258. Memorandum From the President’s Special Assistant (Rostow) to President Johnson 1

SUBJECT

  • Aid to Indonesia

The International Monetary Fund set $325 million as Indonesia’s need for foreign assistance in calendar year 1968. We have adhered to a formula by which the United States and Japan each meets one-third of the need, and the rest of the world picks up the remaining third. The Japanese have been very slow this year, but it now looks as if they will meet their $110 million share. The other donors have also lagged, [Page 558]and will probably not give Indonesia much more than $80 million this year.

Indonesia’s needs are greater than ever. Despite the government’s responsible policies, the stabilization program has thus far failed to work. There was an almost 60% inflation in the first quarter of this year, mainly as a result of inadequate food supplies. If another year passes without the government’s economic policies taking hold, both those policies and the government itself will be in danger. In recognition of this fact, the IMF and the Asian Development Bank have both called for emergency food assistance to Indonesia, above and beyond the $325 million figure.

The problem, then, is how to help meet Indonesia’s needs, including emergency food assistance, without breaking the one-third formula (which is popular with the Congress, and very useful in pressuring other donors to meet their obligations).

Attached is an Indonesian aid package proposed by Bill Gaud and Orville Freeman and blessed by Charley Zwick.2 It meets the problem—by treating our wheat assistance to Indonesia as experimental and a response to the IMF/ABD call for emergency food needs. Therefore the wheat is not to be counted this year as part of our one-third contribution to the international consortium’s goal of $325 million.

Although this approach is slightly artful, it is also justifiable. No one knows how rapidly the market in Indonesia for wheat products can be expanded. We are offering 350,000 tons ($46 million) of wheat flour and bulgur to be shipped as rapidly as it can be utilized. But it is impossible to say how much can be used by the Indonesians during 1968. It is, therefore, reasonable to treat it separately from our 1968 aid pledge, and outside the one-third formula.

By treating wheat separately, we are able to offer $156 million of aid now. This is psychologically very important in shoring up the confidence of the Indonesian Government and in convincing the Indonesian business community that the resources will be available to avoid another inflationary spiral at the end of the year. Apart from the wheat, the package is made up of:

  • —200,000 tons of rice, worth $41 million;
  • —160,000 bales of raw cotton and the equivalent of 70,000 bales of cotton yarn, worth $44 million;
  • —a $25 million AID Development Loan;
  • —this totals $110 million, our one-third share of the IMF goal.

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In addition, Gaud and Freeman want to be able to tell Suharto now that we will consider another 100,000 tons of rice and another 80,000 bales of cotton in the fall as a down payment on our 1969 aid to Indonesia. This will be extremely valuable to Suharto, both in assuring that the pipeline stays full and in allaying fears of another rice shortage during the critical January–March period.

Secretary Fowler does not object to the package. He does, however, believe that we should keep the pressure on the other donors, count wheat next year after the program has proved itself, and clearly identify any pledges made this fall as part of our 1969 aid. I agree with him on all three counts. Fowler also would like to set aside part of the proceeds from the sale of wheat for a fund to promote U.S. commercial exports. There might be problems with this, but AID and Treasury can try to work it out, if you approve the package. Fowler’s memorandum is attached.3

Although we are presenting the 1968 package to you as a whole (so that you can better judge its adequacy) you actually gave your approval last January to $60 million of the proposed package. What you are now being asked to approve is a $98 million PL–480 program ($35 million in wheat, $33 million in cotton, and $30 million in rice).

My people (Marshall Wright and Ed Hamilton) helped put this package together. I think it is a good one. Bob McNamara is just back from Indonesia and thinks it is very important that we move ahead without delay.4

I recommend that you approve the $98 million PL–480 program, and authorize our Djakarta mission to inform Suharto that we will consider more rice and cotton in the fall.

Walt

Approve5
Disapprove
Call me

  1. Source: Johnson Library, National Security File, Country File, Indonesia, Vol. VIII, 6/67–6/68, [1 of 2]. No classification marking.
  2. The “package” was in a memorandum from Freeman and Poats (Acting for Gaud) to the President, June 7. Support for the proposal from Zwick was in a memorandum to the President from him, June 12. (Both ibid.)
  3. Memorandum from Fowler to the President, June 18. (Ibid.)
  4. Rostow wrote the following postscript: “Bob McNamara came to see me yesterday right off the plane from Tokyo to say this package is critical and urgent if Suharto is to be saved—and to report he believes Suharto is well worth saving.”
  5. This option is checked.