245. Memorandum From Marshall Wright of the National Security Council Staff to the President's Special Assistant (Rostow)/1/
Washington, September 27, 1967.
/1/Source: Johnson Library, National Security File, Country File, Indonesia, Vol. VIII, 6/67-8/68. Secret. Also sent to Jorden.
SUBJECT
Indonesian Expectations of Aid in 1968
I have mentioned before the near certainty that 1968 would be the year in which we begin to have real problems with over-sized Indonesian aid expectations. The size of the problem is now becoming clear.
The Expectations
Suharto told Marshall Green last week that unless the U.S. could go above the one-third formula, Indonesia's new order would be in serious trouble.
Suharto "hoped" that in 1968 we would contribute $100 million in addition to $50 million in PL 480 commodities.
Suharto's Aide, Colonel Sutikno, separately mentioned to Ambassador Green the GOI hope for $150 million in 1968 aid.
The Indonesian budget for 1968 is based upon the receipt of $325 million in foreign aid. Even if we adhere to the one-third formula, our share would be $108 million.
Finance Minister Seda announced at the September 20 press conference that Indonesia would ask for $350 million from donors and hopes IGG countries will increase contributions proportionately to reach that figure. For U.S. that would mean $117 million.
Suharto is sending his Finance Minister to Washington to express Suharto's personal thanks to President Johnson for the assistance the U.S. has provided and to bespeak his hopes for future aid./2/
/2/Indonesian Finance Minister Frans Seda visited Washington, October 2-3. The Department of State requested that the President receive him briefly, but suggested that an expected letter from Suharto to Johnson could be delivered to Rostow. (Memorandum from Read to Rostow, September 29; National Archives and Records Administration, RG 59, Central Files 1967-69, POL 7 INDON) There is no indication in the President's Daily Diary that he saw Seda, but Vice President Humphrey met with him at 2 p.m. on October 3. A record of their meeting is in a memorandum of conversation, October 3. (Ibid.) A copy of Suharto's September 18 letter to Johnson, which was delivered to Rostow, and Johnson's reply of October 5 is ibid., E 1-1 INDON)
The Availabilities
As of now, we have $20 million DL funds earmarked for Indonesia in the FY 68 AID budget. 150,000 bales of cotton and 100,000 tons of rice would make a PL 480 package of about $39 million. It might also be possible to put together a PL 480 sale of bulgur, edible oils, etc. of $5 million or so, and to use some of our FY 69 AID funds to meet CY 68 commitments. At best, however, it is hard to see how we could get a package much bigger than $80 million.
MW
246. Record of Cabinet Meeting/1/
Washington, October 18, 1967, 12:50 p.m.
/1/Source: Johnson Library, Cabinet Papers, Cabinet Meeting, 10/18/67, [1 of 3]. Confidential. There is no drafting information on the memorandum.
[Here follows discussion unrelated to Indonesia.]
Secretary Rusk (1:00-1:02)
The Secretary introduced Ambassador Marshall Green by recalling the shrunken influence of Communist China in Asia. Chinese Communism is no longer seen "as the wave of the future." "Just three years ago, we feared the axis of Chen Yi, Subandrio and Bhutto (Pakistan) . . . now all three are gone."
The spectacle of Indonesia rejecting Chinese Communism, combined with our stand in Vietnam, has been vital to the erosion of Peking's influence. "We have been fortunate to have in Indonesia at this critical hour one of the real experts, Ambassador Green."
Comment by the President
Had been so impressed with Ambassador Green's personal report that "I wanted to share it with you."/2/
/2/Green met with President Johnson on October 12 from 1:15 to 1:35 p.m. (Ibid., President's Daily Diary) No record has been found of their discussion, but Green described it briefly, as well as his subsequent briefing of the Cabinet, in his Indonesia: Crisis and Transformation, 1965-1968, pp. 109-110.
Marshall Green, Ambassador to Indonesia (1:02-1:12)
The Ambassador based his report on the briefing paper attached at Tab A./3/ The following were among the points emphasized:
/3/Attached but not printed.
Indonesia is a rich and strategic nation of 200 million people.
--No nation in recent history "has undergone a greater transformation than Indonesia."
--Indonesia's "New Order" government has thwarted Communist takeover; ended confrontation; sought friendly relations with its neighbors; rejoined the UN; banned the Communist Party; banished Sukarno. ("He is a forlorn figure, down to his last wife and last kidney.")
--Less dramatic, but still significant, are Indonesia's domestic rehabilitation efforts; conversion to a free market economy; IMF-endorsed stabilization program; new family planning and food production initiatives; new Civil Action programs by the military; a 45% slash in military budget; strong efforts to encourage foreign investment.
Indonesian Problems Remaining
Despite Indonesian progress and opportunities, problems remain. "They are typical of what you would expect from 20 years of mismanagement by Sukarno on top of the Dutch tradition."
--Weak political institutions.
--Endemic corruption, mismanagement and inefficiency.
--Dangers of creeping militarism.
--Anti-Chinese racialism. "I have travelled widely in the country and you can see why 32% of inner island shipping is not operating. . . . The harbors are blocked. . . . There is just 22 million dollars available to educate 40 million students. . . . But Indonesia does now have moderate and pragmatic leaders."
Comment by the President
Invited the Ambassador to describe the Indonesian budget. "I want the Cabinet to hear about that."
The Ambassador gave Indonesia's total budget as "500 million dollars for 110 million people."
U.S. Policy for Future
The "New Order" government is determined to stabilize their nation. "We can and must help them."
"They have great resources. Oil, minerals, timber, fisheries. . . . But as well as they are doing, Indonesia is now really flat on its back."
The United States should continue its present "multilateral approach to assistance." We should continue or increase our partnership efforts with the IMF, IBRD, ADB, UN--emphasizing, especially, the opportunities for private investment in the Indonesian future.
"This is Indonesia's critical hour of need. . . . We cannot neglect nor fail them now. . . . The security of all Asia is affected. . . . Our sacrifices in Vietnam avail little if we do not take strong and swift steps to foster the growth and strength which the new Indonesia can achieve."
The Ambassador concluded his report by reading the following excerpt from a cable received this morning from AmEmbassy Djakarta:
"Malik believes just as well to keep heat on Hanoi. If after U.S. elections negotiations should take place prospects for satisfactory settlement would be enhanced. Malik made clear that he believes our position is correct at this time; he does not think we should stop bombing of North unless there is some indication that other side will negotiate in good faith."
Ambassador Green characterized this report as "an interesting and encouraging evolution in Malik's attitude."
Comment by Secretary Rusk
Recalled Malik's meetings with several Foreign Ministers in New York as equally indicative of an improved attitude toward U.S. commitment in Vietnam and Asia.
[Here follows discussion unrelated to Indonesia.]
247.Telegram From the Embassy in Indonesia to the Department of State1
Djakarta, November 6, 1967, 1135Z.
/1/Source: National Archives and Records Administration, RG 59, Central Files 1967-69, POL 7 US/HUMPHREY. Confidential; Priority; Limdis. Repeated to CINCPAC for POLAD. Humphrey traveled to East Asia, arriving in South Vietnam on October 30 to represent the United States at the inauguration of President Thieu and Vice President Ky. He then traveled to Malaysia and Indonesia where he stayed November 4-6.
2614/VIPTO 93. Subject: Humphrey-Suharto Meeting.
1. Vice President Humphrey and Acting President Suharto met for two hours on the morning of November 4 for substantive talks./2/ Also among those present were Ambassador Green, Professor Widjojo, General Alamsjah, Roche, Van Dyk, Rielly, and Underhill. Indonesia's economic situation, its plans for 1968, and Vietnam were the principal topics.
/2/Humphrey also met with Suharto after dinner on November 6. They discussed ways for Indonesia to make known to other countries its need for assistance, the possibility of Humphrey reporting by letter on his visit to Indonesia's parliament, and Green and Humphrey urged Suharto to make himself more accessible to Indonesians. Finally, Humphrey warned Suharto not to believe all U.S. businessmen who claimed to have a special relationship with U.S. officials. Suharto suggested that if Indonesian businessmen or officials claimed to be representing him, the Department of State should check with him first. (Telegram VIPTO 99 from CINCPAC to the Department of State; Johnson Library, National Security File, International Travel and Meetings File, VP's Asian Trip, 10-11/67, Briefing Book, Backup Material, Vol. I)
2. Suharto expressed appreciation for the help and interest shown by the U.S. in Indonesia's economic problems and said he was happy to discuss them with a statesman of such long and distinguished experience. He then outlined the range of problems left by the neglect and mismanagement of the previous regime: inflation, impassible roads, silt-filled rivers and harbors, deteriorated airfields. Progress has been made during past year in checking inflation. Road repairs, spurred by military action teams and supported by village populations, were proceeding at a rate three times that originally expected. Indonesia planned next year to operate on a balanced budget, improve revenue collection, and expand exports. A sharp decline in the price of rubber, however, is reducing export earnings.
3. Maintaining the momentum of progress achieved in 1967, Suharto continued, is essential. The people expect it. If progress is not achieved in 1968, there could be the most serious consequences. Therefore, the government is planning an increased budget of U.S. $ 1 billion (142 billion rupiah) for 1968 of which 77 percent will be for the routine expenses of the government and 23 percent for rehabilitation. A total of U.S. $325 million in foreign aid will be needed for next year, of which Indonesia hopes nearly half, or $150 million will come from the United States ($125 in budget support and $25 in project aid). Indonesia was hoping to obtain through PL 480 200 thousand tons of rice, 150 thousand bales of yarn. The remainder would be furnished in be [garble] and development project loans. Suharto expressed the hope that the United States would be able to make a firm commitment at the forthcoming meeting in Amsterdam.
4. The Acting President then noted the effectiveness and importance of the Indonesian military civic mission (civic action) program and urged our continuing support.
5. Suharto turned to international problems and said that, while Indonesia was too occupied with internal problems to play a major role, he wanted his country to contribute to the best of its ability in the search for peace and stability in Southeast Asia. He said Indonesia would continue to work for regional cooperation and that national pride and national prosperity would be the bulwark against outside aggression. U.S. could contribute to security by maintaining outside the area the strategic force that could smash the enemy bases, if aggression should occur.
6. On Vietnam he said that he had been unsuccessful in his efforts to influence North Vietnam, but would continue trying. He suggested that South Vietnam would be able to resist best when it was a "truly national" nation, and that our strategy should be designed, in his view, to encouraging the development of this nationalism, then, he said, we could safely reduce our pressure.
7. The Vice President then responded to this extended presentation. He said that the United States intended to participate in the multinational effort to help Indonesia and noted that we had provided one-third for calendar 1967. Suharto interjected that the other countries might not be able to increase their contribution, and that one-third from the U.S. would not be enough. The Vice President continued that the others could do more than they are now doing, especially Japan. He reminded Suharto that Congress had not yet passed the aid legislation so it was impossible to be precise about what we could do, but that a strong effort would be made, both at home and to enlist support of other nations.
8. On the subject of food, Vice President asked Suharto to discuss the details of Indonesia's requirements with Ambassador Green. He suggested that a careful survey be made of distribution facilities so that spoilage of food waiting on the piers would not occur. The Vice President said that we were facing a rice shortage, despite expanding acreage, and suggested that the GOI carefully consider wheat, wheat flour, and bulgur. We would be also willing to expand our food for work program if worthwhile projects could be developed. On cotton, we should have enough short staple to meet Indonesia's needs although the large surplus of previous years has been greatly reduced.
9. The Vice President at this point noted the importance of dealing with Ambassador Green on all matters related to assistance. Back door out-of-channel requests only confuse the situation. He said that during Ambassador Green's recent visit to Washington he had been invited by the President to meet with the cabinet to discuss Indonesia. This was most unusual and an indication of President Johnson's keen interest in Indonesia and his special confidence in Ambassador Green.
10. On the matter of private investment, the Vice President suggested that Indonesia study what its neighbors were doing to attract private capital so that it could successfully meet competition.
11. The Vice President then turned to Vietnam and described the great changes he had found since his last visit 20 months ago. Great progress had been made in the military field, but of equal importance were efforts on the civil side, including revolutionary development. He expressed confidence that the new elected government would do well. He reaffirmed our determination to stay until the aggression stops and said Indonesia might be able to help by passing this message to Hanoi. He stressed that we would accept an immediate cease fire if productive negotiations could begin promptly and if the other side did not use the talks to gain a military advantage.
12. The Vice President said we would welcome any efforts that the GOI could make towards peace. He was not asking that Indonesia involve itself directly in Vietnam. Indonesia's efforts to stabilize and rebuild its economy was a major contribution to the strength of Southeast Asia. At the same time we appreciated understanding and moral support. We heard critical voices from Southeast Asia--President Suharto was not one of them, and with our resources severely limited we were naturally more inclined to help the friends who stood with us more than those who criticized.
13. Suharto said that Indonesia would continue to work for an Asian solution to the problem of Vietnam, and concluded the talks with the observation that U.S. assistance to Indonesian recovery was an investment in Southeast Asian security that would bring far reaching beneficial results.
14. The Vice President closed with an expression of admiration for Suharto's vision, resolution, and leadership and said he was confident that Suharto and the government he led would succeed.
15. Comment: Suharto was relaxed, assured, and in impressive command of detailed information on whole stabilization program. He responded well to the points made by the Vice President, and the rapport was good despite the use of an interpreter./3/
/3/In telegram 2651 from Djakarta, November 11, Green sent an appraisal of the Humphrey trip which he characterized as an "outstanding success." Green noted that Humphrey received a warm and exuberant welcome, especially in Bali and Central Java (old PKI strongholds), he established a personal rapport with Suharto despite Suharto's "retiring Javanese nature" and the need for an interpreter, and he "made a strong pitch for free economy approach," thus strengthening the hand of Suharto's free market economist advisers. (National Archives and Records Administration, RG 59, Central Files 1967-69, POL 7 US/HUMPHREY) Telegram 2651 was retyped in the White House and the President saw it. (Note from Rostow to Johnson, November 7; Johnson Library, National Security File, Country File, Indonesia, Vol. VIII, 6/67-6/68)
Green
248. Editorial Note
On November 8, 1967, President Johnson convened the 578th meeting of the National Security Council, a special meeting to which he invited his Cabinet and legislative leaders including Senators Mike Mansfield, Richard Russell, Margaret Chase Smith, William Fulbright, and Carl Hayden and Representatives John McCormack, William Bates, and George Mahon. The meeting was to hear and discuss a report of Vice President Humphrey's recent trip to South Vietnam, Malaysia, and Indonesia. Most of the discussion concerned Vietnam, but according to Bromley' Smith's summary notes, Humphrey gave the following report on Malaysia and Indonesia:
"Turning to the other two countries visited, he said the acting head of Indonesia, General Suharto, and the Malaysian Prime Minister both told him that if the United States fails in Vietnam, all hope for a free Southeast Asia would be lost.
"In Malaysia the Prime Minister said that the enemy in Southeast Asia is militant Asian Communism with headquarters in Peking.
"Throughout his trip, he encountered no act of hostility or protest in either Malaysia or Indonesia.
"Indonesia: Its capital city, Djakarta, shows the many failures of the Sukarno regime, e.g., unfinished buildings. His welcome in the capital was warm, but even warmer in central Java where more than a million and a half people turned out to greet him on very short notice. The Indonesians really want our friendship. They are enthusiastically trying to restore their economy. As a specific example, 30,000 men are working on earth works and clearing out irrigation ditches which will soon be providing water for additional tillable acres.
"No promises were made as to what we would do to help Indonesia. Suharto is an honest, hard-working man who benefited from his training at Fort Leavenworth. Many other Indonesian military leaders are now showing the great benefit of their military training in the United States. Our stakes are very high in Indonesia; as high as those in Japan and India."
President Johnson asked Secretary of State Rusk to comment on Humphrey's report. Referring to Indonesia, Rusk noted that "help was being given to Indonesia by many nations through multilateral, organizations such as the World Bank and the Indonesia Consortium. At the end of the meeting, Representative Mahon asked if "our stand in Vietnam affected the situation in Indonesia?" Humphrey answered:
"Our stand in Vietnam has had a collateral effect on developments in Indonesia. He had said in Djakarta that the change in Indonesia had been brought about by Indonesians and that it came about as a result not of our actions but theirs. However, it is thought that our presence in Southeast Asia gave confidence to the Indonesians to destroy the Communist Party in Indonesia." (Summary Notes of the 578th NSC meeting, November 8; Johnson Library, National Security File, NSC Meetings, Vol. 4, Tab 60)
Tom Johnson also prepared notes of this meeting, which concentrated on Vietnam and did not differ appreciably from Bromley Smith's with the following exception. Tom Johnson noted that Representative Mahon asked Humphrey, "if the one billion dollars in foreign aid which had been poured into Indonesia was responsible for their success." Humphrey answered that "he did not believe it served the best interests of the Indonesians for us to claim that our foreign aid caused it. It was a parallel part of the total anti-Communist effort." (Ibid., Tom Johnson Meeting Notes, November 8, 1967)
249. Memorandum From the President's Special Assistant (Rostow) to President Johnson/1/
Washington, November 17, 1967.
/1/Source: Johnson Library, National Security File, Country File, Indonesia, Vol. VIII, 6/67-6/68, [1 of 2]. Confidential.
SUBJECT
Aid to Indonesia in 1968
In the attached, Messrs. Gaud, Schnittker,/2/ and Schultze recommend that you approve a U.S. pledge of one-third (up to $110 million) of the aid provided to Indonesia in 1968 by the nine-nation consortium./3/ (This is the same percentage share we are providing this year, although it only amounts to $65 million in 1967.) The Vice President and Secretary Fowler have also reviewed and approved this recommendation./4/
/2/John A Schnittker, Under Secretary of Agriculture.
/3/Dated November 15. (Johnson Library, National Security File, Country File, Indonesia, Vol. VIII, 6/67-6/68, [1 of 2])
/4/Humphrey made a strong endorsement in a November 13 memorandum to the President. (Ibid.)
Schultze's memorandum (Tab A) will give you a good summary of the proposed conditions and negotiating strategy. It boils down to this:
--If Suharto is to stay afloat, he must have about $325 million in aid next year. (This number will be blessed by the World Bank and the IMF.)
--We won't get $325 million unless we propose now to continue carrying our 1/3 share--$110 million. Even then, it will be tough.
--We can do most of our share, perhaps more than $100 million, in PL 480 rice, cotton, cotton yarn, and wheat. Even if Indonesia can't absorb as much of these commodities as we hope, Bill Gaud promises he can make up any shortfall in 1968 and 1969 AID money.
--Thus, when the consortium meets at Amsterdam on Tuesday,/5/ we would propose to start the 1968 ball rolling by stating our willingness to contribute 1/3 of the overall aid requirement the Bank and Fund certify. This will put maximum pressure on the other donors--and stimulate the Indonesians to keep the pressure on.
/5/November 21.
--If the other donors failed to raise their 2/3 the total, we would come back to you for guidance.
I recommend you approve.
Walt
Approve package/6/
Disapprove
See Me
/6/The President checked this option and on November 21 sent Rostow the following note: "Walt: I want to do everything I can for Indonesia--as quickly as I can. Send me a program. LBJ." (Johnson Library, National Security File, Country File, Indonesia, Vol. VIII, 6/67-6/68, [1 of 2])
250. Memorandum of Conversation Between President Johnson and Minister of Foreign Affairs Malik/1/
Melbourne, Australia, December 22, 1967.
/1/Source: National Archives and Records Administration, RG 59, Conference Files, 1966-1972: Lot 68 D 453, CF 253. Secret. Drafted by Rostow. The President was in Australia to attend the memorial service for Australian Prime Minister Harold Holt who disappeared while swimming at sea on December 17.
The Foreign Minister said that President Suharto had instructed him to express his regrets that he could not come.
President Johnson responded that he was sorry that President Suharto had not seen fit to come. The opportunity to see President Suharto and Prime Minister Sato was a primary reason for going to Australia. As for the letter from President Suharto,/2/ which Foreign Minister Malik then handed to President Johnson, we wish to be as encouraging as we can with respect to assisting Indonesia, but they must bear in mind that our future aid level, as granted by Congress, is very low and we expect the Indonesians, like India, will learn to use wheat. We are short of rice. We shall increase the rice acreage by 20 or 30% but we could send wheat right now. President Johnson believes the Indonesians will like wheat when they get used to it. Malik said President Suharto had switched rice cover food ration from 100% rice to 40% rice and 60% bulgar wheat. The increase in bulgar wheat consumption in Indonesia was outstripping U.S. availabilities.
/2/Not further identified.
President Johnson asked Indonesia to calculate its potential bulgar wheat requirements over the next 12 months and let us know.
President Johnson then returned to the problem with the AID appropriation which had been cut one third. He would have to cut others for the U.S. to fulfill its commitment to provide one third of the multilateral assistance package for Indonesia. That is why he had wanted very much to talk with President Suharto and Prime Minister Sato. In the meanwhile, Indonesia should be a good international salesman for its cause in Japan and elsewhere. It can count on the U.S. to provide one third of the aid but no more; the only flexibility beyond that would lie in increased wheat consumption in Indonesia; and at least 50% of our aid to be taken in form of PL 480.
The President reminded Malik again, as the conversation ended, to let us know about the possibility of absorbing more wheat.
251. Airgram From the Embassy in Indonesia to the Department of State/1/
A-358
Djakarta, January 12, 1968.
/1/Source: National Archives and Records Administration, RG 59, Central Files 1967-69, POL 1 INDON. Confidential. Drafted by Masters and Officers in the Embassy political and economic sections and approved by Green. Repeated to Bangkok, Canberra, Hong Kong, Kuala Lumpur, London, Manila, Medan, Singapore, The Hague, Surabaya, Tokyo, and CINCPAC.
SUBJECT
Indonesia: Trends During 1967 and Problem Areas for 1968
Country Team Message.
Summary and Conclusions
It is not the purpose of this report to summarize in detail the many important developments in and affecting Indonesia during 1967 but rather to attempt to highlight broad trends which will determine the future course of this nation and of our dealings with it. A companion report will analyze the implications of these developments for U.S. policy and operations./2/
/2/See Document 253.
In mid-March 1967, President Sukarno was removed once and for all from the Indonesian political scene, thus ending an 18-month power struggle which had preoccupied Indonesia's leadership and prevented concentration on the nation's economic and political rehabilitation. The Suharto administration should thus in fairness be evaluated only on the basis of its performance during the last three quarters of that year. Although not constituting an adequate base for precisely charting the future course of the New Order regime (which justifiably considers itself to be still in the first stages of formulation), the events of the past nine months do provide some valuable insights into the character of the new leadership and into the nature of the post-Sukarno Indonesia which it is to govern.
The year 1967 was clearly Suharto's year in Indonesia. While his performance during this period pointed up flaws in his leadership abilities (his slowness to act in some fields and his unwillingness to act at all in others), it also showed his ability to grow with the job and the fact that, despite grumbling about his government, he is still in tune with majority sentiment within Indonesia.
Moreover, there is no one on the horizon who realistically aspires or has the ability to replace Suharto. No other military man and probably no civilian at all could hold Indonesia together as well as he has done. As Indonesia recovers further from the Sukarno era and gains greater confidence, Suharto may one day become superfluous--as happened to his predecessor. But this has not occurred yet and it is not likely during 1968. In fact, there is a distinct possibility that Suharto might be elected to a full five-year term as President in the Spring MPRS session, with elections being postponed until the early 1970's.
The year 1967 also highlighted the thinness of the layer of Indonesians with managerial ability. By year's end, most of them were becoming tired and a few discouraged at the magnitude of the problems confronting them. The year 1967 also revealed that not all members of the "New Order" are modernizers; some are clearly far more interested in their own profit and power than in nation-building. As a result, corruption and the prevalence of military influence in the top levels of the government continue to cause political problems.
The performance of the Suharto government in laying a base for economic stabilization has generally been adequate, despite such glaring shortcomings as permitting a serious rice shortage to develop in the fall of the year (resulting partially from maladministration and partially from inadequate rainfall) and a doubling of the rate of inflation to which the economists in early 1967 hoped to hold the nation. While the IMF was nonetheless generally satisfied with the progress made in economic terms, the average Indonesian had no more rice in the pot at the end of 1967 than at the beginning, and what he did have cost him considerably more.
In the political field, progress was even less striking. The Cabinet reshuffle in October was a halfway measure which, while it brought some technocrats to power, also retained far too many of the old familiar faces. Despite much talk and a good deal of maneuvering, no real progress had been made by year's end to provide a pro-government but essentially nonmilitary base for the government.
Moreover, while Sukarno's final eclipse relieved the Suharto government of a heavy political burden, it also deprived it of the valuable psychological asset which only a good enemy can provide. Traditional animosities and fears quickly re-emerged as Indonesians discovered that many of their most keenly felt problems were rooted not in the Sukarno regime but in their own basic social and physical environment.
The New Order discovered during 1967, in short, that it must come to grips with itself as well as with a host of external problems. This difficult period of adjustment, which was still in full play at the end of the year, highlighted weaknesses both in the New Order's leadership and in its rank and file. These, among others, are the problems which will crowd in on Indonesia's thin layer of effective managers during 1968.
Against this array of shortcomings, why the general optimism for Indonesia's future? Partly because things could easily have been far worse. Suharto successfully avoided during the year a number of pitfalls, both political and economic, which could have set the nation back much further than it now is. He has stuck tenaciously to the economic program recommended by his Western-trained economic advisers. Moreover, by year's end he was showing greater confidence in his job, making an obvious effort to "civilianize" his own image and travelling about the country to enlist national support. All of these are encouraging signs that he will face up to some, although certainly not all, of Indonesia's problems in 1968.
Furthermore, Suharto must be evaluated against the incredible mess he inherited. Things had to get worse before they improved. The turnaround has not necessarily occurred (Indonesians are seriously concerned over the possibility of a real economic pinch in the first quarter of the new year); but with adequate outside assistance we believe they can get through this difficult period and show a record of unspectacular but definite progress in 1968. The timing of outside assistance and the Indonesian capacity for sustained reform effort will, however, be crucial.
On balance, we believe Indonesia's overall performance during 1967 was adequate to justify continued optimism that the nation has set out on the long and probably tortuous road to modernization.
[Here follows the rest of the airgram.]
MG
252. Memorandum From Marshall Wright of the National Security Council Staff to the President's Special Assistant (Rostow)/1/
Washington, February 2, 1968.
/1/Source: Johnson Library, National Security File, Country File, Indonesia, Vol. VIII, 6/67-6/68. No classification marking.
SUBJECT
Wheat to Indonesia
You have on several occasions stressed the importance of maximizing wheat to Indonesia. As of November 1 we had agreed to sell them 10,000 tons of bulgur. In the intervening three months we have raised this to 125,000 tons of bulgur and 27,000 tons of wheat and wheat flour.
We have, however, almost succeeded too well. Suharto has now asked us for 350,000 to 450,000 tons of bulgur during calendar year 1968.
We do not have the capacity to meet that request. At the present time the bulgur processing capacity in the United States is 250,000 tons a year. It is being increased, and we will be producing at a yearly rate of 400,000 tons by June. We have already earmarked almost all of the increased production for Indonesia.
To get an additional capacity of 400,000 tons would require an investment of about $5 million and a lead-time of six to nine months. It would be an extremely perilous investment in view of the fact that the acceptability of bulgur on the Indonesian market has yet to be determined.
Our present bulgur shipments will be enough to handle the bulgur component of the rice ration planned by Suharto (one-fifth for military, one-fourth for civilians). Suharto wants to put the additional 2-300,000 tons on commercial sale. There might--or might not--be any buyers. (We do not yet know even the reaction to bulgur when mixed with rice in the ration. The use of bulgur in the ration will not begin until March.)
We no longer have a problem in pushing wheat. Everybody is a believer (AID, State, Suharto, the Embassy--Marshall Green serves so much bulgur to his guests that they are beginning to complain). Our problem is to make sure we don't choke this promising infant to death before he develops a man-sized appetite.
We'll continue to watch this closely--with particular attention to the balance between genuine demand and production capacity.
I call this to your attention partly because of your interest in the whole matter--and partly because I do not want you to hear a distorted version in which we refused a Suharto request for 450,000 tons of bulgur.
Marshall
253. Airgram From the Embassy in Indonesia to the Department of State/1/
A-423
Djakarta, February 21, 1968.
/1/Source: National Archives and Records Administration, RG 59, Central Files 1967-69, POL 1 INDON. Secret. Masters and Philip F. Gardner, political officer at the Embassy, were the "coordinating drafters" of this airgram which was approved by Green.
SUBJECT
U.S. Policy Assessment
REF
CA-6014.
CA-5400./2/
/2/Neither found.
Country Team Message.
I. Indonesian Setting
In March 1967 Sukarno was totally removed from power, and a "New Order" under the leadership of Acting President Suharto assumed full responsibility for governing the nation. The transition from Sukarno to Suharto, which took a year and a half of patient and effective effort by the latter, did not produce the internal upheaval many had felt was inevitable. The ease with which the transition was accompanied was, in fact, a reflection of Suharto's excellent sense of timing and his understanding of at least the dominant Javanese segment of Indonesian society.
At the same time, removal of Sukarno took away a convenient scapegoat with the result that since March 1967 all of Indonesia's pent up expectations have centered on the new government. With the departure of Sukarno, the "New Order" also lost the unifying force of a common enemy, and social, cultural and religious frictions have increased markedly during the past nine months.
These problems will continue to press in on the Suharto government during the coming year, as will the desperate shortage of trained personnel, Indonesia's critical economic situation, the increasing expectations of the people, revival of serious political in-fighting, and others.
Despite the problems and shortcomings which were accentuated during 1967, we believe Indonesia has embarked on the long road toward modernization. It is following sound economic policies and moderate foreign policies, although progress in creating a domestic political base for the present government is far slower than it could or should be. The present year will be crucial to the success of these efforts, for during 1968 trends will be set in motion which will determine the course of this important nation for many years to come. (These problems are spelled out in detail in a companion report--Djakarta A-358.)/3/
/3/For the summary, see Document 251.
II. Our Dilemma
Following the removal of Sukarno, our bilateral relations with Indonesia improved markedly. During 1967, American owned businesses, previously taken over under the Sukarno regime, were returned to their original owners, and several American firms, taking advantage of the present government's liberal economic policies, concluded agreements for new investments in Indonesia. The bilateral air agreement between Indonesia and the United States in late 1967 was one of the most favorable we have concluded in recent years. The United States has become the pace setter for aid to Indonesia within the Inter-Governmental Group (IGG), and an increasing number of US officials visited Indonesia during 1967, highlighted, of course, by the visit in November of Vice President Humphrey, who established a new benchmark in our bilateral relations.
As a result of these and other factors, the US has become closely identified with the goals and efforts of the Suharto government. Such an identification is in fact inevitable since we have a heavy stake in the success of the "New Order" not only for obvious reasons related to Indonesia's size, strategic importance, resources and potential strength but also because it is the latest test case of whether liberal economic policies combined with free world assistance offer a more solid path to modernization than communism or other totalitarian solutions.
In seeking to advance our national interests in and regarding Indonesia, the United States Government faces two fundamental problems, one deeply rooted in Indonesian cultural norms and the other in our own tendency as a government to become too deeply involved in the affairs of other nations. Our dilemma, simply put, is this: we cannot and must not let the "New Order" fail, but we also must not become so active that we conflict with Indonesia's cultural heritage or substitute our initiative for theirs. We have faced the problem ever since October 1965 of treading this narrow line, but the increasing importance of the US to Indonesia's hopes for recovery means that the margin for error and for misjudgment has become even more critical.
While our stake in the "New Order" is large, our ability to assist it is circumscribed. The experience of the United States Government in Indonesia over the past 15 years clearly shows that the injection of our assistance into the Indonesian economy does not provide a directly corresponding stimulus to growth but will often be rejected, deflected or transformed by basic features in the Indonesian social structure. Economic development through the infusion of foreign skills and assist- ance apparently requires parallel development in other sectors of the society. For this reason, it is perhaps best to regard our ultimate aim in Indonesia not as economic development alone but as modernization.
Needless to say, we would run grave risks if we attempted directly to initiate or even counsel reform in the social structure, where are moored the individual Indonesian's sense of security and identity. (Sukarno mobilized the nation behind his policies by pointing to a Western threat to the "Indonesian way of life" and the anti-communist campaign after the October 1, 1965 events was powered with similar fuel.) Our problem, therefore, is to choose from among the priority needs, programs which are compatible with the Indonesian social structure and yet active stimulants for change. The overall process must in the Indonesians' eyes appear as "modernization," not "Westernization" and least of all "Americanization." If the process appears as "Americanization", we will not only waste our funds and incur blame for failures but, more importantly, will trigger long acting rejection devices within the Indonesian society to what is falsely identified as foreign intrusion rather than internal development.
III. Criteria for American Programs
To date we believe U.S. policy has avoided the worst dangers of this dilemma and has successfully advanced U.S. interests. Our timely economic assistance has strengthened the hands of Indonesia's "modernizers" and the U.S. has also been successful to date in supporting Indonesia's efforts to obtain substantial aid from other donors. Our small but important MAP has made a major contribution to encouraging the Indonesian military to move into Civic Action projects which not only contribute to economic stabilization but also help to enhance the local image of the Armed Forces. Our informational and cultural programs have expanded modestly during the past year, with particular emphasis being placed on distribution of one-half million American books to Indonesian educational and other institutions. We have also had continued success in our efforts to quietly influence Indonesia's top leadership. Indonesians not only seek our aid but privately they also seek our advice and this has enhanced our ability to influence some, but by no means all, developments. Finally, we have succeeded substantially in convincing Indonesia to do business "through channels" and to cease sending visitors to Washington armed with open-ended "hunting licenses" seeking aid and special favors.
These past experiences and our estimate of the problems we will soon face in the mounting urgency of the stabilization efforts and in the implementation of the development plan lead us to suggest the following broad criteria for American policy in Indonesia.
A. Regionalism
We must continue to encourage Indonesia to join in Southeast Asian cooperation. In addition to the material and political benefits, closer regional ties will encourage Indonesia to see itself as a partner and participant in a world-wide process of modernization rather than a sick patient in the hands of Western doctors. Indonesia's neighbors, however, must be responsive. While suspicion on the part of some of Indonesia's neighbors is historically understandable, we should encourage these nations to realize that a "New Order" has taken over in Indonesia and that, even if they fail to accept this fact, the best and most pragmatic way to guard against the possibility of future Indonesian adventurism is to embrace Indonesia's new government and interweave it inextricably in responsible regional activities.
Our own expressions of support for regional organizations such as ASEAN should be decidedly low-key. The Soviets, from whom the Indonesians hope to receive additional aid, are already charging that ASEAN is a "Western puppet" and the Indonesians fear that too close an embrace by us would not only complicate their relations with Moscow but also add substance to these allegations and perhaps make it more difficult for ASEAN to enlist the support of additional non-aligned nations.
B. Multilateral Approach
We remain convinced of the necessity of setting our programs into a multilateral framework, with the IMF, IBRD and IGG nations assuming together a position well in advance of any individual foreign government. This is both a more forceful method of persuading Indonesia to make the tough decisions that will be required and a better guarantee against Indonesia sluffing off responsibility to others' shoulders. The multilateral approach may, however, prove too slow or inflexible to meet certain problems of exceptional urgency and we must recognize the need for flexibility in applying this criterion.
C. Adaptations to the Indonesian Social Structure
There are three broad attributes of the Indonesian culture which will constitute impediments to much-needed technical and project assistance and which we should take into account in developing our programs: (1) a predominantly traditional (as contrasted to rational) mode of thought which resists change, stresses human adaptation to rather than manipulation of environment and recommends avoidance rather than resolution of conflict; (2) particularistic (or personalized) rather than universalistic values, emphasizing loyalty to kin or, more particular to Indonesia, to a protector (Bapak) rather than to institutions or abstract codes of behavior; and (3) a decentralized and compartmentalized organization of the society with relatively little coordination exerted laterally and relatively little authority exerted vertically.
Perhaps the best single way of ensuring that an American program will be adjusted to the Indonesian environment is to work through the so-called "third culture," that is Indonesians who have gained a broad knowledge of our culture and yet retain accredited membership in their own. This type of person, most prominently represented by General Suharto's team of economic advisors, can serve as invaluable mediators between the two cultures. Every assistance request should consequently by evaluated on the basis of whether the Indonesians controlling or staffing the offices connected with the program include a sufficient number of "third culture" persons.
A second prerequisite for evaluating the prospects for an assistance program is to identify the "Bapak" or "Bapaks" into whose spheres the project falls. If these are corruptionists, solely political operators or pure traditionalists, the project will probably be deflected from its economic as well as political aims. In this respect, we should continue to promote the modernizer-staffed Bappenas as the agency most directly responsible for economic development.
It is much more difficult to propose criteria to meet the problem of compartmentalization and decentralization. For the immediate future, however, we should probably concentrate our attention within particular compartments and resist the temptation to place technicians in coordinating roles between compartments where they are more likely to replace than develop Indonesian initiative in central coordination and supervision. (What we diagnose as lack of "managerial skill" is often inability to move beyond the society's structure, a deficiency which cannot be rectified with instruction in American management methods.) It may prove more fruitful to work outward from individual compartments than to attempt to build up prior or simultaneous coordination and supervision between them.
The criteria in the immediately preceding paragraphs should not be regarded as binding prerequisites but as safety precautions. They can and undoubtedly must be set aside in certain instances. When it is deemed necessary to provide technical assistance which will involve coordination and supervision of separate Indonesian compartments, we should first seek to have the IMF, the IBRD or other multilateral bodies take on this task. Where the U.S. must assume this role, the program should be designed with exceptional care and flexibility. Advisors who run a clear risk of being drawn into coordinative or supervisory roles must be carefully selected on the basis of personality and understanding of the local culture. They might in many instances also be placed on TDY status so as to appear as temporary trouble shooters rather than semi-permanent replacements for roles the Indonesians are unwilling or unable to fill.
D. Restricting the American Presence
The criteria listed above all argue for continued restrictions on the American presence in Indonesia. Although some growth in the size of the mission must occur as we move into development projects, we would rule out for the foreseeable future personnel from any U.S. Government agency serving in sensitive fields such as community development, manpower planning, much of public administration and some phases of local agricultural development. Cultural programs should be concentrated in binational centers in Djakarta and, if possible, Surabaya. (Savings in personnel in this sector would pay high dividends if invested in magazine subscriptions and more books for donation to key institutions and individuals.) Finally, those personnel who are assigned to Indonesia to work closely with Indonesians must be carefully selected. (We have already had several minor problems of adjustment.)
E. Working from the American Social Structure
Moving Indonesians to an outside vantage point is undoubtedly the best way to show them the deficiencies in their own social structure and stimulate a desire for this change. For this reason, the participant training program is perhaps the single most valuable component of a modernization program and must be expanded.
In order to ensure that this program results in the transfer of modernizing attitudes as well as technical skills, we should consider: (1) emphasizing training programs of at least two years in length for adults; (2) concentrating on youth, whose attitudes are more flexible--we should welcome the revival of the AFS program if the GOI officially asks for it, although we cannot prompt the GOI on this issue; and (3) "team training" in which five or six Indonesians are trained in related fields at the same time and at the same institution. Upon return to Indonesia these teams should be so grouped in their occupational fields as to provide mutual reinforcement against the social forces which lead to a reversion to a traditionalist framework of thinking. (Suharto's economic team of advisors is testimony to the success of this method.)
F. Building Indonesian Confidence
Perhaps the foremost requirement of any American assistance program is that it serve to build Indonesian confidence in the modernization process. This criterion is now most pertinent to the stabilization program. Aside from causing important segments of the population to lose faith in and withhold cooperation from the Suharto government, failure of the stabilization program would also perhaps cause Suharto to lose confidence in pragmatic policies and those who have recommended them (the IMF, Western governments and his own team of economic advisors). It may, in fact, be useless to talk of economic development if Suharto is unable to surmount the inflation hurdle within the next eighteen months.
We are now clearly faced with the probability that IGG nations at their March meeting will not pledge the full $325 million of assistance requested of them by the Indonesian Government and the IMF. Such a result will risk losing the confidence which both the Indonesian public and leadership have placed in the IMF and the multilateral approach, and this confidence is perhaps a more important determinant to the success of the stabilization effort than the sums left unsubscribed. If the United States moves to make up this deficit, on the other hand, we risk setting an undesirable precedent for a larger American role in and responsibility for the stabilization program and perhaps the development program which will follow. For the Embassy the last risk is clearly the lesser. In the final analysis, of course, the extent and nature of our aid must be measured against Indonesia's own performance. Our long-term interests in this important country require that we not substitute our initiative for theirs or be so responsive to Indonesia's requests that pressures for self-help measures are weakened.
IV. Conclusion
U.S. policy towards Indonesia must address two broad problems, the relatively short-term task of economic stabilization and the long-term task of modernization. The approaches we have outlined above apply to both problems but with different intensity.
Our role in economic stabilization is a relatively simple one because it involves minimal contact with the Indonesian social structure: multilateral agencies provide advice and supervision, an outstanding group of "third culture" persons serve as capable intermediaries, and a large American presence is not required. Our decisions in this sector are nevertheless difficult ones as they are couched in urgency and must weigh American resources against possible Indonesian loss of confidence in pragmatic measures.
In defining our role in Indonesia's modernization, there is perhaps less need for speed than caution. We are fortunate to be starting off with virtually a clean slate as regards technical and project assistance and information programs. Unlike Vietnam, Laos and Thailand, the urgency of the Indonesian problem is not such as to preclude us from setting up careful test procedures. With a cooperative government, a classically traditionalist society and a good measure of material resources, Indonesia constitutes a good test subject.
The Embassy consequently recommends that we treat our role in Indonesia as a controlled experiment in modernization. We should begin to apply the criteria we have set out above and develop new criteria as experience is gained. The development of our assistance programs must from the outset be geared to Indonesian performance. In this respect, we will want to keep a careful watch not only on economic measurements but also on the incidence of corruption, on the abuse of authority and on the tendency towards militarism, all of which are relatively good gauges of the progress towards modernization in the social structure.
MG
254. Letter From the Deputy Under Secretary of State for Political Affairs (Bohlen) to the Assistant Secretary of Defense for International Security Affairs (Warnke)/1/
Washington, March 19, 1968.
/1/Source: National Archives and Records Administration, RG 59, Central Files 1967-69, DEF 19-8 US-INDON. Confidential. Drafted by Underhill.
Dear Paul:
A letter from Ambassador Thompson to Secretary McNamara, dated October 19, 1966,/2/ recommended $6 million in grant assistance to the Indonesian armed forces in support of an on-going military program of civic reconstruction. This program, which also includes training oriented towards civic action in U.S. Service Schools, is now well under way and has been operating effectively for about a year. Since the rationale for the program is essentially political and economic. I feel it might be useful to define more precisely at this stage the policy framework of the program for the months ahead.
/2/A copy of the letter from Acting Deputy Under Secretary of State for Political Affairs Llewellyn E. Thompson is attached to a March 15 memorandum from Bundy to Bohlen. (Ibid.) See also footnote 2, Document 226.
Our April 14, 1967 agreement with Indonesia/3/ specified that our assistance was provided "for a program of civic action . . . helpful to the economic and social development of Indonesia." The objective of the program is therefore a limited one; to support and assist the Indonesian military in its civic mission activities. In contrast to MAAG missions elsewhere, we are not seeking to establish a service-to-service advisory role, nor do we wish to participate in anything but the purely civic action aspects of Indonesian military planning.
/3/See 18 UST 384.
"Civic mission," as used by the Indonesian military, embraces a much broader range of activities than we would regard as "civic action." The Indonesians, for example, consider the construction of barracks and commercial or industrial activities undertaken by military personnel also as part of the "civic mission." While it is difficult to draw firm guidelines in this area, we feel that our resources, to the maximum extent possible, should be used for projects in the public works field of direct and immediate benefit to the civilian population.
Counterinsurgency is often linked with civic action in an over-all internal defense program. In Indonesia we wish to maintain a clear distinction between these related military activities and leave counterinsurgency entirely in Indonesian hands. Localized civil disturbances have been endemic in Indonesia since independence, and two such uprisings are now in progress in West Borneo and West New Guinea. Indonesia, in the past, has not sought our assistance in meeting these situations. It is possible, however, that the current financial straits of the Indonesian Government might persuade the military authorities to look to our Military Assistance Program as a source of supplementary budgetary support for counterinsurgency.
Under present circumstances, we would wish to avoid such involvement. Neither of the current uprisings, restricted to isolated areas of the archipelago and involving ethnic minority groups, is any threat to the Suharto government. The Indonesian Army is well supplied with small arms, and has had 23 years of experience in counterinsurgency operations. There is no pressing need for United States involvement, and to begin assistance, even on a small scale, would establish a continuing lien on limited MAP resources. Further, the use of American equipment against the Papuan dissidents would be politically awkward because of the role of the United States in the 1962 settlement turning over West New Guinea to Indonesia. We do not, of course, wish to rule out the possibility of counterinsurgency assistance to Indonesia under different circumstances.
Sincerely,
Charles Bohlen
255. Memorandum From the President's Special Assistant (Rostow) to President Johnson/1/
Washington, April 24, 1968, 3:40 p.m.
/1/Source: Johnson Library, National Security File, Country File, Indonesia, Vol. VIII, 6/67-6/68, [1 of 2]. Confidential.
SUBJECT
Possibility of wheat sales to Indonesia
President Suharto and the rest of the Indonesian leadership are now very concerned about their economic problems. Suharto has indicated to our Ambassador his hope for substantial additional assistance from us, specifically including wheat./2/ The proposal is not firm yet, but it does look as if it may be possible to arrange a sizable PL 480 wheat sale to Indonesia.
/2/As reported in telegram 6116 from Djakarta, April 19. (National Archives and Records Administration, RG 59, Central Files 1967-69, POL 15 INDON)
If the Indonesians are as anxious as they appear to be, we should be in a good position to extract from them some good measures to meet the problem of changing a rice-eating society to a wheat-eating society.
Are you still as anxious as before to move wheat through PL 480 sales?
Walt
Yes, follow up with vigor/3/
Only if the proposal makes sense in international terms
Call me
/3/The President checked this option and underlined "vigor" twice. He also wrote: "promptly--Report back soonest."
256. Memorandum of Conversation/1/
Washington, May 3, 1968, 11 a.m.
/1/Source: National Archives and Records Administration, RG 59, Central Files 1967-69, E-8 INDON. Confidential. Drafted by Rielly. Approved in S/S on May 7. The meeting was held in the Executive Office Building.
PARTICIPANTS
Professor Widjojo Nitisastro, Economic Adviser to Indonesian President Suharto
Dr. Salim, Economic Adviser, Indonesia
Ambassador Soejatmoko, Indonesian Ambassador to Washington
The Vice President
Mr. John Bullitt, Assistant Administrator for East Asian Affairs, Agency for International Development
Mr. John E. Rielly, Office of the Vice President
Professor Widjojo, after extending the greetings of President Suharto, stated that there had been setbacks in the Indonesian economy since the Vice President's visit in November./2/ Early this year there was an economic crisis. Confidence in the economic policies of the government has been shaken, both inside and outside the government. At the Rotterdam meeting a week ago, the results were very disappointing.
/2/See Document 247.
Professor Widjojo stated that he believes Indonesia cannot survive a second crisis. The basic need is food. Therefore, they have asked the U.S. Government for additional food assistance. They need rice, wheat, flour, and bulgar wheat.
Mr. Bullitt stated that the United States Government officials dealing with Indonesian affairs held off responsibility to the Indonesian request because we want to see what the Japanese do before we respond. The Vice President inquired whether we or they had put pressure on Mr. Miki. We should talk to him, as the Vice President had spoken to both Miki and Prime Minister Sato at great length about the Indonesian situation. Indonesia is very important to Japan, both as a market and as an ally in Asia. We must be very firm with the Japanese on this. Professor Widjojo replied that the Indonesians had already used their biggest gun--by having President Suharto visit Japan. The results were negative.
Professor Widjojo stated that he not only wanted to try to solve the food problem but to try to stop the ruinous inflation of the last several years. A major related problem is that of food production. They need fertilizer assistance as well as food.
The Vice President stated that with the oil industry in Indonesia you would think that the resulting petrochemical industry would produce fertilizer. Professor Widjojo stated that there are studies underway for the expansion of the petrochemical industry. Mr. Bullitt stated that one problem is that the government oil monopoly had refused to make commitments to guarantee a regular supply of oil. For this reason, foreign investors and the oil companies generally were reluctant to go ahead with expansion of the petrochemical industry.
The Vice President suggested that the time is late for continuing studying the situation. Progress must be made in getting the fertilizer. The time has arrived for a frank talk with our Indonesian friends. The Government of Indonesia must be willing to take decisions to get the petrochemical industry to develop. If the government is not willing to do this, they cannot expect help.
Professor Widjojo stated they also have natural gas as a source of energy supply. They hope to expand their food for work program this year with the help of the U.S. Governmental food assistance.
The Vice President inquired of Professor Widjojo whether he had seen Mr. Linen of Time-Life, the man who organized the Geneva meeting last November. He had sent a copy of the report on the conference to the President, to Secretary Rusk, and to Mr. Gaud. It is time, he said, that the Indonesian Government takes some strong measures. Also, we must be able to demonstrate here that the aid is not being misused. This is of continual concern here, both in the government and outside. The Vice President stated that if he had his way, we would be doing much more, but that the Indonesians must understand that their friends and supporters here do have a difficult time in dealing with the Congress. We know that there is a degree of public and private corruption. This is a continuing public relations problem. It would be a national/international disaster if the Suharto government would fail.
Ambassador Soejatmoko stated that they have an immediate need for fertilizer as well as for food. The Vice President stated that Indonesia must be able to demonstrate what Mr. Jim Linen talked about in his report: a spirit of confidence in the Indonesian economy. The Vice President knows that the United States business cannot do everything that needs to be done; the economy cannot be turned over to them. They can be permitted to chew up the economy and exploit it. But they must be convinced that the over-all environment in Indonesia is favorable for the economic development of the country. The Vice President apologized for speaking so frankly, but since "we are allies with- out any kind of a treaty," we must be frank in assessing our mutual problems.
He knows that Professor Widjojo and the economic team understands these problems, but the military does not. The military must be made to understand what the situation here is in the Congress and with the public. The Vice President told Professor Widjojo that he and his colleagues are good men or they would not be here. He knows that the security of their country is essential to Asia. We and our allies cannot help Indonesia to the point that what we do in Vietnam will be of no avail./3/
/3/Widjojo and Salim also meet with Barnett on May 3 and had lunch with Bullitt after the meeting with the Vice President. An account of their discussions is in telegram 158285 to Djakarta, May 3. (National Archives and Records Administration, RG 59, Central Files 1967-69, AID (US) 9 INDON)
257. Intelligence Note From the Director of Intelligence and Research (Hughes) to Secretary of State Rusk/1/
No. 447
Washington, June 11, 1968.
/1/Source: National Archives and Records Administration, RG 59, Central Files 1967-69, POL 15-1 INDON. Confidential.
SUBJECT
Suharto's New Development Cabinet/2/ Strengthens Economic Program and Placates Parties
/2/Telegram 7289 from Djakarta, June 6, contains a list of the new Indonesian cabinet. (Ibid.)
Indonesian President Suharto's announcement of a new cabinet on June 6 implemented the March 27 decree of the country's highest legislative body, the MPRS, which had instructed him to replace the present cabinet with one devoted to economic development./3/ The cabinet is composed of 18 portfolio ministers and five state ministers who will have general supervisory functions. The government's commitment to modernization is evidenced by the inclusion of two of Indonesia's leading economists; its determination to avoid a junta-type government is demonstrated by the increase in the number of civilians (from fourteen to seventeen) as compared to military officers (from nine to six). The two economists are particularly distinguished; Dr. Sumitro Djojohadikusumo, who helped lead the rebellion against Sukarno in 1958 and lived in exile until last year, is Minister of Trade, while Ali Wardhana, a key adviser to Suharto, has been made Minister of Finance.
/3/The CIA's Directorate of Intelligence prepared an Intelligence memorandum, ER-IM 68-81, July 1968, which assessed Indonesia's prospects for economic stability. The memorandum suggested that because of Sukarno's "more than a decade of mismanagement" a quick economic recovery was not assured. Foreign aid to Indonesia basically went to stabilize inflation and there was little earmarked for long-term rehabilitation. Indonesia suffered from faster population growth than growth of food production, declining exports, and a poor transportation system. Although economic progress under Suharto would be slow, most of Indonesia's 112 million people lived in a "non-monetary, subsistence environment and do not expect radical improvements in their living standards." Economic deterioration was more likely to cause political unrest in Indonesia's cities. (Johnson Library, National Security File, Country File, Indonesia, Vol. VIII, 6/67-6/68)
At the same time, Indonesia's leading political parties have been given prominent representation at the level of state minister in the new cabinet; relatively pro-regime leaders of the three largest Muslim parties and of the secular Nationalist Party hold these positions. In addition, among the technocrats holding portfolios are leaders of other political parties or, in some cases, spokesmen for particular points of view; Dr. Sumitro was a founder of the banned Indonesian Socialist Party, former Murba Party official Adam Malik remains as Foreign Minister, and Professor Seno Adjie of the Army-initiated IPKI Party is Minister of Justice, a holdover from the previous cabinet.
A further earnest of the government's interest in economic development and its willingness to seek popular support is the curtailment of some of the powers of President Suharto's much-criticized private staff, SPRI (Staf Pribadi Republik Indonesia), composed of generals of varying ability and honesty, led by [less than 1 line of source text not declassified] Major General Alamsjah. SPRI has now been deprived of its coordinating function over the cabinet and there are reports that Alamsjah will soon go abroad as an ambassador. The number of military officers in the cabinet has been reduced, dropping from nine to six, while the number of university professors has risen from four to seven. Old Order or Sukarnoist military officers, however, were placed in charge of the ministries of manpower and information.
Suharto's appointments to the new cabinet should help to quiet criticism from the students, who have again been demonstrating against the country's slow economic progress, and from the political parties, who object to the "green wall" of military uniforms between the presidency and the public. However, unless this new momentum can be sustained by performance, dissatisfaction can be expected to grow strong again.
258. Memorandum From the President's Special Assistant (Rostow) to President Johnson/1/
Washington, June 18, 1968, 6:35 p.m.
/1/Source: Johnson Library, National Security File, Country File, Indonesia, Vol. VIII, 6/67-6/68, [1 of 2]. No classification marking.
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, 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.
/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.)
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.
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/
/3/Memorandum from Fowler to the President, June 18. (Ibid.)
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/
/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."
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
Approve/5/
Disapprove
Call me
/5/This option is checked.
259. Memorandum From the President's Special Assistant (Rostow)/1/
Washington, June 19, 1968.
/1/Source: Johnson Library, National Security File, Country File, Indonesia, Vol. VIII, 6/67-6/68. Confidential.
MEMORANDUM FOR
The Secretary of State
The Secretary of Treasury
The Secretary of Agriculture
The Administrator of Agency for International Development
The Director of the Bureau of the Budget
SUBJECT
Aid to Indonesia
The President has approved the 1968 aid package for Indonesia described in the Freeman/Poats memorandum dated June 7, 1968./2/
/2/See footnote 2, Document 258.
The President also authorized our mission in Djakarta to inform the Indonesian Government now that we will be prepared to consider in the fall another PL-480 agreement providing for 100,000 tons of rice and the equivalent of 80,000 bales of cotton yarn if such additional assistance appears feasible at that time./3/
/3/In telegram 186811 to Djakarta, June 20. (National Archives and Records Administration, RG 59, Central Files 1967-69, FN 1-1 INDON)
The President also approved Secretary Fowler's recommendations/4/ that:
/4/See footnote 3, Document 258.
1. there should be continued pressure on other donors to come up with additional contributions to Indonesia 1968 aid requirement;/5/
/5/On June 20, Rostow wrote Robert McNamara, then President of the World Bank, a letter describing President Johnson's decision and reasons for maintaining the one-third formula. Rostow noted that both the United States and Japan were prepared to commit their $110 million (plus the additional $46 million in wheat from the United States), but the rest of the international community was lagging behind on their one-third, leaving a shortfall of about $30 million. Rostow hoped that McNamara and the Bank could help with the shortfall. (Johnson Library, National Security File, Country File, Indonesia, Vol. VIII, 6/67-6/68, [1 of 2].
2. we should count wheat next year as a part of the US aid contribution if this year's emergency and experimental wheat program proves successful;
3. any additional pledges of rice or cotton in the fall will be clearly identified as 1969 aid; and
4. Treasury and AID should attempt to work out with the Government of Indonesia arrangements under which some part of the rupiahs generated by wheat deliveries can be set aside in a special fund to promote US commercial exports.
W. W. Rostow
260. Memorandum From Marshall Wright of the National Security Council Staff to President Johnson/1/
Washington, August 8, 1968.
/1/Source: Johnson Library, National Security File, Country File, Indonesia, Vol. VIII, 6/67-6/68, [1 of 2]. Confidential. A note indicates that this memorandum was sent to the Johnson Ranch in Texas on 1:45 p.m., August 9.
SUBJECT
Rice for Indonesia
The Indonesian aid package that you approved in June included the possible shipment this fall of 100,000 tons of PL-480 rice as a downpayment on our 1969 aid. This was contingent upon domestic availabilities and Vietnam needs.
We would now like to go ahead with this sale. Our domestic crop is good, and Vietnam's requirements are no problem. Our domestic rice market is a little weak, and Agriculture wants this sale now in order to firm it up.
The extra rice will be very helpful to Indonesia in assuring an adequate food supply during the critical months of January-March. A firm commitment from us now will enable the Indonesian Government to go ahead with arrangements for the commercial rice imports that will be required in addition to our PL-480 assistance.
Attached are memos to you from Bill Gaud, Orville Freeman and Charles Zwick, all of whom recommend this transaction to you./2/ Zwick affirms that the transaction is within the 1969 budget cutbacks.
/2/Memorandum from Gaud and Freeman to the President, August 2, and memorandum from Zwick to the President, August 6. (Both ibid.)
I recommend that you approve the sale to Indonesia of 100,000 metric tons of rice ($20 million) to Indonesia under PL-480 Title I.
Marshall
Approve/3/
Disapprove
Call me
/3/This option is checked.
261. Memorandum From the President's Special Assistant (Rostow) to President Johnson/1/
Washington, October 18, 1968, 10:30 a.m.
/1/Source: Johnson Library, National Security File, Country File, Indonesia, [Filed by Johnson Library, 12/68-1/69]. No classification marking.
SUBJECT
Aid for Indonesia
The yearly meeting of the InterGovernmental Group (IGG) on foreign aid for Indonesia will take place in The Hague on October 20-21. The purpose of the meeting is to agree upon Indonesia's aid requirements for calendar year 1969. We also make our pledge at this meeting as an incentive to other donors.
Indonesia will request and the IMF and World Bank will support a total aid package of $500 million ($380 million in economic aid and $120 million in food).
Attached is a memorandum from Bill Gaud and Orville Freeman which proposes that we pledge about one-third ($130 million) of the economic aid and offer to meet "the bulk" (up to $100 million in PL 480 rice and wheat) of Indonesian food aid needs./2/ Our pledge, as usual, would be contingent upon Congressional appropriations, satisfactory commitments from other donors and satisfactory performance by the Indonesian Government on its stabilization program.
/2/Memorandum from Gaud and Freeman to the President, October 14. (National Archives and Records Administration, RG 59, Central Files 1967-69, AID (US) INDON)
In the past we have talked of meeting Indonesia's total aid needs through a one-third formula (one-third from us, one-third from the Japanese, one-third from everybody else). In fact, however, we departed from this formula last year when our wheat aid of $50 million and the short-fall in the European aid commitment resulted in our providing 46% of Indonesia's actual aid receipts.
The proposal being submitted to you this year would also mean that we pledge 46% of Indonesia's stated aid needs for 1969.
The proposal is based on two assumptions:
1. that it is an important aim of American policy to provide Indonesia with the external aid she requires,
2. that we should give our aid in such a way as to maximize European and Japanese contributions. Frankly, unless we do more than one-third there is little prospect that Indonesia's need for $500 million of foreign aid in CY 1969 will be met.
The Japanese, from Prime Minister Sato down, are now talking about doing less than their 1968 level of $110 million. In 1968 the Europeans fell far short of their $110 million. In fact, a rigid adherence to the one-third formula would probably lead the IGG countries to refuse to agree to the $500 million figure as Indonesia's requirement.
Therefore, we propose to apply the one-third formula only to the non-food part of Indonesian needs, about $380 million. That gives the Japanese and the Europeans a target of $130 million each. They will groan, but we believe they can be induced to accept the figure.
On food aid, Agriculture assures me that market conditions are such that we will wish to provide Indonesia with at least 300,000 tons of rice and as much wheat as she can use. Therefore, the proposal is that we pledge ourselves to pick up the bulk of Indonesia's food aid needs, while still pressing other donors for as large a share as we can get from them. We would tell the Indonesians that we are thinking of about $60 million of rice and perhaps $40 million of wheat.
Charley Zwick concurs in the Gaud-Freeman proposal. (Zwick memorandum is attached.)/3/ Henry Fowler takes exception to our pledging "the bulk" of Indonesia's food needs. Instead he would like us to pledge only to do "a fair share," provided others do the same. He also opposes discussing specific quantities of food aid with the Indonesians at this time. (Fowler memorandum is attached.)/4/
/3/Memorandum from Zwick to the President, October 16. (Johnson Library, National Security File, Country File, Indonesia, [Filed by Johnson Library, 12/68-1/69])
/4/Memorandum from Fowler to the President, October 17. (Ibid.)
The difficulty with the Fowler approach is that the Indonesians need to be able to plan their food procurement rationally, and cannot do so without some idea of what we intend to do for them. Moreover, the distinction between Fowler's "fair share" and Gaud-Freeman's "bulk of food needs" is really a matter of semantics. If we do not meet the "bulk" of Indonesia's food aid needs, they will not be met. It is not in our interest to have another food shortage emergency, as occurred last January.
I recommend you approve the Gaud-Freeman proposal.
Walt
Approve/5/
Disapprove
Call me
/5/None of the options is checked, but in a typed note apparently dictated by Johnson and sent to Rostow on October 18 at 12:30 p.m., the President stated: "I like Fowler's proposal better but can we go as far--we could say 'fair share' and the next administration wouldn't be tied--they could do what they want." (Ibid.)
262. National Intelligence Estimate/1/
NIE 55-68
Washington, December 31, 1968.
/1/Source: Department of State, INR/EAP Files: Lot 90 D 165, NIE 55-68. Secret; Controlled Dissem. Prepared by the Central Intelligence Agency and the intelligence organizations of the Departments of State, Defense, and the NSA. All members of the USIB concurred with this estimate on December 31 except the representatives of the AEC and FBI who abstained because the topic was outside their jurisdiction.
INDONESIA
Conclusions
A. The government headed by General Suharto and supported by the army is in effective control of Indonesia. Over the short term, the most likely sources of opposition are the political activists of the younger generation and the old-line political parties. Though the Indonesian Communist Party is still badly disrupted, it is possible that over the longer term a radical nationalist movement could develop mass support in Indonesia once again. Nevertheless, the army will almost certainly retain power for the next three to five years, presumably under the leadership of General Suharto.
B. The Suharto government has adopted a moderate, pragmatic approach to Indonesia's serious economic problems. The pace of economic progress will almost certainly be slow for the next few years, and even that pace is contingent on deferment of large foreign indebtedness and substantial new foreign aid and investment. The effectiveness of the government will continue to be hampered by administrative inefficiency, inadequate transport and communication facilities, and basic constraints endemic in Indonesian society, notably a paternalistic system of cultural values that inhibits social discipline.
C. Though Indonesia will remain officially nonaligned, there is likely to be a continuation of the present trends toward improved relations with neighboring countries and the free world, cool relations with the USSR, and hostility toward Communist China. Basically, the present government would like to have the US involved somehow in the protection of Southeast Asia against China, yet it would not favor a direct security relationship with the US or any other outside power, lest this cast doubt on Indonesia's nonaligned image or hinder any future effort by Indonesia to assert its primacy among the Malay peoples. In the unlikely event that the present moderate government were replaced by an authoritarian regime bent on diverting attention from domestic problems, Indonesia might revert to an aggressive policy vis-à-vis Malaysia and Singapore.
Discussion
I. Introduction
1. The course of modern Indonesian history has shifted decisively in the three years since the Indonesian Communist Party (PKI) failed in its attempt to eliminate the power of its principal rival, the Indonesian Army. Since the momentous events of October 1965, the army has gradually consolidated its position as the political arbiter in the nation. With caution and deliberation, General Suharto, the leader of the army, has destroyed the power of the Communists and Sukarno, and has himself assumed the office of President.
2. The "New Order," as the Suharto government styles itself, represents a fundamental change in the direction of Indonesian political life. In place of Sukarno's politics of emotion and policies of adventure, Suharto has adopted a pragmatic approach to Indonesia's problems. In foreign affairs, this means a policy of nonalignment that leans toward the West and nourishes hope that Djakarta may someday assume a more vigorous regional role. It also means that over the next few years the government will be preoccupied with domestic matters--above all, Indonesia's tremendous economic problems.
II. The Internal Scene
A. The Political Situation
3. The Suharto government provides Indonesia with a relatively moderate leadership. Although the army constitutes the power base for the government, Suharto practices the traditional Indonesian style of consensus politics. Thus, he has taken care to associate responsible civilian politicians and intellectuals with his government. Indeed, in the reshuffle of the Cabinet in June 1968, a number of Western-trained civilian economists were given key roles in the formulation of a five-year plan for economic development. These appointments, added to the presence in the Cabinet of such moderates as Foreign Minister Adam Malik, have improved the public image of the government and made it more acceptable to those opposed to military rule. The government's commitment to hold nationwide elections/2/ in 1971 has also contributed toward those ends.
/2/The nature of these elections is far from clear. Presumably they will choose at least part of the members of the Consultative Congress and the Parliament; the present members of both bodies hold office by virtue of appointment. The elections are not likely to affect the status of Suharto, who was elected by the Consultative Congress in March 1968 to a five year term as President. [Footnote in the source text.]
4. The strengths and weaknesses of the government reflect those of General Suharto himself. During the process of dismantling the "Old Order" of Sukarno, Suharto provided much needed stability and authority. Nevertheless, the slowness of his pace, then and now, has provoked considerable impatience and criticism, even among his principal supporters. The reticence of his own temperament is reinforced by his contempt for the excesses of Sukarno, leading him to disdain any appeal to emotion. His apparent inability to elicit popular enthusiasm may make it hard for his government to deal rapidly enough with the major problems facing the country.
5. In this event, differences and discontent among the military leadership are likely to increase and could eventually impede the effective coordination and implementation of national programs. Nor can we rule out the possibility of political conspiracies among the military or efforts by regional commanders to assert greater independence of Djakarta. There is no evidence of any serious splits within the military leadership or of interest in a coup, but the top leaders will keep a wary eye on a number of the more militant younger officers.
6. Overt political opposition to the Suharto government has not been substantial. Most politically articulate elements have been willing to wait and see what the regime can accomplish. A potentially disruptive force is the younger generation of political activists whose appetite for politics was whetted during the campaign against Sukarno. The government has been fairly responsive to their demands, even granting the student "Action Commands" a measure of participation within the nation's highest formal policymaking body, the Consultative Congress./3/ Thus, they are now relatively quiescent, lacking at least temporarily the leadership, organization, and a compelling issue that could bring them back into the streets. Nevertheless, they are potential collaborators of the more militant army officers, who share their impatience at the slow pace of the Suharto government.
/3/According to the Indonesian Constitution of 1945, the Consultative Congress has the power to determine the broad lines of national policy, to elect the President, and to amend the Constitution. The Parliament, while subordinate to both the President and the Consultative Congress, has responsibility for enacting legislation. Its members are automatically members of the Consultative Congress. [Footnote in the source text.]
7. The legal political parties have also been partially neutralized by their dependence on the government for patronage. Potentially, the most hostile party elements are the left-wing of the Indonesian Nationalist Party (PNI), which has been at least temporarily repressed, and the traditionalist Muslims within the Muslim Scholars' Party (NU) who are unhappy about the secular trend of the present regime and believe that Christians have a disproportionately large role in the government. These parties have little choice but to go along with the government for the time being. They are too weak and divided to marshal much pressure to restore the free-wheeling parliamentary system that proved so debilitating during the 1950's.
8. The government, for its part, has paid lip service to the idea of restructuring the party system, with the dual purpose of providing a political base for itself and of opening constructive channels for such currently disorganized civilian elements as the modernist Muslims and the democratic socialist left. Thus far, little progress has been achieved toward that end. In fact, Suharto's military advisers have apparently persuaded him to block the installation of a new chairman by the Indonesian Muslim Party (PMI), thus causing considerable resentment in moderate and modernist Muslim circles.
9. The Indonesian Communists do not currently constitute a serious threat to the government. The PKI was badly shattered after the attempted coup of October 1965, and they have suffered further serious setbacks since then. During the summer of 1968, the army wiped out an incipient Communist insurgency in East Java and killed or captured a major part of the Maoist-oriented PKI leadership. Although the Suharto government is weeding out leftists from the armed forces, and has largely neutralized those within the air force and the police, the recent exposure of Communists and Sukarnoists within the army itself has demonstrated that the services have not yet been completely purged.
10. A longer term danger lies in the social and economic conditions that enabled the PKI to build a potent force before 1965. These conditions, and the difficulty of changing them, will provide numerous issues to exploit; thus, it would be premature to regard the PKI as an unimportant factor. Moreover, its potential would increase considerably if new leaders emerge and are able to revive the alliance with leftists in the PNI and with other former Sukarnoists. If, over the longer term, the present government's efforts at economic development should seriously falter, a radical nationalist movement could develop mass support in Indonesia once again.
11. There is no force in Indonesia today that can effectively challenge the army's position, notwithstanding the fact that the Suharto government uses a fairly light hand in wielding the instruments of power. Over the next three to five years, it is unlikely that any threat to the internal security of Indonesia will develop that the military cannot contain; the army--presumably led by Suharto--will almost certainly retain control of the government during this period. The leadership will try to keep politics in abeyance and concentrate the government's energies on the country's tremendous economic problems. The next few years will be critical, therefore, in determining whether the Suharto government can govern effectively.
B. Administrative and Social Problems
12. Even given a period of political stability, the effectiveness of the government will be hampered by the shortcomings of Indonesia's vast bureaucracy. No one knows exactly how many civil servants there are; the figure certainly exceeds one million, with another one to two million employed by state enterprises. The extremely low pay scales and the extensive links between the bureaucracy, the political parties, and other narrow interest groups have made graft the principal catalyst for bureaucratic action. Because any far-reaching attempt to rationalize the bureaucracy would threaten the livelihood of so many people, no Indonesian government can easily or quickly change the situation.
13. Suharto has circumvented the problem of the civil bureaucracy in part by placing military officers in key positions throughout the administrative structure. The army is the most cohesive and nationally-oriented institution within Indonesia; hence, it is the best available instrument for the gigantic task of modernization. After more than 20 years of active involvement in civil affairs, the army leadership has a sense of national mission which generally transcends the ethnic, religious, and geographic divisions that have made it so difficult to mold together the Indonesian nation. The officer corps is relatively well educated and, under strong direction, could become an effective force for modernization and reform.
14. There are, however, severe limitations on the ability of the military to administer governmental policies effectively. These limitations are not peculiar to the army itself, but rather are functions of broader cultural and physical facts of Indonesian life. The basic problem of distance between Djakarta and the outlying provinces is magnified by the woefully inadequate system of transportation and communication. Even if the latter were rehabilitated over the next few years, the central government in Java would still lack the resources and the inclination to meet the needs of the outer islands. As a result, the government's administrative structure, while highly centralized in theory, has considerable de facto regional and local autonomy. Except for the unity and discipline that the army's command structure itself provides, the policies of the central government fail to grip or affect the lives of the plantation worker on the rubber estate in Sumatra, the small Islamic trader at the bazaar in Central Java, or the displaced nobleman-turned-entrepreneur on Bali. The resultant inefficiency serves only to reinforce the prevalent Indonesian tendency to rely on personal relationships to get things done.
15. Although there is, of course, a severe shortage of able administrators in Indonesia, the greatest obstacle to effective government is probably Indonesian culture itself. Among the dominant Javanese in particular, but also among Indonesians generally, cultural values inhibit the imposition of the kinds of social discipline that are characteristic of the economically advanced countries of Asia, Europe, and North America. Even the Western-trained members of the governing elite are generally reluctant to employ modest forms of coercion to prod their own people, or themselves for that matter, to change their ways. The government, as a consequence, asks extraordinarily little of itself or its citizens. There are few obligations either to do things in the common interest or to avoid actions opposed to it. Indeed, the traditional culture is so strong, and the vested interests are so great, that it is extremely difficult to circumvent the existing power structure or to change the established ways of doing things.
16. Indonesian society is based on a complex fabric of personal relationships, patronage, and paternalism known as "bapakism."/4/ Although to most Westerners "bapakism" may appear to be merely a systematic form of graft, it has useful as well as negative aspects. Men are held responsible for their actions, so that the initiative and effort of the man who "produces" within the system is rewarded. Thus, men of talent and ingenuity are able to rise within the generally stratified, traditionalist society. The problem is that the system gives a decisive role to personal contacts and minimal importance to formal restraints. Few, if any, institutions are disciplined by impersonal rules of behavior. As a result, corruption within Indonesia is less the product of laxity in law enforcement than of a social system that values honesty well below loyalty and resourcefulness. Because of the prevalence and pervasiveness of "bapakism," only a revolutionary regime unconcerned with either stability or humaneness would dare to tackle the problem directly at its roots.
/4/"Bapak" means both "father" and "boss." [Footnote in the source text.]
C. Economic Problems
17. A seriously dilapidated economy is the legacy of two decades of mismanagement and neglect: agriculture is inefficient; the industrial sector, though beginning to recover, is still small and backward; and communications and public services are in disarray. The vast majority of Indonesians live in extreme rural poverty and are largely insulated from the fluctuations of the money economy. At present rates of increase, the population of 115 million will double in 20-odd years. Problems of overcrowding and extreme poverty are particularly acute on Java, where about two-thirds of the people live. The standard of living of the average person is probably lower now than it was at the beginning of the Second World War. But it is significant that in recent months the Indonesian economy has begun to show signs of improvement.
18. With aid and guidance from the industrialized nations of the free world, the Suharto government has attacked the corrosive problem of inflation. The current rate of two percent per month is hardly satisfactory, but it is a substantial achievement compared with the runaway inflation of earlier years. The shortage of food, particularly rice, has been a key factor in causing inflation. Western assistance in supplying large quantities of rice and other foodstuffs, and reorganization of the Indonesian Government's rice procurement and distribution system, have played decisive roles in reducing the problem significantly during the ordinarily lean winter months. Over the longer term, Indonesia will require considerably greater use of fertilizers, pesticides and new seed strains, as well as the improvement of irrigation facilities, if food production is to meet the demands of the soaring population. Greater self-sufficiency in rice is essential if inflation is to be curbed.
19. Government spending has also been an important cause of inflation. At the insistence of the International Monetary Fund, Suharto's team of Western-trained economists has tightened administrative controls over the budget. Subsidies on certain consumer items such as kerosene, gasoline, electricity, and public transport have been cut; tax collection has been improved; and the number of employees in at least one state enterprise (Garuda Indonesian Airways) has been cut back. These measures have not been popular, of course, but they have been constructive.
20. A second major economic problem facing Indonesia is the need for investment. There is little private domestic capital in Indonesia, even in comparison with other poor countries. Much that does exist is in the hands of ethnic Chinese who are concentrated in the export-import and wholesale-retail trades. Because of widespread hostility against them, the Chinese are generally not disposed to make new, long term investments, particularly in fields in which they are not already well established.
21. An essential part of the Suharto government's economic program, therefore, has been to welcome foreign capital back to Indonesia. Already about 25 American and European firms have recovered control of mines, estates, and other enterprises nationalized under Sukarno. In addition, liberal legislation has been enacted to attract new private foreign investment. Tax incentives are offered and the rights of managerial control, repatriation of profits, and compensation in the event of expropriation are, in large measure, guaranteed. The prospects for private foreign investment in extractive industries are fairly good, but it will take several years before survey and exploratory work can pay off in large-scale production, export earnings, and tax revenues. Some of Indonesia's traditional export industries such as rubber, tin, and copra are on the decline because of inadequate maintenance over the years and falling prices on the world market. Nevertheless, there is substantial foreign interest in new investment in relatively untapped resources of nickel, copper, bauxite, and timber. The most promising industry, from the standpoints of both foreign capital and Indonesian economic growth, is oil. Crude production, chiefly from the fields of Caltex/5/ in Central Sumatra, now averages 600,000 barrels per day, and daily output will probably exceed one million barrels within the next three years. On balance, however, Indonesia's export earnings (and, therefore, much needed foreign exchange) will probably grow slowly, not increasing substantially before the mid-1970's.
/5/Caltex, which is jointly owned by the Texas Company and the Standard Oil Company of California, weathered the Sukarno years better than any of its competitors. In 1968, it made the largest new investment of any firm in Indonesia, $24 million. [Footnote in the source text.]
22. A third major problem is Indonesia's tremendous foreign debt of $2.7 billion. The related problem of the balance of payments will be compounded if an attempt is made to repay the debt. Indonesia's free-world creditors have deferred and rescheduled the debt to them coming due each year since 1966, and are now undertaking an overall appraisal of Indonesia's capacity to begin repayment in the 1970's. They will probably decide to stretch out further the payment of the more than $1.5 billion owed to them. Indonesia has already defaulted on some payments due on its debt of about $1.2 billion to Communist states, and there is strong feeling in some quarters against repaying this debt (which is chiefly for arms and prestige projects from the USSR).
23. A closely related issue is that of new foreign aid. Although much that needs to be done in Indonesia is neither dependent on nor amenable to foreign aid, there is little hope for economic progress without it. The Intergovernmental Group (IGG), led by the US, has granted substantial economic assistance to Indonesia since 1966. Of the roughly $325 million contributed in 1968 (about $250 million for imports to stabilize prices and the remaining $75 million for investment projects), the US and Japan each provided approximately one-third. It will take considerable prodding to get Japan to continue to match the US contribution, although Japan, West Germany, the Netherlands, and Australia can be expected to provide sizable amounts of aid. The Western and Japanese donors insist that their aid not be siphoned off to repay Indonesia's debt to Communist countries and other countries that are not providing offsetting assistance. It is noteworthy that the World Bank has decided to give special priority to Indonesia, having established in Djakarta its first permanent mission to any less-developed country.
24. Over the short term, Communist countries are likely to provide little if any additional aid to Indonesia. Over the past year, the USSR has sent less than a hundred technicians and has sold about $3 million worth of spare parts on a strictly cash basis to Indonesia. It has extended no loans or credits to the Suharto government, and the status of unspent portions of Sukarno-era credits has not been resolved.
D. Prospects
25. What is principally at stake in Indonesia over the next few years is whether a pragmatic, forward-looking government such as Suharto's can generate sufficient progress to win enduring support.
26. The pace of economic progress will almost certainly be slow, but this fact will probably prove more frustrating to the moderate leadership elements within Indonesia and their friends abroad than to the great mass of Indonesians. The latter, and particularly the Javanese, are generally passive in the face of authority. Under Sukarno they tolerated years of economic folly and neglect; a few more years of economic hardship will not make much difference to them. Indeed, the vast majority of Indonesians have little notion that any condition other than poverty is possible for them. They will probably be able to subsist even though economic conditions should appreciably worsen.
27. The present leadership will probably be able to cope with the domestic situation for the next two to three years. Inflation will probably be kept within tolerable limits, and some new private foreign investment will be forthcoming. Indonesia's free-world creditors are likely to stretch out the payment of Indonesia's debt to them and also provide substantial foreign aid./6/ In future years, of course, a number of factors quite apart from the situation within Indonesia could affect the ability and willingness of donors to extend such high levels of aid.
/6/Indonesia has requested $500 million in aid for 1969 but about $150 million of this is for multi-year projects, so that no more than $350 million will be available for disbursement in 1969. This is probably about all that Indonesia can absorb. [Footnote in the source text.]
28. Issues such as self-determination for West Irian,/7/ food shortages, and blatant corruption will present problems for the government over the next few years, but these should be manageable. However, the slow pace of economic progress may become an issue by 1971, when the government will also face mounting pressure to honor its commitment to hold elections. The old-line parties and other groups will try to find ways to embarrass the government and advance their own ends, and there will probably be occasional instances of civil unrest, particularly in the larger towns and cities. By 1971, it is also possible, although highly unlikely, that the Indonesian Communists could be reorganized sufficiently to mount a sustained campaign of terror or to begin to form a new leftist political coalition.
/7/Indonesia is obligated to carryout an "act of free choice" in West Irian in 1969; i.e., to test--in some unspecified manner--whether the people of that territory wish it to be established as a permanent part of Indonesia. [Footnote in the source text. U.S. officials' discussions in late 1968 with the Indonesians and Dutch about the modalities for the "act of free will," is in National Archives and Records Administration, RG 59, Central Files 1967-69, POL 19 West Irian.]
29. If the domestic situation does deteriorate, the army will almost certainly grow less tolerant of dissent. If the government became alarmed at a real or imagined threat to internal security, it would probably postpone elections once again. Though we do not judge it likely, the moderate leadership might also be set aside and replaced by a more authoritarian government. But in either event, the military will almost certainly be able to maintain its grip on power.
III. Foreign Policy
A. Main Trends
30. The foreign policies of the Suharto government are characterized by pragmatism, caution, and moderation. As a consequence of the fall of Sukarno and the havoc wreaked on the Indonesian Communists, the close ties that used to characterize Indonesian relations with Communist countries have been greatly weakened. Contacts between Djakarta and Moscow have cooled considerably, and relations with Peking have deteriorated to the present state of open antagonism. On the other hand, Indonesia has grown increasingly receptive to the aid and investment of the industrialized countries of the free world. Thus, while maintaining formal nonalignment, Djakarta is in fact drifting closer toward the Western camp.
31. The Suharto government has forsaken Sukarno's conception of Indonesia as the champion of the "new emerging forces" of the underdeveloped world, and taken a more realistic attitude toward Indonesia's international position. Thus, the "New Order" has sought to improve relations with Australia, New Zealand, and Indonesia's neighbors in Southeast Asia. The "confrontation" against Malaysia has given way to cooperation in an attempt to suppress a few hundred Communist insurgents in northwestern Borneo. Then, too, the hostility that persists between Singapore and Indonesia--born of economic dependence and racial animosity--has generally been kept below the surface, though the recent anti-Chinese outbursts in Surabaja have revealed its explosive potential. Moreover, the regime's restrained response to popular demands for retaliation against Singapore was a victory for the moderate leadership of Foreign Minister Malik. Finally, Djakarta has offered to do whatever it can to resolve the dispute between Manila and Kuala Lumpur over Sabah.
B. Indonesia's Role in Southeast Asia
32. The new moderation in Indonesian foreign relations is based on careful calculation of Indonesia's national interests. Indonesians see themselves as potentially the dominant power of the Malay world--and possibly of all Southeast Asia. They seem to have learned, however, that the aggressive policies of Sukarno did more to damage than to promote the kind of leadership that Indonesia seeks. Thus, the Suharto government has chosen to follow the path of regional cooperation instead of conflict. As the prime mover in the formation of the Association of Southeast Asian Nations (ASEAN), Indonesia is actively attempting to improve its economic and cultural relations with its fellow members--Malaysia, the Philippines, Thailand, and Singapore.
33. Although Djakarta is apprehensive about the intentions and the power of Communist China, it foresees no major external threat to its own security over the next few years. It believes that the main threat to itself and other nations of Southeast Asia lies in internal Communist subversion designed to capitalize on their economic and social weaknesses. As a result, Indonesia believes that the major effort of these nations should be devoted to improving the condition of their people and strengthening their internal security organizations. There is little belief in the feasibility of putting military teeth into ASEAN or any other strictly regional grouping under present circumstances.
34. Indonesia hopes that the Western presence in Southeast Asia will be maintained until the nations of the area are capable of assuming a regional security role themselves. Basically, the present government would like to have the US involved somehow in the protection of the area against China, yet it would not favor a direct security relationship with the US or any other outside power, lest this cast doubt on Indonesia's nonaligned image or hinder any future effort by Indonesia to assert its primacy among the Malay peoples. The army would perhaps be more favorably disposed to a US-supported regional security arrangement than would various civilian elements.
35. Indonesia will continue to be particularly reluctant to join any regional grouping which carries a patently anti-Communist label. Leading civilians, including Foreign Minister Malik, apparently assume that eventual Communist success in all of Indonesia is virtually inevitable. They are not particularly apprehensive about such a denouement, however, because they anticipate that it would increase Hanoi's independence of Peking and lead to a greater Soviet role in the region that would counterbalance the power of Communist China. The military, including General Suharto, is less pessimistic about the prospects in Vietnam and the rest of Indochina but far more apprehensive that an enlarged Soviet presence in the region would be used to subvert the Suharto government.
C. Indonesia and the Great Powers
36. Relations between Moscow and Djakarta have been on the downgrade since October 1965. The USSR is increasingly disturbed by the continuing vigor of the government's anticommunism and by Djakarta's growing dependence on the US, Western Europe, and Japan for aid and investment. Moscow would like to woo the beleaguered Indonesian Communists away from the Maoist tactics that they have been following. So long as the present trend toward Indonesian friendship with the free world continues, Moscow will probably continue its criticism of the Suharto government and enlarge its efforts to develop a resurgent leftist threat in Indonesia. Thus, the USSR's present cool but correct, cash-on-the-line economic relations with Indonesia could worsen.
37. For its part, the Suharto government probably does not want its relations with the USSR to deteriorate further. Foreign Minister Malik, in particular, would like to balance Indonesia's increasing reliance on the Western countries and Japan by keeping lines open to Moscow. Malik probably considers that continuing nonalignment is in Indonesia's long-term national interest, for it would hold out the prospect of receiving aid from both East and West and offer more room for diplomatic maneuver. Though the military probably wants to continue to be able to obtain spare parts from Moscow in order to maintain its equipment, it might be less concerned about offending the USSR. It probably sees a brighter future for Indonesia and itself in building up ties with the free world.
D. Contingencies
38. The Suharto government is not currently inclined toward a bellicose or chauvinistic posture, and it will probably remain fairly moderate in its foreign policies. So long as the domestic situation does not deteriorate and so long as Indonesia can rely on economic assistance from the free world, it will have strong incentives to continue on its present course. Although economic progress, even with substantial foreign aid, will almost certainly be slow, the free world will probably want to continue to give Indonesia support. The key to Indonesian foreign as well as domestic policy, therefore, will be whether the Indonesians themselves maintain confidence in a pragmatic approach to their very serious problems.
39. In the unlikely event that the present moderate leadership of Indonesia were replaced by a less responsible government, the consequences for Indonesian foreign policy might be extremely serious. Sukarno was able to divert the attention of Indonesians of the right as well as the left from problems at home by pursuing an aggressive policy abroad. A pattern of belligerence could emerge once again. It could be fueled by doctrines of a greater pan-Malay nationalism; likely targets would be Singapore and Malaysia. Such a prospect is remote at the moment, but Indonesian ambitions and a latent strain of aggressiveness are factors that should not be lost sight of.
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