“To forget the past in favour of a promise for the future”
The Netherlands, Indonesia and the financial agreement of 1966. Nederland, Indonesië en de financiële overeenkomst van 1966. Negotiations, settlement, implementation.
Published: Dutch Ministry of Foreign Affairs, Authors: J.J.P. de Jong and Mrs. D.M.E. Lessing-Sutherland, June 2004
Decolonization is a process of dividing assets; not only in politics but also in economics. This was also true for the decolonization of Indonesia. For contemporaries, it’s all about dividing up the spoils. But later generations will look at it strangely when they are confronted with these last steps of the separation. By the summer of 2003, it was known that Indonesia had paid off the debt to the Netherlands that they had taken over in 1966. Claimindo and Belindo, the administrators of the debt payments, were able to disappear from the Amsterdam stock exchange. It came as a huge shock to Indonesians to learn that not only had they received development aid from the Netherlands, but also had paid considerable sums to their former colonizer. “How can it be that Indonesia, which was colonised by the Dutch for 350 years, ended up paying compensation to them?”
The media in Indonesia groped around in the dark. What were these debts about? There were myriad assumptions. At the Round Table Conference in 1949 where the transfer of power was organized, the Dutch would only agree to independence if they were paid 4.5 billion guilders. Later, Indonesia would nationalize Dutch companies. What happened in 1966? One thing was clear: “Soeharto was brought to his knees to pay this.” It was an upside down world, it was proclaimed indignantly. The victims of colonialism had to pay Wiedergutmachung (reparations) while Indonesia was in a deep economic crisis.
“The exploitation continues”, read the Indonesian headlines. It was said that the knives were being sharpened while the government, in its anxiety, kept its head in the sand. Indonesian parliamentarians asked about the “deliberately hidden payments.” Voices called out for counter-claims. The Dutch had already made a lot of profit during the colonial times, according to a well-known Indonesian historian. “For that, they owe us money.” The counter-claim came. At the end of May 2003, a mysterious Just Prosperity Party filed a counter-claim via the Dutch ambassador in Jakarta, for 128 billion U.S. dollars for compensation for the suffering and damage caused during the colonial period.
The Indonesian unrest also penetrated the Netherlands. It was repeated without much commentary. Here too there was talk of collective amnesia, albeit to a lesser extent. The Telegraaf headline read, “Closing Stock Exchange Funds opens Indonesian wounds”. “For almost 35 years Claimindo and Belindo existed to regulate the Indonesian compensation of Soekarno’s nationalization of Dutch companies but the sullied payments of 600 million guilders escaped the notice of the common people.”
That was all rubbish of course. And Foreign Affairs and ambassador Jakarta also pointed that out. The financial agreement in 1966, problems raised, and the agreed-upon solutions, were negotiated in complete openness. There were no secrets. Fortunately, the director of Foreign Affairs had just taken the initiative to prepare a report on the completion of the claim for damages. The research supplied useful contrary information. This took the steam out of the kettle. The emotions slowly ebbed. Still questions remained. The agreement was indeed out in the open, but what exactly happened in 1966? It was all about old financial crises that tormented relations between the two countries. That is true. On August 25, 1965, the Indonesian negotiator Achmat Ponsen, in fact, said that he wished “to forget the past in favour of a promise for the future.” But what exactly was the matter?
Historical background and the restoring of the relationship
The historical background
On December 27, 1949, after the RTC agreement, the Netherlands transferred sovereignty of the Dutch East Indies to the United States of Indonesia. It was the end of the process of decolonization that began with the Indonesian republic’s declaration of independence on August 17, 1945 and the Dutch de facto recognizing of the republic beginning in 1946. However, the departure from Dutch East Indies, as with Surinam later, certainly did not involve starting over with a blank slate. The relations between former motherland and ex-colonies were deeply influenced by the past, in negative as well as positive ways.
The ability to turn over a new page and start a new chapter had its downside in the old hurts that lingered on both sides. On the Dutch side, there were certain groups that felt deep resentment. Additionally, the age-old idealism, the Multatuli-influenced belief in playing a role in the development of Dutch East Indies, was definitely not finished. In Indonesia as well, emotions came to the surface. The revolutionary, anti-Dutch instinct had not nearly died out. The army, and other groups, were criticized for the RTC agreement because a lot of water had been mixed with the wine at the cost of the ideal of “100% merdeka”. (Indonesian word for “freedom”). One of the most important critiques was that the dominant position of the Netherlands was guaranteed. Indeed, the Dutch had forgiven 2 billion guilders of debt to Indonesia. However, Indonesia was still forced to pay back 1.1 billion guilders.
Moreover, a controversial issue was Western Papua New Guinea’s exclusion from the transfer of sovereignty. After the dissolution of the federal state, demobilizing the KNIL military, the Westerling coup, and the Ambon issue, it was the issue of West Papua where strong emotions and irritations between the two countries were concentrated.
West Papua was also the trigger for an escalation of the issue. When a conference was organized in 1955-56 on Indonesia’s initiative, the Dutch refused to discuss the West Papua issue. Indonesians for whom West Papua was a priority got nowhere. In 1956, they cancelled the Dutch Indonesian Union (which in fact had already bled to death) as well as the financial and economic aspects of the RTC. The debts agreed to at the RTC were no longer honoured, nor were the (partial) pension payments Indonesia owed.
In 1957-58, Dutch economic dominance ended. The West Papua issue was the immediate cause. The Dutch companies (nominally valued at 4 to 5 billion guilders; their actual value was about 2.7 billion guilders) were “spontaneously” taken over by PKI unions, then put under control of the Indonesian army, and nationalized on December 31, 1958. The agrarian reform law that Indonesia implemented on September 24, 1960, made it impossible for foreign plantation companies to operate in the country.
This dramatic development with West Papua as interest ended in 1960 with the breaking off of diplomatic relationships and in 1962 with a large-scale threat of war. There were already some skirmishes with casualties on both sides. Fortunately, with a change in public opinion and with American pressure, there was a turnaround. With the help of American mediation, diplomatic negotiations were started. The Dutch changed their strategy on August 15, 1962. On that date, an agreement was reached whereby the Dutch transferred sovereignty of West Papua via the United Nations. It was stipulated however that the people could exercise their right to self-determination seven years later.
Dramatic as these events since 1950 were, one wonders if this process of economic separation was simply an acceleration of developments that were already under way. Economics Minister, J.R.M. van den Brink, had in fact already sounded alarm bells on the eve of the transfer of sovereignty. After 1950, the Dutch were increasingly focussed on Europe while Indonesia was increasingly connected to Asia and the Pacific with Japan and the U.S. as prominent trading partners. It was a logical continuation of a process that was already visible since the First World War. Just when the problems in Indonesia culminated in the nationalization of businesses there, the Netherlands was experiencing its second industrial revolution.
What kind of effect did the economic separation have on the two countries? The Dutch were well aware that the economic domination of Indonesia had to end sooner or later (as happened in India with the British). This development was seen as an important step forwards for Indonesia. The economic decolonization was in fact the basis of impressive expansion of the economy in the 70s and 80s. In the short term, it was actually disastrous. The overly hasty nationalization brought a blow to its economic structure. Production and income from agricultural exports was at the heart of its economy during the Cultuurstelsel in the 19thcentury. That had already declined in the most important sectors after 1950 and now more rapidly. The effects of the 1958 crisis would not be overcome. Even in the Suharto period the agricultural export sector wouldn’t get its traditional role back. It was the oil sector that drove the economy after 1970.
The damage to the Netherlands was—objectively speaking—relatively less harsh. The Netherlands experienced a new round of industrialization whereby capital could be invested in other places than Indonesia. Still, the Netherlands was also hit hard. Important investments were decimated, especially in culture. Shipping and the Amsterdam economy suffered. Furthermore, the “loss of the Dutch Indies” heralded the collapse of the cotton industry in Twente.
Restoring of Relationships
“Today we are experiencing one of those rare moments in history when the direction of two nations might take a decisive turn,” said the Dutch negotiator, J.H. van Roijen on the signing of the 1962 accord in New York. “With the signing of this agreement in front of us, the long-standing differences between Netherlands and Indonesia over West Papua, shall finally be put to rest.”
Van Roijen’s hope seemed to be coming true. In some sectors of the economy and in the Dutch ministry of Foreign Affairs, there was great enthusiasm; both in the political sector and in the development sector. In February, 1963, Foreign Affairs wrote a proposal on the future relationship which was accepted by the cabinet.
According to this memo, future relationships with Indonesia needed to be given a lot of attention. “This interest doesn’t just stem from the people, the potential riches, and political significance of this country, but also a lot of potential for the Netherlands”…”Faced with negative developments such as the stronger direction to the left in the domestic and foreign policy, the Dutch as “trait d’union” could give a strong influence from the free world.” Even the American State Department was inclined to give an important role for the Dutch. If that were to succeed, it would not only provide economic prospects, but also an enormous political prestige “which cannot remain without effect on our place in the world.” The memorandum formulated a number of clear policy objectives. The special reputation and connections in every area were the starting point. The Netherlands therefore had to seize every opportunity to build up a new political, cultural, economic and developmental position. There was also a keen interest on the Indonesian side. “The Dutch are closer to us than any other people, even closer than the Asian peoples,” the Foreign Minister (Deplu), Subandrio, even declared. It was a remarkable statement in view of the fierceness with which Indonesia had entered into confrontation with the Netherlands in previous years. Deplu spoke on behalf of a larger group. In some government and business circles (in particular in the economic and financial sector), there were high expectations of renewed economic cooperation, credit and assistance. This had a lot to do with the increasingly precarious economic position in which Indonesia found itself. The country was rapidly moving towards financial bankruptcy. Moreover, as a result of policies such as the Konfrontasi policy against Malaysia, President Sukarno’s choice for the Beijing-Jakarta-Pyongyang axis, the departure from the UN and, last but not least, the nationalization of American and British companies, Indonesia found itself in increasingly greater political isolation in the years following 1963.
The eagerness with which groups in both countries tried to make a new start was striking after all the previous, intense emotions. Many foreign observers were surprised about this. Nevertheless, there were obstacles. There were also currents in both countries for whom reorientation was not appealing. There was a group in Indonesia that first wanted to set up a thorough remediation and recovery program before appealing abroad. Moreover, President Sukarno himself took a fairly cautious attitude. And in a strong feudal and patriarchal Indonesia, the adage was that when “bapak” didn’t want something, it didn’t happen.
There was also a counter-trend in the Netherlands. The Ministry of Finance put a brake on all kinds of credit applications. There were also mixed feelings at the Ministry of Economic Affairs. On the one hand, they saw the possibilities that Indonesia offered; on the other hand, it was understood that the two countries had grown apart. It was recognized that the high expectations that, despite everything, had continued to exist among an older generation in Indonesia, could not be realized. It was known that the economic reorientation of their own region, which had meanwhile taken place, ruled out a new, essential orientation. Moreover, Indonesia went through a deep economic downturn. A prevailing opinion was that before cooperation could take place, at least the old financial issues had to be settled. After all, the Netherlands had suffered billions in losses. “Give a little, take a little”. Minister of Foreign Affairs, J.M.A.H. Luns, was one of them.
In Indonesia, too, people became aware that the debts would become a point of contention. But that was extremely sensitive. The whole idea that Indonesia still had to pay for the nationalization in 1958 caused deep outrage. The politician Ruslan Abdulgani made himself the mouthpiece of the emerging irritation towards the Netherlands. “Why does this topic have to…. be brought up right away? Nobody gets along with you when you don’t have any money.” “The Indonesian government did not have to pay a cent,” said the chairman of the Indonesian trade union, SOKSI. “The SOKSI won’t demand that the Dutch repay all profits that they have withdrawn from Indonesia during the colonial regime.”
The claimants fell into two main groups. Part of the amounts to be distributed went into private hands, another part to the state. In 1965, receivables from private individuals amounted to 2.7 billion guilders. The claim of the state, on the other hand, was set in the Distribution Act at 1,900 million guilders (€ 862.18 million). These state claims concerned loans from the thirties and forties, loans and credits from the fifties and sixties and the pensions that Indonesia was obliged to pay according to the RTC but which the Netherlands had eventually taken on when Jakarta was no longer prepared to do so.
In practice it meant that the payments to the private sector were given priority over the payments to the state. From April 1979, the private sector claim amounted to 466 million guilders. As stated, the total amount that Indonesia put on the table to settle the claims for damages, including interest, was 689 million guilders (€ 312.65 million). As a result, the actual payment to the state amounted to 223 million guilders after payment of the other shareholders. That amounted to approximately 12% of the total claim. When the Dutch Honorary Debt Foundation claimed part of the state party in 1978, Foreign Affairs rejected it with cool indignation.
Indonesia paid the last amount in 2003. The last claimants were paid out in the same year. In March 2003 Claimindo and Belindo disappeared from the Amsterdam stock exchange. It marked the end of a project that had been running for more than 30 years. Noiseless, efficient and without hitches. Even when the storm of the broken development relationship impacted Dutch-Indonesian relations from 1992 onwards, claims for damages continued. Only at the termination was there emotions and fuss. In 2003, however, both countries were able, objectively speaking, to look back on a particularly smoothly implemented scheme in which the mechanism with which the distribution in the Netherlands took shape was also admired. The Distribution Act and the method of implementation constituted an excellent working mechanism that was characterized by a high degree of refined precision and detailing to the target groups. The great thing was that it was not a tight system, but was adjusted to the circumstances and developments.
The meaning of “1966”
After this praise for the way in which the 1966 financial agreement was implemented in practice, two final observations are appropriate. The first is obvious. What exactly was the significance of the 1966 agreement in the relationship?
The 1963 government memorandum on Indonesian policy insisted on new intensified relations and cooperation and saw an important role for the Netherlands in this. However, the poor economic situation in Indonesia offered few opportunities for this in the short term. In 1964 and 1965 there was no desire to put aside the outstanding debts for that purpose. Indonesia, on the other hand, screamed for credit. It saw debt settlement as an important lever for further economic cooperation, aid and credit in a period of great international isolation and growing economic chaos. The Indonesian government acknowledged that the Netherlands was entitled to compensation for the nationalizations, although it would prefer not to say that in public. The quid pro quo included in the scheme was therefore a matter of well-understood self-interest for both countries. For Indonesian, a debt settlement was a way to get economic benefits. The Netherlands, for its part, saw that as leverage to get the financial problems settled.
After the political revolution that took place in Indonesia at the end of 1965 and 1966, however, the conviction grew in the Netherlands that this was a golden opportunity to play a role again in Indonesia in accordance with the 1963 memorandum and also to make an international effort. It thought it shouldn’t let that chance go. When asked whether there should be a debt settlement first, or whether the Netherlands should go all out when it comes to providing assistance, multilateralists and bilateralists were at cross purposes. The Umarjadi mission, however, pushed the pendulum back to a bilateral solution.
The fact that a debt settlement came about was therefore mainly because Indonesia explicitly wanted it. The financial agreement of 1966 was in fact in line with Indonesia’s efforts to reorganize debt with Western donor countries after the political revolution in 1965 and 1966; initially bilaterally, then multilaterally. It also influenced the Western willingness to multilateral debt restructuring and development cooperation in which the Netherlands would play a leading role. In October 1966, the creditor countries met in Tokyo. The pattern of a lump sum laid down by the Netherlands and Indonesia in 1966, which had to be repaid for 30 years under favorable fixed interest payments, also became the guideline of the Paris debt agreement concluded in 1970 as a follow-up to the 1966 Tokyo creditor conference. The quid pro quo: first a debt settlement, only then aid, bore the stamp of the Dutch-Indonesian agreement of 1966! Contrary to a movement that wanted a temporary debt moratorium and immediate assistance, the majority wished to phase in both aspects. In connection with this, it was decided at the conference to keep separate the issue of debts and assistance. Subsequently, Japan, France, West Germany, the United Kingdom and others concluded bilateral debt settlements with Indonesia according to this pattern.
The conclusion may therefore be that the 1966 financial agreement after the New York agreement of 1962 formed a pivotal point in Dutch-Indonesian relations. The financial agreement of 1966 was a breakthrough in relations. It paved the way for intensified Dutch aid as well as for cooperation agreements in the economic and cultural-scientific field. It also paved the way for the important role that the Netherlands would play between 1969 and 1992 as chair of the Inter Governmental Group on Indonesia (IGGI).
At the same time, the agreement was of great importance for the international debt settlement that came about and which, in turn, was the condition for a broad international aid package. The 1966 agreement with its quid pro quo was both the engine for this development and the model.
So what about this 1966 “discovered” agreement? Was it, as was stated in the Indonesian press, exceptional that Indonesia paid compensation? Was it misplaced Wiedergutmachung? With the above story in mind, the answer is clearly negative. On the other hand, it could be noted that such an approach in the case of a former colony and former colonizer is quite different. That was also the anvil on which Jakarta sometimes hammered at the negotiations. However, the fact that motherland and ex-colony found a claim settlement after nationalization was internationally fairly ‘normal’. When India in the decades after independence nationalized large numbers of British companies, substantial compensation was paid for this. The same ultimately applied to the Suez Canal that was nationalized in 1956 by the Egyptian government.
The political sentiments declared in Indonesia in 2003 are partly understandable. They were in fact identical to the sentiments that could already be heard during the discussions about the debt settlement. But from that it immediately becomes clear that “practices …. without the general public knowing” was not true. History was already repeated earlier. The final outcome was widely discussed in 1966 and, albeit murmuring, accepted in the Indonesian parliament. There was no question of a unilateral imposition, as claimed by some interest groups.
But wasn’t the amount that Indonesia had to put on the table too high? The answer to this is also negative. The 1966 agreement was not much higher compared to other countries. In the case of the nationalizations that took place in the Eastern Bloc, the percentage that the Dutch government recovered was slightly higher: 13.3% compared to 8%. But that wasn’t a big difference either. After all, the Netherlands received only 600 million of the 4.4 billion guilders. That does not alter the fact that nationalization was a completely legitimate matter. It put an end to anachronistic practices. The only shortcoming was that its execution and ensuing developments were extremely unfortunate.
The danger of a weak national knowledge of history
The fact that the emotions that flared up in 2003 were almost identical to those of 1966, without being realized in either Indonesia or the Netherlands, illustrates George Santana’s remark: “Those who cannot remember the past are condemned to repeat it.” In addition, the regulation of 1966 emphatically and clearly stipulated putting aside all financial claims from the past! After all, along with the lump sum, the phrase “the old hurts” was underlined, and that hurt, as far as Indonesia is concerned, extended from the VOC period to the nationalizations. But can “old hurts” ever be put away? It illustrates a classical truth. It is true that financial agreements can be waived over and over again, but the past can come up anytime anywhere.
That facts from the past emerge and can no longer be placed in context is not a problem in itself. After all, they can in principle be explained with the historical knowledge of what happened at the time and, if skewed, corrected. But it’s something else when such a large piece of the past is viewed separately from the context, exclusively with the eyes of today. It is precisely in recent decades that there has been an increasing tendency to automatically view such chunks of past separately from their original context and to analyze them in the light of the stereotypical viewpoints. Anachronistic black-and-white models in a strongly moralizing sauce quickly offer an explanation. The past is explained by the mold of the present. A current generation acts as a judge and places a previous generation in the dock. The past is being moralized and public morality is being historicized, Van Doorn stated. It is exactly what happened to the claims for damages. The manner in which the media and public opinion in Indonesia and the Netherlands reacted illustrate how much the entire settlement of claims for damages and the context in which they were affected had sunk from public memory.
If this phenomenon takes place in the sphere of external relations, then this can have all kinds of unpleasant consequences. And that certainly applies to relations with former colonies such as Indonesia. It is worrying that it is here that the national memory is particularly flawed and the myth-making rich. The common recent history of the Netherlands and Indonesia is steeped in black and white stereotypes in public opinion and the media in the Netherlands and Indonesia. The fuss about the claims for damages was therefore not an isolated incident. In recent decades there have been more incidents in the relationships between Jakarta and The Hague in which an unknown and misunderstood past aroused emotions and indignation. These include the RMS myths that inspired the Moluccan terrorist attacks in the 1970s, the almost theological discussions around “August 17, 1945,” the course of the decolonization that manifested itself in the 1980s and 1990s, various “Excess affairs”, the Poncke Princen affair and the state visit of the Queen to Indonesia in 1995.
In such a situation, relations between countries can be unnecessarily burdened and even damaged. The adage is therefore that Ministries of Foreign Affairs, where there are sensitivities from a common past, must know history. The Ministries of Foreign Affairs of countries such as the US and the UK therefore have historical units, which also map historical issues that have a political topicality. In addition, in the UK it is customary to have the responsible official draw up a final report after an important development has been completed and one can always refer back later. The Dutch Foreign Affairs Ministry is now joining this system through the establishment of a historic unit, through the excellent initiative of DJZ / CR to produce a “Final report on Indonesia insurance claims” and through the assignment to the authors in question to negotiate this arrangement and context.
Sometimes targeted action is indeed necessary. In the case of the targeted RMS terrorist attacks in the 1970s, there was a lack of knowledge to unravel the historically tinted RMS claims. At the instigation of the ministries directly involved and in close cooperation with Indonesia, independent historians were given the opportunity to chart and popularize this “forgotten” past. With regard to the claims for damages, the Ministry of Foreign Affairs was able to counteract the rising protests by giving the historical counterpart. In the discussion about “August 17, 1945” in 1995, people did not dare to do this because of the strongly held opinions in the Netherlands. However, no country can afford to live next to the past and allow myths to replace historical reality.