224. Memorandum From the Director of the Office of Southwest Pacific Affairs (Mein) to the Assistant Secretary of State for Far Eastern Affairs (Parsons)0

SUBJECT

  • Situation in Indonesia

Summary

Indonesia’s first “guided democracy” government took office July 10, 1959, under Sukarno’s premiership (Tab 1).1 The period since then has been one of organization and consolidation, with (a) Sukarno appointing various subsidiary governmental organs, (b) the Army continuing to expand its role in the government and (c) plans being made to carry out the government’s general program (improved supply of basic necessities, better internal security, and continuation of the struggle against all forms of imperialism).

The political parties remain uneasy about the implications of “guided democracy,” particularly so since in the new government not only ministers but senior civil servants as well have been directed to sever their ties with parties. The parties are disturbed also by the Army’s strengthened role in the government, although non-Communist parties generally prefer this to greater Communist influence. Apart from the anti-SukarnoMasjumi and Socialist (PSI) parties, which are completely excluded from the executive branch, the Communist Party (PKI) is the one most adversely affected by “guided democracy” thus far. The party’s role in the government is minimal, while the openly anti-Communist Army is strongly represented. Moreover, it seems plain that Sukarno is using the Army as a counterweight to Communist power.

The most significant action taken by the new government to date was the announcement on August 24 of drastic monetary reforms calculated to curb Indonesia’s serious inflation (Tab 2).2 The ultimate effect of the monetary reforms, which have at least temporarily upset business activity, cannot yet be assessed. The public reaction seems to be one more of bewilderment than resentment, although the government will reap great public disfavor if it does not find means promptly to release frozen funds needed by employers to pay wages. The monetary reforms, [Page 435]though introduced without consultation with the IMF, may have useful results if followed-up by the tightened fiscal management Sukarno has promised.

An earlier assessment of this government as relatively favorable to U.S. interests on the basis of its composition, remains valid. Several ministers have told us the U.S. should welcome this government as highly favorable to U.S. interests, and we expect requests from the Indonesians for expanded military and economic aid. Within reasons, such expanded aid may well be in our interest, but it is unlikely that we need formulate our attitude towards increased aid on the assumption that this government represents the “last chance” for U.S. influence in Indonesia, as a number of Indonesian leaders have hinted is the case.

[Here follows a detailed discussion of these points; see Supplement.]

  1. Source: Department of State, Central Files, 756D.11/9–1059. Secret. Drafted by Moore and cleared with O’Sullivan, Green, and Mary S. Olmsted.
  2. No tabs were attached to the source text. Tab A is printed as Document 215.
  3. See Document 220.