Foreign Relations of the United States, 1951, Asia and the Pacific, Volume VI, Part 1

856D.2553/7–1651: Telegram

The Ambassador in Indonesia (Cochran) to the Secretary of State

secret
priority

Djakarta, July 16, 1951—6 p. m.

73. Deptel 51, July 11.¹ Butterworth of Caltex² raised with me several days ago question of procuring Indonesian assurances against nationalization Caltex properties.

I gave Butterworth my preliminary views but suggested our mtg after I might have separate talks with leading Indonesian officials. My cables, particularly Nrs. 1798,³ 1841 and 1851⁴ reported my conversations with Hatta and various Cabinet members in which I brought up gen subj protection American interests without mentioning any American company by name. Embtel 1828 of June 27,⁵ gave published info on attitude Indonesian Govt toward nationalization.

After above reported visits I gave Butterworth benefit my conversations I did not think it feasible procure from Indonesian Govt at this time formal undertaking against possible nationalization. I saw urgent desirability however of having as complete understanding as possible with respect property rights present and future. I suggested Butterworth and his local representative Rowley get in touch with those officials of Sukiman govt with whom they ordinarily do business and let these officials know their concern in light world developments and various statements by Indonesian Cabinet members and parliamentarians. I asked they check again with me after they had seen what info they could obtain from these normal contacts and we could then consider desirability my soliciting instructions from Washington, or venturing exploratory approach some of my closest friends in govt.

Butterworth and Rowley⁶ called at my request evening thirteenths I discussed Deptel 51 with them. Butterworth said that since our earlier conversation he had visited Economy Minister Sujono Hadinoto, Finance Minister Wibisono and Exchange Director Kuypers. He said Sujono strongly disavowed thought of nationalization petroleum industry. Said Wibisono likewise declared himself opponent nationalization oil industry but revealed consideration being given to possibility revising agreements with petroleum companies on utilization exchange proceeds from offshore sales. Said Kuypers also brought up subject revision “let alone” exchange agreements. Butterworth said he had not felt he shld go further in these conversations since Sujono was leaving Cabinet and cld not speak with authority and since Wibisono and Kuypers were on point raising exchange question in such manner Butterworth might be forced into definite statement which he unprepared give at present. Butterworth aware approach made to Dept by his associates in US and prefers make no further advances to Indonesian authorities pending advice from us. We reviewed situation.

My cables currently reporting my conversations with responsible Indonesian authorities and statement in press or Parliament have let Dept know question of handling Indonesian petroleum resources is live question particularly since nationalist trend of new state given additional impetus by stories from Iran and elsewhere. I have let it be known, however, that such dependable and sound authorities as Hatta and Djuanda assure me no nationalization presently envisaged beyond Java Bank and public utilities. They have indicated their realization it wld be folly for Indonesian Govt endeavor take over such extensive holding as those the foreign petroleum companies. They both realize Indonesia must continue look abroad for foreign capital to rehabilitate and develop Indonesia’s economy. They both favor any new capital being utilized for additional much needed industries rather than taking over industries already functioning.

Embassy experience has been that to obtain any written assurances from Indonesian Govt is almost impossible. Seriously doubt whether Embassy or Caltex cld obtain any written guarantee from Indonesian Govt now which wld provide sound safeguard against nationalization or expropriation in future. Question wld exist as to how much worth such guarantee wld have if present or subsequent govt might enact legislation in contrary sense. Following Iran question from distance I note US recognizes right any govt control its own resources. How far we cld go at this point in requiring assurances from Indonesian Govt is doubtful.

Indonesian govt and Parliament have decided to set up special commission to look into petroleum resources. Several months ago Indonesian Govt took up with me question obtaining info on petroleum laws of foreign countries. At my suggestion arrangements for procurement of American expert thru White Engineers was favorably recd by Indonesians. White actively pursuing appointment outstanding authority whose application submitted by him to Indonesians and whose approval expected.

I feel appointment American expert to give objective advice on any revision Indonesian petroleum laws is one of best safeguards we can now suggest. Is general opinion of interested American and Indonesian officials that commission benefitting from expert American advice wld find existing arrangements now require payment by foreign companies of between 50 and 60 percent of their profits to Indonesian Govt. Consequently it is believed study and report by commission shld convince govt no drastic revision of petroleum law necessary and expropriation or nationalization shld not be considered.

To raise question of obtaining special guarantee or assurance from Indonesian Govt at this juncture by Caltex wld place Indonesian Govt in difficult position. To give assurance wld constitute prejudging findings official commission. If Caltex threatened hold up further development and investment until satisfactory special assurance recd, Indonesian Govt might interpret this as capitalist coercion and ground for nationalist move. Any story given to press thereon wld react against American interests. It wld be particularly unfortunate if such story shld reveal support by US Govt for such arrangement.

Most moderate Indonesian leaders now in authority. We are likely perpetuate their influence and receive most satisfactory cooperation possible from their side if we demonstrate patience with and confidence in them, at same time firmly protesting when any trend toward discrimination against or danger to American interests may appear. I do not, therefore, recommend any official approach by US Govt to Indonesian Govt seeking special formal assurances for Caltex. Whether company may desire make approach on its own responsibility and let US Govt have record thereof, shld be for company to decide in light fullest info Dept and this Embassy can provide.

In view final para Deptel 51, I have not seen fit sound out any of my trusted friends in Indonesian Govt as to what likely reaction to American approach in sense suggested by Dept might be.

At RTC conference Hague 1949 I took every precaution then possible to have rights third countries protected in economic and financial field. If and when this agreement may be dissolved or amended by two parties thereto, we shld consider negotiating bilateral agreement with Indonesia to safeguard our rights vis-à-vis this country. I do not recommend instituting such negotiations until certain present international issues are better advanced toward solution and until Indonesian Govt is sufficiently firm and satisfactorily oriented toward US to offer good opportunity for agreement satisfactory to US.

I have today let Butterworth and Rowley know sense of my recommendation to Dept.⁷

Cochran

1. The Department informed Ambassador Cochran in telegram 51 to Djakarta, July 11, that representatives of Caltex had called that day at the Department and had discussed with Mr. Lacy and others ways and means whereby Caltex could obtain the most effective assurances from the Indonesian Government that Caltex interests in Indonesia would not be nationalized. The Department instructed Ambassador Cochran to discuss these matters with Mr. Butterworth, if possible, and then make recommendations to the Department regarding the following points: 1) the manner and timing of the Caltex approach to the Indonesian Government bearing in mind the company’s need for long range planning; 2) the Indonesian officials to whom the approach should be made; 3) the manner in which the Department might participate in an agreement to give it additional force. (856D.2553/7–1151)
2. E. M. Butterworth, President, American Overseas Petroleum Company, a subsidiary of the California Texas Oil Company, Limited.
3. Dated June 21, p. 676.
4. Neither printed.
5. In telegram 1828 from Djakarta, June 27, Ambassador Cochran reported that, with the exception of the Communists, the other political parties were not emphasizing nationalization of the foreign oil companies, but, rather, were interested in means to increase the government’s income from oil operations. In terms of specifics, Ambassador Cochran informed the Department that the Minister of Economics had reportedly agreed to the economic section of Parliament forming a national committee to examine all matters affecting oil operations and to reconsider the mining laws, and that the Cabinet had agreed in principle. The Ambassador also reiterated the fact that the Indonesians were dissatisfied with existing arrangements exempting the oil companies from foreign exchange regulations. (856D.2553/6–2751)
6. F. R. Rowley, General Representative for Caltex Pacific Oil Company in Indonesia.
7. The Department of State informed Ambassador Cochran on July 20, in telegram 89 to Djakarta that representatives of Caltex had been informed the day before of the contents of telegram 73 from Djakarta. The Caltex people concurred with the Ambassador’s assessment that to approach the Indonesians at that time about guarantees against nationalization would not be productive. (856D.2553/7–1651)