9. Letter From Secretary of State Rusk to Minister of External Affairs Barwick 1

Dear Sir Garfield:

Thank you for your letter on the Indonesian problem.2 Sir Howard Beale,3 as you know, has already raised the question of a possible Malaysian request to establish an Australian military presence in Borneo, and our comments on the matter have been communicated to your Government through your Embassy in Washington.4

We have carefully reviewed the points made in your letter regarding Western economic aid and credits to Indonesia. It seems to me that we are in full agreement concerning the aid programs of our respective countries and are, in fact, following parallel courses. As you know, our economic aid to Indonesia is currently confined to on-going programs of technical assistance, training, etc., and to shipments of surplus agricultural commodities under our existing three-year Public Law 480 agreement with Indonesia. We are also continuing a modest program of military aid, although we have stopped all shipments of arms and ammunition and intend to concentrate the program almost entirely on training and on support for the Indonesian civic action program. We have no plans to expand any of our aid programs unless there is a significant change in Indonesia’s confrontation policy against Malaysia.

We, too, have been watching with interest the current Indonesian search for aid, credits and new entrepot facilities to help them overcome the effect of confrontation on their already shaky economy. As far as we can determine, their search has not been successful to date in attracting resources sufficient to have an appreciable impact in easing their economic problems. I understand that they have found a few sources of credit, and are working on various arrangements to by-pass Singapore with their foreign trade. No major foreign aid from Western Europe or Japan seems to be in prospect at present, however.

I agree fully that it is essential to disabuse Sukarno of any thought that the West will inevitably bail him out of his difficulties no matter how intolerable his actions. Certainly this is no time to consider, or to [Page 22]encourage any of our friends to consider, actions in the economic field which would tend to give him that impression. At the same time, I must admit to a lack of optimism that the pressures of economic deterioration, however severe they may become, will necessarily force Sukarno to moderate his policies. Based on his past performance, such pressures might instead goad him into even greater irrationality unless carefully applied.

I do not mean to imply that we should refrain from adding economic pressures and inducements to the other tools we are using in our efforts with Sukarno. We are employing these tools, of course, and will continue to do so. In this connection, you probably know that we recently responded to urgent Indonesian requests for additional surplus rice by offering to provide them with the amount (roughly 40,000 tons) to which they were already entitled under our existing agreement with them. This move has had the effect of completing all rice deliveries to which we are committed under the agreement. We took advantage of the occasion to make entirely clear to the Indonesians that the supply of any further surplus rice next year will be contingent upon an easing of their policy of confrontation regarding Malaysia.

While I believe we should use economic pressures and inducements actively, I would hesitate to suggest that they be applied to the point of isolating Indonesia economically from the West. To the contrary, it seems to me that Indonesia’s mounting difficulties offer us an opportunity to obtain the long term advantages of an expanded Western equity in the Indonesian economy without either significantly strengthening Indonesia’s ability to withstand the effects of confrontation or encouraging Sukarno to believe that the West is willing to bail him out. For this reason, I would not object to modest moves by Japan and by Germany, the Netherlands, France and other Western nations to expand their economic and commercial relations with Indonesia. As long as those activities remain within the limits now foreseen—short and medium term credits, commercial arrangements for the marketing of Indonesia’s exports, and an increase in private investment in Indonesia—I feel that we should interpret them as essentially beneficial to our mutual interests. They provide an alternative to an all-out turn to the Bloc for aid, a constant reminder to Sukarno of his country’s continuing economic reliance on the West, and a certain restraint on his actions. Over the longer term, particularly in the post-Sukarno era, the lodgments gained in the Indonesian economy could well become an important factor in reorienting the country.

As we see the problems raised by Indonesia’s confrontation policy, they fall into two essentially different spheres. On the one hand there is the aggressive and dangerous paramilitary activity in Borneo, the subversion in West Malaysia, the virulent propaganda campaign, the [Page 23]break in transportation and communications with Malaysia, and the cessation of bilateral trade between them. This aspect of confrontation is the one we are trying to modify and eventually to eliminate. On the other hand, there is the Indonesian effort to divert its trade from Singapore and eliminate the country’s economic dependence on the Singapore entrepot. Even if we succeed in ending the political-military confrontation, I doubt that the Indonesian drive to by-pass the Singapore entrepot will ever be reversed. Rather than attempting fruitlessly to force a reversal, our best course may be simply to recognize it as a fact of life and take what steps we can to insure that the new trade relationships the Indonesians will inevitably establish are those best calculated to serve the interests of the West.

I do not believe that the foregoing is incompatible in any major sense with the views expressed in your letter. The difference, if any, would seem to be one of emphasis. You can be sure that we do not intend to use our resources, or encourage the use of our friends’ resources, in such a way as to aid or abet Sukarno in his policy of confrontation.

I might conclude by saying that I fully understand the anxieties which are felt by your Government and among your people about trade and aid to a country which seems to be creating a dangerous situation in your part of the world. We ourselves are taking casualties every week in South Viet-Nam and we are quite clear that Peiping and Hanoi are the moving forces behind aggression against that country. Just before Christmas, for example, seven tons of Chinese-made arms and ammunition were captured in a Viet Cong depot in the delta. We have here, therefore, both in the Congress and among the public, real sensitivity about trade and aid as they affect Peiping and Hanoi in the absence of a peaceful policy by those two capitals.

With warm regards,

Sincerely,

Dean Rusk 5
  1. Source: National Archives and Records Administration, RG 59, Central Files 1964–66, POL INDON–US. Secret. Drafted by Ingraham and Thrasher and cleared by Bell and Barnett.
  2. Garfield’s December 16, 1963, letter is ibid.
  3. Australian Ambassador to the United States.
  4. Apparent reference to an exchange between Beale and McGeorge Bundy and a paper handed to Beale. See Foreign Relations, 1961–1963, vol. XXIII, Document 343.
  5. Printed from a copy that indicates Rusk signed the original.