856D.2395/4–351: Telegram
The Ambassador in Indonesia (Cochran) to the Secretary of State
priority
1358. Mtg full rubber discussion group Tues morning was led by Sumitro who showed apparently genuine desire cooperate with US.
1. Indonesian officials were impressed by summary of US Govt activity in making possible exports of defense goods to meet Indonesian needs (ref Deptel 1028, Mar 26).1 They also understand possible benefits which Indonesian Govt cld derive from US commitment to extend continuing good offices to satisfy Indonesian needs for manufactured goods (ref Embtel 1353, April 2). However they do not consider this commitment is in any way equivalent, for purposes of internal political consumption, to the specific promises of manufactured goods which the Indonesians have continually been requesting in exchange for rubber.
2. Sumitro mentioned that he has recently refused a request from Chinese Amb who asked for flat purchase contract of 50,000 tons rubber offering in exchange not goods but currency (presumably dols or gold). In view of recent and current arrivals of manufactured goods from US and in view assistance which US Govt has extended to Indonesia in this connection, Sumitro granted that the proposed Chinese contract cld not justifiably be compared with the proposed US contract on overall basis. He feared however that the two contracts wld be so similar per se that Indonesian acceptance of US contract wld set precedent politically difficult to disregard if the Chinese Amb were to renew his request.
3. Sumitro states that the basic obstacle to Indonesian participation in 18 month govt-to-govt rubber purchase contract involving substantial tonnage as desired by US is that Indonesian Govt has no method or mechanism with which to implement it. Proposed GSA contract discounts future with result that, unless world market drops, the contract price is likely in any given period to be below world price. Indonesian sellers seem to be counting heavily on expectation that world price will at least keep present levels and probably rise during term of 18 month contract. Indonesian traders who sold futures within last few months are now losing on current deliveries. If Indonesian Govt were to attempt to implement contract with US by buying Indonesian rubber at market price and reselling it to US at low contract price cost of this underwriting wld be prohibited. If Indonesian Govt were to attempt to force Indonesian sellers to export to the US by use of export licenses or other means, chief result wld be greatly increased [Page 633] smuggling of Indonesian rubber products. Indonesian Govt sees no solution this technical problem.
3[4]. Sumitro and Zain indicated they might consider it worthwhile to make strenuous attempts set up necessary mechanism to implement contract of five year duration. Wilson made it plain he was authorized to discuss only an 18 month contract. In answer to his further query as to what wld be the minimum length of contract which in Indonesian opinion wld justify their efforts in setting up method of implementation again suggested three years. American negotiators however consider this proposal probably impractical since pressures described paragraph 3 above wld apply with even greater force to five year contract, since latter would probably discount market price more heavily that 18 month contract.
5. Questioned by Wilson, Sumitro stated that the Indonesian Govt actually owns and controls rubber output of about 1,200 tons per month. He added that most of this tonnage has been sold thru Sept. Wilson however indicated his readiness to negotiate contract even for this small tonnage starting in Sept if necessary as evidence of US Indonesian cooperation.
6. Sumitro added that in view of the difficulties of mtg the US desires the whole matter wld be considered by Indonesian Cabinet in its mtg Tues afternoon. He implied that special attention wld be given to Wilson’s offer to purchase Indonesian Govt production.