Foreign Relations of the United States, 1964–1968, Volume XXVI, Indonesia; Malaysia-Singapore; Philippines

261. Memorandum From the President’s Special Assistant (Rostow) to President Johnson¹

Washington, October 18, 1968, 10:30 a.m.

SUBJECT

• Aid for Indonesia

The yearly meeting of the InterGovernmental Group (IGG) on foreign aid for Indonesia will take place in The Hague on October 20–21. The purpose of the meeting is to agree upon Indonesia’s aid requirements for calendar year 1969. We also make our pledge at this meeting as an incentive to other donors.

Indonesia will request and the IMF and World Bank will support a total aid package of $500 million ($380 million in economic aid and $120 million in food).

Attached is a memorandum from Bill Gaud and Orville Freeman which proposes that we pledge about one-third ($130 million) of the economic aid and offer to meet “the bulk” (up to $100 million in PL 480 rice and wheat) of Indonesian food aid needs.² Our pledge, as usual, would be contingent upon Congressional appropriations, satisfactory commitments from other donors and satisfactory performance by the Indonesian Government on its stabilization program.

In the past we have talked of meeting Indonesia’s total aid needs through a one-third formula (one-third from us, one-third from the Japanese, one-third from everybody else). In fact, however, we departed from this formula last year when our wheat aid of $50 million and the short-fall in the European aid commitment resulted in our providing 46% of Indonesia’s actual aid receipts.

The proposal being submitted to you this year would also mean that we pledge 46% of Indonesia’s stated aid needs for 1969.

The proposal is based on two assumptions:

1. that it is an important aim of American policy to provide Indonesia with the external aid she requires,

2. that we should give our aid in such a way as to maximize European and Japanese contributions. Frankly, unless we do more than one-third there is little prospect that Indonesia’s need for $500 million of foreign aid in CY 1969 will be met.

The Japanese, from Prime Minister Sato down, are now talking about doing less than their 1968 level of $110 million. In 1968 the Europeans fell far short of their $110 million. In fact, a rigid adherence to the one-third formula would probably lead the IGG countries to refuse to agree to the $500 million figure as Indonesia’s requirement.

Therefore, we propose to apply the one-third formula only to the non-food part of Indonesian needs, about $380 million. That gives the Japanese and the Europeans a target of $130 million each. They will groan, but we believe they can be induced to accept the figure.

On food aid, Agriculture assures me that market conditions are such that we will wish to provide Indonesia with at least 300,000 tons of rice and as much wheat as she can use. Therefore, the proposal is that we pledge ourselves to pick up the bulk of Indonesia’s food aid needs, while still pressing other donors for as large a share as we can get from them. We would tell the Indonesians that we are thinking of about $60 million of rice and perhaps $40 million of wheat.

Charley Zwick concurs in the Gaud-Freeman proposal. (Zwick memorandum is attached.)³ Henry Fowler takes exception to our pledging “the bulk” of Indonesia’s food needs. Instead he would like us to pledge only to do “a fair share,” provided others do the same. He also opposes discussing specific quantities of food aid with the Indonesians at this time. (Fowler memorandum is attached.)⁴

The difficulty with the Fowler approach is that the Indonesians need to be able to plan their food procurement rationally, and cannot do so without some idea of what we intend to do for them. Moreover, the distinction between Fowler’s “fair share” and Gaud-Freeman’s “bulk of food needs” is really a matter of semantics. If we do not meet the “bulk” of Indonesia’s food aid needs, they will not be met. It is not in our interest to have another food shortage emergency, as occurred last January.

I recommend you approve the Gaud-Freeman proposal.

Walt

Approve⁵
Disapprove
Call me

1. Source: Johnson Library, National Security File, Country File, Indonesia, [Filed by Johnson Library, 12/68–1/69]. No classification marking.
2. Memorandum from Gaud and Freeman to the President, October 14. (National Archives and Records Administration, RG 59, Central Files 1967–69, AID (US) INDON)
3. Memorandum from Zwick to the President, October 16. (Johnson Library, National Security File, Country File, Indonesia, [Filed by Johnson Library, 12/68–1/69])
4. Memorandum from Fowler to the President, October 17. (Ibid.)
5. None of the options is checked, but in a typed note apparently dictated by Johnson and sent to Rostow on October 18 at 12:30 p.m., the President stated: “I like Fowler’s proposal better but can we go as far—we could say ‘fair share’ and the next administration wouldn’t be tied—they could do what they want.” (Ibid.)