Foreign Relations of the United States, 1961–1963, Volume XXIII, Southeast Asia

311. Memorandum From Michael V. Forrestal of the National Security Council Staff to Robert W. Komer of the Staff⁰

Washington, July 19, 1963.

SUBJECT

• Indonesia

I think the President should get a briefing on Indonesian aid from the State Department early next week. I suggest that Hilsman and Harriman (if the latter is available) attend together with Bob Barnett and Sy Janow. (Bob Barnett is Hilsman’s Deputy who has been taking the lead in Indonesian aid negotiations.)¹ The present situation is roughly as follows:

The IMF team has returned with the recommendation that the IMF enter into a stand-by agreement with Indonesia which would make available $50 million to Indonesia over the next year. The funds would be phased $20 million in the first quarter and $10 million in each succeeding quarter. The Board of the Fund is in the process of acting on this recommendation and will probably act favorably. The U.S. member will vote in favor but will observe that there appears to be inadequate rescheduling of Indonesia’s foreign debt.

This debt problem is our largest present difficulty. The Indonesians so far have rescheduled only 50 percent of the total Soviet debt burden for the next two years (i.e. $41 million of $83 million in the current year). They have made no attempt to reschedule private European debt and they have proposed that all Western public debt be rescheduled on the same terms the Soviets have, i.e. 50 percent. This is not satisfactory for two reasons. First, the total reduction of annual debt burden by the proposed rescheduling is inadequate and therefore leaves a larger gap in Indonesian balance of payments to be filled by foreign assistance. We are asking that the servicing of all Bloc debt be kept to a maximum of $20 million annually, which is approximately equivalent to the current interest charges on such debt. We are also asking that European Governments refund all European private debt in such a way as to effect a 50-percent reduction in the current debt burden.

On July 26 there will be a meeting in Paris of the Development Assistance Committee (DAC) at which our delegation (including Janow and Barnett) will seek to start other European countries working on the amount which they will contribute to Indonesian stabilization. Assuming by one device or another that we can get them to match us, we hope to be able to hold our own cash contribution to Indonesian stabilization to approximately $45 million in the first year. This is in addition to current aid and PL 480 contributions.

When our people come back from DAC, we will have to start putting pencil to paper to make our figure firm; and sometime in September we will probably have to announce our intention to make a specific contribution to the stabilization program.

The reason for the meeting with the President is simply to make sure that he understands that we are beginning to march down the road toward a firm dollar commitment to Indonesian stabilization.

I suggest that you ask Roger’s office to prepare a very brief description of the steps which we plan to take together with the rationale which can be used to brief the President. I will talk to Roger over the week end and you can assume that he will bear the major burden of making the presentation.

Cliff Alexander is generally familiar with the subject, should you need any liaison work done.

Michael V. Forrestal²

0. Source: Kennedy Library, National Security Files; Countries Series, Indonesia, Vol. IV, 6/63–8/63. Confidential.
1. According to the President’s Appointment Book, he did not meet with these officials during the following week. (Ibid.) The President did receive a memorandum on the issue from the Department of State, which he read and approved; see Document 312.
2. Printed from a copy that bears this typed signature.