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

756D.5 MSP/7–2854: Telegram

No. 286
The Ambassador in Indonesia (Cumming) to the Department of State

secret

Djakarta, July 28, 1954—10 a.m.

177. Limited distribution. Joint Embassy-USOM message. Depcirtel 50.¹ Jones and I have thoroughly discussed questions raised in reference telegram and transmit following summary of our present thinking, recognizing it may be subject to some adjustment and supplementary comment after receipt of Robertson letter of July 20.²

In general our reply to basic question is strong affirmative, recognizing (a) considerable differences existing between various categories of Asian countries as to willingness to utilize aid to further US objectives re checking spread of communism; (b) that economic assistance per se is not necessarily a panacea for communism and that friendship cannot be bought with dollars; and (c) that in some Asian countries at least economic aid should have no political strings attached, although sound fiscal policy and administration should ever be an objective (and these we do not have in Indonesia).

We can safely assume that Japan, Korea, Formosa, Philippines, Thailand would use both military and economic assistance to strengthen their resistance to communism, both externally and domestic. On other hand, as we see situation from Djakarta, India, Burma and Ceylon are prone to be tolerant to communism as way of life in nearby states, refusing to recognize potential exterior threat of Soviet-Sino communism while taking relatively severe measures to suppress and eradicate communism from within. Indonesia under its present Cabinet for moment seems unwilling to do either without equivocation.

Technical assistance and economic aid programs cannot be effective in this part of world if designed to remake country in our own image. They must be genuine offers of financial assistance during a period of crisis or of technical assistance to enable more efficient and effective accomplishment host country’s own objectives to extent consonant with our interests and objectives. Such programs manifestly make positive contributions to economic progress, and wisely handled, help promote improved relationships between US and host country, tending to offset Communist exploitation as direct and indirect contacts of population with programs increase. Programs of training, development of economic resources, productive capacity and improved trade provide these countries with tools and know-how, but, above all, hope and confidence in future. This is especially true in Asian countries like Indonesia, where suspicion already exists even in non-Communist circles that US is trying to buy support against communism and where such support simply is not directly for sale.

In Indonesia, for example, deteriorating economic and financial position makes it desirable from both standpoint of Indonesians and US that additional aid be provided. Yet Indonesians, we are convinced, would rather do without aid than sell or even open the door to charges of selling their “independent foreign policy”. Again, this does not mean they are Communist-oriented. Yet for US to refuse to consider aid except on conditions a neutral-minded, uncommitted, country could not accept would, we firmly believe, be playing into hands of enemy. In saying this we do not intend imply that offer of aid to Indonesia should necessarily be extended at this time; thinking outlined mytel 577,³ also to mytel 1448,⁴ still stands.

Nevertheless, continuing review of situation here considering combination of factors, political, financial and economic, external as well as internal, which have been spelled out in reference telegrams, have forced us to conclusion that time will come, perhaps within months when US interest would dictate substantial additional assistance to this country. We strongly urge, therefore, that steps be taken to firm up policy decisions so action may be taken promptly if, as and when deemed desirable. Such aid, if it is to halt deterioration of Indo financial and economic position, must needs be on completely different order of magnitude than past technical assistance programs. We would urge that consideration be given to establishing a sizeable reserve fund for Indo aid, such to be granted in manner and at time when greatest political capital could be obtained.

For time being, however, any substantial expansion of economic aid to Indonesia might tend to strengthen present coalition although in considering timing and nature of increased US aid we should consider possibilities that successor government might be less, as well as more, favorably disposed to closer ties with US than present government. Indo proclivity to regard US assistance as cold war maneuver rather than sincere effort to assist in improving economic conditions should also be taken into consideration in considering form and manner in which additional aid should be offered.

If such reserve could be established it could also be drawn upon if, as and when special programs in special fields appear to be desirable—for example, special smallholder rubber program discussed in following telegram.⁵

Turning to organizational aspects of expanded Asian economic aid programs, time may now be ripe to propose some form of economic association of Asian States, entirely disassociated from military organization, modelled perhaps on OEEC. We are convinced undesirable to tie our hands by limiting to SEATO countries. It will be recalled that OEEC provided the first friendly table after war around which Germans could sit and discuss mutual problems with their former enemies. It may be that this pattern holds something for Asia and if so every effort should be made to obtain participation by all Asian countries, including Japan, Korea and Formosa. Although this apparently impracticable in area of military association at present time, trade and economic development may provide sufficient mutual interest for cooperation, especially if sparked by substantial US aid. In any event, vigorous efforts should, in our opinion, be exerted in this direction. We do not believe that ECAFE, because of Soviet participation, can meet our and Asian needs any more than its Geneva counterpart could meet European needs for same reason.

Whether Indonesia could be attracted into such an association remains to be seen but we think it worth trying. If India and Burma could be brought in, Indos while not slavishly following Nehru’s lead probably would not want to be isolated from joint concern which India and Burma saw fit to join; otherwise unquestionably not.

Following conclusions summarize our thinking:

1. Expanded Asian aid program desirable.

2. Such program should be funneled through economic (not military) regional organization, if possible, and aid should be used as lure to accomplish purpose.

3. Aid for Indonesia should not be expanded substantially at present time but provision should be made for expansion in certain areas such as smallholder rubber.

4. A substantial reserve fund should be established for expanded program of aid to Indonesia which could be drawn upon promptly when combination of economic and political factors clearly indicate time is ripe.

Cumming

1. Dated July 22; it requested the Embassy’s opinion on the extent to which a program of expanded economic assistance, maximizing Asian participation, and designed primarily to stimulate economic development, would strengthen the ability and willingness of the free Asian countries to resist Communism. (Djakarta Embassy files, 501.1 AID)
2. Not printed. In an attached memorandum, it spelled out in further detail the reasoning behind and the questions raised by the proposal outlined in the circular telegram. (Djakarta Embassy files, 501.1 AID)
3. Dated Dec. 4, 1953; in it, Ambassador Cumming had stated: “I repeat what I have said before: badly as Indonesia needs financial aid, I cannot recommend that our government either grant such aid through its own agencies or encourage its provision by private investors until the Indonesians have put their own house in far better order than it now is or have given concrete evidence of intention to do so. And this, of course, includes real and substantial improvements in foreign investment climate.” (756D.5 MSP/12–453)

4. Dated June 9; it reads in part:

   “Without underestimating adverse influences of external factors over which Indonesia has little control (drastic fluctuations of market prices for Indo exports) and other understandable tribulations of this new country, I feel that substantial share of blame for present financial plight is attributable to irresponsible policies of present ministers. I believe that very considerable direct and indirect losses of exchange have occurred and are still occurring as result of government’s preoccupation with hyper-nationalism and temporary partisan advantages to exclusion of considerations of such corrective policy.” (398.13/6–954)

5. Reference is to telegram 180, July 28. (856D.2395/7–2854)