IMPENDING TAKEOVER OF US RUBBER ESTATES IN INDONESIA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01003A002200010001-5
• Release Decision: RIPPUB
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• Document Page Count: 16
• Document Creation Date: December 9, 2016
• Document Release Date: February 27, 2001
• Sequence Number: 1
• Publication Date: January 1, 1965
• Content Type: BRIEF

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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
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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
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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.
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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.
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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.
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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
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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
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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
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 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:
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Takeover of US Rubber Estates in Indonesia --- January 1965
(CONFIDENTIAL)
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M (CRANI}UM FOR: Chiefs Dissemination Control Branch, DD/CR
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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:
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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
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When CB was reviewed for release _the following comment was made
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