222. Telegram From the Department of State to the Embassy in Indonesia0

238. For Ambassador from Parsons. This message coordinated with other areas Dept and with other Departments and agencies as necessary and appropriate. Further reply to your 3051 will follow.

1.
Your 276,2 305 and 332.3 As you appreciate we cannot authorize you make any commitments in response anticipated GOI request for expanded economic and/or military assistance. Should such request be received you may however reply that you have instructions to say US will give request most prompt careful consideration in light limits imposed by available funds and other commitments. When discussing [Page 425]matter with Indonesians you will wish bear in mind limitations indicated in FYI paragraph no. 6 below. We prefer that you await approach from GOI rather than taking initiative.
2.
Re line you would propose take with Indonesians, we believe it unnecessary and possibly undesirable make conclusion new mutual security agreements absolute condition for possible expanded assistance. In any case conclusion new agreements no guarantee expanded aid since fund stringencies not affected by nature inter-governmental arrangements. Typically US does not conclude single mutual security agreement with cooperating country but rather two separate agreements covering respectively economic and technical assistance on one hand and military assistance on other.
a.
Existing US-Indonesian economic and technical assistance agreement of Oct. 16, 1950,4 provides adequate legal basis for furnishing economic aid in conformity existing legislation and requirements of policy.
b.
Standard military assistance agreement, such as that with Pakistan for example and as distinct from special type agreement concluded with Indonesia Aug. 13, 1958, could facilitate provision military aid and in some ways would be advantageous to us, e.g., enabling us to place adequate mission in Indonesia to work with Indonesian services. Notwithstanding advantages derivable from standard military assistance agreement however it important keep in mind that such agreement would require GOI give assurances contained section 142(a) Mutual Security Act of 1954 as amended (Yugoslavia has in past given such assurances), including expressed willingness to make full contribution to “defensive strength of the free world.” Present method of providing military aid to Indonesia does not require GOI give such assurances, as you know. While present method of providing military aid without standard military assistance agreement is somewhat cumbersome since it requires separate Presidential Determination for each program, we can continue operating this basis. While under this method amount of military aid to any country limited by law to $30 million in any one fiscal year, obvious limited fund availabilities and our current policy objectives are such that elimination this ceiling unlikely to affect dimension military assistance.
3.
Naturally we would welcome a standard military assistance agreement with Indo. if one could be concluded without jeopardizing our hard won gains in Indo. over past year. Existence of agreement would provide gratifying sign of growing Indo. orientation toward free world. On other hand, if Executive Branch so decided, we could under [Page 426]existing arrangements and within limits funds available expand or broaden our assistance to Indonesia. We reluctant therefore to run any risk of damaging relations with Indonesia by possibly premature effort conclude standard military agreement.
4.
We believe there are three possible risks involved in proposing standard military assistance agreement at this time: (a) We might get adverse reaction from our friends in present government who might then become suspicious of our motives; (b) We would risk creating impression on part GOI that greatly expanded assistance would result from agreement when there is no assurance this would be case; (c) Should we succeed in concluding a standard military assistance agreement we might make difficult the domestic political position of this relatively favorable government to the point of rendering it impotent or even of causing its fall. I know you too have these factors in mind and will weigh them in deciding whether to broach subject of standard military assistance agreement.
5.
Recapitulating foregoing paragraphs you authorized as follows:
a.
In reply to possible GOI request for expanded assistance you may state your instructions are to say that US will give request most prompt careful consideration in light limits imposed by availability funds and other commitments. When discussing matter with Indos you will wish bear in mind limitations indicated in FYI paragraph no. 6 below.
b.
In reply such request you may at your discretion raise question of standard military assistance agreement, keeping in mind we have legal authority even in absence such agreement to respond within limits available funds, our commitments elsewhere and our estimate of requirements Indonesian situation.
6.
Begin FYI. There follows outline present Washington thinking re likely US response to Indonesian aid requests that may be received:
a.

Re economic aid we unlikely be receptive at this time to request for large scale economic development assistance such as Asahan power project. This does not preclude continuing development loans for sound projects through US Govt lending institutions.

Expansion of technical assistance at this time seems not indicated. Believe size of present technical assistance program about maximum which can be supported technically from here. Also believe expansion would be difficult in view limitations imposed by general situation in Indonesia. Indonesia’s absorptive capacity limited by poor administrative machinery, travel restrictions, lack of adequate number of suitable trainees. Other administrative difficulties encountered in operation technical assistance mission in Indonesia are inadequate housing, [Page 427]schooling and local currency support. Notwithstanding limitations and difficulties cited this paragraph, we would be sympathetic to proposal for rearrangement present technical assistance program to place greater emphasis on technical assistance designed to equip Indonesia better to cope with these very limitations and conditions which (1) contribute to continued stagnation her economy and (2) reduce her ability fully to realize benefits of foreign aid. For example, increased emphasis on technical assistance designed to effect improvement in Indonesian fiscal management and development activities would seem logical in present situation.

As you point out in your 276, there is immediate need for effective attack on inflation. In view these circumstances we would expect GOI might well request balance of payments loan assistance. While Dept would give careful consideration request this nature if accompanied by adequate justification and by evidence that GOI instituting stabilization program showing promise of effectiveness, Congressional cuts have reduced our ability meet global requirements for this type assistance in FY–60, and, in general, we would have to approach this kind of assistance most cautiously. Certainly little support could be aroused here for this type of assistance to Indonesia from US or other free world sources in absence serious stabilization effort by GOI.

b.
Re military assistance, under present circumstances we see no justification for increased level. Our continuing primary aim remains the strengthening of Indonesian armed forces for maintenance internal security and self defense. As we see it currently, emphasis in military assistance programs would be placed on Army equipment and training, with smaller segments to provide Navy and Air Force with training and with equipment not competitive with that supplied by Communist bloc.

Long range planning for possible future military assistance to Indonesia now under inter-Departmental consideration. End FYI.

We are sending you separately info on our arrangements in Burma.5

I would appreciate any reactions you may care to give me on thinking set forth above.6

Dillon
  1. Source: Department of State, Central Files, 756D.5–MSP/8–1159. Secret. Drafted by Moore on August 22; cleared with SPA, FE, FN, U/MSC, ED, L/MSA, WE, ICA, Defense, and Treasury; and approved by Parsons. Repeated to CINCPAC for POLAD.
  2. In telegram 305, August 14, Jones reported that a “somewhat tentative approach” regarding the extent of additional U.S. economic aid to Indonesia came from Subandrio in a meeting the previous day. During a discussion of the economic and financial problems facing Indonesia, the Foreign Minister pointed out that communications was one of the principal bottlenecks and asked that the United States give serious consideration to ways in which it might help Indonesia in this field. (Ibid., 756D.5–MSP/8–1459) See Supplement.
  3. See Document 217.
  4. Telegram 332, August 19, reported that General Nasution had sent word that day through the U.S. Army Attaché that he desired to confer with Ambassador Jones on August 24 regarding equipment requirements for the Indonesian Army and economic and financial matters. (Department of State, Central Files, 756D.56/8–1959)
  5. For text of the Agreement, signed at Djakarta, see 7 UST (pt. 2) 2241.
  6. Reference is to the agreement relating to the sale of military equipment, materials, and services to Burma, signed at Rangoon on June 24, 1958. For text, see 9 UST 1069.
  7. Jones met with Nasution on August 31. Nasution presented specific proposals for additional U.S. assistance to ease the military burdens on Indonesia’s civilian economy. Jones informed Nasution that the United States would receive his request and give it prompt consideration and assured him that the United States would continue military assistance at a level yet to be determined. (Telegram 440 from Djakarta, August 31; Department of State, Central Files, 756D.5–MSP/8–3159) See Supplement.