CO129-624-14 Finances- relief stores- Hangover stores and Siamese free rice 1-7-1948 - 31-12-1951 — Page 111

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been no proceeds from sales since the goods in question will not have been suld, yet the benefits to the local governments may have been considerable. We are very ready to pursue the question of this particular category of stores with the governments concerned, in terms which leave no doubt of our view that in these cases (though we must reserve final judgment till we have some idea of the amounts involved) His Majesty's Government has a strong moral claim to reimbursement of the full invoice costs; and I enclose for your consideration draft telegrams which we have prepared along these lines. I understand that it has been suggested in conversation that any stores which were distributed by the local governments as a free gift should be placed in the same category, since in their case also there will have been no proceeds from sale. In our view, however, there is no parellel between the two classes, since in the latter case if indeed there are any goods in this class the absence of proceeds arises from a totally different cause (presumably the fact that the stores proved too useless to be sold) and cannot be said to conceal a benefit to the local government for which no reckoning has hitherto been made.

We are quite prepared, then to send telegrams, with your concurrence, along the lines of the attached drafts. Nonetheless there are certain broader considerations which I would ask you to consider. Of all the territories concerned, the Federation of Malaya is the most heavily involved, the most valuable from the point of view of the dollar resources of the whole sterling area, and at the same time the least able to bear any further strain on its already hard pressed resources. Even if the Federation is not called upon to make any further payment in respect of the stores which are the subject of this letter, the territory is faced with the prospect (at best) of having practically no reserves left at the end of 1948 and of entering 1949 with continued heavy liabilities and no clear means of meeting them. I refer in particular to the prospect which has now come to light of having to meet in 1949 a further liability of over $60 millions in respect of war damage over and above the liability of $50 millions which will be met by assistance from His Majesty's Government. And that is only the beginning of the liabilities in connection with war damage with which Malaya will be faced in future years. It is true that His Majesty's Government has generously agreed to assist in this matter by the grant of interest-free loans, if required, on a large scale, but it has been stipulated that the Malayan territories shall do without such loans to the greatest extent possible by meeting as much as they can out of their own pockets. On this basis further heavy disbursement by the Federation Government in respect of stores will at least increase the prospect of calls being made up to the maximum on the loan which has been placed conditionally at their disposal and so offset any advantage which might superficially accrue to the position of the United Kingdom itself. In recent conversations about the Far Eastern financial settlement as a whole, the Treasury have more than once told us that, in the present financial circumstances of the United Kingdom, they are more exercised about the expenditure by His Majesty's Government of new money than about settlements for past transactions. In these circumstances I cannot help feeling doubtful about the wisdom of pursuing this matter at all, especially since the receipts from sales have already been paid over to His Majesty's Government, and I feel it would be wrong if I did not communicate my doubts to you. If we look at the whole thing from the widest (and at the same time the most fundamental) point of view, surely the whole value of Malaya to the British Empire in the coming critical years will lie in the rapid completion of the country's recovery and its continued stability both as a strategic bulwark in the Far East and as a producer of vital dollar earning materials. From this point of view, further insistence on payment to His Majesty's Government in respect of stores will merely result

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