?.e body of legal regula,
tions pror ul at?d by tl-:e fcmer Id AYariands East Indies Government
leNal.ly continue in force vttil cranged or replaced by Indonesian
law. No significant clan(-es in 1eea1 re,-riatior.s ocncerning private
foreign investrent have been made thus far.
Indonesian pol.iticaL attitudes totmrd private foreign invest-
ment ars eor i.t .on^d by interne :-.;ati=01stie feeling, as a reaction
to Indono3ia's former colonial ;tatus, and by to nineteenth century
socialist ideas tl:at color tie. views of m aiy of As political leaders.
The attitud s l,t+ve resulted' ti sore pressi re for nationalization
of foreign arty prises, but. in Frentiral stick pressures have been
rejected by Irsdonesia's political lead :ro, The vice preeielent,
Dr? llaatta, bct3 :stated publ.ely at Indonesia has not the financial.
neans to acquire, nor the tskills to operate such investments, An
influential local economic group has also rejected the idea as unsound,
In common i,= .th other Far Eastern countries, Indonesia in most
areas, has no lack of n:anpcwer. There is, however, a great dearth
of local POrsonzsel trained in tecl-nical and naxaa,geria1 skills.
Service facilities such. as Yarbotrs, transportation,storage facilities,
barking and ercvtit Institutions I -ad been ostablished by the Ditch.
Present poa1~c~? facilities, ;.re ganera111- inadequate. Other faoili.t.as
including roads ar:3 railroada, are relatively well developed on Java
and are developed to a les,:=er e: t nt on Suratra, but are almost
completely lacking on t1'e other islands. Development of. some mineral
resources on islands otter trap Java or Sumatra is bindered in souse
cases by intonse jungle grotrth. Moreover, capital' equipment, and
in some cases, raw raterial.o fo-Z development are not available locally.
Housing, recreational and health and sanitation facilities for foreign
personnel are poor. These facilities have to be provided generally
by the investors themaelve .eu
1. The zeaterial pertaining to ;Indonesia was prepared by the
Investment and Ecororiic Development Staff, Office of Financial are
Development Policy, Departs. nP, of Stated. 2?Uor changes in organiza.
tion and text were trade by the Division of Research for Far East,
Office of Intelligence Reeearcl1:, Department of State (OIRJbRF).
RESTRICTED
SECURITY IIUFOrs-IATION
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 Approved For Fase 2000/08/,R~, DP58-0Q'S3R000100260001-6
SEct'RtTT II~F'ORt~lt1T1o
19
Businessmen :without provious experionce in ' Indonesia aim Lr
to be unfamiliar with Indonesia's laws,, le,. uaCe, cu.toma, and
business opportunities. The Xndoneasieu,q have developed an info=..
tiara service,, but as yet publicity concerninv investment opportunities
is econt.
American investment in Indonesia at the present time amounts
appro drnately to $22O xi! lion, of lef l yr in oil production and refining,
automobile arse mhlp, and rubber a stucco
B,, o t
to It in probable that investors u,ould regard Indonesia as being
geographically tirithin the orbit of possible physical expansionive
on the part of Connnunist China? Tie influence of the latter is
already being, felt in 1 uo Indonesia's vulnera?)ility lies not,
only in its nearness to t alaya, but also In the difficulties of Ste
defense arising from its thoue nds of miles of coastline. Indonesia
is not an area of overt conteeition between ti.e 'cast and the West,
but could becoi~,e so. in any dir;sct driryrea on the part of the Sovic?t
orbit for sources of strategic raw materials such as rubber and tin.
2. The Indonesian government might well be regarded by investors
as unstable. It is new, lax :Ly untried, and staffed by leaders If
limited adminieztrative experience3. Ti'ere i-ave been three new
govern; ants in Indonesia in two years' time. Any lack of confidergo
in '*overnc:ent politics that might arise in the rJnds of business
ran would result from f'ae tors, uihiah are discussed under (3) below,
and from the lack of administrative experience of the Indonesians
Thus far however, ti-is factor appears not to have been serious
since (a) the continuity of a+?kr. inistrative policy affecting private
invoaterents has been r.aiutainesr'i and (b) it is te-lieved likely that
the r ost inpoeant of these fps?ei n investors now in Indonesia,
especially the Dutch, have ever?y intention of rceraT' ore r
been previr usl, g consider' le dissatisfaction Iriti? the. -avertr ants
apparent inability to cope with widespread labor unrest. core
recently,, houev-er, drastic me&nuree have been instituted and the
situation appears to have :Improved. T21e fact that the bulk of
Indonesia's labor unions are t _--mimist, controlleed makes it probabla
that this will continue to be a serious problem. However, there ;a
some Ol dexioe that cormnuriet influence in the labor union relovw ;
is declining0
I TRI(J'ED
Si,CURITZ II'FOflMATION
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 Approved For F ase 2000/98/22,::CIA-RDP58-$ 53R000100260001-6
srx;Ud ti "
a Despit a *he ird'l vexice of 19th century socialist tradition in
the tlhirdcthg f Isidore Tian, leadors, as yet no troroughgoing socialist
Snlj&,., ccnor=ito I?ogrrs that ex.ct for government
,:)wne. snip or core rol of essvntird industries represent more aocura;ely
can extension of W}'o policy of tie forror Lattul r,,Cime. T! Inuone ie"'I
gcvernrrnnt tools i. -,r from that regime ownership of significant poeions
of t ' e :aUrc ad and olectric povror 3 raustries. Its announced Intention
1 c to rat _onaii s the rarain- in ; private interests in these industries
n'the nett future.
'11he In?ior3sian constitution postdates a strong public interest
in ty e (x, nioi to t ion of nattra1 i. a sourc a and in "branches of production
of irportarac to t} a ;state'', bul:. con -alne no specific socialist pro-
Ur6Li. In fact, the priricipies :.s stated could probably be interpreted
as ea do Scrip rion of tie situation as it presently exists.- This far,
tie only instit1.~ Lion nattiot a? ized ' .. ; 'Ceen Ll?e Java Bank which has
cc-:Dine: mrnv f"tine Lions of a ce:t tru1 bank and bank of issue with V ,s
no trzi1 ecrane rcie1 bank--I-,v,- t.t:tiv :..ties. The repatriation of its
ownerol,ip was accompli hhed by gcNernnent purchase of the Bank's shares
from the indivi4ual t,otior.
:l.r:crt from the Java Bank the railroads and electric power
r'':3t there are no 1 1owr: pi -s for rationalisation.
1., TI-Pre are no rcQtrifc tiors on foreign personnel v;it;n the exception
of the usual r. e; ulations ccncex ng foreign exchange transactions and,
the pr e3sure on botlo present err+ nna investors to train Indonesians
for technical and ans erlnl poaitions..
2. Incorporation in Iru3.oncs`,.a is not required. I owever, because
o_4' certain restrictions on corporation;a not locally registered, most
foreign firms cc.fnsider i.t ' ore idvantegoous to organize a united
liability compar+.y umder iho prc? iisionc of the Indonesian code of
commerce. Conditions concorfli3 low l participation in the ownership
of enterprise are discussed ur~d {r i~ 3 ' glow.
3. Apart from tl-.e fact that no non-Indonesian may owa land, there
is no discrir~itation bcforo the Taw with regard to 31olding ark con-
voying, contract enforcame tt, right to use lc cal covrts for redress,
etc.
44 Preacnt restriction y on the scope of foreign investments in
Indonesia are 1arr oly toe tali- on over from the Dutch. No non-
Indonesian may acquire title to land in Indonesia, Land may be
leased for stated periods depending on the type of usage involved.,
PYOTHICTED
SECURITY INFORMATION
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 Approved For Fase 20 iffi - 53R000100260001-6
5? Mineral rights are in most cases regarded as tl.e property of
the state? Concession for exploration or exploitation may be
obtained f"rvu the state. At present sueb concessions contain pro-
vision for it-e pWent of special taxes on gross production and far
^peciol levies on net income apart from the getorally applicable
corporate incoi o taxes, An Z donesian ps~rliaa e t y~ sxn ttee is
now in tho process of re-s xadning the mining laws with a vicar
toward revisi.nj them. There is no information available concornirg
the nature of revisions contemplated.
6. Ungar ti-s old ~lethcrlande Indies Government law, the Government
has the right to regulate new investswont in industry in Indonesia,,
Thus far, however, the Go v errwent amcs to be attempting to encaourage
(within the limits of the restrictions mentioned in Sections A and P
a :ove) investment in industry.
7. Apparently new foreign :investment is effectively excluded
e porarilg from the field of inter-island air transport. The
Indonesian Goverment is party to a ten-year ranopoly contract with
the Nethorlands KLM on an equal share basis in the field of inter-
island air transport. The operating nompa ,, Garuda, is scl-odul. d
to become completely Indonesian overnment owned at th?o end of the
period? Asti Indonesian firm in which a United States investor hats
an interest was recezitlp tuid down in an atterTpt to acquire the
right to establish inter-3.slenrl air service. A , g but not
ronopoly on inter-island wata:r transport is now held by t` e
M, a Netherlands firm. In this field, the Indonesians are anxious
to break the monopoly for se rv1 cogent reasons. Private forei ra
capital would probably be ' elcore on .3 shared ownership basis,
l`3, AdM rd t t
1, On the whole Indonesians seen to bs successful in implemoiitina
publicly stated policies regarding the role of private foreign enter--
prlse, T1?e statement should perhaps be in the obverse& thus far
the Indonesiana seem to have avoided taking on administrative burdens
that they are incapable of carzyin out, nationalisation included.
2, The Indonesian Government has not established on a centralized
basis any one agoncy responsible for foreign investment policy or
information, Mvidentl?y, mbiret decisions are required in cases of
r.ny importance,
3, Impressed by a long history of a rather sizeable outflow of
invisible payments to the Netherlands, the Indonesians lave readily
embraced the theory of the "cr,l.or sal drain," Thin has resulted In
T?.ESTRICTED
SECUURIT'Y INF'OR MU.i ION
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 Approved For R ase 2000/08/22 : CIA-RDP58-0J53R000100260001-6
Fit\, h. V`r
C1 LIT! Ii VOTTATIow
f; rmiy iutrerach ,3d 7ol'i tics pre:3^uro for t1a rctontion by Indonesia
of a 1,--- or of Vre earnin;a of foreign investmont. This pressure
has ;h-us far found expro3s-.cn in a poli.cry of expecting? but not
reciuir ng, new inventors to provide f c~z? 51% Indonesian ownership
ut srevc?T' possIbleQ Eventwl repatriation of the remaining shares
in reLireod e a1 highly do.:irable? t1,ou h not required goal, Yore-
over, new investors are exp3c;te f to provido for the training of
Indonesians to take over rrrar e" ial and technical positicnao Present
invo?'tors are er icc; uraar*ed, thougii not required to do so, These
rec;uire::,snts are a :tatter of declared policy, but not as yot a
natter of la?ap In effect, t!-eq represent a basis for ne*7otiation.
E" !in clal
1 There aro no 1ia:iitations on rer-ittarces of profits after tares
ear iod since Jaar.:unry 1, 1950, provided sufficient liquid funds are
available for sc ch transfer. F