This article is not directly concerned with Dutch–Australian relations. It nevertheless provides valuable background for understanding the difficult post-war transition from the Netherlands East Indies to an independent Indonesia—the wider political and economic setting in which relations between the Netherlands, Indonesia and Australia developed.
The following is a summary of Pierre van der Eng’s scholarly article, “Marshall Aid as a Catalyst in the Decolonization of Indonesia, 1947–49”, published in the Journal of Southeast Asian Studies in 1988.
Marshall Aid was a catalyst, not a blunt instrument
It has often been argued that the United States used Marshall Aid to compel the Netherlands to abandon its colonial position in Indonesia. Van der Eng challenges this interpretation. Drawing on Dutch and American primary sources, he shows that neither the prospect of American assistance in 1947 nor the apparent threat to suspend it in 1948 prevented the Dutch Government from launching military offensives against the Indonesian Republic. Marshall Aid influenced Dutch decision-making, but more as a catalyst than as a direct instrument of coercion.
Indonesia had been economically important to the Netherlands before the Second World War. Dutch businesses received raw materials and profits from the colony, while the Netherlands controlled much of its foreign-exchange income. A 1945 estimate suggested that, before the war, Indonesia had directly and indirectly generated almost 14 per cent of Dutch national income.
After 1945, the Netherlands faced an acute dollar shortage and needed American imports to support reconstruction. Dutch ministers initially believed that restoring economic relations with Indonesia was essential to national recovery. Prime Minister Louis Beel bluntly warned in April 1947 that if the Netherlands left Indonesia, the country would go bankrupt.
At the same time, the returning colonial administration confronted the Republic of Indonesia, proclaimed by Sukarno and Mohammad Hatta in August 1945. The Linggadjati Agreement of 1946 envisaged an Indonesian federation, but disagreements over its interpretation produced deadlock. The Netherlands launched its first “police action”, Operation Product, in July 1947. Its aims included weakening the Republic, capturing productive territory and demonstrating to the United States that conditions were stable enough for an Export-Import Bank loan. The operation instead increased international sympathy for the Republic, while the anticipated economic benefits did not materialise.
When the Marshall Plan was developed in 1947, American officials included Indonesia because its recovery was considered important to Western Europe’s economic revival. Washington also valued Indonesia’s strategic commodities, including rubber, tin, palm oil and petroleum. Nevertheless, American public opinion and Congress were generally hostile to colonialism. The United States therefore encouraged Dutch concessions while avoiding an open breach with the Netherlands, whose cooperation in European recovery—and later in the emerging Atlantic alliance—was considered essential.
Marshall Aid was allocated separately to Indonesia, although the Netherlands formally received it. After the Renville Agreement of January 1948, Dutch leaders felt strengthened by their military superiority and implicit American support. Negotiations again stalled, and the Netherlands launched a second “police action” in December 1948, capturing Republican leaders and occupying much of their territory.
The United States then suspended new Marshall Aid authorisations for Indonesia—but not aid to the Netherlands. Van der Eng shows that this was largely symbolic: authorisations covering US$61 million of the US$64 million Indonesian allocation had already been issued, and deliveries continued. Washington repeatedly resisted demands to terminate aid to the Netherlands, partly because weakening a prospective NATO partner would undermine American strategic interests.
The decisive change in Dutch thinking came during early 1949. International criticism was intensifying; the United Nations demanded the restoration of the Republican government; and American political pressure threatened wider Dutch interests, including future economic and military assistance. The influential Dutch official Hans Hirschfeld argued that the Netherlands no longer needed political control to protect its investments. Dutch interests could be better secured through Indonesian independence, provided property rights, financial transfers and access for Western businesses were guaranteed.
This shifted Dutch policy from seeking to preserve economic interests through political control to protecting them through a negotiated settlement. Talks resumed, the Republican government returned to Yogyakarta, and the Round Table Conference led to the transfer of sovereignty in December 1949. Indonesia assumed substantial colonial debts and initially recognised Dutch commercial property and transfer rights.
Van der Eng concludes that Marshall Aid did not force the Netherlands out of Indonesia. Rather, it formed part of a broader combination of economic dependence, United Nations pressure, Cold War security concerns and changing calculations about Dutch commercial interests. Accepting Indonesian independence ultimately proved economically advantageous to the Netherlands: it secured Western aid, relieved the Dutch of responsibility for financing Indonesia’s recovery and allowed substantial business profits to continue flowing to the Netherlands until Dutch enterprises were seized in 1957.
Publication details
Pierre van der Eng, “Marshall Aid as a Catalyst in the Decolonization of Indonesia, 1947–49”, Journal of Southeast Asian Studies, vol. 19, no. 2, September 1988, pp. 335–352.
The original article can be accessed through Cambridge University Press, although the full text may require a subscription or institutional login. Pierre van der Eng’s privately supplied PDF has not been reproduced on the DACC website.
