219. Telegram From the Embassy in Indonesia to the Department of State 1

749. Joint State/AID/DLG message. U.S. Short Term Assistance to Indonesia. Ref Djakarta 144.2

1.
I recommend that we now proceed with implementing program of US short-term assistance to Indonesia outlined in reftel and spelled out in greater detail in follow-up messages.
2.
Since sending of reftel one month ago, Indonesia has installed a new cabinet which, together with filling of subcabinet positions, has provided Indonesia with greatly improved government, especially taking into consideration Sukarno’s ever-dwindling influence. Moreover, during past month, Indonesia has brought its three-year-old costly confrontation with Malaysia to a close and in other ways as well has [Page 466]abandoned reckless jingoism in favor of a constructive role in international affairs. The road to resumed US assistance has been further opened by our investigation of ways to remove statutory obstacles impeding resumption such aid, such as lack of procedure to settle private claims, and I believe they now have been resolved. Claims for damages to Embassy are being paid.
3.
Though GOI will continue to face problems of enormous magnitude in rehabilitating its long neglected economy and will be challenged all along the political front, the triumvirate, backed by major segments of the army, students, and population generally, will strive toward objectives which we regard as consistent with our own interests and purposes. If current momentum is sustained, Indonesia is likely during next several months to rejoin the UN and other international agencies including IMF and IBRD and to assume an ever closer relationship with its immediate neighbors (Malaysia, Australia, Thailand, Philippines) as well as retain close behind-the-scenes consultations with US officials. Given this momentum, we can see real prospects for a new and wider association of Southeast Asian countries in which Indonesia, larger in population than all the others combined, will play a fraternal role. Though less clear, we would hope to see Indonesia face up in more dynamic fashion to handling its economic problems.
4.
However, we do not believe that this momentum will be sustained without adequate early evidence of assistance from other countries, especially the US. Aside from argumentation contained reftel, there is strong belief here amongst all officials, notably amongst military who likely continue to be dominant element in Indonesia for some time, that foreign aid and investment are vital and urgent. Their belief in this causal relationship has been a key factor in shaping rational official decisions. If Indonesian Government supporters believe that needed aid is unavailable, we may see government giving in to counsels of discouragement and a resurgence of the Sukarnoists who will argue that present GOI policies have been built on false expectations. Top-level Western-trained Indo economists, now hesitating over whether to participate fully in new government, will drop out if they feel US support for new government is lacking. Moreover it is inadvisable to await outcome of Tokyo talks before lending real helping hand. Even though we fully agree on desirability of multilateral approach to Indonesian assistance program this may take some time to work out. Meanwhile there are compelling needs for some assistance immediately.
5.
I therefore request authorization now to discuss with Malik short-term bilateral US assistance on basis program outlined reftel and subsequent messages. We hope be forthcoming soonest, at least on educational exchange and hopefully on additional activities proposed reftel. In particular, we recommend quick action on: (a) participants [Page 467]and book program; (b) authorization for negotiations for rice and cotton on PL 480 Title I basis as preferable to Title IV in view overall stabilization and debt rescheduling objectives; (c) authorization for negotiations on Title II few programs based continuation Indramaju project and initiation high-impact elements new Demak proposal; and (d) authorization for negotiations on spare parts and raw materials loan, with consideration being given both to IBRD/IDA channel (if IBRD technician can accompany IMF team and thus reach Indonesia sooner than technicians under any other possible arrangement), and to direct bilateral loan which would have advantage of restriction to US suppliers only. Additionally, we believe it would be useful sometime soon to commence negotiations on investment guarantee agreement which would be of major immediate help to our current discussions with US business representatives now visiting Djakarta as well as considered essential to long-term maintenance of American private investors position in Indonesia. We will be commenting further on this point.
6.
The MAP proposal set forth reftel remains unchanged and represents a logical and manageable start in this highly important facet of assistance. Certain areas of assistance for the Indonesian military are not finite and depend in some measure on priorities which are currently being determined by the Indonesian army staff under its G–4, MajGen Hartono. In the main, it is expected that the military side of the overall assistance program will be dominated by an emphasis on civic action in its broadest sense to include schooling, spares for engineer equipment, overhaul and repair of transportation means and equipment. MAP and aid will be complementary in many areas and especially in civic action. General Suharto’s outer island development plan including aerial survey is not included in present recommendations pending further study. Indications are that it remains high on General Suharto’s personal list of priorities.
7.
Request urgent action be taken ensure I receive instructions for discussion with Malik while current momentum resulting from signature Malaysia-Indonesia agreement is high and before his departure for Moscow (still uncertain, possibly as early as August 27), so that no obstacle is left to prevent GOI cabinet action on further forward steps in Malik’s absence.
8.
Country Team concurs.
Green
  1. Source: National Archives and Records Administration, RG 59, Central Files 1964–66, AID (US) INDON. Confidential. Repeated to CINCPAC for POLAD.
  2. See footnote 2, Document 213.