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68.
The reactions of our allies will depend on the different ways in which
they are affected. The Americans will at first be mainly concerned with the
effect of our proposals in the next two or three years. We shall have to
stress to them that we shall still have about half our forces left in 1970-71.
69. The reaction of the Australians and the New Zealanders will be one of
shock. They will find it hard to understand why our policy in the area has
in effect been reversed.
70. The Malaysians might be led to denounce the Defence Agreement. Singapore might well put similar pressure on us, designed to make impossible our continued occupation of the Base up to the time when we wish to withdraw, since we would be dependent on Singapore's goodwill for an orderly withdrawal. Generally, other countries would be concerned lest our withdrawal produce
instability in the area.
71. The economic and political consequences of our progressive withdrawal from Malaysia and Singapore will be serious. The effects of our withdrawal on Singapore are not likely to be able to be mitigated in full. Unemployment, already high and increasing, will become worse. There is no prospect, in the period with which we are concerned, that Singapore could become another Hong Kong in terms of industrial development.
72. Singapore and Malaysia will press demands for substantial military aid, but we need not determine our attitude towards these requests before the
first round of consultations.
73. The proposed disbandment of the complete Brigade of Gurkhas will have serious consequences for Nepal. Nepal will press us strongly for mitigating aid in addition to the redundancy payments to individuals.
74. The financial consequences of this major change in our oversea policy cannot yet be assessed accurately. The Defence Secretary has estimated that net savings of £150-200 million might result in the defence budget by 1970-71 compared with the 100-125 million which we might save without such a major change and that savings on defence account in 1975-76 might be £300 million. Local defence expenditure would be reduced by £30 million a year by 1970-71 and some £60-65 million by 1975-76; but offset against these savings might be increased aid expenditure of around £30 million a year, giving a net annual saving in local expenditure of some £30-35 million. These are broad estimates only which could well be modified on close investigation and by events.
75. The covering report proposes the way in which consultation with our allies should be initiated in the light of these considerations in order to
achieve the reductions which have been decided.
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