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THE German invasion of Holland and the flight of Queen Wilhelmina's Government have thrown the Dutch East Indies largely on their own devices. Indeed, as these lines are written there are indications that the center of Dutch economic and financial life is being transferred to the Indies. For instance, leading Netherlands banks and shipping companies are reported to have removed their headquarters to Batavia. Likewise in the political sphere, the Indies are becoming the center of Dutch power. The Governor-General, Jonkheer Tjarda van Starkenborgh Stachouwer, has been empowered to act on his own authority, if necessary. The question therefore arises as to whether the East Indies will be able to survive as a Dutch possession. The answer to this question depends on such important factors as the economic and strategic value of the islands, the state of their defenses, and the policy which the United States would adopt towards any aggression against them.
On April 16, 1940, the Indies found, to their dismay, that they had become the object of those assurances of good will and disinterestedness which have come to be the first harbingers of imminent "protection" and destruction. On that day, Mr. Arita, the Foreign Minister of Japan, stated in the veiled but significant language of diplomacy that because of economic and other considerations "the Japanese Government cannot but be deeply concerned over any development accompanying the aggravation of the war in Europe that may affect the status quo of the Netherlands East Indies." This declaration came two months after Japan's denunciation of her arbitration treaty with The Netherlands, an act which Tokyo officially described as having no political importance, being merely a routine gesture preparatory to the negotiation of a new treaty. To Mr. Arita's statement, the American Secretary of State replied on the following day (April 17) that "intervention in the domestic affairs of the Netherlands Indies or any alteration of their status quo by other than peaceful processes would be prejudicial to the cause of stability, peace, and security not only in the region of the Netherlands Indies but in the entire Pacific area." The German invasion of The Netherlands early in May immediately brought forth from Mr. Arita a further assertion that Japan would not permit the Indies to change hands. Another official declaration was made in Washington reiterating the statement of April 17, and the American battle fleet was kept in Hawaii for "further tactical exercises."
Economically, strategically and politically the Netherlands Indies occupy a position of striking importance. The bare figures are in themselves impressive. With a land area of 734,000 square miles, the islands are some five times as large as Japan proper. They stretch, as Mr. Hull pointed out, "for a distance of approximately 3,200 miles east and west astride of the Equator, from the Indian Ocean on the west far into the Pacific Ocean on the east." At the last census (1930) the rapidly growing population totalled nearly 61,000,000; at present 70,000,000 would be more nearly correct. About two-thirds of this number is crowded into Java, though that island accounts for little more than one-fifteenth of the Indies' total area. The outer islands are relatively underpopulated and undeveloped except for occasional tracts such as the great rubber and tobacco region on the east coast of Sumatra. The mass of the people are of the Malay race and predominantly Mohammedan in religion; but there are 1,233,000 Chinese and 240,000 persons in the official category of "European,"
which includes Americans, Japanese and a large proportion of Hollanders of mixed blood. The Japanese and Formosans in 1930 numbered just over 7,000, and the more recent migration figures indicate no marked increase. The number of Germans appears to be slightly under 7,000; late reports from Batavia indicate that all of them over sixteen have been interned.
Holland's East Indian empire constitutes the richest colonial plum in the world. It produces rubber, tin, petroleum, sugar, coffee, tea, tobacco, copra, palm oil and a host of other commodities, agricultural and mineral. Contrary to popular belief, most of the world's colonial areas are not great producers of essential raw materials; the Indies, however, are an exception, although even they lack certain types of coal as well as iron and cotton. Until the impact of the depression became seriously felt, the Indies concentrated almost exclusively upon the production of raw materials and foodstuffs for export, as well as of certain foodstuffs (notably rice) for local consumption; only to a limited degree were raw materials given a preliminary processing. The crushing effect of the depression on the islands can be seen in the catastrophic decline in the value of their exports from 1,488,000,000 guilders in 1929 to 493,000,000 in 1933 (by 1939 the figure had risen to 740,000,000). Of late there has been a marked swing in the direction of a planned industrialization in order to relieve unemployment, raise living standards and reduce the Indies' dependence on the world's industrial markets, thereby eliminating some of the causes for economic instability in the islands. Plans already being carried out include the creation of a chemical industry and the construction of plants for manufacturing aluminum, for melting scrap iron and for the production of aviation gasoline; in addition, many smaller native and local industries are being encouraged.
The United States is the world's largest consumer of rubber and tin; it also holds considerable investments in the islands, particularly in rubber plantations and in oil. We cannot, therefore, be indifferent to the fate of the Indies. (Incidentally, the neighboring territory of British Malaya is the world's largest single producer of rubber and tin, and any change in the status of the Dutch islands must inevitably have drastic repercussions on Malayan economy.) The total direct American purchases in the Indies in 1938 came to $68,800,000 and in 1939 to $93,000,000; but it is very difficult to assess our actual dependence on East Indian supplies because of the large quantities which are transshipped to us via European and Malayan ports. In 1939 the Dutch islands produced 372,000 tons of rubber (35 percent of the world total) as against 376,000 tons for Malaya, and 31,280 long tons of tin (17 percent of the world total). The United States needs large quantities of tin and rubber, not only for its normal peacetime industries such as automobile manufacturing, but for its present greatly expanded defense preparations. At least nine-tenths of the rubber and tin we consume comes from the Indies and the nearby British territories. Another important American import from the Indies is quinine, of which the Dutch produce 90 percent of the world's supply.
Neither Britain nor France depends very much upon the products of the Dutch Indies since their own colonial empires provide for most of their needs. Although in the statistics the British Empire showed as the destination of one-third of the Indies' total exports in 1938, approximately half of this figure represented goods sent to Singapore for distribution to other countries, including Japan and the United States. Great Britain and Eire took about 5 percent of the exports of the islands, and Australia, whose connections with the Indies have in recent years become increasingly important, accounted for over 4 percent. These figures do not, however, adequately reflect the close collaboration that has grown up between the British and the Dutch Empires in the East. It is, in fact, scarcely too much to say that since 1816, when the British returned Java to Holland, the Indies have depended for their protection primarily upon the British Navy. The British have also invested heavily in the islands; for instance, the Royal Dutch Shell has sunk a large amount of capital in the oil fields there. Territorially, too, the connections are close; many small Dutch islands are within sight of Singapore with its great naval base, and the whole northern part of Borneo is in British hands. Australia has a vital strategic interest in the fate of the Indies in general, and a particular interest in New Guinea, of which it controls the eastern half. One of the maxims of Australian foreign policy is that no aggressive Power must be allowed to gain a foothold on New Guinea. The Dutch are now engaged in hastily developing their half of the island in order to forestall outside encroachments.
In 1938, Germany's purchases in the East Indies amounted to 23,725,000 guilders, or 3.62 percent of the island's total exports. (The purchases of France amounted to 11,200,000 guilders.) Germany has found the Indies a valuable source of rubber, copra, fibers and other tropical produce; and a considerable number of Germans have entered not only into the economic life of the islands but also into the Dutch administrative and military services.
Japan's interest in Netherlands India is naturally very great. Besides being a major consumer of its rubber and tin, she has a peculiarly vital concern in its growing petroleum production. Since no detailed Japanese figures as to either petroleum or mineral imports have been published since July 1937, and since Dutch export figures are not very relevant because of the large transshipments made through Singapore, it is impossible to estimate with any precision the extent of Japan's reliance on East Indian oil. It is obvious, however, that in case Japan should be cut off from American and British supplies, the wells in the nearby Indies would prove invaluable to her. The Indies stand fifth among the world's petroleum producers. Their 1939 output was 61,580,000 barrels, the largest in their history. The principal oil-producing region is on the east coast of Borneo, although the production of this field has been declining in recent years while that of southern Sumatra has been growing. According to recent reports, the new wells being bored by the Netherlands New Guinea Petroleum Company, in which both American and British capital is represented, have not yielded promising results. It is generally believed that the producing oil wells have been mined and would be promptly destroyed in case of a Japanese attack. The German experience in Rumania during the World War appears to indicate that this would impede Japanese utilization of the wells for a considerable, and perhaps crucial, period. New refining plants for the production of aviation gasoline are just coming into operation; the first one, near Palembang in Sumatra, began producing on March 2.
As a market the Indies are less important than as a source of raw materials, primarily because of the very low purchasing power of the mass of the people. However, for Japan's low-cost producers of cheap textiles and other commodities they offer attractive inducements in a world of shrinking and increasingly protected markets. A few years ago the Japanese share in the imports of the Indies skyrocketed upwards at the expense largely of Dutch and British importers; but this trend was checked abruptly by the imposition of tariffs and quotas primarily aimed at Japan. More recently the internal strains developed in Japan by the "China incident" have seriously impaired her ability to compete in the islands. The Japanese doubtless feel that Holland has unfairly deprived them of a market which they regard as an integral part of that Far Eastern economy in which they believe themselves to be the major partners. The Dutch, on the other hand, complain that the failure of Japanese purchases in the Indies to keep pace with the flood of Japanese exports to them has been one of the chief causes for the disequilibrium in the islands' economy.
In 1939, Japan sold to the Indies goods worth 85,108,000 guilders, while she bought from them goods valued at only 24,788,000 guilders. Of Japan's total exports in 1939 only 3.9 percent went to the Dutch possessions, and of her total imports only 3.3 percent came from them directly. The Japanese Government has manifested its determination to continue drawing on the raw materials of the East Indies in the same proportions as before Holland was invaded. Both the Dutch and British Governments have assured Tokyo that they will not interfere with Japanese trade in the Indies.
The Japanese authorities have at no time given any overt indication of a desire to assume political control over the Dutch islands, although there are a number of unofficial statements which point in that direction. They have, however, regularly expressed their deep interest in strengthening economic ties. Japan's Foreign Minister declared to the Diet early this year that "With regard to the South Seas regions, the Japanese Government are desirous of maintaining with them a relationship of co-existence and co-prosperity through economic coöperation and collaboration in the development of natural resources. We intend to put forth every effort along this line toward enhancing the existing close relation between Japan and those regions." The Dutch, for their part, have shown themselves eager to maintain friendly relations with Japan and to avoid any gestures which might be interpreted as hostile. They have come to find, however, that Japan's ideas as to what constitutes "coöperation and collaboration" overreach the limits of acceptable friendship. This has been especially obvious in Japan's efforts to secure opportunities for settlement and exploitation in New Guinea, which lies less than 500 miles from Japanese mandated islands. For many years Dutch New Guinea has been rife with reports of Japanese espionage, of Japanese fishing vessels far from legitimate fishing grounds, and of Japanese plantations with excellent sites for gun emplacements and landing fields.
Strategically and politically the Indies are extremely important because of the commanding position which they occupy at the crossroads of sea and air routes between Europe, the Far East and Australasia. For the British Empire, and for Australia and New Zealand in particular, it is of the utmost importance that these islands remain in friendly hands. Were Netherlands India to pass to a hostile Power, Britain would find it very difficult to retain Singapore and Hong Kong and to maintain free communications with her Pacific Dominions and with China. Much the same can be said for France in connection with Indo-China and her Pacific islands. As for the United States, it is concerned in several ways with the political fate of the East Indies. There is our interest in maintaining the balance of power in the Pacific. There is also our interest in keeping open the sources from which we obtain much of our rubber and tin. Above all, there is our interest in the Philippines. Manila may be some 1,800 miles by air from Batavia, but the Dutch islands northeast of Borneo are almost within sight of Mindanao. The Japanese now control all the islands to the east of the Philippines (except Guam); Formosa has been theirs for nearly half a century; they are said to be fortifying the island of Hainan; and they are now occupying the Spratly Islands in the China Sea. If the Dutch East Indies should pass into Japanese hands -- and with them perhaps the British possessions on the north coast of Borneo -- the Philippines would be completely surrounded.
From an economic point of view, the United States might not in the long run lose heavily from a Japanese occupation of the East Indies. Except for petroleum Japan could absorb only a fraction of the island's vast production, which would still have to be disposed of on the world market -- where the United States would remain by far the best and most available customer. Control over these supplies would, however, give Japan a strong economic and political weapon for compelling concessions from the United States, and in the short run this weapon might prove of great importance. Despite our ambitious projects for stock-piling and our barter agreement with Great Britain, we have as yet accumulated very limited reserves of either rubber or tin. It is estimated that the present supplies of both commodities in this country would not last for more than three or four months at the normal rate of consumption. The extent of our anxieties in this direction is indicated by the fact that imports of rubber since the beginning of December 1939 have been the heaviest in history. In case the United States should become involved in the war, we would doubtless resort, as in the days of the Stevenson restriction scheme, to an extensive use of scrap rubber. There are also possibilities for making synthetic rubber in the United States and for increasing natural rubber production under American auspices in Central and South America. But neither of these sources has yet been developed to a point where it could fill immediate and pressing needs. In the case of tin, we could obtain a large part of what we need from Bolivia.
Turning to the question of defense, it must be admitted at the outset that for various reasons, including the rapidly changing techniques of warfare, only a very tentative estimate is possible. Even the strength of the Japanese Navy is a matter of surmise, though there is no doubt that Japan has a large preponderance over any other Power in Far Eastern waters. The serious plight of Britain and France offers little hope that any substantial part of their naval or air forces could come to the aid of the Dutch islands. Presumably, neither the British or the French have any capital ships in the Far East at the present time. Just prior to the outbreak of the European war, the British Admiralty reported four of its cruisers in Chinese waters, with a fifth expected, and three more cruisers on the East Indies Station; to this must be added the six Australian cruisers and the two of New Zealand. Only the American Navy remains as a possible challenge to Japan, and it has been accepted by American naval opinion that operations in waters relatively close to the Japanese bases and shielded in part by the Japanese mandated islands would be extremely difficult and hazardous. The fortifications and bases of the Philippines and Guam are quite inadequate for the main American fleet, which would therefore have to base on Pearl Harbor, some 7,000 miles from Batavia.
The scanty but mobile defense forces of the Indies themselves could cause an attacking force great annoyance but could probably not put up resistance for any considerable time. The Dutch have been keenly aware of their exposed position in the Indies ever since Japan's invasion of Manchuria; yet they appear to have taken no very substantial steps to increase their defense forces in the islands. The army is estimated to number 50,000 (representing roughly a ratio of four natives to one European), although somewhat larger reserve forces are undoubtedly available. According to late reports, the Dutch Navy in the Indies consists of two cruisers of 7,000 tons, one of 6,000 tons, two smaller ones of 3,500 tons, twelve destroyers, eighteen submarines and a number of light auxiliary vessels. In recent years the Dutch have built up a fleet of seaplanes, many of them purchased in the United States; used as a scouting and bombing force these planes would prove invaluable in holding the narrow straits against invasion. It must, however, be kept in mind that the islands are scattered over a vast area and that the Japanese would therefore find no great difficulty in landing on such outlying islands as Borneo or New Guinea. Against this possibility must be balanced the fact that the distances from Japan to the Indies are great -- from Yokohama to Borneo is some 2,400 miles -- and that Japanese shipping is already heavily occupied in keeping essential supplies moving to Japan and to the Japanese-occupied parts of China. For Japan to strike far to the south would be to open herself, if not to war with the United States, at least to the sharp curtailment of her vital trade with North America and with the British and French Empires. And, of course, she would be exposing her flank to Soviet pressure, exerted either indirectly through Nationalist China or directly on Manchukuo. As these lines are written, there are reports that Japan is trying to extricate herself as gracefully as possible from China and to reach an understanding with the totalitarian Powers with the object of exploiting to the full the present dire straits of the Western Powers. Should these reports turn out to be true, the situation of the Dutch East Indies would indeed become precarious.
What the attitude of the native peoples in the Indies would be in face of a Japanese attack is difficult to say. The nationalist movement is strong and no great love is lost for the Dutch rulers. However, relations between the nationalist leaders and Japan have not, it appears, been close. Japanese imperialism is something the East Indians have no desire to experience. Yet on the other hand, they also lose no love for the Chinese, who control much of the islands' economic life. The East Indians are hence watching the progress of the present war in China with mixed emotions. Some of them feel that a Chinese victory, resulting in a much strengthened and unified China, would represent an even greater danger for the East Indies than a Japanese victory.