My dear Colleague,

You will recall that consideration was given at the meeting of Cabinet on January 22nd to a Review of Canadian Government External Loans, Credits, Claims and Guarantees; and that with respect to the loan to Indonesia, it was decided that the Netherlands should be informed that a request for release from their guarantee would not be granted.⁵³

Since then I have examined the circumstances in which we originally obtained this commitment from the Netherlands. After receiving their assurance that they were prepared to assume this obligation, a formal request was made for the guarantee. Throughout the preliminary discussions, and also in the formal request, we did not avoid the implication that if we got a guarantee that was legally sound from a successor Government which was constitutionally established and reasonably settled, we should find it acceptable. We did have in mind political and economic considerations about the situation in Indonesia, but it would be difficult, of course, to raise such considerations in replying to the Dutch. Moreover, in view of our recent proposal to Indonesia for the exchange of diplomatic missions, to question the good faith and capacity of the Indonesian Government to repay a small short-term loan would, I feel, be most unfortunate.

We should also consider how a refusal on our part to release the Netherlands from the guarantee would react on the Dutch Government. In the face of the current crisis in the Netherlands occasioned by the disastrous floods, such Canadian assistance as seemed appropriate was offered by the Prime Minister in a statement in the House of Commons the other day. To now inform the Netherlands Government that we are obliged to hold them to this guarantee, for which there is no longer a constitutional justification, might seem somewhat inconsistent with this policy of aid to one of our NATO allies. I feel that the Dutch Government, though they might well accept without comment our refusal to release them from the guarantee, might read into this action an unwarranted indication of a lack of understanding on our part. Considering the apparent willingness of the United States to meet a Dutch request which is rather similar in certain respects although it may differ in others, our action would tend to be put further in an unfavourable light.

I am writing this letter to suggest that it would be advisable to bring these considerations to the attention of Cabinet before a final decision is made whether to release the Netherlands from their guarantee. I should be very pleased, therefore, if you would consider the possibility of re-opening this question in Cabinet.

Yours sincerely,

L.B. PEARSON