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November 9, 2016
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July 20, 1998
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January 4, 1949
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Approve or Release: CIA- DP78-0161 40001-9 CENTRAL INTELLIGENCE AGENCY 4 January 1949 INTELLIGENCE MEMORANDUM NO. 113 SUBJECT: Consequences of Dutch "police action" in Indonesia- 1.. The "police action" launched by the Dutch in Indonesia on 18 December has had far-reaching effects in terms of US security interests. The sudden but calculated Dutch move: (1) has brought the Far Eastern colonial problem sharply into focus; (2) has weak erred the prestige of the United Nations; (3) may seriously jeopard;ze the contribution of both the Netherlands and Indonesia to world polft- tical stability and economic recovery; (4) may have precipitated the emergence of a Pan-Asian bloc which may become strongly antagon- istic toward the US; and (5) has provided the USSR with a powerful propaganda weapon 2. Effect on the Colonial Problem.. World War II spurred the development of a fundamental US security problem in the Far Ea,bt: that of striking an effective bale, ance between support for local nationalist aspirations while at the same time supporting the economic interests of Western colonial powers to which aid has been pledged and from which assistance is needed in Europe. The Indonesian crisis has posed this problem as immediate and urgent. The Dutch action will aggravate an already deteriorating situation rather than, control it, and will reduce the effectiveness of the Netherlands as a Western European power. A chaotic situation in Indonesia may enable the USSR to extend more vigorously its expanding influence beyond China to Southeast' Asia: The rich resources of Indonesia and the goodwill of its more than 70 million peoples are at stake. The development of conditions favorable to the USSR in Indonesia appears now to require, as a counter,-measures a consistent application of positive and ympath(tfC US influence.. Document No. OD/ NO CHANGE in Class. ^ DECLASSIFIED Class. CHANGED TO: TS S C DDA Memo, 4 Apr 77 "l lr s3 Approved For Release'.~FA=DP78-b' tMl nat.e:. BY: a Approve or Release : CIA-RDP78-0161A 00300140001-9 3. Effect on the United Nations. Persistent Dutch disregard of SC directives will drastically reduce the prestige and influence of the United Nations because it will demonstrate again that UN resolutions, however mild, stand little chance of obtaining compliance unless backed by effective sanctions. Defiance displayed by such a state as the Netherlands, which enjoys long-established traditions of Western democracy and. enlightenmient, will have a peculiarly destructive effect on the basic concept of international law and order. Over a long term it will fur- nish means to the Soviet bloc with which to parry the charge that the USSR and its satellites alone are responsible for the disappointing record of the UN. More Immediately, the Dutch example is giving further encouragement to such belligerents as Israel to take uni- lateral action in disregard of the Security Council. 4. Effect on Political Stability and Economic Recovery. In Indonesia the Dutch action has aimed at a complete iiquida-. tion of the Republic as a political entity. It is believed, however, that the Republic has built up enough military strength and political support throughout Indonesia to carry out guerrilla operations for several years, It is known that the Republic has substantial financial resources outside of Indonesia which will be utilized in an attempt both to keep alive external support for the Republic and to strengthen internal resistance. It is not anticipated that the Dutch will be suc- cessful in winning the support of a sufficient number of nationalist leaders to undermine the resistance movement. Under present con-. ditions It is expected that widespread sabotage and terrorist activ - tives under Republican leadership will prevent the Dutch from achieving any effective degree of political stability. In Holland, despite considerable foreign censure, the Indonesian action has initially rallied domestic support for the Dutch Governrn~ent, However, as military operations drag on, dissatisfaction. with the K govern- ment's policy and dissension between left and right-wing groups will probably grow. In the long run, therefore, the Indonesian situation can be expected to increase the difficulty of maintaining a stable government in the Netherlands. -2- Approved For Releas78-01617A000300140001-9 Approvevor Releas ? - DP78-016100300140001-9 The Dutch action will have important economic consequences for the US and the rest of Western Europe as well as for the Net cu - lands. Indonesia is an important source of such raw materials as tin, bauxite, rubber, petroleum, and vegetable oils. Many of these commodities play a major role in the US peacetime economy, in its strategic materials stockpiling program, and in its implementation of the European Recovery Program. In the case of tin and bauxite, the police action may not result in an immediate decrease in production because these materials a.:}?e located in areas under firm Dutch control. A lack of internal stability over a period of years, however, will inevitably reduce the production of these important commodities, The rubber production in Indonesia will be seriously affected because much of the rubber is located in sections which will be sue- ject to concentrated sabotage activities. Although the Dutch have captured the important Republican petroleum installations, a serious decline in petroleum output as a result of strikes and sabotage can- not be discounted over the long run. The fact that Malaya, the only other major source of tin and rubber, may be the scene of continued internal disturbances, increases the seriousness of events in Indonesia. At a time when such commodities, readily available from Inndo-- nesia, are generally in short supply throughout the world, the Dutch action will have unfavorable economic implications for the Western world as a whole. Upheaval in Indonesia will increase the strain on Dutch finaYnes and add to Holland's difficulties in evolving a viable economy. Dutch earnings from investments in Indonesia were an important item in Holland's balance of payments, especially as a dollar-earning source which offset the unfavorable balance with dollar areas. The Nether- lands' economic planning is based on the assumption that:. Indonesia will eventually resume its role as a major source of dollar credits. This is particularly important because of Holland's present heavy imports from the US and the liquidation of a large part of Dutch -3- Approved For Release : CIA-RDP78-01617A000300140001-9 Approvevor Release : CIA- iRRDP78-0161 AZ003001 40001-9 M@M assets in the US,, Under the best of circumstances, it was estimated that Indonesia would not produce a favorable balance of payments before 1950. Further delay in realizing returns on Dutch investments as well as probable loss of some of ` these assets will prolong the post- war economic dislocation in Holland. This will delay the implementation of the Benelux Customs Union and reduce the contribution of the Nather- lands to the European Recovery Program. The probable necessity of maintaining a large army In Indonesia indefinitely will further strain Holland's finances. At present, 19% of the budget is devoted to military expenditures, of which a major part goes to support armed forces in Indonesia. Effective use of Dutch troops in any Western European defense system, moreover, may be postponed indefinitely as a result of this deployment. 5. Effect on Emerging Pan-Asian Bloc. Dutch aggrepsion in Indonesia has given Asiatic nations a rallying point for effective expressions of Far Eastern solidarity; has presented India with an opportunity to assert leadership in the area, and may have precipitated the emergence of an Asiatic bloc whose ultimate influence can be unfavorable to the US. India, Pakistan, Ceylon, and Burma im- posed immediate sanctions against the Dutch by denying air landing and shipping privileges. Burma's suggestion to India that an all-Asian con- ference be convened to consider the extension of assistance to the Indo- nesian Republic is being acted upon. Other measures, including material assistance to the Republic and breaking off diplomatic relations with the Netherlands, have been proposed. India, aspiring for leadership in Asia. and realizing that the UN is not yet an exponent of its own principles, has seized this opportunity to test the strength of an Independent.: and potentially powerful bloc. Development of any such bloc will 'stimulate concerted political action outside the UN. It will also tend to weaken further the remaining bonds between the British Commonwealth and its Asiatic Dominions (India, Ceylon, Pakistan)and Malay4 While not yet the foremost target of this bloc, the US is continuing to be Identified in Far Eastern minds as a willing assistant in the Dutch action. If this situation continues, the Pan-Asian group will become an effective Soviet instrument, even though it does not align itself with.the USSR. -4- Approved For Release : CIA-RDP78-01617A000300140001-9 Approvevor Release : C -RdrDP78-0161 00300140001-9 awfiap C. Effect on Soviet Propagaaznda. The situation in lndonesi& . enables the Soviets to espouse vigorously all nationalist asphratirns, and gives them an oppor- tunity to identify the United States as a partner of the Dutch. While the Soviets have also condemned the Dutch, it is obvious that they are utilizing this situation to the fullest for world-wide propaganda purposes and consider it an ideal opportunity to dis- credit the US further in the Far East -5- Approved For Release : CIA-RDP78-01617A000300140001-9