UNITED STATES SECURITY INTEREST IN RECENT DEVELOPMENTS AFFECTING THE SUPPLY OF RUBBER, WITH PARTICULAR REFERENCE TO SOUTHEAST ASIA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP67-00059A000400120002-2
• Release Decision: RIFPUB
• Original Classification: C
• Document Page Count: 5
• Document Creation Date: November 17, 2016
• Document Release Date: August 2, 2000
• Sequence Number: 2
• Publication Date: January 16, 1950
• Content Type: REPORT

OOK311 146' ,%' 111-71
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16 Ja, artr 19130
UNITED STAM SECt I .'f INT'MRFST IN REO .' 139 eo:e $` .&' ':aG`:' M
E SUPPLY OF RUKAER,, WITH PARTICULAR "MIT C TO SOU f . .iT ASW
A decline in world demana for xltural rubber much below the ca rre,' t
level would have adverse reper cans ions on the eeonouic and political
.situation in Malaya and, to a lesser extent, on that of Ian? onesia. a.
decline would result, for example, from a basiness recession in the WE
or from a widespread substitution of improved. s,+rnthetic rubber, such ma
the recently developed cold process type, for natural rubber. The con-
sequent depression in the natural rubber producing industry of those
countries would have detrimental effects there upon tiw?gee and es loymc nt,
earnings and new investments, political stability, and the susceptibility
of those areas to western influence,
The recently developed. "cold" c7nthetle rubber, which is coming
into full production with rated annual productive capacity of 183,000
long toast is claimed to give 30 percent greater mile ,ge In passo or.
car tires than natural rubbers Some authorities are of the opinion
that as Its cost of production is father reduced. a its quality In-
proved, "cold" rubber will substantially replace natural rubber in
transportation uses in the next ten years. Such a development would be
highly uafavorable to natural rubber, as about 70 percent of US oonsnxps-
tion of new rubber is in the transportation field.. The United States,
Canada, the Soviet Zone of Gerza, g and the USSR are the os countries
which are producing synthetic rubber on a corm erci.al basis,
* This paper is based on a more cbnTrehensive report avaai` able as a
p/Ec Working Paper.
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While the development of new markets and, nets uses for natural rubber
will tend. to support dement for the natural product, that support may
be sufficient to offset the possible decline in the use of natural
rubber in transportation or to absorb the increased amount of natural
rubber that could be produced under stable political and economic condi-
tions*
The natural rubber industry is highly important to the economies
of Southeast Asia, which area produces over 90 percent of world output.
lalaya and Indonesia alone produce three-.fourths of the world totals
~7atural rubber is the most important dollar-.earning commodity of the
staring bloc and constitutes over one-half of the value of Malaya's
parts and about ones third of Indonesia' s, Investments in the rubber
industries of the two areas total about l.i billion dollars. During the
ter, however, considerable damage was inflicted on rubber lands and
producing facilities in Malaya and to a lesser extent in Indonesia.
Following the surrender, additional dama?;9 is been inflicted by the
terrorists in Malaya and by the Republican guerrillas in Indonesia.
The cost of rehabilitation has been considerable and. the work is not
entirely corrol eted..
The ribber-producing interests in Southeast Asia attribute much
of their post-war difficulties to the US policy of mandatory consumption
of specific quantities of synthetic rubber in the transportation field.
Consumption of synthetic rubber, however, is considerably higher that
the numdatory requirements and includes substantial voluntary consump-
tion in the non-transportation field, thus indicating preference for
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. CONFIDENTIAL
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ma-made rubber in many uses and 6. permanent inroad on future con p-
tion of natural rubber, Competition from synthetic rubber in US rr hceta
has kept the price of natural rubber from rising much above prewar
levels despite much higher wages and other costs of production in the
natural rubber-producing countries In the absence of synthetic rubbe?o
supplies of natural rubber would have been very short and prices very
much higher. As a result of US synthetic rubber policy, none 4 ,1l-vrLll.
tovhrd the US has been aroused in that area.
Daring the first three quarters of 1949, declining sales to Ira
markets contributed greatly to the decline of prices received by
rubber producers to a level which tended to increase economic hardship,
and consequently to a ,gravate political instability, in the rubber
producing areas, Sterling devaluation in September 1949 has helped
to alleviate that situation for the present, as the sterling prices
of rubbei-the prices received by the prod eerer-increased immediately
and are now about 30 percent above the pro-devaluation level,
The Malayan economy is more vulnerable than the Indonesian to P -W
marked decline in rubber prices by reason of its grater dependence on
dabber. Its vullnerdbility is ,made more acute by the necessity for im-
porting two-thirds of its rice supply--and at prices which, in contrast
to rubber, are several time those prevailing before the war. It may
be noted that Malaya' a only other important export, tin, also faces
declining prices. Although Indonesia is lest vulnerable than Malaya,
at leant to a moderate drop in rubber prices, tho economic viability
CON IT i) NTIa
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of that emerging state would certainly be jeopardi;ed, should the retum
from rubber, its second most important. export, be greutiy redueed,
within the Malayan robber industry the "Brrrope a" estates are the
most dependent upon maintenance of present prices. They employ large)
labor forces which are wholly dependent upon their wise
Although the Communists in Malaya have to date acquired no mats
following, attempts to prevent the depredations of Co m iun i.st led. bands
have toed British capabilities. British resources are scarcely such
that they could provide either greatly increased security forces or
adequate economic roust in the event of widespread employment.
To lessee, the dependence of Mala7a on the rubber Industry would
obviously alleviate the vulnerability of its position, but drastic
change in the structure of its econoxiy can be accomplished only over a
matter of deaades. In contrast, a depression in its now basic rubber
industry could occur over a short period.
It is evident, therefore, that: (1) the economic and political
etabilitv of Malaya and, to a somewhat lesser extent, that of Indonesia
are dependent upon the prosperity of the natural rubber industry and
the foreign exahangee earnings from rubber exports; (2) a decline in the
price of rubber substantially below, that now obtaining will, other
things being equal, aggravate instability in both areas, with the degree
of instability dependent upon the magnitude of the decline.
At estimated currents costs of producing, natural synthetic
rubbers, natural rubber can, at least for the present, compete
CCUIPIDBNTIAL
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favorably on a pride bazi.s with the synthetic product, Prices receivet
by producers are now at a level which ehou?d encourage natural rubber
production, The principal threats to profitable natural rubber pro-
duction are likely, to come from (1) the &eveloprnent of a greatly i roved
rntheetia product or (2) further reduction in the cost of producing, t hp
synthetic or (3) business recession in the pri4oipai rubber m a r k e t s s or
(4) .are increase in output of natu..ra1 rubber in. Indonos ia, Increase&
competition from the synthetic, however, is not likely to be felt for
at least another year.
COVFII TTIAL
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