95. National Security Council Report1

NSC 5518


Draft Statement of U.S. Policy on Indonesia

General Considerations

1. Indonesia is important as a country of 80 million people which recently won its independence from colonial rule; as a strategically-located island chain commanding the routes between the Pacific and Indian Oceans and between Asia and Australia; and as a world supplier of rubber, tin, copra and petroleum. The loss of Indonesia to Communist control would have serious consequences for the U.S. and the rest of the free world.

2. The danger of external armed aggression against Indonesia is now remote, but would become serious if Communism continued its advance on mainland Southeast Asia. Internally, while there is no immediate prospect of a Communist seizure of power, the possibility that Indonesia may fall to Communism by force, subversion or legal political means is a continuing, long-run danger because of Indonesia’s political instability, uncertain economic situation, internal security problems and popular attitudes precluding full cooperation with the free world.

3. Indonesian politics are currently dominated by maneuvering for advantage in the parliamentary elections now scheduled for September, 1955. The most probable outcome of these elections is the emergence of an anti-Communist government dominated by the [Page 154] Moslem Party (Masjumi) to replace the present Ali government, which is a coalition led by the Nationalist Party (PNI) and often dependent upon support by the Communist Party (PKI) with the participation of some Communist sympathizers, though no avowed Communists, in the cabinet. However, the possibility remains that the Nationalists will obtain sufficient parliamentary seats to form a new government in coalition with the Communist Party, which has recently increased its membership and intensified its political activity.

4. If the Masjumi controls the government after the parliamentary elections, it will probably restrict Communist activity, might seek Western aid for economic development, and would be somewhat more friendly toward the West, without, however, abandoning Indonesia’s present policies of neutralism and nationalism. A Masjumi government would thus afford the U.S. a more favorable opportunity for exerting increased efforts toward attaining its objectives in Indonesia. Other outcomes of the election would be likely to continue the present uncertain situation or, in the case of a Nationalist-Communist coalition, would probably open the way to an increase, possibly rapid, in Communist influence. Elections to choose a constituent assembly for the drafting of a permanent constitution are scheduled for December 15, 1955. They are likely to be influenced by the outcome of the parliamentary elections.

5. With its rich and largely undeveloped natural resources and increasing food production, Indonesia could, under favorable conditions, gradually develop the economic base to make it an important Asiatic power. Its economic development, however, has been hampered by lack of an effective development policy and an absence of investment capital, by administrative ineptitude and antiquated procedures, by a dearth of trained personnel and a low literacy level. Its economy is also vulnerable to fluctuations in the world market prices of a few key export commodities (rubber, tin, and copra) on which the country depends for foreign exchange to pay for its increasing imports.

6. Indonesia needs foreign assistance for full realization of its economic potential. Soviet bloc countries have recently been attempting economic penetration through credits, trade agreements, participation in trade fairs and technical assistance. The U.S. has conducted an effective technical assistance program in Indonesia, but has been confronted with Indonesian reluctance to conclude bilateral agreements in order to obtain economic aid. Private investment has been hampered by Indonesian insistence on controlling foreign-owned business. When favorable conditions prevail in the Indonesian Government, the U.S., by being immediately responsive to a request from the Government for an economic aid program, could effectively demonstrate [Page 155] its willingness to assist Indonesia to insure its independence and to further its economic development.

7. U.S. capability directly to influence Indonesian policy is severely limited by certain fundamental Indonesian attitudes.

Indonesia has a strong legacy of anti-colonial feeling from its experiences with the Dutch and Japanese, has a strong sense of nationalism and independence, and displays extreme sensitivity to any appearance of foreign interference in Indonesian affairs. These attitudes are often exploited to depict U.S. policy as a new form of colonial domination. These factors have led Indonesia to adopt an attitude of independent neutralism which inhibits close cooperation with the West.
Many Indonesians do not fully appreciate the current danger of internal Communism, partly because of their success in suppressing a Communist revolt in 1948 and partly because the Party now poses as a “respectable, law-abiding” organization. The Indonesians feel protected from external aggression; they have an inherent fear of China as a power, but do not regard it as an immediate threat.

8. The capacity of the U.S. to influence Indonesia is also limited by lack of effective U.S. response on specific issues which the Indonesians consider important. Chief among these is the Indonesian claim to West New Guinea. The Netherlands and Australia are adamant in their position that the Dutch should retain control of West New Guinea. Thus far the U.S. has maintained a position of neutrality between the conflicting claims. Any other U.S. approach would open us to violent condemnation and loss of influence with one side or the other.

9. Despite the limitations on U.S. capabilities to influence Indonesia, U.S. policy has valuable potential assets in Indonesia. Chief among these is the basic good will toward the U.S. existing among the Indonesian people and leaders, due largely to the long U.S. tradition of anti-colonialism and willingness to help newly-independent peoples. Indonesia realizes its need for foreign private investment and for economic and technical assistance. The great body of the army and the national police is firmly anti-Communist and oriented toward the U.S., and looks to the U.S. and other Western sources for supplies and matériel….


10. To prevent Indonesia from passing into the Communist orbit; to persuade Indonesia that its best interests lie in greater cooperation and stronger affiliations with the rest of the free world; and to assist Indonesia to develop a stable, free government with the will and ability to resist Communism from within and without and to contribute to the strengthening of the free world.

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Courses of Action

11. In carrying out our policy toward Indonesia, avoid so far as possible the appearance of interfering in Indonesian internal affairs.

. . . . . . .

13. Contribute to such an outcome of the impending elections as will permit a non-Communist party or coalition to form a government free of dependence upon Communist support. At the same time, take care not to prejudice our ability to work with any non-Communist government that may come to power.

. . . . . . .

15. Seek to broaden Indonesian understanding of the U.S. and to convince Indonesia that closer cooperation with the U.S. is desirable, by:

Assisting Indonesians to travel and study in the U.S. and other free world countries.
Undertaking a broad program for increased training of Indonesians.
Making full use of U.S. private organizations to assist educational, cultural, medical, and scientific activities in Indonesia.
Identifying the U.S. with willingness to assist peoples struggling with problems of independence, and emphasizing the U.S. tradition of anti-colonialism.

16. Increase Indonesia’s military and police capabilities by:

Providing, especially for internal security purposes, military and police training and equipment as requested by Indonesia and determined to be in the U.S. interest.
Responding favorably, if conditions are suitable, to any Indonesian request to establish a U.S. military mission in Indonesia.
Attempting to insure that the West is the principal source of Indonesian military and police matériel.

17. Assist Indonesia in meeting its important economic problems and in countering attempted Communist economic penetration, by:

Expanding technical assistance.
Being prepared, in response to Indonesian requests and when the U.S. determines conditions are favorable, to provide economic aid for such specific programs as will significantly serve these purposes.
Being prepared, at the discretion of the Secretary of State, to initiate a program to aid Indonesian rubber production along the general lines which were contemplated in NSC 5417/3 (see Annex),2 [Page 157] when the Indonesians are receptive and when conditions are determined to be favorable.
Utilizing all practicable means of assisting Indonesia to:
Improve its basic economic and fiscal policies.
Improve administration by modernizing laws and procedures.
Rapidly increase training of personnel in economic and technical fields.
Formulate a balanced and coordinated development program.
Create a favorable climate for private capital.
Diversify the economy without neglecting staple exports.

18. Seek to develop better relations between Indonesia and other free nations by:

Encouraging improved trade relations between Indonesia and Japan and an early and mutually beneficial settlement of the reparation question.
Persuading the Indonesians to move in the direction of those regional activities and organizations endorsed by NSC 5506.3

19. While for the present maintaining neutrality in the New Guinea dispute in our relations with other governments, explore within the U.S. Government solutions to this problem compatible with over-all U.S. objectives, for possible discussion with other interested governments.4

[Here follow a Financial Appendix; Table II, entitled “Availability of Funds in Relation to Expenditures, FY 1955–1957”; a Summary Explanation of the programs listed in Table I; an annex containing extracts from NSC 5417/3; and a staff study on Indonesia.]

  1. Source: Department of State, S/SNSC Files: Lot 63 D 351, NSC 5518 Series. Top Secret. Transmitted under cover of a note from NSC Executive Secretary Lay stating that the enclosed draft statement of policy was transmitted for consideration by the Council at its May 12 meeting and that it was intended, if adopted, to supersede NSC 171/1 (see Document 81) and NSC 5417/3, “United States Rubber Policy”, October 18, 1954 (see footnote 2 below).
  2. The annex, not printed, consists of extracts from NSC 5417/3, “United States Rubber Policy,” October 18, 1954. NSC 5417/3, which outlined a program to assist small producers of natural rubber in Indonesia, had not been implemented. In NSC Action No. 1284–c of December 9, 1954, the Council requested its reconsideration by the Operations Coordinating Board in 6 months.
  3. For text of NSC 5506, “Future U.S. Economic Assistance to Asia,” January 24, 1955, see volume XXI.
  4. The page of the source text that contains paragraph 19 is marked “revised 5/5/55.” A May 5 memorandum from Lay to all holders of NSC 5518, enclosing the revised page requested that the superseded page be destroyed and reported, as requested by the Department of State, that the revised page contained a policy statement on the New Guinea dispute identical to paragraph 25 of NSC 171/1. (Department of State, S/SNSC Files: Lot 63 D 351, NSC 5518)