313. Memorandum From the Assistant Administrator for the Far East, Agency for International Development (Janow) to Michael V. Forrestal of the National Security Council Staff0
SUBJECT
- $10 Million Interim Loan to Indonesia
Since July 22, the date of Secretary Rusk’s memorandum for the President on the Indonesian Stabilization program1 (which we understand the President approved), there have been several developments which argue for proceeding now with negotiation of an interim balance of payments loan of $10 million to Indonesia. This loan would be the first tranche of AID assistance contemplated in the July 22 memorandum.
On July 24 the IMF approved a standby loan of $50 million for Indonesia and has since authorized Indonesia to draw up to $20 million as a first advance against the total.
On July 26 a meeting of the DAC/Indonesia Working Group heard an IMF presentation of the Indonesian financial position and recognized an Indonesian need for an additional $50 million in new credits to finance essential import licensing during the summer and ensure adequate government revenues from exchange transactions and customs by the end of the calendar year. Credits from DAC/Indonesia participants to help meet this need were left to bilateral negotiation. The U.S. advised the delegations assembled that the U.S. would make a contribution. The need for a second DAC meeting in September was tentatively agreed.
The authority granted the U.S. delegation to the DAC/Indonesia meeting of July 26 authorized a maximum U.S. commitment of $125–135 million in all forms of aid attributable to the IMF standby year. Of this amount $25–35 million was to be in the form of an AID balance of payments loan. The authorization to the U.S. delegation was the same as the “proposed U.S. contribution” detailed on page 3 of the Secretary’s memorandum of July 22. The maximum contribution was to be committed only in the event broad DAC support, with appropriate contributions, materialized at that meeting. The first DAC/Indonesia meeting was called to precede the August holiday and as it turned out did not give other governments time to formulate positions after receipt of the IMF report. Pending more concrete decisions to be announced at a second [Page 682] DAC meeting, we decided that an AID loan of $10 million out of the $35 million maximum would be a suitable U.S. contribution to the immediate Indonesian requirement.
Accordingly, in discussion with Khouw Bien Tie, Deputy Governor of the Bank of Indonesia, in Paris following the DAC/Indonesia meeting (which the Indonesians did not attend), I said, with David Bell’s specific agreement, that an AID loan of $10 million—but only $10 million would be available to help meet the August–September need, and that it would be negotiated after a U.S. review of the results of his talks with other creditors and subject to the general conditions governing U.S. aid to Indonesia, including Indonesian performance under the IMF agreement.
It is essential to the success of our effort in DAC that we make our contribution to the immediate Indonesian need; this will maintain the integrity of our overall position for substantial DAC member support for Indonesian stabilization in the standby year. Indonesian efforts have so far yielded $5 million in August and possibly an additional $5 million in September from France, and a little less than $4 million and other sums not yet specified from Germany. Aside from these and our $10 million, other credits appear to be linked to the second DAC/Indonesia meeting.
Our relations with Indonesia also require that we now proceed with negotiation of this loan. Further delay would invite questions in Djakarta as to U.S. intent, and would weaken the position of the First Minister and the few other strong proponents of stabilization.
The Indonesian stabilization program, initiated May 27, 1963, has proceeded successfully to date. It enjoys the rabid opposition of the Indonesian Communist party, and it suffers from persistent criticism of some Indonesian leaders. According to our latest information President Sukarno is adhering firmly to his position of support for the stabilization program. First Minister Djuanda, who led the effort for its adoption, is said to be a little stronger in his position.
We are of course limited by Indonesian behavior on Malaysia. We do not propose a firm date for a second DAC meeting until the UN Secretary General has made his report on the popular will in North Borneo and Sarawak. At present it appears that this question may be disposed of in about three weeks, which would permit a second DAC meeting as early as the last week of September. We estimate that the procedural steps involved in making the $10 million loan will take two to three weeks, which should put the time of signature of the loan after the Malaysia settlement.
We are cognizant of the sensitivities of the Congress on aid to Indonesia. Roger Hilsman and I have appeared this month before the House Foreign Affairs Committee and explained the position taken in Paris. We are avoiding current actions which, if misunderstood by the public, [Page 683] could adversely affect the national interest and the course of legislation. In view of the possible intent of Congress as expressed in the Broomfield amendment,2 I believe it essential that you be informed of the course of action now proposed and trust that you will, if you deem it appropriate, inform the President informally of our intention to negotiate this $10 million loan. While the authorizing bill of the House of Representatives on Foreign Assistance for 1964 is not yet law, the provision it contains on Indonesia may be construed by the President as an expression of the intention of the Congress. Hence, the specific approval by the President would remove any possible future doubt that our proposed action is consistent with his determination, that it is in the national interest of the United States that this action is taken.
- Source: Kennedy Library, National Security Files, Countries Series, Indonesia, Vol. IV. Confidential.↩
- Attachment to Document 312.↩
- On August 7, the House Foreign Affairs Committee adopted an amendment introduced by William S. Broomfield (R–Michigan) to the Foreign Aid Bill cutting all economic assistance to Indonesia unless the President determined that continued aid was in the U.S. national interest.↩