219. Telegram From the Embassy in Indonesia to the Department of State0

354. CINCPAC also for POLAD. I had first serious talk with President I have had for some time but for a change it was I who did most of talking. I had assumed President would make major pitch for US assistance in current crisis, but only request he made was specific one for delivery one Lockheed C–130 in January (Embtel 353).1

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After exchange of courtesies and discussion Lockheed matter President ordered coffee and then waited for me to take lead in conversation.

I opened by saying I hoped he would not mind if I talked as friend rather than as Ambassador because some of the things I wanted to say had not been discussed with my government and were in context internal affairs rather than external. I referred to deteriorating economic situation in Indonesia, mentioning specific commodity price increases resulting from inflationary pressures. I had been talking with great many people at all levels and I thought he might be interested in receiving my impressions.

I was convinced that people of country recognized as he did that some hard decision had to be made to solve economic problems and people were looking to President Sukarno for leadership. There seemed to be general acceptance among people with whom I had talked that unpopular measures were necessary and I thought Indonesians were ready for such measures once they were explained to them. I said in my opinion there was only one man who could explain such program to people and that was himself. As an illustration of what I meant I cited necessity for increasing taxes. This, I emphasized, was unpopular action in any country but if it was necessary to improve condition of people and was explained to them as something from which they would reap benefit, and if it were necessary for good of country, I was confident people would accept it—indeed welcome it.

President nodded his head at this point and said he agreed. He wanted me to be more specific, however.

I cited through Java that he had to pay four rupiahs a liter for gasoline throughout west and central Java. This was almost four times legal price of gasoline and this was experience not only of Americans but Indonesians. Americans had no objection to paying this price for gasoline which was far lower than they paid at home, I remarked, but it was hard on Indonesian people. Some Indonesian leaders were kidding themselves that legal price of gasoline was real price of gasoline and what people paid. This simply was not true. Meanwhile I emphasized who was getting benefit of this high price—not government, not people, not even producer, only the black market operator who contributed no service. The government could take advantage of situation by increasing prices to point where black market operators would be discouraged and government take additional in taxes.

President interjected observation that he was not convinced this would solve black market situation—he believed black market situation could only be solved by additional supply.

I said of course this was true, but he could induce additional supply through price increase. I pointed out experience in Germany and other [Page 421]countries and emphasized that producers and distributors who are not making money on commodities were not only reluctant to sell at losing price but obviously had no interest in additional investment in facilities to insure widespread distribution. I said I was convinced from my own experience that not only could black market commodities situation be solved by this process but that formula could be developed which would (a) benefit Indonesian Government and (b) do so without imposing additional burden on Indonesian people; rather result would be lessening of burden. I observed that this was large subject to deal with in short time (I had been advised that President had only half hour reserved for me this morning), but that I knew cabinet was meeting all day tomorrow to discuss some of these problems and that was reason I had ventured to raise subject at this time. When his government had reached conclusion as to program, I should be glad to sit down and discuss whole situation with him or appropriate Ministers and to listen to any suggestions they might have as to how we might be of help.

Possibly indicative of President’s new state of mind was immediate rejoinder—”I am not interested in programs,” he said. “We have had too many programs. I am interested in action.” I said I could not agree more and that that was what I had meant.

I pointed out that of course program for solution of all Indonesia’s economic problems involved many aspects and one of these was source of capital for development. I said that I had been very glad to see that he had apparently opened door a little wider to private foreign investment in his recent speech on August 17.2

President confirmed this. He said he preferred governmental credits but he was willing to have private capital come in. I then said I thought Indonesia would have to depend upon private foreign capital if it was to develop its resources as rapidly as it hoped to do. Many people in Indonesia feared foreign capital. This fear was without foundation. I cited history of development of US and vital role foreign capital had played in this development, pointing out that following our own revolution substantial percentage of our economy was owned and controlled by foreigners. Important point there, I stressed, was that percentage of foreign private investment in America had gone down to about three percent through years but that actual amount of foreign capital invested in America had continued to increase ever since our revolution. What had happened was that America had grown around core of foreign capital which enabled US to get start. Indonesia could do same.

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President appeared very much impressed by this point which apparently had never reached him before. He nodded his head slowly and thoughtfully.

I was not saying this to him in selfish desire to see more American investment in Indonesia, I said. There was ample investment opportunity for American capital in America and other countries. I was making point solely because I felt it was in Indonesia’s interest to attract and utilize source of capital which could help them solve problems faster than they could solve them otherwise.

(President then said he was very much interested in what I had to say and would like to have another talk with me in which we would further develop subject.)

In closing conversation I thanked President for his invitation to go with him to Atjeh and Kalimantan (Embtel 351)3 and said I was looking forward to this very much. I also mentioned that as he knew I had given dinners recently in honor of First Minister and Foreign Minister and would like very much to give luncheon or dinner in honor of President/Prime Minister of Kerdja cabinet. President said he appreciated invitation and would be very glad to accept. I could work out further details with Doctor Tamzil.

Jones
  1. Source: Department of State, Central Files, 756D.5622/8–2259. Confidential. Transmitted in two sections and also sent to CINCPAC.
  2. Telegram 353, August 22, reads in part as follows: “President Sukarno made specific request to me this morning for delivery in January 1960 of one Lockheed C–130 under contract signed August 21. Sukarno said this would be urgently needed at that time to effect deliveries of new rice crop to areas of Indonesia which could not readily be reached by normal channels distibution.” Jones informed the Department that the aircraft would be employed to reach isolated distressed areas and suggested that such use of a U.S. airplane “would have beneficial effect for US as well as GOI.” He recommended that a “strong effort be made on political grounds to meet President’s request.” (Ibid.) See Supplement.
  3. The Embassy reported on Sukarno’s independence day speech of August 17 in telegram 316 from Djakarta, August 17. (Department of State, Central Files, 856D.424/8–1759)
  4. Telegram 351, August 21, reported that on the previous day Tamzil called Jones to extend invitation from Sukarno to join him in a 12-day trip to Atjeh and Kalimantan, commencing September 1. Jones replied that he appreciated the invitation and accepted with pleasure. (Ibid., 756D.11/8–2259)