319. Memorandum From the Acting Executive Secretary of the Department of State (Brewster) to the President’s Assistant for National Security Affairs (Kissinger)1

SUBJECT

  • Current Status of the Multilateral Development Effort for Indonesia

The December 15–16 meeting of the Inter-Governmental Group for Indonesia (IGGI) in Rotterdam illustrates how a multilateral assistance effort can in time assume an inner dynamism of its own. Because this aid consortium so clearly demonstrates the basic principles of the Nixon Doctrine, it is worth noting some of the IGGI’s accomplishments [Page 691]beyond those mirrored in the encouraging statistics of Indonesia’s performance and donor nations’ response.

The IGGI has grown not only in terms of donors and donations but, perhaps more important, in its ability to promote healthy change in Indonesia’s institutions. The unanimous approval given to Indonesia’s $640 million foreign assistance projection for 1971, the decision of four countries to join the US in announcing their assistance in advance of the April pledging session, and Canada’s entry into full IGGI membership may be attributed in part to Indonesia’s sound economic performance over the past year. Also a major contributing factor, however, was the member nations’ increased confidence in the IGGI as an effective vehicle for stimulating modernization in all sectors of Indonesian society.

After commending Indonesian performance in economic stabilization, the Rotterdam meeting discussed candidly the many institutional deficiencies which continue to hamper development efforts. Criticism on the part of donors, the World Bank and the International Monetary Fund, however, was most carefully phrased so that it might be used as a lever by Indonesia’s problem solvers to lift burdens imposed on their economy by special interest groups.

Steps taken to ensure a more rational use of Indonesia’s now substantial and rapidly expanding oil revenues is one example of how moves by the IGGI, the World Bank and the Indonesian Planning Bureau have been carefully and unobtrusively synchronized to help solve sensitive internal problems. Because the national oil company Pertamina has long served as a source of support for influential segments of Indonesian society, including the Armed Forces, it was politically impossible two years ago for Indonesia’s economic planners to demand an accurate accounting of its receipts and expenditures. Brief mention of this problem by donors prior to and during last year’s IGGI meeting, however, set in motion joint discussions between Indonesia’s Planning Bureau and World Bank representatives which resulted in written recommendations to President Suharto. At the Rotterdam meeting this month the Indonesians were able to announce that legislation is now before Parliament which will place a significant portion of Indonesia’s oil revenues into the national treasury for the benefit of the society as a whole. The IGGI’s Dutch Chairman responded with a tactful request for further information on oil revenues during the next IGGI session, a peg which will undoubtedly be used in coming months to initiate further reforms.

In much the same manner, improvements are being initiated in the tax and tariff structure, investment policies, fertilizer distribution, floor prices for the rice farmer, and several other pressing areas. These are all politically volatile sectors in which the intervention of individual [Page 692]foreign governments would be neither welcome nor helpful. The IGGI framework, however, has permitted donor nations, the World Bank and the International Monetary Fund to give discreet, highly effective support to the efforts of President Suharto and his economic planners to modernize their society’s institutions. Although these particular accomplishments of the IGGI must remain unheralded, they are as essential to Indonesia’s growth as the transfer of resources and technical skills, which is the IGGI’s stated goal.

RC Brewster
  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 531, Country Files, Far East, Indonesia, Vol. II. Secret.