Foreign Relations of the United States, 1952–1954, East Asia and the Pacific, Volume XII, Part 2

S/P–NSC files, lot 61 D 167, “Indochina”

No. 251
Memorandum by the Secretary of State and the Acting Secretary of Defense (Anderson) to the Executive Secretary of the National Security Council (Lay)

top secret

[ Washington ,] August 27, 1953.

Subject:

• Indonesia

References:

• 1. NSC 124/2, “United States Objectives and Courses of Action With Respect to Southeast Asia”.¹
• 2. First Progress Report on NSC 124/2, dated August 5, 1953.²
• 3. NSC Action 872–b, dated August 6, 1953.³

In accordance with your request pursuant to Reference (3), there is transmitted herewith a Current Supplement to the Indonesia Section of Reference (2). It is requested that this be circulated to the Members of the Council for their information.

• Robert B. Anderson
• John Foster Dulles

[Annex]

Summary

Current Supplement To Indonesian Section Of First Progress Report On NSC 124/2, August 5, 1953

Part I is a “Survey of the Current Political Situation in Indonesia” which states that: (1) The new cabinet is probably influenced, but by no means dominated, by communists. (2) The Moderates are politically and militarily too strong for the communists to take over the government now. (3) The new cabinet’s threat to our objectives lies less in the likelihood of new Indonesian policy than in the opportunity it presents for gradual communist infiltration. (4) It is too early to tell the cabinet’s course of what changes in our policy may be necessary and effective. (5) Pending NSC action on the Planning Board recommendations which it is required to prepare in accordance with NSC Action No. 872–b, U.S. policy and courses of action will continue as stated in NSC 124/2 and in Part II of this supplement.

The most important of these courses of action, which are set forth in Part II, “United States Courses of Action Toward Indonesia”, are: (1) respect for Indonesia’s “independence”; (2) neutrality in the New Guinea dispute; (3) responsiveness to Indonesia’s rubber and tin export problems; (4) personal influence; (5) grant economic aid; (6) readiness to extend reimbursable military aid, and to give sympathetic consideration to a formal request for a military training mission, subject to conditions then prevailing.

Part I

Survey Of Current Political Situation In Indonesia

August 24, 1953

1. Reason for Survey

Non-communist leaders have held the political and military power in Indonesia so far, but doubts as to their ability to remain in power have been stimulated by the character of Indonesia’s fifth and current cabinet which President Sukarno accepted August 1, 1953, with Dr. Ali Sastroamidjojo as Premier.

2. The Ali Cabinet

a. Political Composition

Three of Indonesia’s 4 previous cabinets have been based upon coalitions between its 2 major parties, the Masjumi (Moslem) and PNI (Nationalists). One short-lived, although capable, Masjumi Cabinet could not survive PNI opposition. The Ali Cabinet is dominated by the PNI, in coalition now with a strange mixture of minor nationalists, conservative Moslem, and leftist parties. Of the cabinet’s 20 seats the PNI holds 4, consisting of the Premiership and Ministries of Foreign, Financial and Economic Affairs. Minor nationalist parties such as the PIR (Greater Indonesian Union), the PRN (National People’s Party) and Parindra (Greater Indonesian Party) have 7 more ministries, including Interior, Labor and Information. Two minor Moslem parties, the Nahladatul Ulama and the PSII (United Islam Party) occupy 5 ministries, including Justice and Religion. The remaining 4, including the important post of Defense, are held by minor Marxist parties and one kindred independent. The Ali Cabinet is also significant for the parties it omits. On the one hand it has no known member of the PKI (Communist Party). On the other, it contains no representative of the moderate Masjumi, Catholic, Protestant and PSI (Socialist) Parties. Of this group the PSI was excluded from, and the other three parties refused participation in, the Ali Cabinet.

b. Ministers’ Previous Records

Our Embassy reports that 4 of the new ministers can be expected to cooperate willingly with the Communists. Abidin (Labor Party), Minister of Labor, is the one most openly under Communist influence. He recently returned from several months’ tour of Communist China and has been lecturing extensively on labor’s happy lot in that country. His Labor Party and a union under its control have been systematically raiding and attempting to split non-communist unions. Eng Ong Die (PNI) Finance, started the “World Peace Movement” in Indonesia, was temporarily arrested in the Government’s 1951 security sweep, is opportunistic, unscrupulous, and reportedly an associate of known Communists. Sadjarwo, Minister of Agriculture, founded the Communist-controlled Indonesian Farmers’ Association, and has been cooperating with the PKI in Parliament. Iva Kusumasumantri (Progressive), Minister of Defense, spent 1926 in Moscow, was a member of the leftist group among the Indonesian leaders who fought for independence, and has voted with the Communists on most issues in Parliament. Our Embassy also reports that an additional 4 ministers—Sunario (PNI) Foreign Affairs, Djody (PRN) Justice, Abikusno (PSII) Communications, and Yamin (Independent) Education—can be expected to support some aspects of the PKI program either through naiveté or expediency.

It is significant, however, that although the records of the ministers reveal leftist or naive political character, they do not reveal leftist membership in the PKI. This is a real distinction which in the past has resulted in action divergent from the Communist line, and may be expected to do so in the future. Kusumasumantri, for instance, refused to support Musso, the Moscow-trained PKI leader who led the ill-fated Communist armed revolt in Java in 1948. Sadjarwo, returning home after serving as Indonesia’s chief delegate at the Rubber Study Group Meeting at Copenhagen in April [May] 1953, spiked rumors that the United States had opposed the calling of a rubber stabilization conference, and thereby did the PKI a considerable disservice.

Premier Ali, hitherto Ambassador to the United States, is expected to exercise a moderating influence.

c. Parliamentary Support

In Parliament the cabinet coalition could aggregate about 100 votes of the total 210, and will need votes of the Communist bloc (23) to convert its plurality into a majority. The PKI has, in fact, been supporting the PNI on many issues. The moderate opposition of the Masjumi, PNI, Catholics, Protestants and one minor nationalist party could muster about 87 votes. These maximum figures furnish a useful guide to comparative strength although, in practice, total parliamentary votes on any one issue rarely exceed 150, and party discipline is frequently broken.

3. The Ali Cabinet’s Program

a. Domestic Affairs

The Ali Cabinet coalition will be unable to act in unison on many issues. It will give lip service to early holding of general elections but may procrastinate, since under present conditions the Masjumi could probably count on a large popular vote. The cabinet is under pressure, politically inspired by the PKI, to take drastic action against the Darul Islam (a guerrilla group of bandits and fanatic Moslems), but this will probably be opposed by the 5 Moslem ministers of the Nahladatul Ulama and the PSII. The PNI’s intention of nationalizing the Shell properties in North Sumatra may be opposed by the PIR, PRN and the Nahladatul Ulama.

b. Foreign Affairs

Greater, although incomplete, intra-cabinet accord is expected in foreign affairs. The Ali Cabinet will probably try to sharpen up Indonesia’s foreign policy of “independence” by making a show of increasing relations with the Soviet Bloc to counterbalance existing ties with the West. It is expected to implement the Rondonuwu Motion of April 1953 which called for the establishment of an Indonesian Embassy in Moscow before the end of the year; to favor a bilateral peace treaty with Japan; to advocate the amendment or replacement of the Netherlands-Indonesian Union; to continue pressing Indonesia’s claim to Western New Guinea; to question the value of American economic aid; and to consider actively the increasing of trade with the Soviet Bloc and the shipment of rubber to Communist China. In the latter respect, however, Indonesia has so far honored, and been deterred by, the UN embargo.

c. President Sukarno’s Address of August 17

A preliminary barometric reading of the Ali Cabinet’s course is supplied by President Sukarno’s Independence Day address August 17. For a President spoken of as having just picked a “Communist-dominated” cabinet, his talk was unexpectedly mild and his approach to domestic problems constructive. He did not mention the shipment of rubber to Communist China. His comment on Western New Guinea was less violent than heretofore. He referred to the “good” relations between Indonesia and the United States. He praised aspects of the TCA program and, in the scales of Indonesian “independence”, balanced TCA only with Indonesia’s participation in the Colombo Plan.

4. Current Situations’ Effect on United States

a. Chief Significance: Communists vs non-communists

Although to Indonesia the prime importance of the Ali Cabinet is that it symbolizes an almost irreconcilable hostility between the PNI and the Masjumi (as now constituted), to the United States the cabinet’s chief significance is that it sharpens the issue between Communists and non-communists, despite the characteristic Indonesian desire to remain “neutral”. Born with the approval of the PKI and the hostility of the moderates, it steps up the polarization between them. Non-communists are being forced to become increasingly anti-communist. Among the major forces in Indonesia, the PKI clearly occupies the left of the stage. In the center is the PNI, favored by President Sukarno, which apparently believes it can practice political expediency with impunity in accepting Communist support. On the right are the moderates—the Masjumi, PSI, Christians and Catholics. These can probably count on the political support of many career officials in the various ministries and of such leaders as the Sultan of Djogjakarta and Vice-President Hatta. The moderates can probably count as well on the potential military support of the “October 17” group of officers who challenged the PNI-dominated Parliament one year ago and who could probably command the allegiance at least of the army divisions in North Sumatra and West Java, and possibly of the Mobile Constabulary Brigade. The Communists do not appear strong enough to make any immediate bid for power.

b. Chief Threat: infiltration

The Ali Cabinet, by virtue of its own internal divergencies and the nature of its opposition, will probably find it difficult both to act and to survive. Its chief immediate threat to the success of United States policy toward Indonesia lies less in its potential executive and parliamentary action than in the opportunity which it presents for the gradual Communist infiltration of key civilian and military positions. This process will probably be watched for and opposed by the non-communists.

5. United States Policy

It is still too early to tell accurately how the Ali Cabinet will affect Indonesia, and what changes in United States policy may be necessary and effective. The CIA is preparing a special estimate on the current situation in Indonesia which, along with the supplement to the First Progress Report on NSC 124/2, will be used by the Planning Board as a basis for the preparation of recommendations to the NSC with respect to future U.S. policy and courses of action in Indonesia.⁴

Pending NSC action on the Planning Board recommendations referred to above, U.S. policy and courses of action will continue as stated in NSC 124/2 and Part II of this supplement.

Part II

United States Courses Of Action Toward Indonesia

(Listed under NSC 124/2 Objectives)

Para. 17 a. “Seek to strengthen the non-communist political orientation of the government …”⁵

1. Respect for Indonesia’s “Independent” Policy

The Indonesian Government, inspired by nationalism, wary of any foreign influence, and afraid of involvement in the conflict between the United States and Russia, pursues a sensitive policy of “independence” in its foreign relations. To strengthen the non-communists, who so far have held the political and military leadership in the Indonesian Government, the United States has attempted in action and in speech to set forth its respect for Indonesia’s independence.

This attitude was illustrated in the United States handling of difficulties which arose under the Mutual Security Act. In an exchange of notes with the American Ambassador January 5, 1952, Indonesia’s Foreign Minister gave assurances under Section 511(a) of the MSA, in order to continue programs of economic and military grant aid. That “511(a) Agreement” became widely misunderstood and suspected as a violation of Indonesia’s independent policy, and precipitated the fall of the Sukiman Cabinet. The Indonesian Government nevertheless honored its commitment, and the succeeding Cabinet under Premier Wilopo asked to replace it with assurances under Section 511(b) which would continue grant economic but discontinue grant military aid. The new agreement was signed January 12, 1953, after having been foretold in the Indonesian press and announced by President Sukarno to Parliament. The United States action in permitting the MSA agreement to be renegotiated not only removed a large part of the public suspicion of American aid, but also gave evidence that the non-communist Indonesian Government was in fact able independently to negotiate on the basis of equality.

On August 6, 1953, President Eisenhower gave the United States attitude explicit expression in a conversation with Prime Minister designate Sastroamidjojo when, after discussing newspaper reports that the new Indonesian Cabinet was dominated by Communists, the President voiced our strong hope that Indonesia will be able successfully to preserve its independence.

2. Neutrality in New Guinea Dispute

The Round Table Agreements provided that within one year from Indonesia’s acquisition of independence “the question of the political status of New Guinea be determined through negotiations” between the Netherlands and Indonesia. The question is still unsettled and has become a highly sensitive issue in both countries. The Netherlands, strongly backed by Australia, continues to administer New Guinea. Both sides have solicited United States support. United States relations with either country would suffer seriously if the United States were to support the other’s claim. President Sukarno and the preponderance of Indonesian political parties concentrate on the New Guinea issue the fervor of nationalism and the fear of resurgent colonialism. The United States has pursued an avowed policy of neutrality in this issue.

3. Responsiveness on Natural Rubber Market Problems

Falling rubber prices are a most serious obstacle to the United States good relations with Indonesia, which, with annual exports exceeding 700,000 long tons, accounts for about 40 percent of the world’s production. As Indonesia’s biggest customer, the United States gets the blame for the decline which has followed the Korean war boom. Natural rubber brings in about 46 percent of Indonesia’s foreign exchange earnings and over 11 percent of government receipts. It is the main livelihood of hundreds of thousands of “small-holders” whose sales are hardest hit by falling prices, and whose susceptibility to communist propaganda is increased by the resulting economic hardship. Trying to remedy these real political and economic problems, the Indonesian Government has advocated international rubber stabilization and has sought United States assistance with regard to the latter’s rubber policy.

The United States has responded factually and as sympathetically as possible. In 1951 the General Services Administration offered a large-scale, two-year contract which Indonesia, much to its present regret, turned down in favor of an 18-month contract for 15,000 tons which was completed in March, 1953. At the Copenhagen Meeting of the Rubber Study Group in May, 1953, the United States avoided opposing a proposal to call a rubber stabilization conference, although the United States said it did not at that time see the economic need for a commodity stabilization agreement. This enabled the Indonesian delegate (Sadjarwo, Minister of Agriculture in the present cabinet) courageously to deny subsequent widespread charges that the United States had opposed stabilization. The U.S. manufacturers at the Meeting made a statement which was construed as an expression of willingness to take any surplus of natural rubber off the market during the next 12 months. In its long note of May 4, 1953, the Indonesian Government expressed interest in several points concerning synthetic production as related to the price of natural rubber. The United States has since replied referring to favorable action on major points such as the cutting down of alcohol-base production August 1, 1953, and the passage of legislation providing for the disposal of the synthetic plants to private industry.

4. Three-year Tin Contract

Indonesia produces about 34,000 tons of tin a year, about 20 percent of world production, which accounts for 10 percent of its foreign exchange earnings. The mines are predominantly government-owned. In March, 1952, the United States, both to complete its own stockpile requirements and to assist the Indonesian Government in its desire to stabilize prices, signed a contract whereby the Reconstruction Finance Corporation agreed to purchase 18,000–20,000 tons annually for $1.20–3/4 c.i.f. New York. The contract runs for three years, with the price to be renegotiated at the end of the second. The RFC, however, has stated it has a “total lack of interest in acquiring additional stocks at any price”, which indicates the RFC desires to terminate the contract at the end of its second year. However, the Indonesian Embassy has informed the Department that Indonesia considers that it has a three-year contract with the United States and the only item to be negotiated is price.

5. United States Information Service

USIS has been operating under great difficulties in Indonesia, which is more affected by our actions than our words and which is hostile to propaganda from any source, especially non-Asian. Judging from popular demand, however, USIS is being successful with its libraries, its Indonesian pamphlets, and especially with its 48-page monthly “American Miscellany”. USIS is consistently faced with demands for more material than its budget permits it to supply. The magnitude and importance of the work is pointed up by our Public Affairs Officer’s (admittedly unverifiable) estimate that of Indonesia’s 80 million people, 2.5 percent may be opposed to United States aims, 1.5 percent favorable, and 96 percent “unsure”.

6. Personal Influence

Despite the fact that the United States is fourth and Indonesia the sixth most populous nation in the world, they opened diplomatic relations three and one-half years ago in an almost total vacuum of personal relationships. Their cultures are radically different. Such conditions do not foster mutual understanding and trust. Nevertheless, experience is suggesting, if not proving, that good personal relations can be established and are the most effective method of exerting United States influence. The potential value of this method is highlighted by the fact that of Indonesia’s 80 million people, power lies in the hands of the few thousand who constitute Indonesia’s leaders in government, armed forces, business and other fields.

An example of the effect of personal American influence is supplied by former Foreign Minister Subardjo. He entered the cabinet regarded by this Government as a leftist or Communist. Through his relationship with our Ambassador he signed both Japanese Peace Treaty and MSA assurances, and remains friendly to the United States. On a broader scale, TCA and USIS have sent Americans in many capacities to Indonesia, and have brought over 200 Indonesians to this country. Several hundred more Indonesians have come at the expense of their Government. For the most part the resulting relationships, although not striking, have been good.

The United States has lacked an Ambassador to Indonesia since March 15, 1953. The Indonesian Government has given its agreement to the name of a new Ambassador, whose appointment is expected shortly.

Para. 17 a. (cont’d) “… promote the economic development of Indonesia …”

7. Export-Import Bank Loan

To bolster the newly formed Indonesian Government, the United States early in 1950 extended a $100 million line of credit to Indonesia through the Export Import Bank. The Indonesian Parliament has approved projects totaling about $69 million of this amount, which has been used primarily for railroad, rehabilitation, and the purchase of ships, planes, and capital equipment.

8. Economic Grant Aid

Under the Economic Technical Assistance Agreement of October 16, 1950, the United States has authorized grant assistance totaling $16 million in fiscal years 1951–1952 and 3.9 million FY–1953. This program primarily has been designed to stimulate and improve Indonesia’s agricultural and industrial production methods and has also been valuable in the creation of friendship and mutual understanding between the Americans and Indonesians working and studying as technicians.

9. The Encouragement of Private Capital

Indonesia has great need for private foreign capital in order to develop its economy. The country is rich in resources which would be expected to attract capital if conditions were favorable. The Wilopo Cabinet which resigned June 2, 1953 had been making encouraging gestures and preparing a statement on this subject. American business is discouraged, however, by the composition of the Sastroamidjojo Cabinet. In an effort to create an adequate climate for private investment for the mutual benefit both of Indonesia and of American business, the United States has informally explained the investment guarantee program to the Indonesian Government and has supplied that Government with copies of and information concerning the standard treaties of Friendship, Commerce and Navigation.

Decisive in Indonesia’s success in attracting foreign capital will be its treatment of the oil companies now operating in that country. In post-war years, Shell, Standard Vacuum and the California Texas Oil Company have enjoyed “let alone” agreements with regard to their foreign exchange earnings and have not been subject to any fixed percentage division of profits with the Indonesian Government. These contracts are expiring, and new arrangements have long been under negotiation between the companies and the Indonesian Government. United States assistance to the American companies has, for greater effect, been confined to informal representations. The Indonesian Government appears less friendly to the Dutch than to the American companies, and has not permitted negotiations with the latter to become a political issue.

Para. 17 a. (cont’d) “… influence Indonesia toward greater participation in measures which support the security of the area …”

10. Negative

Indonesia’s suspicion of foreign influence and sense of immunity from external communist aggression combine to make the above objective unrealistic now. No Indonesian Government could, in these conditions, join such arrangements as the Pacific Pact or the Five-Power Council. Most Indonesian leaders are conscious, however, that Indonesia’s security would depend on United States power in case of general war.

Para. 17 a. (cont’d) “… influence Indonesia toward … solidarity with the free world”

11. Japanese Peace Treaty

Responding to United States pressure and induced by the hope of improving its bargaining position with Japan in the settlement of war reparations and the creation of fishing arrangements, Indonesia signed the Japanese Peace Treaty at San Francisco in October 1951. The very fact, however, that participation in that Treaty is regarded in Indonesia as evidence of “solidarity with the free world” has effectively prevented it from being presented for parliamentary ratification. The Sastroamidjojo Cabinet is expected to take steps toward a bilateral peace treaty with Japan.

12. UN Embargo Against Communist China

Indonesia has surplus of rubber and a deficit in rice. Despite strong internal pressure to follow Ceylon’s example in shipping rubber to Communist China in exchange for rice, the Indonesian Government, which in 1951 included rubber in its list of goods subject to the UN embargo against Communist China, has honored this commitment. This has been Indonesia’s most signal act in “solidarity with the free world”. It is attributable partially to the Indonesian Government’s respect for its good name as a member of the UN and for the principle of collective security, partially to United States representations at all levels, and partially to an adequate allocation of American rice which helped remove hunger as a possible justification for a rubber for rice deal with Communist China.

Ministers in the Sastroamidjojo Cabinet are publicly hinting at the possibility of shipping rubber to Communist China and of increasing trade with the Soviet bloc (which in 1952 took approximately 1 percent of Indonesia’s exports, by value). The United States is keeping this situation under constant review and exerting careful pressure to assure compliance with the objectives of the Battle Act, and to avoid any unnecessary rupture in relations with Indonesia.

Para. 17 b. “If requested by the Indonesian Government, and as appropriate, make available military equipment and supplies necessary for the maintenance of internal security …”

13. Military Training

Indonesia, at its own expense, has so far sent about 40 military officers for study at United States army schools in supply, basic infantry training, staff work, etc. Indonesia also arranged and paid for one year’s civilian flight training in California for 60 Indonesian Air Force student pilots. A group of about 20 experienced American fliers are under contract to the Indonesian Air Force at Bandung as flight instructors.

14. Military Grant Aid

Under a limited Military Assistance Agreement signed August 15, 1950 the United States has supplied the Indonesian Constabulary with about $4 million worth of arms, equipment and training which has been valuable in the suppression of guerrilla bands of fanatic Moslems and bandits which plague Indonesia. This program also included specialized United States training for about 40 constabulary officers.

15. Reimbursable Military Aid

Indonesia voluntarily terminated its eligibility to receive grant military aid, when it replaced its 511 (a) with 511 (b) assurances under the Mutual Security Act, January 12, 1953, and subsequently paid $12,500 for the small amount of constabulary equipment remaining in the pipeline on that date. Indonesia, which has been trying to buy a large range and quantity of small arms and similar material through commercial channels, has asked for, and the United States has supplied, a “sample” reimbursable aid agreement under Section 408 (e) of the Mutual Security Act.

16. Possible Military Mission

The Netherlands Military Training Mission, of about 1,000 men, which has remained in Indonesia since the transfer of sovereignty, will have been terminated by the close of 1953. Its departure is dictated by Indonesian popular political suspicions of the Netherlands, and regretted by the Indonesian Chiefs of Staff who are keenly aware of its value. Indonesia has unsuccessfully sought a replacement from West Germany and Australia, who have been informally advised by the Netherlands that it would not favor an affirmative response. Just after the Laos invasion, Indonesia formally asked the United States to explore the possibility of sending a 200-man military training mission. The United States has replied it would give a formal request for a mission sympathetic consideration subject to conditions then prevailing. The Department of Defense on August 27, 1953, has stated that it considers the dispatch of a military training mission to Indonesia to be militarily feasible. Furthermore, the Joint Chiefs of Staff believe that the dispatch of such a mission would be in consonance with paragraph 17 of NSC 124/2 and would contribute materially to the organization and development of the armed forces of Indonesia and would facilitate the establishment of a more comprehensive military liaison between Indonesia and the United States. The United States would not consider sending a mission unless it could count on a favorable political reception and the support of the Indonesian Government, at present a remote possibility. A successful mission could be a decisive factor in aligning Indonesia with the free world.

Note: It is assumed that the second half of Section 17 b has been covered in the paragraphs dealing with economic and military aid. Conditions do not appear to warrant action under Sections 17 c-d.

1. See Part 1, p. 125.
2. Not printed. (S/S–NSC files, lot 63 D 351)
3. In this NSC Action, the National Security Council directed its Planning Board to study and make recommendations on the developments in Indonesia. (PPS files, lot 64 D 563, box 730)
4. See Document 253.
5. A11 ellipses in this document are in the source text.