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the 15-year period will commence, whereas the Funds in the Straits Settlements and Johore, having accumulated at compound interest, will by that time probably exceed 4 years' revenue.

5. It is urged nevertheless in your despatch that the Fund, with contributions at the reduced rate, will be adequate to meet any calls which may reasonably be expected upon it. You make, however, two assumptions which I am not prepared entirely to accept. The first is that the 15-year period will not commence till 1935. It is true that the extent of illicit traffic is still considerable, but I do not feel justified in assuming that it will not have been got sufficiently under control to make the com- mencement of the 15-year period possible before 1935. The position, in this respect, may be clearer after the Report of the League of Nations Commission (now on its way to the Far East) has been received. Your second assumption is that the revenue will decrease steadily during the 15-year period by 1/15th per annum. While, as already stated, I do not anticipate a sudden disappearance of the whole opium revenue, I do not feel that such exact calculations are possible at present.

6. In any case, the utmost which may be urged is that the Fund is just large cnough to meet any calls upon it which may reasonably be expected. I feel that if the Fund is to serve its purpose, it should be not merely just large enough, but quite certainly large enough. The underlying object of the establishment of all these Funds was to free the Malayan Administrations entirely from any embarrassment which their dependence upon opium revenue might cause in carrying out the policy of the ultimate suppression of opium smoking. It is, therefore, essential that there should be no room for any doubt as to the adequacy of the Funds.

7. Of course, if there were a serious financial stringency in the Federated Malay States, a reduction of the contribution might be necessary on financial grounds; it does not appear, however, that such a reduction is necessitated by the present financial situation Tam not, therefore, prepared to approve the proposed reduction of the contribution at present, I would add that I should be quite prepared to reconsider the matter when the Fund equals three vears' opium revenue.

You may publish this despatch if you so desire.

C. 72429/30 [No. 1].

No. 242.

I have. &c..

PASSFIELD.

UNFEDERATED MÁLAY STATES (PERLIS).

THE HIGH COMMISSIONER to THE SECRETARY OF STATE.

(Received 21st July, 1930.)

(No. 67.) MY LORD,

Government House, Singapore, 27th June, 1930. WITH reference to paragraph 2 of Mr. Amery's Unfederated Malay States despatch No. 11 of the 23rd April, 1929,* and previous correspondence on the subject of Opium Revenue Replacement Funds in the Unfederated Malay States I have the honour to report that a Fund has now been started in Perlis.

2. The final instalment of the Perlis debt to the Federated Malay States was paid in the middle of last year, and this year it was decided to start an Opium Revenue Replacement Fund by setting aside $150,000 from reserve funds as an initial contri- bution to the Replacement Fund. Ten thousand dollars annually will be added out of general revenue and the Fund will be further increased by the interest earned.

I have, &c.,

C. CLEMENTI,

High Commissioner for the Malay States.

* No. 238.

C. 72418/80 [No. 3].

No. 243.

FEDERATED MALAY STATES.

THE HIGH COMMISSIONER to THE SECRETARY OF STATE.

(Confidential (2).) MY LORD,

(Received 20th October, 1930.)

[Answered by Nos. 244 and 246.]

King's House, Kuala Lumpur, 25th September, 1930. I HAVE the honour to address Your Lordship on the subject of the Opium Revenue Replacement Reserve Fund with particular reference to the contribution due to be made thereto in 1931, which, owing to the present financial stringency, it is desired should be wholly suspended. In this connexion I also request reference to my Confidential (1) despatch of even date.*

2. The extraordinary depression in the tin and rubber industries, from which the Federated Malay States have been suffering for many months, and the end of which cannot yet be foreseen, has affected the public revenue so adversely as to create a position of severe financial stringency.

The estimate for the current year, which anticipated a total revenue of $83,150,992, has had to be revised with the result that at most, if as much as, $68,460,180 is now expected, while the deficit for this year on the latest revised revenue and expenditure estimates will be not less than $16,000,000.

3. Moreover, it is anticipated that by 31st December next the available surplus liquid funds will have fallen to $20,000,000 of which approximately $17,000,000 must

be maintained to meet actual and contingent liabilities, in particular the Railway Renewals Reserve Fund, which will then stand at about $10,000,000.

4. The Estimates for 1931 as originally drafted showed a deficit of $15,500,000, an intolerable position having regard to the low state of the reserves and the uncertainty of the general outlook.

While this deficit might be largely met by reductions of expenditure on Public Works, it would be injurious and short-sighted to curtail drastically the programme of Special Works Services. Such a course would aggravate to a considerable degree the present unemployment and have the undesirable effect of driving skilled labour from the country. thereby increasing the cost of recovery at a later date, when conditions improve.

5. Allowing, however, that some reductions can and will be made in the amounts provided in the draft Estimates for Special Services, the necessity still remains of find- ing from annually recurrent charges some portion of the savings required to cover the deficit.

Among these services the contribution of $1,650,000 to the Opium Revenue Replacement Reserve Fund is outstanding, and at once suggests itself as a charge from which the revenue may properly be relieved during a time of serious financial stringency. The possibility of a reduction of the contribution on financial grounds was indeed admitted in the penultimate paragraph of Your Lordship's Federated Malay States despatch No. 408 of 1st October, 1929. Such grounds are now so evidently and seriously present that I have no hesitation in asking Your Lordship's approval to remit the payment in toto for the year 1931.

6. At the end of the current year the Opium Revenue Replacement Reserve Fund will have reached $23,500,000, the equivalent, say, of two years' opium revenue in normal times. Apart from any contribution from revenue, the Fund will increase by about $1,200,000 in 1931 from the interest on its investments, and though the total reserve of three years' revenue, which is aimed at, has not yet been reached, its attainment under the combined effect of contributions and compound interest is now well in sight.

7. Meanwhile, the financial position of these States having been shaken even more severely than by a sudden loss of the entire opium revenue, some temporary

* C. 72472/30 [No. 1]: not printed.

† No. 241.

PUBLIC RECORD OFFICE

TI

Reference :-

C.O.882/11

PUBLIC RECORD OFFICE, LONDON

ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC-

COPYRIGHT PHOTOGRAPH-NOT TO

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