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December 9, 2016
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February 27, 2001
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January 1, 1965
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Approved For Release 2001/03t2 ~fflfpP79TO1003AO02200010001-5 CIA/RR CB 65-1 January 1965 Copy No. INTELLIGENCE BRIEF IMPENDING TAKEOVER OF US RUBBER ESTATES IN INDONESIA DIRECTORATE OF INTELLIGENCE Office of Research and Reports GROUP I Excluded from automatic downgrading and Approved For Release 2CC P ikb-k79T01003A00 , i ` Approved For Release 2001/03/22 : CIA-RDP79TO1003AO02200010001-5 WARNING This material contains information affecting the the eUnited States the National Defense of of within the meaning o tag atraws- Title 18, USC, Secs. 793 and 794, manner mission or revelation of which in any bylaw. to an unauthorized person is prohibited Approved For Release 2001/03/22 : CIA-RDP79TO1003AO02200010001-5 Approved For Rene"e (01/0 / 2 NC I P79TO1003AO02200010001-5 IMPENDING TAKEOVER OF US RUBBER ESTATES IN INDONESIA President Sukarno allegedly has approved a plan for the takeover of US and Belgian rubber estates. According to this plan, Indonesian labor groups will create disturbances on the estates, thereby setting the stage for intervention and takeover by the government of Indonesia on the pretext of maintaining control. The takeover presumably would follow the lines taken against the Dutch estates (in 1957-58), the Belgian estates (in 1961>1"), and the British estates (in 1964). Sizable plantations of two major US firms and small holdings of a third US company are affected, representing together an estimated investment of about US $85 million** and second only to the heavy US private investment in the oil industry of Indonesia. In spite of con- siderable harassment, these estates have operated at a relatively high rate and have made modestly important contributions to total rubber output and earnings in Indonesia. In 1963 they are estimated to have produced 26, 000 metric tons of rubber, which netted about $13.3 million, or 6 percent of Indonesia's total earnings of foreign exchange from natural rubber. If the takeover of US rubber interests results in the sudden de- parture of the present managers and technical personnel of the estates, the Indonesians may encounter problems in operating the US estates. Moreover, should the takeover lead to an economic estrangement between the US and Indonesia, the Indonesian rubber industry may face a serious setback. The US is the leading buyer of Indonesian rubber, having purchased about 38 percent of total rubber exports in recent periods. Such imports of Indonesian rubber, however, account for only about 11 percent of US consump- tion of rubber. US stockpiles of natural rubber are sufficient to forego purchases from Indonesia for an extended period. Moreover, it is questionable whether the Communist countries would take up the gap in buying created by US withdrawal from the Indonesian rubber market. Indonesian "protective custody" over the Belgian estates ended in May 1963. * Dollar values are given in US dollars throughout this publication. C-O-N-F-I-D-E-N-T-I-A-L Approved For Release 2001/03/22 : CIA-RDP79TO1003AO02200010001-5 Approved For Release 200 0 /22 ? ,C " P779 0 0 3AA002200010001-5 1. Indications of the Impending Takeover Action reportedly has been initiated for the.impending takeover of US and Belgain rubber estates by the government of Indonesia. Presi- dent Sukarno allegedly met Indonesian officials on 8 December 1964 and approved plans calling for labor groups to create disorders on the US estates so that the Indonesians would be "forced" to take control. 1/ By so doing Sukarno could obtain control of the estates without formal nationalization and thus obscure the question of future compensation. Similar tactics were employed in gaining control of the Dutch estates in-1957-58, the Belgian estates in 1961, and the British estates in early 1964. In the case of the Dutch and British holdings, the Indonesians followed up their takeovers by ousting the foreign personnel and assuming full managerial control. As in the previous cases, the impending takeover of US and Belgian rubber estates is linked closely to developments on the international scene. In the present instance the takeover is associ- ated with the recent US-Belgian relief action in the Congo and with the US support for Malaysia and South Vietnam. 2/ On 11 December a US official sought reassurance from Sukarno that the government of Indonesia would block a takeover of US estates but received instead a warning that the US Government should be "careful in its relations with Asian-African countries. " 3/ Furthermore, anti-US sentiment, manifested by the recent damaging of two US cultural centers, in- cludes demands by the PNI and PKI4, that Sukarno take action against the US estates. 2. Background of the Threat to US Holdings Although the impending takeover may be sparked by recent political events, the threat to US rubber holdings has been building up for some time, dating back to the ouster of the Dutch in 1957 -58 and to Sukarno's pledge to carry but nationalization of the remaining foreign interests in Indonesia. The modestly successful efforts in managing the Dutch rubber estates probably have made the Indonesians confident of similar successes with other foreign investments in rub- ber. In September 1960 the government of Indonesia decreed that all foreign rubber estates with concessions expiring by 1965 would on The PNI is the Indonesian National Party, and the PKI is the Indonesian Communist Party. Approved For Release 2001/0/22 FCIA-RP901003002200010001-5 Approved For Release 2001/Q3 Ip-RDp79T01003A002200010001-5 C-O-N-F-I-D- -1`~- -i-A.-L expiration revert to the government. 4/ Those concessions expiring after 1965 were subject to negotiation. The US Rubber Company reached an early accord with the Indonesians and, in return for ceding about 46 percent of its area to the government, obtained' con- cession rights that extend to 1972. 5/ The Goodyear Tire and Rubber Company -- the other major US firm with rubber estates. in Indonesia --for agreed in 1963 to exchange its large Wingfoot butt d Goodyear'sahold ngs abutted two smaller government rubber estates that in Dolok Merangir. 6/ The Indonesians, however, have held off imple- mentation of the agreement and have permitted one of its companies prematurely to take over part of the Wingfoot the ensuing dhis s perfidy brought strong reaction from ..Gcodyear, and may have prompted the rumor that the impending takeover is aimed primarily at the Goodyear estates. 8/ It is clear, however, that all US and other foreign holdings are targets for eventual takeover bfunclarnentally and eventually Onoimperi- President Sukarno stated alists' capital will be allowed to operate on Indonesian soil. " The procedure to be followed, according to Sukarno, may vary: "It can be nationalization with compensation; it may also be confiscation with- out compensation. " 9/ 3. Significance of the US Holdings The US rubber estates consist of the two major holdings of US Rubber and Goodyear and a small estate owned by Hawaiian Sumatra 000 acresnortheast Plantations. 10/ All of the US estates ar~islocated e on the coast of Sumatra (see the map) and conp In total size the US estates are smaller than the British but larger than the Belgian rubber' holdings in Indonesia. Information concern- ing the individual US estates is given in the accompanying table. The US rubber holdings have an estimated value investment about $85 mil- lion-I~*** and, although considerably below the ue British rubber estates comprise roughly .150, 000 acres. The Belgian estates, represented principally by Societe Financiere des Caoutchoucs (SOCFIN), by Anglo-Sumatran Estates Agency (SIPEF), and by Guthrie and Co. , Ltd. , are estimated to be somewhat over 50, 000 acres. 11/ In addition to its rubber estates, Goodyear owns a tire plant at Bogor that is valued at $5 million. C-O-N-F-I-D-E-N-T-I-A-L Approved For Release 2001/03/22 : CIA-RDP79T01003A002200010001-5 Approved For Release 2001/03/22 : CIA-RDP79TO1003AO02200010001-5 C-O-N-F-I-D-E-N-T-I-A-L Indonesia: Rubber Estates Owned by US Companies 1964 US Company US Rubber Company Goodyear Tire and Rubber Company Hawaiian Sumatra Plantations Estimated Location Acreage Value J Kisaran 54,700 $50 million Dolok Merangir 44,500 c/ $34 million Kwala Goenoeng 3,000 $ 1.5 million a. Rounded to the nearest hundred acres. b. These values are estimated to approximate investment and are well in excess of the book and current market values of the various estates. c. Including two estates that the government of Indonesia has agreed to cede to Goodyear in exchange for Goodyear's Wingfoot estate of 40,000 acres. ($380 million), represent the second most important financial stake of US private capital in Indonesia. 12/ Most of these investments are in fixed assets such as buildings, processing equipment, and rubber trees and therefore cannot be transferred out of the country. Moreover, given the current political and economic climate in Indo- nesia, it is doubtful that foreign buyers would be found for the US estates. Accordingly, the current market value of the US estates is well below $85 million. The US estates, together with other rubber estates, form a relatively small but highly efficient sector of the Indonesian natural rubber industry. Estate rubber, in contrast to that supplied by Indo- nesia's smallholders, is of high quality and is marketed directly to various foreign countries. In 1963 the US estates are estimated to have produced 26, 000 metric tons of natural rubber, or about 4 per- cent of Indonesia's total output. The sale of US estate rubber brought an estimated $13. 3 million, or about 6 percent of Indonesia's total foreign exchange earnings from natural rubber in 1963. The govern- ment of Indonesia, however, derived only about $6 million in revenue from the US rubber estates in 1963. The contribution of US estates C-O- F- -T)--E Approved For Release 2001/03/22 : G'/IADRD JiDrTdb14002200010001-5 Approved For Release 2001/03/22 : CIA-RDP79TO1003AO02200010001-5 US Rubber Estates in Indonesia 777 SEA DYEAR TIRE IBBER CO. ? KUALA "'tN MATRA in M!"M WINGF~OI~~~_ ~aa~ mm~ Af-ESTAT* SIC INGGI ? DJAKARTA BOGOR? BANDUNG 0 Approved For Release 2001/03/22 : CIA-RDP79TO1003AO02200010001-5 Approved For R le 1 I - D 79T01003A002200010001-5 to Indonesia's national income also is modest but is of some significance to Sumatra. In addition to employing an estimated total of 16, 000 workers, the two large US estates indirectly support approximately 40, 000 people. 13/ 4. Possible Effects of the Takeover Indonesian takeover of the US rubber estates may have damaging, although not necessarily disastrous, consequences for operations. Assuming that the present administrators and technical personnel are not suddenly dismissed or forced to leave, it seems quite possible that output and earnings on the estates will continue at a relatively high rate. By forestalling the departure of the trained personnel, the Indonesians would gain time to acquaint their personnel with operations of the estates and to train adequate replacements. If, however, Indonesia immediately ousts the present staff and replaces them with favored but ill-trained personnel, such as reportedly is happening on British estates, it appears quite likely that operations on the US estates will take an immediate turn for the worse. Moreover, should the Indonesian actions lead to an economic estrangement with the US, it seems possible that the over-all rubber industry of Indonesia will suffer. At present, the US is the leading customer for Indonesian rubber, buying about 38 percent of its total rubber exports. Since such imports account for only about 11 percent of US consumption of rubber and there are abundant stocks of natural rubber in the US, the US could forego buying rubber from Indonesia for an extended time. Indonesia, on the other hand, might have problems marketing the additional rubber, particularly because there is some question whether the Communist countries would be willing to increase their purchases sufficiently to take up the gap created by US withdrawal from the Indonesian rubber market. Additional purchases by the USSR, moreover, would not necessarily bring badly needed foreign exchange to Indonesia, because they might be applied against the large outstand- ing debt that Indonesia owes the USSR. C-O-N-F-I-D-E-N-T-I-A-L Approved For Release 2001/03/22 : CIA-RDP79TO1003AO02200010001-5 Approved For F Iga e 309110 A2 RJJP79T01 1. State, Djakarta. T-1108, 14 Dec 64. C. State, Djakarta. T-1086, 10 Dec 64. C. State, Djakarta. T-1099, 11 Dec 64. C. State, Djakarta. T-1005,. 30 Nov 64. OFF USE. 2. Ibid. 3. State, Djakarta. T-1099, 11 Dec 64. C. 4. State, Medan. Airgram A-7, 27 Aug 64, p. 1-2. C. State, Medan. Airgram A-6, 24 Jul 62, p. 1-3. OFF USE. 5. State, Medan. Airgram A-6, 24 Jul 62, p. 1. OFF USE. 6. State, Medan. Airgram A-7, 27 Aug 64, p. 2. C. 7. State, Djakarta. T-800, 30 Oct 64. C. 8. State, Djakarta. T-1108, 14 Dec 64. C. 9. State, Djakarta. Airgram A-148, 21 Aug 64, p. 2. C. 10. State, Djakarta. Airgram A-340, 4 Nov 64. U. 11. State, Medan. Airgram A-94, 7 May 63, p. 1. U. 12. State, Djakarta. Airgram A-39, 10 Jul 64, p. 2-3. OFF USE. 13. State, Djakarta. Airgram A-885, 13 Mar 64, p. 2. OFF USE. State, Djakarta. Airgram A-854, 13 Mar 64, p. 1. OFF USE. Analyst: OCI ORR RR 25X1A 25X1A C-O-N-F-I-D-E-N-T-I-A-L Approved For Release 2001/03/22 : CIA-RDP79T01003A002200010001-5 Approved For ReleaONFI~O J:J;I 1IP-RDP79T01003AO02200010001-5 CONFIDENTIAL Approved For Release 2001/03/22 : CIA-RDP79TO1003AO02200010001-5 Analyst: R/CH 1 11 . 52 0010001-5 Approved For Release 2001/03/22 : CIA-RDPY6e10ct0322A00220 OFFICE OF RESEARCH AND REPORTS 25X1A St/P/RR w Control Section Series Number ~SA~RR.CBt_6.51 _~ i)a.te of Document _Tanuary 165 33 ADIRR 34 _._ _ ._ _:DAD (RR 84 173 .......... 174 175 176 177 178 - 181 182 183 184 - 186- 187 188 189 190 191 192 193 194 195 196 197 198 Reci int_ 28 0-- _....w~._ 4! 6 Jan 65 R/CH DAD(RR _,, CGS/HR _O OCR 25X1A 1g81, Hq 8 Jan 65 199 - 201 203 - 230 Filed in St P/C C /9 ~ Y Approved For Release 2001/03/22 : CIA-RDP.79TO1 1 Control Sheet om automatic dinn and { COt*1 iE TE E'P ification C.ias sifi~ ation _~---. Number of Copies 7 J. 03AO02206010001-5 x Approved For ReleaSA"6 J:CIA-RDP79T01 003A00220001 0001-5 SUBJECT: Distribution of Current Support Brief No. A- InAmnaal Copy No-' 1 O/DDI, Room 7E32, Hdgtrs. 25X1A 2-3 NIC 4 - 12 OCI Internal 13 - 15 ONE 16 - 21 St/CS/R 25X1A 22 O/DDI - 23 - 31 NSA 32 NSAL Section, t Support 280 ORR Distribution, St/A/Documen ct to 8tIA/D. 8 J di 33 - re Room GH0915, Hdqtrs. (sent (Distributed by OCR) h TI ,, . _.GIO+P 1 ExCludad trCm automatic dowrgrading and decla sisication Approved For Release 2001/03/22.: CIA-RDP79TO1003AO02200010001-5 Approved For Release 2001/03/22 : CIA-RDP79TO1003AO02200010001-5 St/A/DS Distribution of Current Support Brief No. 65-.1,, Impending Takeover of US Rubber Estates in Indonesia --- January 1965 (CONFIDENTIAL) Copy No. Recipient 35 Ch/E 36 St/PR 37 42 D/A 1 each branch) 43 - 48 D/MS (1 each branch) 49 - 54 D/R (1 each branch) 55 MRA 56 - 60 D/P (1 each branch) 61 - 66 D/F (1 each branch) 67 St/PS 68 - 76 D/I (1 each branch) 77 - 78 D/GG 79 - 80 D/GC 81 D/GX/X .,$ RID/AN, Unit 4, Room 1B4004, Hq. 88 St/P/A 89 St/FM 99 91 GR/CR 92 BR/CR 93 FB /SR/CR, Room 1G27, Hq. 94 Library/CR 95 IPI/CR 25X1A 96 97 AD OO 98 Chief, OCR/FDD 99 CD/OO 1.00 OCI/SA/R, Room 5G19, Hq. 25X1A 101 DDI/CGS, Room 7F35, Hq. 102 - 103 DDI/COGS/HR, Room 1G81, Hq. 10.4 - 106 OSI 107 OBI 108 DD/S&T/SPIN T 109 - 110 O'TR./IS/IP, Room 532, Broyhill Bld 1000 Glebe (1 - OTR/SIC) ill NPtC/CSD/REF, Room 15518, 112 Commandant National. War College, eslie McNair, Attn. Classified Records Section, Rm. 26, Nat'l War College Bldg. Washington, D. C? 113 - 114 Assistant Secretary of Defense, ISA, Room 4D825, Pentagon 115 - 153 Defense Intelligence Agency, DIAAQ-3, ABldg., Arlington Hall Station 154 -- 157 USIA, Warren Phelps, IRR/D, Room 812, Walker Johnson Buildir 1734 New York Avenue, N. W. 158 - 169 State, IN , Communications Center, Room 7818, State Dept. Bldg. 170 - 171 Dr. Neilson. Debe..voise, NSC, Room 365, Executive Office Bld 172 ~- ,9 Od Frank M.Charrette, Agency for International Development, Chief, Statistics and Reports Division, Room A-204, State Annex #10 174 - 230 St/P/C/RR, Room 4F41, Hq. (held in St/P/C., 8 Jan 65). 2,31 - 280 Records Center Approved For Release 2001/03/22 1003AO02200010001-5 moorading and decV~ssificatien by 1'"T', .~. Twl Approved For Relea Ib /22 : CIA-RDP79T01003A002200010001-5 14 January 1965 M (CRANI}UM FOR: Chiefs Dissemination Control Branch, DD/CR FR Chief, Publications Staffs O RR SUBJECT Transmittal of Material it, is requested that the attached copies of CIS,/RR CB 65-ijl Impending Takeover of US Rubber Estates in Indonesia, January 1965, Confidential, be forwarded as follows: State, INR Conanunicatione Center9 Room 1818., State Dept. Bldg. Suggested distribution for Fhnbassies in Moscow, Bern, London, Wellington, Manila, Canberra, Melbourne, Bangkok, Djakarta, Hong Kong, Rangoon, Kuala Lumpur, Saigon, Seoul, Singapore, Taipei, !iokyo, Vientiane, Phnom Pehn, Colombo, Kabul, Karachi, and Ottawa 25X1A A 8u i+,ac. a...ea4/$: Copies #203 - #225 of OB 65-1 cc; CGS/RB ,)I ETCD Ii. IkL the dissem,nat,o,i recu:a! .;d by this memorandum has been completely BY: ,A 1111-5 Approved For [ P T01003A002200010001-5 ~w ~ _ .~decls~"Fific;zYian ? Approved For Releas b~l 2 IA-RDP79T01003A00220 Project No. 22. 5210 Report Series CIA/RR CB 65-1 Title Impending Takeover of US Rubber Estates in Indonesia --- January 1965 CONFIDENTIAL) Responsible Analyst and Branch R/CH 25X1A RECOMMENDED DISTRIBUTION TO STATE POSTS Berlin, Germany Bucharest, Romania B dape st, Hungary oscow, USSR Prague, Czechoslovakia Sofia, Bulgaria Warsaw, Poland Europe /Bangkok, Thailand /Dj akar. ta, Indonesia 4141ong Kong .angoon, Burma 2ual.a Lumpur, Malaya aigon, Vietnam Seoul, Korea ngapore, British Malaya Mexico Guatemala Panama Brazillia, Brazil Buenos Aires, Argentina Bogota, Colombia Santiago, Chile La Paz, Bolivia Montevideo, Uruguay Venezuela as C Tokyo, Japan , arac B,lgrade, Yugoslavia ientiane, Laos rland it S Phnom Penh, Cambodia Africa ze w ern, Germany Bonn TColombo, Ceylon , Yaounde, Cameroun Brussels, Belgium Copenhagen, Denmark Near East & South Asia Leopoldville, Congo Addis Ababa, Ethopia Frankfurt, Germany Switzerland Geneva Ankara, Turkey Accra, Ghana , Helsinki, Finland Athens, Greece Abidjan, Ivory Coast Kenya Nairobi The Hague, Netherlands Cairo, Egypt , Lisbon, Portugal fiamascu.s, Syria Monrovia, Liberia /London, England P Kabul, Afghanistan Tripoli., Libya Morocco t b R Luxembourg, Luxembourg -Karachi, Pakistan a , a Spain Madrid New Delhi., India Lagos, Nigeria , Norway Oslo Nicosia., Cyprus Mogadiscio, Somal , France Paris Tehran, Iran Khartoum, Sudan , Italy Rome Baghdad, Iraq Tunis, Tunisia , Stockholm, Sweden Tel Aviv, Israel Pretoria, South Africa. Austria Vienna Beirut, Lebanon Algiers, Algeria , Amman, Jordon Cotonou, Dahomey Jidda, Saudi Arabia Dakar, Senegal Mali ko B , ama Wellington, New Zealand Ottawa, Canada U Ianila, Philippine s Canberra, Australia uMelbournWreveal or Rele do agrading and de:E ssiiidatian 1003AO02200010001-5 SECRET 444'1 a in) RECORD OF REVIEW OF ORR PUBLICATIONS FOR SECURITY S I I BRANCH EXTENSIO 25X1 C 25X1 C 25X1A :EMARKS When CB was reviewed for release _the following comment was made by SA/RR and concurred in,#by AD/RR: "Discusses US-Indonesian relation- 25X1 C ships and possible policy implications. " Consequently, CB was not released Reauest received from for release Turned down. above. 11 Mar 65 25X1 C 25X1 C 25X1 C for reason 25X1 C FORM W-1111 A0022000100049-56-43) 12-64 2358 Excluded from automatic downgrading and declossification