Memorandum by the Director, Office of Philippine and Southeast Asian Affairs (Lacy) to the Assistant Secretary of State for Far Eastern Affairs (Rusk)


Subject: Embassy Djakarta and STEM views on Indonesian Aid Programs

Harris’1 recommendations for ECA aid to Indonesia are contained in Djakarta’s Toeca 124 of March 16.2 Ambassador Cochran’s comments are made in Djakarta’s 1263 of March 17.2 There is revealed [Page 620] (1) significant elements of agreement, (2) profound disagreement as to the size and terms of FY 1952 aid, and (3) deep-rooted and important reasons for the disagreement.

(1) (a) STEM recommends and Cochran concurs that the FY 1951 program be increased by $3,270,000 additional grant aid, above the $6,036,000 already committed, for projects already morally committed to Indonesian Government departments. The additional grants would be for small industry $475,000; agricultural and fisheries $495,000; and public health $2,300,000.

(b) There is no apparent difference of opinion regarding Indonesia’s financial ability to pay her way completely in FY 1952.

(c) Cochran and STEM agree that we should offer grant technical assistance programs to Indonesia in FY 1952 and agree that we should continue to be prepared to lend to Indonesia for further “sound” projects.

(2) STEM recommends a grant program for FY 1952 of $10 million, together with reservation of additional $10–$15 million to be made available for loans for projects now mostly “in haphazard stage requiring considerable additional work”. The proposed STEM program would be “roughly distributed as follows”:

Technical Assistance $4,500,000
(not broken down but for: i, “second level supervisors to oversee and carry through actual [technical]3 operations; ii, technical assistance for training Indonesians as supervisors as above; iii, selected economists as advisers to Ministry of Finance, Trade and Industry, and Financial and Economic Council”)
Public Works 2,000,000
(“road building, port reconstruction, etc.”)
Trans-migration 800,000
Pilot Projects 3,000,000
(“in fields of fertilizer usage, swamp reclamation, mechanized rice production, public health, etc.”)
Total   $9,800,000–$10,800,000

STEM explains that the high figure for these projects is because of the need to include on a grant basis the “minimum commodities” required for the above technical assistance.

The Ambassador recommends a “grant of not more than $2.5 million to insure technical STEM staff of modest proportions, continuation of White engineers, certain fellowship and trainee programs and miscellaneous purposes other than purchase of commodities. (my italics)”. The Ambassador suggests that this would not be necessary if Indonesia were to “take advantage of Fulbright and Point 4 arrangements” but he believes it doubtful that these arrangements will be consummated.

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The Ambassador is opposed to additional loans representing “easy financing” and he points out that there remain $40 million available to Indonesia from the $100 million Ex-Im Bank line of credit. But “in event Department feels absolutely necessary compromise with ECA and fears Indonesian Government reaction more seriously than I do, my maximum and reluctant recommendation would be that additional $7.5 million be held in reserve for 1952, not as grant but for repayable loan. This would bring total possible aid to $10 million for FY 1952”. However, in the interests of bolstering the Netherlands-Indonesian political union, he recommends that Indonesia turn to the Netherlands rather than the United States for any new credit that may be required. In this connection, it should be noted that the Department has been and continues to oppose a second lending agency in the United States Government, other than the Ex-Im Bank, provided the Bank’s loans will be made on a “program basis”, i.e., integrated with the economic and political positions of borrowing countries and in terms of our total relations with such countries.

Reasons for Difference of Opinion

STEM believes that (1) Indonesia’s assumption that we are substantially committed to give them grant aid cannot be thwarted without great harm; (2) ECA can and will do a tremendous job of building and directing the Indonesian economy; and (3) strongly implied but not directly stated, ECA but not the Ambassador holds the key to Indonesian hearts and minds.

(1) As to (1) above, STEM has acknowledged that it was unfortunate that the Indonesians were led by STEM to take grant aid for granted, but they believe we must carry through. The Ambassador, on Harris’ statement that the latter “has done utmost eradicate from Indonesian minds impressions they may have erroneously gained from activities Smart”, believes we should approach the problem afresh,

(2) As for (2) above, the Ambassador does not directly challenge ECA’s absolute competence to perform, but does challenge their view of Indonesian capacity and ability to receive and make use of elaborate American technical assistance, and ultimately the existence of a real Indonesian determination to get and use American technical advisers through U.S. Government programs. (With my experience of ECA performance in other countries, I am personally continually and again bewildered by the ECA’s blithe assumptions regarding their competence and performance.)

The Ambassador directly challenges the mechanized rice and migration projects. He directly questions the feasibility of mechanized rice for Indonesia on the authority of many U.S. experts. (I can confirm this from my own experience during the last five years.) He questions the U.S. Government getting mixed up in trans-migration,—a very long run problem to which Indonesian Governments have been alert and sensitive for several generations and which will continue to plague them at least through this generation.

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(3) As for the Ambassador’s total comprehension and grasp of the Indonesian situation, he presents at great length evidence other than that commented on by the ECA. (It would, of course, be impossible for two ECA officials to have duplicated in their two-week visit the experience the Ambassador has gained in his nearly three years of intimate relations with high Indonesian officials, and obviously impossible for them to have duplicated the experience of Mr. Cochran in fields other than those of economic aid.)

The Ambassador questions the Indonesian attitude toward large numbers of American technicians, and particularly teachers which have been resolutely rejected by the Indonesian Government in the past. He cites also the difficulties encountered by the White engineers in getting their work underway. The Ambassador is particularly strongly opposed to U.S. economic advisers, certainly in financial matters, believing that “there would be tendency on part Indonesian Government to blame us heavily for any failure financial, monetary, tax or related measures which U.S. Government official might recommend”. (This last point has been considered by many Department officials for over a year, always reaching the same conclusion as now advanced by the Ambassador.)
The Ambassador notes that the ECA proposals do not take into account the present and proposed extensive operations by the UN in Indonesia, nor the results of participation by the Indonesian Government in the Colombo Plan.4
The Ambassador discusses at length the attractive naïveté of the ECA in taking on faith Indonesian assurances regarding security of personnel outside Djakarta and facilities for work in Djakarta. (I need not comment on this point, although the Ambassador’s exposés of the problems are worth reading in themselves.)
The Ambassador challenges the view that Indonesia would feel itself discriminated against if not given largesse on the same scale as other Southeast Asian countries. (We have certainly rejected here the notion that aid to one country requires aid for its more fortunately situated neighbors.)
The Ambassador does not find that deterioration in the Indonesian Government’s position results from economic factors which would require U.S. grants. He points out the weak attitude of the present weak government; its unwillingness on religious grounds to put down Darul Islam fanatics;5 disgust by army and police with Government, lowering of their morale; misuse and non-use of American police aid. (I personally question most [Page 623] strongly ECA’s characteristic proto-Marxian analysis in terms of so-called economic factors.)
The Ambassador again recalls to the Department Indonesia’s reluctance to acquire military supplies from the U.S. or to enter allocation schemes with the U.S., reflecting Indonesia’s stubborn clinging to notions of so-called “neutrality”. The Ambassador does not believe that these political attitudes of Indonesia are to be countered or modified by financially unnecessary doles of a few million dollars.

  1. Michael Harris, special representative of Mr. Foster’s sent to Indonesia as Acting Chief, STEM Mission, to survey the situation there.
  2. Not printed.
  3. Not printed.
  4. Brackets appear in the source text.
  5. The Colombo Plan originated from a proposal advanced by the Australian Foreign Minister at a Conference of British Commonwealth Foreign Ministers held in Colombo in January, 1950. From these meetings there developed plans for extending economic assistance to the countries of Southeast Asia. The proposal was conceived as a defense against the spread of Communism in Asia.
  6. Darul Islam was an extremist Moslem group which developed out of the Moslem military organization, the Hizbullah, in March, 1948. From that time until at least the mid-1950s, Darul Islam was an autonomous organization with its own army, and it was able to expand its power in West Java and into large portions of Central Java. The central government’s army was unable to destroy its forces.