Foreign Relations of the United States, 1951, Asia and the Pacific, Volume VI, Part 1

856D.00R/4–951

The Deputy Assistant Secretary of State for Far Eastern Affairs (Merchant) to the Director, Far East Program Division, Economic Cooperation Administration (Griffin)

restricted

Washington, April 9, 1951.

Dear Allen: Confirming our telephone conversation of April 7 regarding economic assistance for the Republic of Indonesia during the fiscal year 1952, the Department of State recommends that:

(1) There should be a fiscal year 1952 economic grant aid program of the general character of the program now in operation, with the emphasis on technical assistance type projects.

(2) In our effort to assist the Indonesian government to solve its problems, there should be provided under the aid program American experts who would not necessarily be tied to particular projects but that, in light of the element of doubt as to the welcome which they will receive and as to their ability to function effectively, this phase of the program should be inaugurated on a modest scale with the understanding, however, that their numbers and their scope would be expanded as additional experts were formally requested and on the basis of demonstrated success by the original group. The Department would have no objection to the maintenance of the figure of 100 such experts in the budget presentation on the understanding that there would be close collaboration by the Administration and the Department regarding the recruitment and dispatch of such experts, and with the further understanding that the provision of more than 50 would be a matter for agreement between us.

(3) The fiscal year 1952 grant aid program should not markedly exceed the 1951 program. The figure of $10 million is recommended for fiscal year 1952, this sum to be concentrated on those projects which the Economic Cooperation Administration considers the most important and the furthest advanced in planning, but that in any event the mechanized rice, swamp drainage and trans-migration projects should not be included.

(4) The Department and the Economic Cooperation Administration should urgently concert their efforts with a view to establishing the principle of joint planning with the Export-Import Bank to the end that the grant activities of the Economic Cooperation Administration and the loan activities of the Export-Import Bank are complementary, and to the further end that additional loans from the Export-Import Bank, up to or exceeding $15 million in fiscal year 1952, be extended if and as the study of individual projects so warrants.

Despite understandable expressions of enthusiasm by Indonesian officials for large-scale grant aid and numerous technical assistants and advisers, the Department believes that extreme care and tact is required in any expansion of the STEM Mission. Personnel for the field must be picked with the greatest care and the arrival of new personnel in Indonesia should be gradual, with the acceleration or the de-acceleration of the process dependent upon Indonesian reactions and the ability of the members of the mission to function effectively. It goes without saying that the relationship between the Embassy and the STEM Mission should be an intimate one.

We are prepared to work closely in any helpful fashion with you in the preparation of a revised program on the foregoing lines for presentation as soon as possible to the Bureau of the Budget.¹

Sincerely yours,

Livingston T. Merchant

1. Mr. Griffin replied to this letter on April 20, and said that the substantive policies set forth in Mr. Merchant’s letter had been incorporated in the revised program which the Department of State and ECA had presented jointly to the Bureau of the Budget on April 13. In brief, this program embodied grant aid of $10.4 million and suggested loan aid up to or exceeding $15 million. (PSA Files: Lot 54 D 190: Box 15397)