Canberra, 18 November 1965
1410. Secret
Barter Trade
In earlier messages we raised with you the question of what grounds there were for the Singapore authorities really being confident that their proposed barter trade scheme would work. In his telegram No. 23491 Critchley made the point that he had doubts whether Singapore’s proposals took into account adequately the attitude of Indonesia. Critchley pointed out that the government there could find it much more difficult to overlook barter trade organized at fixed times at a particular location than the irregular trade which has taken place in the past. The various statements emanating from Djakarta saying that Lee Kuan Yew was indulging in day-dreaming if he hoped to resume barter trading are relevant.2
2. We have seen a British telegram reporting a conversation with Lee in which the latter brushed aside Indonesian statements that the resumption of barter trade would not be permitted by the Indonesian state, saying that the authorities in Djakarta were unable to control what went on in the islands opposite Singapore.
3. We are not sure that Lee is right about this. It seems to us that the barter traders, no matter whether they come from widely dispersed areas within Indonesia, would funnel into a narrow stretch of waters in their approach to Pulau Senang. These waters, also, would be Indonesian territorial waters. We would think it possible that the Indonesian Navy could intercept and turn back a good many of the barter traders if they so wish. Does Phoenix Park have a view on this?
4. Like Critchley, we think it is a decided possibility that the Indonesian authorities would take practical action to impede such barter trade. Whatever might be the preferred position of the Indonesian Armed Forces over the issue (and that is far from clear) it is easy to visualise the President taking it up and using it. If the Indonesian Navy failed to respond to this open breach in confrontation, he would obviously be in a position to call them to account and challenge them with a failure to carry out policy. He could also bring to bear the standing argument that Indonesia cannot afford to allow Singapore to get back into its former position of exploitation of Indonesian export production.3 For reasons such as this we would think there is some possibility that the Indonesian Government would intervene effectively to prevent the growth of the trade.4
5. If this assessment is likely to be correct, it seems to us Departmentally that two things follow from it:—
(a) Singapore’s proposal could force the Indonesian Armed Forces back into the business of confrontation in a much sharper form than they otherwise might wish;
(b) if the Indonesian Navy does take reasonably effective action, Singapore will not have got much out of its attempt to resume barter trade while it would have further aggravated difficulties with Kuala Lumpur on which so [much] ultimately depends for expanded economic relations for the future.
6. You might talk these points over with Phoenix Park, and also at your discretion with Singapore Ministers.5 Please prepare them as points for exploration and not as Australian Government policy thinking. But it would be useful if you could sow the idea that the time might not be ripe for this scheme and that it might fail.
[NAA: A1838, 3006/4/9 part 30]
1 4 November, in which Critchley had reported on an exchange of letters between Wilson and the Tunku on the question of the combined defence machinery examining the resumption of barter trade. While the Tunku had agreed to this process, he maintained that he had ‘made it clear to Lee that a resumption of barter trade was not going to happen and that was the position’. Critchley had also advised that Singapore Cabinet ministers were critical of Lee continuing to make barter trade a political issue but that there was ‘little prospect at present of agreement between the Malaysian and Singapore Governments’.
2 Indonesian comment on Singapore’s proposal had in fact been minimal. Perhaps the reference here was to Subandrio’s statement to the press on 4 November that Indonesia had no intention ‘to comply with Singapore’s wish to open trade’ at that time, as such a wish would only be considered ‘on the basis of Indonesia’s confrontation policy’. Pritchett believed that Lee would see such statements as only ‘to be expected as a matter of form’.
3 Pritchett reported that Goh was ‘unimpressed’ by this view saying Sukarno himself had been involved in barter trade and, more pertinently, that the point was ‘only marginal’ in the type of political conflict developing in Indonesia; the generals ‘were not going to be stepping up confrontation while they had the P.K.I. on their hands’.
4 Goh’s view was that although Jakarta might not want the trade officially, ‘effective interference was unlikely’, given the ‘large amounts of money to be gained’.
5 On 19 November, Pritchett advised that he would put the points in paragraph 5 as quickly as possible to ministers, but felt that ‘they might now be seen largely as an attempt to dress up the dissuasion of Singapore from barter trade because of the Tungku’s attitude’. He subsequently reported that he ‘had to be fairly persistent to get Goh to address himself to the arguments and not just wave them aside’ and that he felt that he had ‘made little impression’.