IMPLEMENTATION OF U. S. RUBBER POLICY WITH RESPECT TO INDONESIA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80R01731R003000160009-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 21
• Document Creation Date: December 19, 2016
• Document Release Date: April 11, 2005
• Sequence Number: 9
• Publication Date: September 16, 1954
• Content Type: MEMO

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OPERATIONS COORDINATING BOARD
Washington 25, D. C.
September 16, 1954
MEMORANDUM TO THE OPERATIONS COORDINATING BOARD
SUBJECT.: Implementation of U.S. Rubber Policy
With Respect to Indonesia
There is attached for consideration by the Board at its
meeting of September 22, a program developed in response to
NSC Action No. 1173. Also attached is a draft letter to
Mr'. Lay which will serve to transmit the program as approved
by the Board.
Elmer B. Staats
Executive Officer
Implementation of U.S. Rubber Policy
With Respect to Indonesia, 9/16/54
Draft letter to Mr. Lay, Transmittal
of Proposed Implementation of NSC 5417/2,
U.S. Rubber Policy,, 9/16/54
OCB File No. 60 SECRET
NSC review(s) completed.
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OPERATIONS COORDINATING BOARD
Washington'25,'D. C.
September 16, 1954
1MPLEMENTATIQN OF U.S. RUSHER POLICY WITS RESPECT TO INDONESIA
REFERENCES;
:NSC'17Z/l, Indonesia
IISC 5117/2, U.S. Rubber "olicy
NSC Action No, 1173a.b.
The paper recommends as a course of action to implement 1SC
action No. 1173', U.S. financial assistance to help.rehabilitate
Indonesia's smallholder rubber production. It envisages the plant-
ing of about 380',000 acres with new, high-yielding rubber trees, tae
establishment of cooperative processing centers With working capital
to buy rubber from smallholders, and the establishment of schools o
teach smallholders approved methods of rubber planting, tapping, and
processing.
The paper recommends that Indonesia should bear as much of the
cost as feasible but recognizes that economic conditions in Indoneri3,
are. at present such as to suggest that the U.S. be prepared withor
commitment or implied promise beyond the period for which funds anti
authority are actually available to underwrite a substantial portion
of the total. All but $3 -? 5 million of the total would be local
currency costs. The total cost of the program is.estimated at
$60 million over a twelve-year period.
The U.S. share could be financed through surplus agricultural
commodities or. through commodities other than agricultural surpluse&
Under foreign aid approcriations or under separate legislation. Ira
both cases the rupiahs resulting from the sale of these commodities~
would be used for the rubber program. The dollar requirements for
the program might be in the form of loans.
Basic to these recommendations is the fact that the Indonesiar?=.
smallholder rubber grower is producing rubber from. old, low-yield;
trees, and is marketing his rubber through middlemen who have a
tight stranglehold over him. Indonesia is facing ruinous competiticki
from more efficient natural rubber producing countries, such as
Malaya where an aggressive replanting program is under way, aw frcm
synthetic rubber producers. The solution to Indonesia's rubber
problem lies in planting new high-yielding trees and in giving the
smallholder alternative marketing channels.
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RECD 9DATIONS
1. The U.S. should indicate to the Indonesian Government that
we are prepared to give favorable consideration to an Indonesian
request for financial assistance in developing a program to aid its
rubber industry along the following lines:
a, The rehabilitation of smallholder rubber production
by planting approximately 380,000 acres with new rubber trees.
b. The establishment of cooperative processing centers
in the replanted areas with working capital to be used as a revolv-
ing fund to finance purchases from smallholdersa
at The establishment of schools where smallholders cot.
be taught approved rubber planting, tapping, and processing. The
development of detailed projects would have to be worked out between
the two governments concerned.
2. The cost of the program is estimated at about $60 million
over a twelve-year period., with about 60% of the total costs being=
incurred in the first six: years. "In e is should bear as much of
the cost as teas'ible but economic con bone, in Indonesia are a,t
.present such. as to suggest that the U.S. be prepared without covi
mitznent or implied promise beyond the.period for'which funde are
authority are actually available to underwrite a substantial port-:.on
of the total. All but 0 . -.5 million of the total would be locr1.
currency co.st.s*
3. The United States' share of the total cost could be
financed through (1) surplus agricultural commodities, the local
currency proceeds of which to be used for the program, and/or 2)
commodities other than surplus agricultural products under forei,
aid appropriations, or under separate legislation with the local
currency resulting from the sales of these commodities in Indonesta
to be used for the program. The dollar costs of the program mign
be in the form of a loan from the Export-Import Bank, the IBRD,'
a regional development fund now under contemplation.
1.. The smallholder who receives assistance under this program
should be required to repay the Indonesian Government for at leas
a part of the costs incurred after his new trees become productive.
These funds could then be used to continue the program beyond the
acreage contemplated in this paper.
BACKGR? U fl
As pointed out in NSC 5417/2 the cpuntry of Southeast Asia
facing the major rubber problem is Indonesia. The economic
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well being of Indonesia presently depends upon the exportation of
natural rubber from that country. There is reason to fear, however,
that in the very near meurnsretakenn~mediately to rehabilitate
tors unless energetic measures
her rubber industry.
Indonesia faces ruinous . competition from two directions, from
synthetic rubber and from natural rubber produced more' efficiently
in other countries. Her principal natural rubber competitor, MalsyE,
is making a determined, effort, under the, joint leadership of private
industry and the government, to lower unit costs by increasing per-fxre
yields. Similar efforts are being made in Ceylon. In south Amerie
and Africa new plantations are being established with high-yieldir-C
trees.. Her problem has grown so large that it probably can be
solved only with, outtside assistance.
The rehabilitation of Indonesia's rubber industry is quite
realistic in terms of the future of natural rubber. At the pre6en-
time supply and demand are in approximate balance. The Internatioisai.
Rubber Study Group concluded in May 1954 that by 1958 world, cones= 3-
tion of natural and synthetic rubber will have increased by an
estimated 15 percent over 1954 levels. The share which natural
rubber will get out of the total will depend upon its ability to
compete with synthetic rubber in the large area of usage in, which
they are interchangeable.. The ability to do this will be enhanced
by the incr*assed-efficiency of the natural rubber, industry though
replanting with high-yielding species. if natural rubber cannot
compete with synthetic there will be an incentive qn the part of
consuming countries to'expand synthetic capacity, which, once done,
will gradually doom inefficient natural rubber producers.
DISCUSSION
1. What needs to be done
The Indonesian rubber producing industry is divided
arbitrarily into estates and smallholdings. This division is base=i
upon the legal nature of landholding and not, as in Malaya, on sires.
Estates are producing areas controlled by aliens or by Indones",1s
assimilated to the European system of law. Smallholdings are pro-
ducing areas governed by local customary law (adat) usually, if not
always, providing for communal ownership and control. and Although s'se
to 1e
is not the controlling criterion (as it is in Mal), smallholdings d there
some overlap, estates tend to be large and small.
The estates - at least the larger and acre progressive ones
need no outside technical or financial assistance. Their owners
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know what needs to be done and have the wherewithal to do it. But
they are reluctant to make large capital outlays for replanting c=r
other improvements unless given firm assurances concerning land
tenure, remission of profits, etc., In this respect their p1obler.Ls
are not unique to rubber!, and the only way in which tkifted Stater
Goverment officials can help is to impress upon their Indonesian
counterparts as often as they have an opportunity to do so the
importance to Indonesia of encouraging private foreign investment.
A treaty of friendship, commerce, and navigation between the tkrite4
States and Indonesia would be helpful.
Among the larger smallholdings there may be some, probably
resembling an estate in appearance, which need little or no outside
help. At the opposite extreme there most certainly are some smal:---
holdings which are almost hopeless and the immediate rehabilitat?