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

637. CINCPAC also for POLAD. Circular 149.1 To a striking degree my overall analysis of US objectives and US programs for 1961 parallels that contained in Embassy telegram 6972 of August 22, 1958, in which I commented on 1960 programs. In that telegram I indicated that I thought our programs necessarily were inadequate, and this continues to be true for largely the same reasons. In Embassy telegram 18353 of December 5, 1958 I gave my thinking as to the kind of economic aid program which would be adequate. Our objectives, although we clearly are nearer to their realization than a year ago, remain the same—to secure Indonesia from Communist domination through assisting it in the achievement of political and economic stability.

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By and large our problems have shifted in degree and emphasis rather than kind during the last year. Steady economic deterioration during that period has been offset to some extent by improvement in the political situation. The latter has been furthered by consolidation of executive power, with concomitant reduction of power in the hands of political parties and parliament where the high water mark of communism in Indonesia has been reached.

While it is not possible to demonstrate that provision of substantial aid to the Indonesian army was entirely responsible for the increased power and intensified pro-Western posture of Indonesian army leaders, there can be no doubt that our aid had considerable influence. Besides giving army leaders new confidence and providing them with means of effective internal security, our aid has helped widen the growing breach between army and PKI. As President Sukarno and the army have drawn closer together, long-run prospect for a head-on clash between Sukarno and PKI, which would greatly assist ultimate achievement of our objectives, has been strengthened. Continued military aid at substantially the current level or slightly higher will be needed to maintain the momentum we have achieved.

Evidence that our program, particularly our military aid efforts, have been aimed in the right direction is to be found in character of present government in which leftist influence has been entirely eliminated from inner cabinet, while anti-Communist influence, largely represented by army, has been expanded and strengthened. There is reason to believe present shape of government more nearly in line with specifications of General Nasution than wishes of President Sukarno, who holds to view Communists should be required share in responsibility for government.

Concurrently our economic assistance, even though on a minor scale in terms of problems, has had considerable influence in improving the political climate. As a minimum it has made friends and has helped train Indonesians in many key governmental positions, influencing their orientation toward west. It has also given important development assistance in certain sections of economy such as Gresik cement, power plants, and assistance to ports, railroads, et cetera.

Greatest danger to US interests here is that improvement in political climate may be nullified by failure GOI to solve grave economic problems. While recent monetary measures demonstrated present government capable taking unpopular measures unlike predecessors, resulting situation fraught with new dangers, and so far there is no evidence of coordinated plan for dealing with these.

Thus well before 1961 we may be called upon urgently to rescue Indonesian economy from nationalistic folly, and it will be in our interest [Page 437]to do so even though we will be in good position to say “I told you so.”

In meantime our program on economic front must be kept as flexible as our inherent limitations permit. We are not yet in position to move into kind of relationship with Indonesia which would permit most effective use of our resources, and this makes it imperative that whatever we do has maximum benefit. On some occasions in the past, due chiefly to Indonesian domestic political pressures, our assistance programs have become somewhat more diffused than they should have been and in some cases benefits have been partly offset by imposition of unnecessary rupiah costs on a government facing grave inflationary danger, without return of any immediate economic benefit. In future our economic aid should be confined to three general categories: (1) development; (2) technical and professional training or direct technical support of development projects; and (3) fire brigade projects which have overriding political impact or which meet grave immediate crises such as stabilization. I have listed these in order of dollar magnitude. Order of importance could fluctuate with circumstances.

Since all US programs in Indonesia to date have been primarily political in motivation, problems of coordination have been relatively slight, easily managed at political level. Fair degree of coordination exists with UN programs, Colombo Plan, activities friendly nations, our practice being withdraw from any field which other friendly programs prepared finance. Largest non-US programs of course financed by Sino-Soviet Bloc, many of them contributing usefully to economic stability in Indonesia but carrying with them grave political danger to US and Indonesian interests.

Coordination between USIS, ICA programs and between USIS political programs close, effective. USIS continues contribute useful short and long-range psychological support all US programs. Prospect improving for increasingly aggressive information activity more closely coordinated with indigenous elements such as Indonesian Army.

In summary we are dealing here with a situation so fluid that the primary requirement for advancing US interests is flexibility. It would be unwise at this critical point Indonesian history to commit our course to any particular economic, psychological programs. At optimum our effort should be to keep a boxer stance with our weight balanced on both feet so as best to deal with a fast-changing situation. I realize that this picture is not wholly realistic in reference to US budgetary planning requirements, but it is toward this posture that we should work.

For example, if Indonesian monetary and economic stabilization program recently undertaken is to succeed, further steps will have to be taken and these necessarily will include commodity support for program. In addition to PL 480 possibilities, I believe additional credits for [Page 438]raw materials, spare parts and capital goods to keep production going will be required. Thus I would recommend that in addition to aid programs already approved or under current consideration approximately $50 million be listed for this purpose under “possible requirements” for Indonesian 1961 program. Whether this amount will actually be required will depend upon developments within next weeks or months but it is self-evident rapid action regarding any such support request would be key to success of operation.

Meanwhile our efforts here will be devoted to concentration of aid programs both economic and military on areas of immediate impact eliminating dispersion.

  1. Source: Department of State, Central Files, 756D.5–MSP/9–2159. Secret. Transmitted in two sections and also sent to CINCPAC.
  2. Circular telegram 149, which was sent to all U.S. Chiefs of Mission on August 19, requested a “succinct, overall analysis of U.S. objectives and role U.S. (both MSP and other) and non-U.S. programs in FY 1961 in achieving them.” (Ibid., 120.171/8–1959)
  3. Not printed. (Ibid., 756D.5–MSP/8–2258) See Supplement.
  4. Not printed. (Department of State, Central Files, 856D.00/12–558) See Supplement.