Canberra, 15 January 1965
Secret
Defence Aid for Malaysia
The Malaysian proposals for expansion of the Malaysian defence forces have been examined by a Working Party of officials (Australia, Britain, New Zealand and Malaysia) in Kuala Lumpur and in Canberra by the Interdepartmental Committee.2 This examination, which has included a study of the military feasibility of the proposals, investigation of technical matters and the checking of costing, is now virtually complete and the detailed proposals for expanding the Malaysian defence forces were submitted to the Malaysian Cabinet on 13th January. In the light of Cabinet’s views the Malaysian Treasury will finalize an overall financial paper which will relate the proposals to the Malaysian budgetary situation and indicate the extent of external aid which is likely to be needed. It is expected that this paper will be available in Kuala Lumpur next week and probably in Canberra the following week.
2. Meanwhile the Malaysian Treasury has told us informally that total expenditure on defence, including the new proposals for 1964 to 1970 is estimated at M$2712m. (fA396.9) of which M$857m. (EA125.4) would be for capital costs and M$1855m. (£A271.5) for recurrent costs. Of this amount the new proposals account for M$529m. (£A77.4) over the period 1965 to 1970, involving capital costs M$262m. (£A38.3) and recurrent costs M$267m. (£A39.1).
3. From the budgetary point of view it seems likely that the cost of the proposed defence expansion would increase the present annual budget deficit from approximately M$543m. (£A79.5) to about M$635m. (£A92.9). This could be met in part and no doubt will be met initially by running down cash reserves. Steps would clearly have to be taken, sooner or later, however, to arrest such a situation. Whilst some increase in taxation might be possible it seems certain that external aid will be the largest factor in meeting the budgetary situation.
4. During his visit to Malaysia the Minister for Defence will no doubt be asked about Australia’s attitude to future aid. However, until the Malaysian financial paper has been received and studied and any necessary consultation has taken place among the potential donor countries, no recommendations can be made to Ministers concerning the level of future Australian aid. At the same time, there would appear to be no reason why the Minister for Defence should not indicate publicly and in official talks in Kuala Lumpur the Government’s continuing positive willingness to maintain defence aid.
5. The present Defence Aid programme of £3 million3 includes £2,695,000 for equipment, principally small arms, ammunition, engineering plant and small craft. As at 19th January equipment, principally small arms, ammunition and engineering plant, will either have been delivered or be in transit. The balance of £1,400,000 is mainly for small craft, tenders for which close next month and the craft will be constructed throughout this year. For training, £122,000 has been earmarked and is virtually fully committed. Further requests now under consideration would be met from the contingencies provision. Funds for secondment arrangements of £86,000 are fully committed. The funds available for small arms and ammunition are now fully committed and will shortly be expended; and funds for the small craft and the personnel programmes will be expended by the end of this year.
6. It is not clear at this stage whether additional funds will be required during the present financial year. It will depend upon what the Malaysians ask for and how quickly they want it. Thus, if they wanted substantial further supplies of small arms, ammunition explosives etc., additional funds would be required. For example, there is a report from Kuala Lumpur dated 14th January of an enquiry by Razak whether Australia can supply 20 to 30 thousand shot guns or .303 rifles.4 In general, experience to date under the defence support programme shows that, subject to careful planning and observance of our own requirements, there is adequate scope for continued defence support aid for Malaysia from Australian resources, subject to funds being available.
[NAA: A4940, C4024]
1 Paper prepared to assist Cabinet ministers in briefing Senator Paltridge for his upcoming visit to Malaysia, 19–25 January.
2 See paragraph 5, Document 149.
3 See Document 149.
4 Razak’s enquiry resulted from the Malaysian Government’s plans to arm Home Guard units which had already received some military training, particularly in those areas where Indonesian incursions were likely to occur.