856D.10/5–1850: Telegram

The Ambassador in Indonesia (Cochran) to the Acting Secretary of State

confidential   priority

662. Deptels 375 and 446.1 Export Import Bank was looked to for providing initial and important basic credit for supporting RUSI in general economic rehabilitation and currency stabilization. No international or other US leading authority could be approached hopefully for this purpose first few months new state. Granting 100 million dollar credit by ExIm upon application Economy Minister Djuanda February came at most opportune moment to strengthen confidence in country beset by military and political troubles resulting importantly from Westerling affair. Same credit created atmosphere of international support which permitted bold monetary steps March 13 and 20. With US having taken lead, it became practically obligatory Netherlands arrange credit 200 million florins to Union partner following first conference Union ministers end Miarch.

President Sukarno and Prime Minister Hatta hoped for ExIm credit greater than 100 million mentioning specifically 500. They have in mind rehabilitation projects which they think warrant and necessitate utilization foreign capital to this extent. Both realize however Export Import Bank has responded generously and along sound business lines in limiting initial credit to 100 million. They also appreciate necessity providing ExIm with specific data in regard to contemplated projects for which credit is to be utilized and have gone through difficult process assembling data shortly after taking over unfamiliar offices from Netherlands Government in circumstances of chaos and bankruptcy and without ample indoctrination or even satisfactory cooperation. Best experts available inexperienced government have gone Washington to seek action on projects submitted. Geniunely hoped American capital goods may shortly flow Indonesia under this credit. Critics US policy and of friendship Hatta government for US endeavoring argue ExIm arrangement was only on paper and that political and other difficulties that have confronted RUSI have frightened off Export Import Bank.

RUSI has now weathered worst months. Monetary measures proving their merits. Exports beginning move in gratifying measure with such commodities as rubber having benefit exceptionally favorable prices. Imports not yet coming in normally since prices many thereof trebled by monetary act and holders of imported stocks refraining [Page 1024]from buying more until liquidate present holdings at greatest profit possible. Furthermore, still some speculation that further currency changes possible and also worry over internal political conditions. Believe next few weeks will witness clarification problems of unitary state as well as KNIL.

At my insistence ECA credit for NEI which was suspended second police action December 1948 not revived until after successful termination RTC agreement. Consequently final $40 million from ECA available to provide textiles and rice during first few months new RUSI state. Otherwise great distress and possibility financial ruin would have been experienced. Has now become necessary place orders Japan for cheap cotton textiles to continue inward flow as ECA imports end.

As Department knows textiles greatest single import for average Indonesian consumer. Serves not only to satisfy essential needs but also incentive to production commodities constituting most important exports. With uncertain and troubled conditions existing first few months RUSI and with export returns disappointing until just recently, it has been impossible government anticipate hard currency receipts from exports and program imports accordingly. Most reasonable calculations, however, showed needs from $22.5 to perhaps $60 million for cotton and cotton textiles that could hot likely be met from exports.

I took initiative recommending US credit to relieve this situation and still urgently request minimum 22.5 be provided soonest. I feel this is bankable commodity credit that can be repaid after three or four years. I have opposed special legislation or large new grants to RUSI. Should US fail give such help shortly leftist element will allege US aid to RUSI illusory and attack Hatta government on ground favoring US policies without receiving credits required to keep workingman in necessities. This market prefers Japan and US textiles to higher priced products from Netherlands, France and Belgium. Textile credits from Europe have already been offered but Economy Ministry desires keep trade lines with US and purchase more reasonably than now possible in Europe. Believe Indonesia market fits well into US plans for marketing it own cotton and for supporting Japanese economy.

Even if exports continue grow at rate anticipated by Economy Minister he still sees need for textile credit of size above mentioned. He has mentioned alternative selling RUSI gold if US credit cannot be obtained. I strongly oppose this lest it wreck degree stability now being achieved with such difficulty in Indonesian currency. Both Hatta and Djuanda have abhorred idea drawing on ExIm 100 million credit for textiles. They prefer conserve this precious credit for economic rehabilitation projects which they could not otherwise finance [Page 1025]and which should mean so much to relieving unemployment and achieving satisfactory standard of life of a country that has suffered from ten years strife. They feel if any part of ExIm credit used for textiles then pressure on Government would be increased for utilizing other portions for other consumer goods. Policy of Hatta government is to tighten belt and get along on what would be to most countries spartan economy. To purchase textiles is however absolutely essential and funds cannot be assured for meeting requirements unless US credit is extended.

Djuanda insisted to me again this morning ExIm credit must be reserved for capital projects if at all possible. Said exports first 15 days May totalled 112 million florins against 111 million for month January. Said these figures should not lead to false sense favorable position since part recent exports have come from hoarded stocks and uncertain what rate of exports will be when dependent upon current production. Will not be able predict year’s imports safely until about July 1. Entirely certain require minimum 22.5 million credit for cotton.

Cochran
  1. Neither printed.