The Ambassador in Indonesia (Cochran) to the Secretary of State
1103. Eyes only Lacy from Cochran. Last night received your 864 and this morning 867.1
I have not spoken with Roem or other Indonesian officials re possibility curtailment aid programs except as specifically reported in cables to Department.
There is, of course, possibility some repercussion such as Sudjatmoko2 suggests whenever it may be deemed advisable or necessary to reduce or reconsider ECA grant-aid program Indonesia. I agree with you our political risk may be less in now correctly terminating than in indefinitely continuing. At same time I do not insist upon complete curtailment aid other than engineers (who I would recommend remain) if from Merchant’s conversation with Ali3 or if from any discussions you may authorize me have here it may be found opinion our Indonesian friends that present moderate government would be hurt rather than helped by decision toward elimination.
My suggestion is that Merchant tell Ali frankly that financial improvement Indonesia following our earlier ECA and current Eximbank help has been such, as evidenced by gain in exchange and gold, current level of exports, et cetera, that Department does not feel justified in asking Bureau of Budget and Congress for grant-aid to Indonesia. Ask Ali if his government would be willing join our government in statement to effect two governments have agreed on winding up grant operations as spelled out in paragraphs 1 and 2 of Deptel 855. Ali should be informed of considerations set forth paragraphs a to e of paragraph 2.
If Ali thinks such decision and statement would not be helpful to his government and that latter would not agree thereto, then following could be advanced. Department would support continuation ECA grant-aid 1952 but would explain at time appropriation is requested, or on other most propitious occasion, that Indonesian situation has so improved that extensive grant not required. Department would however, ask for one million dollars 1952 to keep small select staff of technicians to study Indonesian problems and advise government thereon, working in cooperation with UN and other foreign aid representatives. Under this latter alternative funds would be largely for personnel and to very minimum to pay for imports.[Page 604]
There will inevitably be some criticism whatever extent we curtail program. I think experiences most countries where we have aided in past have shown recipient governments predict their countries will go Communist or bankrupt if we let up on aid. In Indonesia impression certainly existed before advent Smart and ECA group that Griffin aid was conceived as one-time operation.4 Unfortunately Smart has led Indonesians expect continuing grant-aid and in proportions beyond reason. I am particularly concerned over interest he has been endeavoring arouse in US participation in long-term transmigration project. I have told you of his enthusiasm for setting up development corps to which I am opposed. I do not know where leak occured which led Sudjatmoko to approach Department. I am sure, however, Smart will find it difficult adjust himself to restrict program and cooperate loyally with Embassy if he remains.
I believe it necessary that we progressively tighten with Indonesians both for their sake and our own. As I have told you, Sjafruddin5 as Finance Minister is doing his best to keep budget within reasonable limits, restrain Ministers from expenses other than of productive character, and avoid inflation. Java Bank head6 is also, in interest of Indonesia well as his bank and soundness of Indonesian currency, endeavoring halt trend toward excessive drawing by government on Central Bank. I am working closely and secretly with Kuiper7 to achieve stabilized currency. Such programs as Smart would undertake involve of necessity more rupiahs and government drawing on Central Bank therefore. I think we risk making second Philippines out of Indonesia by encouraging them be extravant or look to us for continuing charity.
If we reduce appropriation to one million dollars for 1952, this should mean having only small number technicians and supporting staff constitute STEM Indonesia. By keeping group much smaller than Smart has recommended for 1952 we could relieve Indonesians of our pressure for housing and of charges from left that too many Americans coming in to run country. Any compromise with ECA on continuing 1952 program should therefore involve definite agreement on strictly limited personnel and on understanding, they would not themselves take initiative or encourage Indonesian Government to request funds for projects that would oblige us go beyond limits hereinbefore envisaged, or put us in position of having to refuse such requests.[Page 605]
Smart has already been active in soliciting requests that I feel his remaining here under revised program would be undesirable. His tactics have already caused Embassy more worry and strain with Indonesian Government than any problems that have arisen since Embassy established. In any circumstances I think he should be withdrawn. If ECA genuinely desirous assist US maintaining happiest and most helpful mutual relations with Indonesia, ECA should agree leave policy matters entirely in hands of Embassy and have on duty Indonesia only technicians and small supporting staff responsible to Ambassador. If Smart is removed, I can carry on ECA supervision provided STEM has competent executive or administrative officer who will follow my instructions and provided Department assigns me one senior FS economic officer who could help me with STEM work and act in my stead with STEM when I am absent. With such arrangement we could easily work out matter of supplies and priorities.
- See footnote 3, p. 597.↩
- The reference is to M. Soedjatmoko, Counsellor of the Indonesian Embassy in the United States.↩
- The reference is to Dr. Ali Sastroamidjojo, Indonesian Ambassador in the United States.↩
- The reference is to the visit of Mr. R. Allen Griffin and his survey team to Southeast Asia in March and April, 1950, to develop recommendations regarding initial economic and technical aid to the area. For documentation on the Griffin Mission and related activities, see Foreign Relations, 1950, vol. vi, pp. 1 ff.↩
- Prawiranegara Sjafruddin.↩
- Dr. A. Houwink.↩
- John Denis Kuipers, Director, Foreign Exchange Institute of Indonesia.↩