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 You are in: Under Secretary for Public Diplomacy and Public Affairs > Bureau of Public Affairs > Bureau of Public Affairs: Office of the Historian > Foreign Relations of the United States > Johnson Administration > Volume XXVI
Foreign Relations 1964-1968, Volume XXVI, Indonesia; Malaysia-Singapore; Philippines  
Released by the Office of the Historian


Documents 206-224

 

Indonesia:  The United States and Suharto --
April 1966- December 1968

206. Memorandum From Donald W. Ropa of the National Security Council Staff to the President's Special Assistant (Rostow)/1/

Washington, April 18, 1966.

/1/Source: Johnson Library, National Security File, Country File, Indonesia, Vol. VI, 11/65-5/66. Secret.

SUBJECT
The Current Indonesian Situation

The agreement to sell 50,000 tons of PL-480 Title IV rice to the Indonesian Government was signed yesterday and publicly announced today. This limited resumption of aid marks a turning point on the road back to cooperative relations now that Sukarno's power has been circumscribed. The change in the Djakarta atmosphere and the break with many of Sukarno's discredited policies continue to be reflected in the economic realism, a lessening of tension over Malaysia and the unabated drive to root out Communist influence from the ministries that have so far characterized General Suharto's new administration.

The Sultan of Djogjakarta has frankly outlined the chaotic state of the Indonesian economy and mapped goals for encouraging private enterprise and rehabilitating agriculture, textile and agricultural implement factories, and transportation. He has promised no easy solutions and called on the private sector as well as the government to practice simplicity in daily living./2/ There are other indications that the government may be preparing to return seized U.S. rubber estates to their owners.

/2/In an April 22 memorandum to Rostow entitled "Forward Planning in the Far East," Ropa stated that the "short and long term prospects for Indonesia are not encouraging, and the new administration's version of economic realism may not produce results satisfying to younger elements seeking more rapid and radical solutions." Ropa saw "seeds of serious internal trouble" such as "undertones of Moslem theocracy" which could adversely affect development. Ropa suggested more attention to the "stirrings beneath the surface of the anti-Communist political momentum now at work." (Ibid., Files of Bromley K. Smith, Planning Talks)

Indonesia has moved to restore diplomatic relations with Singapore, which may portend a long range series of measures to ease the Malaysia confrontation, even while publicly reiterating that the policy of confrontation is continuing. The Singapore Government has welcomed the Indonesian decision to normalize relations and has moved to reassure the Government of Malaysia by declaring that it would consult on all matters where Malaysia's defense interests were affected. While the Tunku's initial reaction was relatively calm, he has subsequently attacked the move to normalize relations as a measure designed to further Indonesia's policy of confrontation. Lee Quan Yew is taking additional private steps to assure the Tunku that the normalization will not be directed against Malaysia. The Tunku remains suspicious over Sukarno's continuing influence on the confrontation policy, and this has tempered moves on his part that might contribute to a reduction in tensions. Meanwhile, Foreign Minister Malik is proceeding with plans to return Indonesia to the United Nations and rejoin other international bodies despite Sukarno's public denial that this would take place.

Internally, the unabated drive against remaining Communist sympathizers in government ministries has been augmented by the initiation of a concerted campaign against the Chinese residents in Indonesia. The sacking and burning of the Chinese Communist Embassy and related pressures against the Chinese without official Indonesian restraints indicate to our Embassy that the new leaders in Indonesia may be attempting to force Peking to break relations with Indonesia./3/

/3/The Office of Current Intelligence of the CIA prepared an intelligence memorandum, SC No. 00763/66A, April 1, entitled "Peking's Setback in Indonesia," which suggested that the elimination of pro-Communist elements from power in Djakarta and the reversal of Sukarno's pro-Chinese polices represented the most serious recent setback for China. In OCI No. 1352/666, April 29, the Office of Current Intelligence suggested that the PKI would probably survive as an underground organization, but its effectiveness as a national political force would be virtually nil. (Johnson Library, National Security File, Country File, Indonesia, Vol. VI, 11/65-5/66)

These events are indicative of the gradual movement now taking place on a broad front to reverse Sukarno's policies. Sukarno continues to be isolated and insulated from the policy decisions that are being taken by the Suharto administration, and the evidence continues to accumulate that this latest in the successive military efforts to circumscribe Sukarno's power is finally succeeding.

Our policy continues to be one of restraint in projecting more expansive aid, while we continue to monitor the measures being undertaken by Indonesia to rationalize economic policies. We continue to believe that too rapid an acceleration in restoring our aid program would work against the economic reforms that are considered essential.

D. W. Ropa/4/

/4/Printed from a copy that bears this typed signature.

 

207. Memorandum From James C. Thomson, Jr., of the National Security Council Staff to the President's Special Assistant (Rostow)/1/

Washington, May 4, 1966.

/1/Source: Johnson Library, National Security File, Country File, Indonesia, Vol. VI, 11/65-5/66. Secret.

SUBJECT
The VP's Inquiry about Cotton for Indonesia

This is a murky subject on which State sounds bureaucratic but is probably right, for the time being.

We do have a sizeable cotton surplus, and it would be good for us and for them if we were to unload some of it on the Indos. The two possible routes are (1) PL 480 Title IV, and (2) commercial sales, with CCC guarantee of an Indo letter of credit.

Prior to the recent PL 480 rice deal, we resisted both possibilities on the say-so of Suharto/Nasution (who didn't want their struggle with Sukarno complicated by any visible U.S. government involvement).

Our present aim is both to meet bona fide Indo emergency needs and to push the Indos toward doing more than living off the dole (ergo, tidying up their house, planning, organizing multilateral aid, etc.).

So far, State has been reluctant to follow up too closely on the rice deal with a cotton deal; but the prediction is that a PL 480 cotton deal is probable within the next two months. (See attached overly caustic Deptel 1325 to Djakarta.)/2/

/2/Dated April 29. (National Archives and Records Administration, RG 59, Central Files 1964-66, AID (US) 15-1 INDON)

As for CCC guarantee of Indo letters of credit: the Bank of Indonesia is still patently and totally bankrupt, and a CCC guarantee of a bankrupt bank would be de facto foreign aid--which Agriculture is so far anxious to avoid.

In addition, while the PL 480 route permits a fair profit to U.S. rice brokers and shippers, under USDA supervision, the CCC route permits rather exorbitant profits to Indo middlemen and (if they can collect) U.S. dealers. Some dealers, I am told, actually prefer the PL 480 safe-and-sure arrangement. But there are obviously conflicting viewpoints here.

James C. Thomson, Jr./3/

/3/John De Luca signed for Thompson above Thompson's typed signature.

 

208. Editorial Note

At the 557th Meeting of the National Security Council on May 10, 1966, Ambassador to Vietnam Henry Cabot Lodge stated: "the recent overthrow of the Communists in Indonesia is a direct result of our having taken a firm stand in Vietnam." For the complete account of the report of the meeting, see Foreign Relations, 1964-1968, volume IV, Document 135.

According to a memorandum from Deputy Director of Central Intelligence Richard Helms to Walt Rostow, May 13, President Johnson asked for a study analyzing the relationship between the Indonesian crisis and U.S. determination in Vietnam. (Johnson Library, National Security File, Country File, Indonesia, Vol. VI, 11/65-5/66) Helms submitted to Rostow for the President an Intelligence Memorandum, OCI No. 0815/66, May 13, which stated: "we have searched in vain for evidence that the U.S. display of determination in Vietnam directly influenced the outcome of the Indonesian crisis in any significant way." The Central Intelligence Agency's Office of Current Intelligence concluded that the Indonesian coup "appears to have evolved purely from a complex and long-standing domestic political situation." The memorandum did acknowledge, that "in a strategic sense, it is possible--though there is no evidence for this--that US determination in Vietnam did indirectly have some influence in shaping events in Indonesia." The memorandum suggested that without US intervention, most of South Vietnam would have been in Communist hands and China would have dominated Southeast Asia. Such a situation would have encouraged Sukarno to accelerate his program to the point where the Army leaders would have had to accede to his power. Still, the memorandum ended with the statement that "no Indonesian leader among those now in ascendancy has ever given any indication that he viewed the situation in this way." (Ibid.)

 

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

Djakarta, May 27, 1966, 0505Z.

/1/Source: National Archives and Records Administration, RG 59, Central Files 1964-66, POL INDON-US. Secret. Repeated to Bangkok, Canberra, CINCPAC for POLAD, Kuala Lumpur, London, Manila, Saigon, Singapore, and DOD.

3294. Ref: Embtel 3261 (Notal)./2/

/2/In telegram 3261 from Djakarta, May 23, Green reported he had an appointment with Suharto and listed the topics for discussion. (Ibid.)

1. My scheduled hour meeting with General Suharto May 26 ran 20 minutes overtime, with General Suharto taking lead on each of rubrics mentioned reftel. Though Suharto understands English fairly well if spoken clearly and slowly (which I did) he insists on use of interpreter which almost halved amount of ground we could cover.

2. US-Indo Relations. Suharto, who seemed buoyant and confident, spoke of success in crushing Communists and other gestapo elements but there is still a job to be done. Many Communist cadre still at large. His government determined stamp out communism, establish law and order, and give full expression to Pantjasila which Suharto mentioned several times as being the key philosophy and uniting factor amongst Indonesians. Main danger government faced was economic. One only had to travel through central and east Java, he continued, to see grinding poverty of that area (in some places people growing rice in earthen pots to scrounge a few extra liters of rice per year). Unless something could be done to alleviate suffering of people, door would be open for resurgence of communism. At this point Suharto outlined his scheme for relieving Java population pressures and increasing Indonesian export earnings by transporting people from Java to Borneo to cultivate rice and develop forest industries, a project which General Tasmin had already described to DefAtt, and which we have reported. Like Tasmin, Suharto made pitch for US support for this project even going so far as to add his hope that we could furnish some LST's since building port facilities too time-consuming and costly.

3. I replied there were a number of things we would both have to consider in connection with this proposal. First there was the problem of resuming a US aid program in Indonesia: so far his government had not asked us for any aid and if it did, our administration would have to go to Congress to request funds for program for Indonesia. It would, of course, be in both our interests that such request be against background of improving relationships and improved handling of Indo economic problems. Secondly, we would both have to consider kinds of assistance most useful to Indonesia. I was most sympathetic to Java's poverty problem. We had supported at one time, until Sukarno told us to go to hell, a successful food for work project. In my personal estimation, such project might have a high priority in meeting the problem he mentioned. As far as Kalimantan's development concerned, he might also wish to keep in mind advantages of assistance from foreign private capital in opening forest and other industries. Support might well come in larger amounts and more quickly from foreign private rather than foreign government sources.

4. Suharto replied that opportunities for expanded agricultural production in central and east Java were very limited. I questioned this but acknowledged there was also need for development of Kalimantan and other outer islands. We agreed these were all things we should talk about more.

5. Containment of China through SEA Cooperation. Discussion of this topic revolved almost entirely around confrontation issue, with Suharto attempting to defend Indonesian policy along conventional GOI lines of argumentation but ended with a firm statement of Indonesia's intention now to bring confrontation to close. He expressed hope that Bangkok talks would provide satisfactory solution based on Manila Agreement, but that this would require give and take on both sides. Sole reason Suharto advanced for GOI desiring end of confrontation was in order pave way for closer association with neighboring countries against menace of Communist China. However, he argued this point with real conviction.

6. I said we welcomed ending of confrontation for reasons he cited as well as others. As far as Peking concerned, it had ever since late summer 1963 greatly welcomed Indonesian confrontation policy which served to divide and weaken areas over which Peking sought to extend domination. I referred to intelligence reports about how Chen Yi, on visit to Indonesia in Aug. 1965, had pressed for continuation of confrontation and non-recognition of Singapore and Malaysia. Peking seemed genuinely concerned at that time that Indonesia might be tiring of confrontation policy, and in any event Peking wanted to isolate Singapore from Malaysia and Indonesia in order to weaken its economy and promote rise of the Barisan socialists. I said Suharto had earned much respect around the world for the way he is seeking good relations with all Indonesia's neighbors in this area. This would serve Indonesia's best political, economic, and strategic interests. I trusted nothing would be allowed to happen to interfere with accomplishment of settling matter so much in Indonesia's interests and so contrary to objectives of Peking.

7. Ways and Means of Ending Vietnam War. Suharto spoke very briefly on this subject, emphasizing GOI's desire to see end of war in Vietnam. He pointed out that Indonesian mission to Hanoi last year had returned with impression that Hanoi had divided feelings as between Peking-oriented communism and Vietnam nationalism. Suharto asked what I thought the chances were of a peaceful solution.

8. I described Peking as seeking to keep war going in order to undermine economic and political order so as to pave way to extending Chinese hegemony over that area. Peking also seeking to bring about humiliating defeat of US and force withdrawal of American power from Southeast Asia thus leaving area exposed to Peking dominance. I didn't think USSR would be helpful in bringing about peace. Even though it might well desire to see hostilities ended, it feared being labeled by ChiComs as soft and revisionist which evidently Moscow feels would weaken its position with certain Communist parties. Key to peace lay with Hanoi, and it was our policy to make peace attractive to Hanoi while at the same time aggression prohibitively costly. We are using minimum of force to this end but we will not be deterred from using such force as is necessary to uphold our commitments and help protect South Vietnam and, indeed, many other countries from Communist aggression from North. I also gave brief account of current events in South Vietnam drawing on gridiron report and other materials.

9. Suharto reiterated his government's hope that peace could come to Vietnam and to all of Southeast Asia. I said I hoped his government could make this point with Hanoi, since it is up to Hanoi to respond to the many overtures from our side supported by countries all around the world.

10. Suharto once again said that he hoped negotiations for ending confrontation would work out satisfactorily so as to pave way for closer unity with its neighbors including Thailand and Laos. I said I hoped we could keep in touch on these matters. I would be glad to furnish him with information or briefing materials and we would be most interested to have his views at any time.

11. Comments: Significantly, Suharto emphasized Pantjasila rather than Sukarno as Indonesia's unifying force and he did not refer to Sukarno once either directly or indirectly. I was disappointed he devoted so much time and emphasis to his Kalimantan project. He must know my views on this since Malik had already taken it up with me. However, it is a project dear to Suharto's heart, and, since Suharto is key figure in Indonesia, we will have to give considerable thought to anticipated future pressures for assistance in this project.

12. It was a useful overall exchange, most heartening for Suharto's clear awareness of Peking's threat to SEA. He referred throughout to China as "the enemy." This does not mean Indonesian willingness to abandon non-alignment but it does imply broader Indonesian association with countries that can be of assistance to Indonesia strategically as well as economically.

Green

 

210. Memorandum From the President's Special Assistant (Rostow) to President Johnson/1/

Washington, June 8, 1966, 2:35 p.m.

/1/Source: Johnson Library, National Security File, Country File, Indonesia, Vol. VII, 5/66-6/67, [1 of 2]. Secret. The memorandum indicates the President saw it.

Mr. President:

State is anxious that you read the attached paper on Indonesia.

It's an excellent summary of the evolution of Indonesia and our policy since October 1 of last year.

The operational point is this (see pp. 4-6): if they get Sukarno out soon, we may well face the following aid issues:

--Further emergency aid (P.L. 480).

--Multilateral debt rescheduling.

--Basic long term assistance (mainly European, Japanese, multilateral, but perhaps some U.S. bilateral).

--Conceivably, some very small military assistance for training and civic action.

Forward planning on this has been remarkably good, even to keeping key Congressional leaders informed. Thus far, they have been sympathetic.

The town wished you to be informed.

No decision required, unless you wish to give guidance.

Walt

 

Attachment

Paper Prepared in the Department of State

INDONESIA

Background

1. Last October 1 the Indonesian Communist Party associated itself with elements of the armed forces to stage a take-over of the Indonesian Government which was promptly suppressed by the Army. Between October 1 and the middle of March of this year the Communist Party was virtually eliminated as an effective political organization, perhaps as many as 300,000 Indonesians were killed--the great bulk of whom we believe were in fact associated with the Communist apparatus. Political power gradually shifted from President Sukarno and his Palace clique toward the Army, the Muslim political parties, and anti-Communist students.

2. In February and March Sukarno attempted to seize full power again, was unable to do so, and was forced to accept a new cabinet which was controlled by the Army and by political moderates. By the end of March there was a new government dedicated to economic and social reform, most of Sukarno's foreign policy had been publicly challenged or was being ignored, and the triumvirate of General Suharto, the Sultan of Jogjakarta and Adam Malik took effective, though not yet complete, power.

Present Situation--Domestic

3. In the past two months the new leaders have moved with surprising speed to consolidate their power and to start on the long process of putting together the almost totally shattered Indonesian economy. The Communists seem to be effectively out of power, but Sukarno remains as a President still having the capacity to limit and interfere with the activities of government. The government has, despite this, instituted new export incentive programs, started to funnel Indonesia's export earnings through the Central Bank, and succeeded in at least slowing down price inflation of rice and certain other basic commodities. The economy is still in a chaotic condition, and the leadership feel that unless they can succeed in providing adequate food and clothing to the population their efforts to develop a rational political system cannot succeed.

Present Situation--Foreign

4. Although still limited by the continued presence of Sukarno, the new government has made very substantial changes in foreign policy. It has announced to its own people that it intends to re-join the United Nations and other international organizations at some time in the fairly near future. It has entered into a preliminary agreement seriously intended to end confrontation with Malaysia and Singapore./2/ It has attempted to restore normal working relations with all western countries and with Japan, has started to close out its mischief-making presence in Africa, and has virtually broken relations with Communist China. In Bangkok last week, Indonesian representatives joined in expressions of interest in a loose-jointed grouping of Southeast Asian states to include initially Malaysia, the Philippines, Thailand, and Indonesia.

/2/Telegram 2645 from Bangkok, June 3, contains a summary account of the talks between Indonesian and Malaysian Delegations headed by Malik and Razak, which resulted in the draft agreement to end confrontation. (National Archives and Records Administration, RG 59, Central Files 1964-66, POL 32-1 INDON-MALAYSIA)

5. The new regime has completely put an end to anti-American expressions in Indonesia. Although it continues publicly critical of our Viet-Nam policy, Malik has privately expressed some understanding of our position, and there have been some reciprocal propaganda attacks between North Viet-Nam and Indonesia. In another aspect significant to the U.S., the regime has decided against further efforts to take over American petroleum company facilities which produce and export crude oil, and seems to be negotiating in good faith for the purchase of the one remaining American refinery (STANVAC).

Probable Future Developments

6. The leaders' intentions are to continue to whittle away at Sukarno, using as a next step the mechanism of the "People's Parliament," which is due to meet for about three weeks starting in mid-June. The leaders intend to use this session to remove Sukarno's life-time tenure on the presidency, to remove his special powers so that he will become the figurehead, to secure formal approval of a settlement with Malaysia, and in general to put the country's up to now rather nominal legislative process firmly behind the new leadership. Having accomplished these things, hopefully by mid-July, the intention is to install a new working cabinet free of the last of Sukarno's henchmen, and then to move full scale into economic rehabilitation. Other basic decisions such as the dates for re-joining international organizations will probably be deferred until this time.

7. Despite its apparent willingness to cease its aggressive policies in the area--which the new regime recognizes as essential to external assistance among other factors--we should not expect the new leaders to be anything but intensely nationalistic, non-aligned, and "Afro-Asian" in their orientation. Nonetheless, the contrast between these policies and those of Sukarno, or those that would have been pursued by the totally Communist-oriented regime that appeared to be in prospect, is dramatic. All in all, the change in Indonesia's policies has been a major "break" in the Southeast Asian situation, and a vivid example to many other nations of nationalist forces rising to beat back a Communist threat.

U.S. Interest and Objectives

8. Our traditional interest in Indonesia has been to keep the country out of the hands of Communists and out of the potential control of Communist China. As the Sukarno regime moved more and more under Communist and Chinese influence prior to October 1965, the United States inevitably became the number one officially pronounced enemy of the Sukarno regime, and was billed as the only threat to Indonesia's national security because of the presence of American forces in the Philippines, the South China Sea, Viet-Nam, and Thailand. The marked pro-Communist trend in Indonesia--accelerated in mid-1963--undoubtedly rested in part on the conclusion that the U.S. was losing ground in Southeast Asia. Conversely, although the U.S. had no direct part whatever in the anti-Communist takeover that began in October, unquestionably the fact that we were standing firm in Viet-Nam reinforced the courage of the anti-Communist leaders; to put it differently, without our evident determination, they would have been very much less likely to have acted.

9. Our basic interest in Indonesia still derives from its tremendous size, its population of more than 100,000,000, its location between the Pacific and the Indian Ocean, and between Australia and the mainland, as well as from its potential usefulness as a productive and influential state which could serve as a unifying and constructive force in the area. Our objective should be to help as we can in the development of a responsible, moderate and economic-minded regime. Only such a regime can prevent the resurgence of some form of extremism and, over time, play a useful part in the area.

U.S. Actions to Date

10. Until late March, our major policy on developments in Indonesia was silence. The anti-Communist leaders wanted no cheers from us. This policy remains generally sound, particularly in the light of the wholesale killings that have accompanied the transition (even though it is perfectly clear that a Communist takeover would have been at least as bloody). Nonetheless, we have recently been quietly pointing out that we take a favorable view of the new regime and have also been noting that its succession would have been less likely without our continued firmness in Viet-Nam and in the area. We should continue to applaud and claim credit only to this extremely limited extent.

11. While continuing this public position, we have throughout made it privately clear that we are ready at the right time to begin making limited material contributions to help the new leaders get established. Our AID programs had been entirely terminated in Indonesia, but we have (in mid-April) agreed to sell them 50,000 tons of rice under PL 480 Title IV (dollar repayment) on terms of 4-7/8 per cent interest with five years repayment. We are now beginning action on a Title IV sale of 75,000 bales of cotton on more generous terms, 3-1/2 per cent interest with 15 years repayment. We have quietly made it known we will support their efforts to reenter international organizations, and that we will participate in multilateral efforts to reschedule their debt at an appropriate time. We have encouraged other free world countries to extend emergency assistance to Indonesia in order to help the new regime establish itself in the period before the questions of debt rescheduling, stabilization and development can be dealt with.

Future U.S. Actions

12. If the new leadership succeeds in effectively removing power from Sukarno during the next month, it will then turn its efforts toward the economy. There are a number of points at which U.S. assistance will be needed.

a. Further Emergency Aid. There will be a probable need for further short-term assistance to keep the economy going prior to multilateral decisions on long-term problems. Our role in this can be played by further transactions under Public Law 480. While we have been providing assistance under Title IV on concessional terms, we should plan to switch to Title I (local currency repayment) if the political situation stabilizes, in order not to add further to Indonesia's already overwhelming foreign exchange debt.

b. Multilateral Debt Rescheduling. Indonesia has a foreign debt of more than $2.5 billion. Approximately $170 million of this is owed to us, and about $1 billion to the Soviet Union, mostly military. Debt servicing requirements this year may amount to about $450 million, which is more than probable gross foreign exchange earnings for the same period. Since Indonesia is already in default on both private and government accounts, rescheduling is obviously necessary. We have been in close touch with Indonesia's free world creditors, have made it clear that we regard it as essential that rescheduling be multilateral, and that we would like to see some other country, such as Japan, or an international organization, play the leading role in organizing the rescheduling exercise. The Sultan of Jogjakarta and various of his and Malik's representatives have recently visited Japan and obtained a commitment for credits of $30 million as emergency aid. The Sultan plans to visit Western European countries in July. Other representatives plan to visit the USSR and EE countries. It now seems probable that the Indonesians will be ready for formal multilateral consideration of the debt in late July or August. The probable Indonesian proposal will be along the lines of a five-year moratorium--which among other things defers such knotty issues as the priority status of military as compared to economic debts. We should be prepared to participate, and to agree to rather generous terms provided we do so in a framework taking account of interests of all creditors.

c. Basic long-term assistance. Beyond emergency aid and debt rescheduling, Indonesia is going to need both technical assistance and further credits if the country is going to get back on its feet. However successful their performance in restoring integrity to the Central Bank, cutting government deficit financing and promoting production and exports, it is quite likely that by the fall of this year the ability of the new government to preserve its authority will depend upon access to substantial foreign credits to rehabilitate both industry and agriculture, as well as to restore the badly damaged communications and transportation systems. Much of this needed credit can be obtained from Japan, from Western Europe, and very probably from such international organizations as the IMF, the IBRD, and (later) the Asian Development Bank. We have already made it clear that we expect long-term assistance to be on a multilateral basis, and the willingness of other sources to contribute substantially will be affected by the U.S. contribution. Hence, we believe we should be prepared to pledge significant amounts, and the need for such pledges may arise sometime in the fall if the constructive trend in Indonesia continues at its present pace. Hence, it is conceivable that we will need substantial 1967 AID funds, both for direct assistance and for channeling through the Asian Development Bank. The debt situation will foreclose the Export-Import Bank as a source of additional assistance, and our only other channel would appear to be additional PL-480 commodities on concessional terms amounting to assistance.

d. With respect to military assistance, the Indonesian Army is excessively large and amply equipped for internal security. We should not consider resuming any military assistance programs except for a possible small-scale training effort largely for the sake of personal ties with key military figures of the future. There is the additional possibility of civic action projects, on which the Indonesians are already tentatively approaching us for technical help in the development of the resources of the underpopulated outer islands. This kind of project might make sense in the total picture, for limited MAP and AID funding.

U.S. Government Organization With Respect to Indonesia

13. Up to this point, the Indonesian problem has been effectively handled on a normal inter-agency basis. Moreover, we have kept in touch with key leaders of Congress, who appear to understand the situation and its possible implications. The fact that any major assistance would be on a multilateral basis would have particular appeal in many Congressional quarters.

14. Nonetheless, in view of the impending dimensions of the problem in the next six months, it now appears wise to initiate more extensive consultations with the Congress, and it may be wise to designate a specific group within the Executive Branch--perhaps as a subcommittee of the Senior Interdepartmental Group--to keep the problem under very close review.

 

211. Memorandum Prepared for the 303 Committee/1/

Washington, June 17, 1966.

/1/Source: National Security Council, Special Group/303 Committee Files, Subject Files, Indonesia. Secret; Eyes Only.

SUBJECT
Supply of Additional Communications Equipment to Key Anti-Communist Indonesian Army Leaders

1. Summary

The purpose of the original operational proposal approved by the 303 Committee on 17 November 1965/2/ was to assure during a period of national turmoil emergency communications capabilities for selected Indonesian Army officers. This system was to provide adequate communications between these anti-Communist officers and subordinate headquarters in areas most susceptible to dissidence and rebellion.

/2/See Document 175.

On 26 February 1966, representatives of an intelligence organization responsible to General Nasution and attached to the former Armed Forces Staff (SAB), requested that High Frequency (HF) communications equipment be provided for a special link between that intelligence organization, General Nasution and General Suharto. [less than 1 line of source text not declassified] were diverted for this purpose from the stocks assembled [less than 1 line of source text not declassified] in Djakarta to establish the emergency communications system.

With the concurrence of Ambassador Green, General Suharto was advised on 12 May of the availability of [less than 1 line of source text not declassified] for use in communication with his principal commands. He was asked to designate communications officers to supervise receipt of this equipment. General Suharto expressed enthusiasm and arranged for Indonesian army technical personnel to be available for briefings on the equipment by [less than 1 line of source text not declassified] communications specialists. Discussions were held on 2 and 3 June between these [less than 1 line of source text not declassified] personnel and Assistant to the Chief of Staff SUAD IV (Logistics) General Hartono, Director of Army Communications, General Suhardjono, and his Deputy Colonel Soerhadji. Suhardjono asked why only [less than 1 line of source text not declassified] were being provided, since actual establishment of a full net of reliable communications with all 17 Military Areas (KODAM) and other key headquarters would require a total of [less than 1 line of source text not declassified].

This request for additional equipment has the support of the U.S. Ambassador to Indonesia, and is concurred in by the State Department's Bureau of Far Eastern Affairs.

The factor of risk in delivery has been considerably lessened by the substantial diminution in both numbers and authority of leftist and pro-Sukarno elements in the Indonesian Government. Nevertheless, delivery will be accomplished through [1 line of source text not declassified], and appropriate security measures will be observed when making deliveries to the ultimate recipients. The Indonesians still cannot ostensibly or actually purchase this equipment in the U.S. without seeking exception to the U.S. export license controls, and inferring a more intimate relationship with U.S. Government officials than is desirable at this juncture. Exposure of this activity might provide President Sukarno and residual leftists in the Indonesian political scene with embarrassing ammunition to use against General Suharto and his associates.

2. Problem

The requirement is to provide on an urgent basis, the present Indonesian Army leadership with sufficient additional [less than 1 line of source text not declassified] to enable secure voice and CW communications with all major subordinate commands. This equipment will provide a system of communications between anti-Communist military leaders for use under conditions of unrest and rebellion, at a time when normal communications channels may be manned or usurped by politically unreliable personnel.

3. Factors Bearing on the Problem

The equipment described for previous 303 Committee consideration was not provided to the Indonesians as originally recommended. The [less than 1 line of source text not declassified] proposed has been so recently developed that the protection of the relationship between the United States Government and the Indonesian Army could not be assured./3/ The scope of the emergency communications system was restricted to [less than 1 line of source text not declassified] alone.

/3/A request of January 14 was denied by the 303 Committee. McGeorge Bundy "stood by his guns" and suggested that "he had never been able to make his point successfully to CIA that denial was not the equivalent of political denial." Bundy felt sure, despite the assurances of Green and others, that Japanese communications equipment was far better than the latest equipment available on the U.S. market. (National Security Council, Special Group/303 Committee Files, Minutes, 1/20/66) The denied proposal made to the 303 Committee, January 14, is ibid., Subject Files, Indonesia.

a. Origin of the Requirement: The request for supplementary equipment was made [less than 1 line of source text not declassified] by General Suhardjono, Director of Indonesian Army Communications, and was endorsed by the U.S. Ambassador to Indonesia.

b. Pertinent U.S. Policy Considerations: On 17 November 1965, the 303 Committee approved the provision of emergency communications equipment to key anti-Communist Indonesian Army officers.

c. Operational Objectives: Despite the apparent ascendancy of General Suharto and his political and military associates, substantial fragmentation is evident within political pressure and military organizations. An undeterminable proportion of this fragmentation is taking place at the behest of President Sukarno and his adherents. Should an open break take place between the Suharto and Sukarno elements, an emergency communications system with all major military headquarters will be of the utmost importance in assisting the Indonesian Army to prevent a return to the pro-Peking policies of President Sukarno. This communications system will provide for effective troop deployment, and will assist in assuring the security of moderate Indonesian military and civilian political elements.

d. Equipment: The specific equipment required to satisfy General Suhardjono's request is:

[10 paragraphs (10 lines of source text) not declassified]

Of the needed equipment, none is in stock. Some can be readily procured, but [less than 1 line of source text not declassified] will probably require some form of U.S. official procurement priority.

e. Risks Involved: Revelation of the United States role in this program could provide President Sukarno and his political affiliates with an exploitable excuse for crisis. Caution will be exercised in all aspects of implementing this program to assure a minimum of risk of revelation. [3 lines of source text not declassified] Covert delivery to the intended recipients has been arranged.

f. Training: The [less than 1 line of source text not declassified] communications specialist to whom the request for additional equipment was broached, will provide such additional training in the use of the equipment and the establishment of the network as may prove necessary.

g. Funding: The overall cost of the additional increment of [less than 1 line of source text not declassified] is estimated at [less than 1 line of source text not declassified]. Funds are available [less than 1 line of source text not declassified].

4. Coordination

This operational proposal has been endorsed by the U.S. Ambassador to Indonesia and has been concurred in by the State Department's Bureau of Far Eastern Affairs, which recommends approval.

5. Recommendation

That the 303 Committee approve this proposal./4/

4 On June 24 the 303 Committee approved this proposal. There was a general agreement, according to the minutes, that the current circumstances were different than in January 1966, given the decimation of the PKI. (Ibid., Minutes, 6/24/66)

 

212. Memorandum From Donald W. Ropa of the National Security Council Staff to the President's Special Assistant (Rostow)/1/

Washington, July 9, 1966.

/1/Source: Johnson Library, National Security File, Country File, Indonesia, Vol. VII, 5/66-6/67, [2 of 2]. Confidential. The following handwritten note appears on the memorandum: "BKS [Bromley K. Smith]: Note NSC suggestion. DR [Donald Ropa]." There is a check mark through Rostow's name.

SUBJECT
Where We Are in Indonesia

The outcome of the much-heralded MPRS (Consultative Congress) session was largely as predicted, although Sukarno once again eluded the net of those who wanted to put him permanently out of business.

Our Embassy assesses the MPRS decisions as a substantial step forward in the long process of de-Sukarnoization, but it acknowledges that even the marginal room for political maneuver left Sukarno will keep the political pot simmering.

Marshal Green has promised us three stock-taking appraisals at this juncture: (a) an assessment of short-term prospects over the next three months; (b) implications for U.S. policy; and (c) Embassy recommendations on next moves in the assistance field. The first of these is in, and this is attached in case you have not seen it./2/

/2/Telegram 107 from Djakarta, July 7. (National Archives and Records Administration, RG 59, Central Files 1964-66, POL 2-3 INDON)

On the economic front. Green believes Indonesia can rock along the next three months without a serious economic crisis on the basis of ad hoc measures and the $60 million in emergency foreign exchange credits received from Japan, Germany, Britain and the U.S. He considers it essential, however, that in this time frame the Indonesians finally clarify their own thinking, improve their economic planning apparatus and move into a position where they can effectively attack their deep-seated economic problems.

Both Malik and the Sultan have sent letters to Secretary Rusk via Widjatmika which ask that our AID programs be declared applicable again (in effect a request for a Presidential determination on Indonesian aid), present a shopping list of urgently needed goods valued at $495 million, and raise the question of Malik and possibly the Sultan meeting personally with the President, Vice President and Rusk in September following Malik's trip to Moscow.

We have told Widjakmika that Malik would be welcome (without discussing dates or committing a session with the President), we want to be helpful on aid, particularly in multilateral debt rescheduling, but much still depends on the formation of a strong and effective government capable of using outside assistance.

Meanwhile, the IMF team has completed its preliminary survey, Indonesia has formally applied for re-admission to the IMF and IBRD, and substantive agenda discussions among Indonesia's creditors are tentatively set in Tokyo on July 12.

For our part, at Green's earlier urging, we are moving to resume the participant training program on a modest scale, separating this out from broader questions of aid resumption. Even this, however, will require a Presidential determination under 620 (j) of the Foreign Assistance Act of 1961 and Section 118 of the Appropriations Act of 1966. But it makes good political sense to prepare the Congressional atmosphere in this manner for the later resumption of larger aid. (A memo on this is in preparation.)

On the political front. The key is the complexion of the new cabinet now in formation. Green believes prospects are good that Suharto will prevail with a streamlined group dominated by capable technicians. We should know in two to three weeks. Green anticipates a more forceful Suharto now that the MPRS has confirmed his powers, but tension involving Sukarno and the political parties is probable.

You have asked about political development in Indonesia. I have some preliminary observations in preparation and have asked both CIA and INR for their appraisals of the shape of political forces now at work./3/

/3/On June 29 the CIA's Office of Current Intelligence prepared Intelligence Reference Aid No. 1586/66 on "Indonesian Youth Groups," which provided brief background information on the role of students and youth groups in the Indonesian Nationalist movement. (Johnson Library, National Security File, Country File, Indonesia, Vol. VII, 5/66-6/67, [2 of 2]) On July 23 the Office, in coordination with the Office of National Estimates and the Deputy Directorate for Plans, prepared Intelligence Memorandum No. 1591/66, "Political Forces in Indonesia." This memorandum stated that the army held the ultimate power in Indonesia and although military leaders were prepared to permit a voice to non-Communist civilian political elements, they hoped to limit their activities so they did not endanger the policy developed in response to the October 1965 coup. Indonesia's Government was dominated by the triumvirate of Suharto, Malik, and the Sultan of Jogjakarta, who planned to name a cabinet before August and hold elections in 2 years. The most pressing problem in Indonesia was its poor economic situation. (Ibid.)

On the foreign front. Green sees de facto end of confrontation, return to the UN and the re-building of Indonesia's ties to the non-Communist world as controlling objectives. However, the MPRS did not specifically endorse the Bangkok Agreement ending confrontation, Indonesia still is maneuvering around that agreement, and the next steps are unclear.

Recommendation

Once Green's remaining two stock-taking messages are in and digested it may then be desirable to consider placing Indonesia on the agenda for NSC discussion. Earlier, this was premature. We are approaching that point now where NSC discussion might be optimally useful.

Don Ropa

 

213. Memorandum From Donald W. Ropa of the National Security Council Staff to the President's Special Assistant (Rostow)/1/

Washington, July 11, 1966.

/1/Source: Johnson Library, National Security File, Country File, Indonesia, Vol. VII, 5/66-6/67, [2 of 2]. Confidential. There is a check mark through Rostow's name indicating that he read the memorandum. Attached to this memorandum was the following note: "Walt: Incidental intelligence re the attached--Bill Bundy says Fulbright could not have been more understanding--that there was no other course we could follow under the circumstances--and he understood and approved!! Bill [William Jorden]"

SUBJECT
Limited Resumption of Aid to Indonesia--Presidential Determination

Marshall Green has now given his recommendations for short-term assistance to Indonesia (Djakarta Embtel 144, attached)./2/ He argues convincingly for specific, limited measures designed to meet urgent economic and political requirements over the next three to four months. He believes any recommendations for the longer haul are difficult, subject to continuous revision, and still depend on the outcome of debt rescheduling and further evidence of how effective Indonesia is moving to solve its own problems and handle its international relations (i.e. confrontation).

/2/Dated July 9, not attached. (National Archives and Records Administration, RG 59, Central Files 1964-66, AID (US) INDON)

Green's short-term proposals avoid involving us too deeply and prematurely while laying the groundwork for subsequent assistance. They are:

1. Resumption of participant training (recommended earlier);

2. Additional cotton sales up to 100,000 bales for third country processing, plus the supply of rice as available to help meet possible 500,000 ton shortfall;

3. Food for work under Title II, PL-480;

4. Modest amount of spares to rehabilitate previously supplied military equipment to support highly selected civic action activity;

5. Equally modest spare parts to reactivate U.S. equipment in the general economy.

Green favors a Presidential Determination forthwith to activate student and participant training; he would await the formation of the new cabinet (two to three weeks hence) to begin implementing the other proposals.

State's Position

Sympathetic, except for the military items which they believe should be deferred a while longer pending further clarification on confrontation. They are advising Green to this effect, stating that the Presidential Determination is under review.

Participant Training

Indonesia's new education plans stress elimination of the influence of 10 years of PKI domination. Green sees this requiring a major effort, warranting our support, with its success representing perhaps our most important investment in Indonesia's future. The limited stable of first rate economists, who are now assuming top level responsibility, were trained at Harvard, Stanford and the University of California before the program was halted in 1964. Indonesia's ban on travel to the U.S. for study was lifted in June; there is a reservoir to draw on of 200 cases fully processed before the ban; new selection criteria and procedures pose no great difficulties.

The clear advantage of seeking the resumption of aid through a Presidential Determination that focuses primarily on the re-activation of participant training is the probable smooth sailing it would have with Congressional leaders. It would pave the way for other forms of aid later as feasible and desirable. State believes the favorable psychological reaction in Indonesia would be considerable.

Presidential Determination

The legislative language and history affecting the President's authority on Indonesian aid (summary attached)/3/ make clear that the PD is necessary for any new bilateral assistance. Some lawyers at AID believe participant training could possibly be resumed without a PD, but we risk compromising our longer range aid posture with Congress by going this route; in any event the legislative intent can now be satisfied.

/3/Dated June 14. (Johnson Library, National Security File, Country File, Indonesia, Vol. VII, 5/66-6/67, [2 of 2])

More immediately, before proceeding with the PD, the Hickenlooper restriction must be dealt with on the expropriation without compensation of six U.S. firms in Indonesia, plus arrears of $13 million in Indonesian debt to the U.S. private sector. The expression of Indonesia's constructive intent may be adequate here, and State is advising Green what must be done.

Options on the PD

1. We can process this separate from the forthcoming NSC discussion on Indonesia and possibly gain some time in responding to Green's request for quick action, or

2. We can include the PD in the NSC discussion and relate it to that broader review of the Indonesian situation and our future policies.

Do you have a preference for either of these alternatives?

Don Ropa

 

214. Intelligence Note From the Director of the Bureau of Intelligence and Research (Hughes) to Secretary of State Rusk/1/

No. 468

Washington, July 25, 1966.

/1/Source: Johnson Library, National Security File, Country File, Indonesia, Vol. VII, 5/66-6/67. Secret; No Foreign Dissem. The CIA's Office of Current Intelligence prepared an Intelligence Memorandum, No. 1685/66, July 30, entitled "The New Indonesia Cabinet," which provided analysis of the cabinet and biographical information on its new members. (Ibid.)

SUBJECT
The New Indonesian Cabinet--A Setback for Sukarno

The new cabinet whose composition was announced by General Suharto on July 25 represents a major step in the campaign to ease President Sukarno out of effective power and into a figurehead role. Although Sukarno fought hard to induce the MPRS (Peoples Consultative Congress) to give him a voice in the cabinet's formation and lobbied tirelessly for his cronies and against the new leadership, General Suharto managed to retain the upper hand and name only his own people to key positions.

Only Minor Concessions to Sukarno. The Triumvirate of the previous cabinet remains intact. Suharto will himself be Chairman of the Presidium and Minister for Defense and Security; Adam Malik will be First Minister for Political Affairs and will remain Foreign Minister; Sultan Hamengku Buwono IX will retain his previous responsibilities but with the new title First Minister for Economics and Finance. The other two first ministers and members of the Presidium are Idham Chalid, leader of the NU (Orthodox Scholars) Party, for People's Welfare, and Sanusi Hardjadinata, a PNI figure (Indonesian Nationalist Party) with the industry and development portfolio. The presence of these two politicians in what is otherwise a cabinet of technicians is primarily a concession to Sukarno and the parties. However, the two leading Sukarno hacks from the last cabinet, Ruslan Abdulgani and Johannes Leimena, have been dropped, despite the President's desperate efforts on their behalf. The pro-Western Ambassador to Thailand, Burhanuddin Mohamed Dian, has been named Information Minister to replace Abdulgani. One of the most significant changes requires that the 24 regular ministers report directly to the Presidium, which Suharto heads, instead of to the President, who is no longer prime minister but only chief of state.

The Great Leader Apparently Submits. Taken together, these developments represent a major blow to Sukarno's position and influence, a blow which he seems to be accepting without a fight. Wire services report that the President confirmed the announcement of the Suharto slate and indicated that he would deliver a speech at the swearing-in ceremony.

 

215. Memorandum From Secretary of State Rusk to President Johnson/1/

Washington, August 1, 1966.

/1/Source: National Archives and Records Administration, RG 59, Central Files 1964-66, POL 23-9 INDON. Secret. There is no drafting officer indicated on the memorandum.

SUBJECT
National Security Council Meeting, August 4, 1966

I enclose a paper on Indonesia for discussion in the National Security Council meeting on August 4, 1966./2/

/2/For a record of the discussion, see Document 217.

Dean Rusk/3/

/3/Printed from a copy that indicates Rusk signed the original.

 

Enclosure

INDONESIA

Background

1. On October 1, 1965, the Indonesian Communist Party joined with elements of the armed forces in an effort to stage a coup by assassination. Six of Indonesia's most prominent generals were killed. Loyal Army elements under General Suharto rallied and crushed the coup attempt within 48 hours. This was the beginning of one of the most dramatic political reversals in recent history. A major nation, which was moving rapidly toward a domestic Communist takeover and was intimately associated with Communist China, within three months destroyed the Communist threat and altered significantly its domestic and foreign orientation.

2. The first element in this political change was the destruction of the Indonesian Communist Party, the fourth largest in the world. The Army hunted down and executed the principal Communist leaders. In the small cities, towns and villages groups of youths, encouraged by the Army and motivated by religion, historic local grievances, and fear of their own fate had the Communists taken power, embarked on a systematic campaign of extermination of Communist Party cadres. While the exact figure will never be known, an estimated 300,000 were killed.

3. The second aspect of this political revolution was a systematic reduction of the powers of President Sukarno with the object of retaining Sukarno as the historic revolutionary figure and symbol of Indonesian unity, but depriving him of the power to govern. This process proceeded in stages. In March, Sukarno was forced to delegate extraordinary powers to Suharto, and Subandrio, Saleh, and others of the coterie of Palace followers who in the past have done Sukarno's bidding were removed from power and imprisoned. This was followed in July by a meeting of the People's Consultative Council in which General Suharto's mandate was confirmed and Sukarno was stripped of his position as lifetime President. On July 25 a new cabinet, led by General Suharto and purged of remaining pro-Sukarno figures, was formed. Sukarno remains on the scene, has a capability to obstruct and delay, but has lost the power to initiate or act.

4. Working with General Suharto and the Army were two key leaders: Adam Malik, a former newspaper man whose service as Ambassador to Moscow has modified and rationalized his Marxist orientation; and the Sultan of Djogjakarta--the only public figure with a charismatic appeal to the people of Java comparable to Sukarno's own. In addition, a new and powerful force has emerged on the Indonesian political scene associated with the Army, but apart from it. It is composed of students who have come of age in the post-revolutionary period and are fed up with Sukarno, his empty slogans, and the economic chaos and bankruptcy which he has brought on the nation. These students, moving in huge public demonstrations, have been the cutting edge of political change.

5. On the international side there has been a rapid deterioration of Indonesia's relations with Communist China and the Asian Communist states, and a corresponding improvement in Indonesia's relations with the United States and the West. Foreign Minister Malik announced Indonesia's intention to return to the United Nations and its associated international agencies, and Indonesia has already applied to rejoin the International Monetary Fund and the International Bank for Reconstruction and Development. In June, Indonesian and Malaysian delegations met at Bangkok and reached preliminary agreement to bring an end to confrontation, and Malik has indicated an interest in Indonesian participation in Southeast Asian regional organizations.

6. These political developments took place in an economic situation of wild currency inflation, a bankrupt Central Bank, and a foreign debt of $2.5 billion, whose annual servicing alone comes to more than the country's total annual foreign exchange earnings. The Sultan of Djogjakarta, the minister responsible for economic development, announced early in April a sensible and rational new approach to Indonesia's economic problems. Most of Sukarno's pet projects, which were consuming vast quantities of scarce foreign exchange, have been suspended, and the virtual termination of military confrontation with Malaysia has removed another major resource drain. Money was scraped up earlier this year to purchase rice from Burma and Thailand, and these imports combined with a good domestic rice crop have averted the immediate danger of a food shortage, although without imports, rice may be short in the winter months.

7. There has been, however, only modest progress in dealing with the root causes of Indonesia's economic collapse. The overall cost of living index has increased since October 1, 1965, by a factor of 12 and the amount of money in circulation by a factor of 5. Anti-Chinese riots have intimidated this important entrepreneurial community and caused an exodus of Chinese businessmen and a flight of Chinese capital. The Sultan's sensible words have not been followed by firm measures. The new cabinet inaugurated on July 25 shows considerable strength in the political and social ministries, but the overall level of professional competence of the economic ministers is low and a number of important portfolios remain in the hands of corrupt or incompetent officials. The management capacity of the swollen bureaucracy continues at a low level. It should be noted, however, that Suharto and his associates have up to now given priority attention to the political objectives of establishing themselves in power and restricting the powers of Sukarno. These objectives have been achieved to a major degree. There is no lack of understanding of the severity of Indonesian economic straits and there appears a good prospect that economic matters will now begin to receive more high-level attention.

United States Interests and Objectives

8. Our traditional interest in Indonesia has been to keep the country out of the hands of its domestic Communists and out of the orbit of Communist China. This objective has, through the events of October 1 and their aftermath, for the time being been achieved. While protecting these major gains, our objective now is to help this populous, potentially rich and strategically placed nation--hitherto a disruptive force in Southeast Asia--overcome the inheritance of Sukarno's mismanagement, develop an effective government, and become a constructive force in the area.

Interests and Objectives of our Allies

9. We share these objectives with many of our friends. The economies of Japan and Indonesia are complementary, and Japan wishes to play a leading role in helping the Indonesian economy get back on its feet. The trading nations of Western Europe are also attracted by Indonesia's natural resources and the potential market of 100 million people. For Australia, New Zealand, Malaysia and the Philippines, an economically healthy, politically friendly Indonesia is essential to their national security. Indonesian recovery is also in the interest of the Soviet Union and its Eastern European allies, who regard Indonesia as a desirable market and source of raw materials. For the USSR as well as for the West, an unaligned Indonesia represents an Asian counterweight to Communist China.

United States Strategy and Past Actions

10. Until late March we kept silent on developments in Indonesia, a policy welcomed by the principal leaders of Indonesia's anti-Communist revolution. However, we gave them private encouragement and demonstrated our support by furnishing small amounts of urgently needed supplies. After the March cabinet reshuffle removed Sukarno's henchmen, we responded to Foreign Minister Malik's request for 50,000 tons of rice under PL-480, Title IV, on near-commercial terms. This was followed in June by a similar sale under Title IV of 75,000 bales of cotton on generous terms of interest and repayment. We have informed Malik that we are prepared to consider a further sale of cotton either direct or for third country processing. We have also encouraged other Free World countries to extend emergency assistance to Indonesia, and Japan, the United Kingdom, Australia and West Germany have made varying amounts of emergency grants and credits available.

11. Our strategy has been to provide, and to encourage other friendly nations to provide, such assistance to Indonesia while its leaders complete the process of political consolidation and place themselves in position to deal with the tough problems of economic reform and reconstruction. We have been working closely with Japan and other countries, who share our objectives in Indonesia , to organize a multilateral approach to Indonesia's longer term problems. This will involve a rescheduling of Indonesia's foreign debt, perhaps preceded by a moratorium, followed by other measures which will help Indonesia deal with inflation and restore the shattered export industries on which the economic health of the nation depends. A preliminary meeting of the informal "Aid to Indonesia Club" met in Tokyo on July 19 and a further meeting is planned for mid-September. We and Indonesia's other friends have emphasized that the IMF and the IBRD must play a key role in this reconstruction process. An IMF mission has already visited Indonesia and the new government has issued a formal invitation for the IMF to assist in the development of a stabilization plan.

Future Actions

12. During the short-range period of emergency support we propose to take the following actions:

a. We will continue to use the resources of PL-480 and its successors to provide food and cotton to Indonesia, and may also use CCC credits for this purpose. We are considering sales under PL-480, Title I, to provide rupiahs for our internal needs in Indonesia and to avoid adding to Indonesia's already heavy dollar indebtedness.

b. As soon as we can remove certain legal obstacles to the resumption of aid arising from provisions of the Hickenlooper Amendment (Section 620(c)) and 620(e) of the Foreign Assistance Act, we intend to request a Presidential Determination, required under Section 620(j) of the same act, that furnishing assistance to Indonesia is in the national interests of the United States. Under a Presidential Determination we propose to provide on Indonesia's request:

i. civilian participant training in American universities;

ii. military training in US Service Schools in skills which have a civic action application;

iii. modest amounts of industrial raw material and spare parts to reactivate US equipment already in use in Indonesia;

iv. modest amounts of spare parts and technical advisory service to the Indonesian military for the rehabilitation of previously supplied US equipment for use in civic action projects;

v. text books and reference books at the university level and possibly some technical advice on aspects of an economic stabilization program and other self-help measures; and

vi. participation, if Indonesia so desires, in regional technical assistance of institutional development programs.

13. Our actions in the longer range economic development effort are difficult to anticipate at this time, since we expect to be working with other countries under the aegis of the IMF and hopefully the IBRD in a multilateral setting. As a rough preliminary estimate, based on imperfect data and an uncertain time frame, we might wish to contribute a sum in the range of $50 million (including PL-480) to a multinational program to provide necessary imports to rehabilitate Indonesia's production plant and to restore badly run-down communications and transportation systems. The amount may vary with the hardness or softness of debt rescheduling terms, since debt relief is a form of aid. Depending on the amount and type of funds needed, it may be necessary to ask Congress for supplementary funds to carry out this long term program. We have been in close touch with key members of Congress on this question, have mentioned this rough estimate of possible future needs, and have found them favorably inclined towards our plans for helping Indonesia. Before any such program is likely to begin, however, Indonesia and its creditors must reach agreement on debt rescheduling and Indonesia must begin to implement a stabilization plan. These in turn will require difficult Indonesian decisions in areas such as budget revenue and expenditure, exchange rates and export incentives. Commitment of our assistance would be related to and paced with Indonesian performance in these areas.

14. At some stage we may wish to consider the return of the Peace Corps. Indonesia will need a broad range of middle-level skills, and when the program is resumed, it should include the widest possible spectrum of Peace Corps activities. Its previous entrance and exit had, however, major political overtones, and until we have clear evidence that the Indonesians want the Peace Corps we mean to proceed with caution.

Anticipated Future Problems

The Army

15. The Indonesian Army now and for some time to come will control the destinies of Indonesia. The Army is a major source of strength, and appears to be solidly united behind Suharto. It has a highly motivated, well trained, professionally competent officer corps. Many officers were trained in the United States, and a number of them have considerable competence in civilian administrative skills. It is an army proud of its record in winning Indonesian independence and determined to protect the fruits of this independence. (It has put down major insurgency movements in virtually every major island of the archipelago.) It is an army that has thus far resisted the temptation of a complete military takeover: it has preferred to work with civilian leaders and maintain its image as the servant rather than the master of the state.

16. The military is also a source of potential weakness and vulnerability. It has consumed over the past six years between 60 and 70% of the Indonesian budget, and may find it difficult to accept a more modest share. It has over 300,000 men under arms and is equipped with sophisticated modern weapons, largely of Russian origin, which it now neither needs nor can afford to maintain. It has a basic distrust of the civilian politicians, little patience with the disorder of free political exchange, and no major commitment to democratic freedoms as we know them. There is a danger that the Army may in the course of time move in the pattern of Burma to a military authoritarian state. The armed forces will wish to maintain good relations with the Soviet Union, with whom they have a still unused balance of $110 million of the original loan for military equipment.

Indonesian Military and the US

17. As noted above, many Indonesian officers have been trained in US Service Schools. There are, as a consequence, strong US-Indonesian service-to-service ties. We have, therefore, through our attaches in Indonesia and other direct contacts with Indonesian officers, some capability of influencing their policies and actions. This influence carries with it its liabilities. The Indonesian military, and particularly the Army, have been accustomed to turn to us, as well as the USSR, for military supplies. Indonesian officers in informal conversations have indicated an interest in resuming a military assistance program for Indonesia and have spoken of "requirements," running into hundred millions of dollars, which they hope to obtain from the United States. We will have a difficult task of deflecting these completely unrealistic expectations while continuing to maintain our personal ties and influence. In this context, the training and civic action programs proposed in previous paragraphs take on a special importance and urgency.

Unreasonable Request for Aid

18. Indonesia in the past has dealt with its economic problems by skillful use of political and economic leverage to obtain grants and loans from over 30 countries. This habit of looking to others to deal with their economic problems will persist. All preliminary proposals for economic rehabilitation place undue and over-optimistic reliance on a presumed availability of external resources. Indonesia, in short, would prefer to shift the major burden of its economic recovery onto the shoulders of its foreign friends. Malik and the Sultan have indicated their support of the multilateral approach described above, but we must anticipate in the coming months requests for substantial bilateral assistance justified almost exclusively on political grounds. We should attempt to head them off, but if unsuccessful we should not respond favorably without the most careful scrutiny for the following reasons:

a. Favorable response to these large "emergency requests" will reduce domestic pressures and retard rather than accelerate the process of economic reform;

b. Indonesia's capable trading community and its cadre of western-trained, performance-oriented economists who are preaching the need for forceful domestic efforts to cope with the economic situation will be undercut if we respond to emotional political appeals;

c. If we grant further credits we would not only be adding to Indonesia's debt burden, but would also be projecting ourselves into political difficulties with them because of the conditions we would have to require to be reasonably certain of repayment.

19. A firm but friendly policy of responding bilaterally to short-range, small-scale emergency needs and confining major assistance to the multilateral framework carries acceptable risk for the following reasons:

a. The subsistence sector of the Indonesian economy, embracing 75% of Indonesia's 100 million population, has survived over a decade of monumental mismanagement and continues to have considerable resilience;

b. The fertility of the soil, the general availability of fruit, vegetables and root crops reduces the political pressures of hunger or dire poverty;

c. Indonesia is largely free of absentee landlords and inequitable land distribution;

d. For the time being and for the foreseeable future there is no conceivable political alternative to an Army-dominated government;

e. The political repercussions which they warn us of will operate for the foreseeable future to produce internal reform rather than overthrow of the government.

Indonesia's International Posture

20. While Indonesia has renounced its past close association with Communist China and the Asian Communist powers, we can expect nothing better than non-alignment from Indonesia. Indonesia will continue to remain publicly critical of our actions in Viet-Nam, although Malik from time to time will attempt to soften the impact of these statements by private expressions of understanding. Indonesia, when it returns to the United Nations, will undoubtedly resume its position as one of the more militant of the Asian-African bloc, and while it will no longer stand invariably with Cuba and Albania on major issues in the United Nations, we will continue to find it opposing us on many key questions.

Confrontation

21. The Bangkok Agreement laid the groundwork for termination of confrontation, but it has not yet been ratified by the Indonesian Government. Small-scale border incursions have continued, and there are signs that some elements of the Indonesian Army may attempt to delay ratification in hopes of exacting further concessions from the Malaysians. Malik and Suharto appear sincere in their announced determination to end confrontation, but there may be further delays. In the longer perspective, as Indonesia begins to emerge from its economic difficulties we must anticipate that there will be adventurous elements in Indonesia that may revive efforts to extend control over Malaysia and the Borneo states.

Timing

22. As we approach the problem of consolidating the gains which the Indonesians themselves have achieved in the past ten months, timing is of paramount importance. We must adjust to the pace which the Indonesians themselves have set for securing their own economic and political salvation. To move too quickly, to show a greater sense of urgency in getting on with the job than the Indonesians themselves feel, will give these resourceful people the idea that they can exact concessions for the privilege of helping them. To move too slowly and to be too rigid in our responses in meeting major needs will encourage a latent threat of complete military takeover, and the emergence of an adventurist totalitarian regime. We are dealing not with an economic infant, but a sick giant with historically proven capacity for quick economic recuperation. We are dealing with a talented and resourceful population, proud, self-confident and determined to stand on its own feet. We are dealing with an island nation where the circumstances of geography and the incredible productivity of its soil tend to break problems into manageable units.

 

216. Memorandum From the Assistant Secretary of Defense for International Security Affairs (McNaughton) to Secretary of Defense McNamara/1/

I-25425

Washington, August 3, 1966.

/1/Source: Washington National Records Center, RG 330, OASD/ISA Files, FRC 70 A 6648, 000.1 Indonesia, 1966. Secret. Drafted by Nuechterlein and rewritten by McNaughton.

SUBJECT
NSC Discussion on Indonesia, 1100, 4 August 1966

Problem.

Embassy Djakarta and the State Department have recommended the resumption of limited US economic and military assistance to Indonesia on a short-range emergency support basis. Purpose of this assistance is to encourage the Army-dominated government to take much-needed steps to put Indonesia's economic house in order. However, there is no military justification for a resumption of MAP for Indonesia; the proposed military assistance would be largely for political and economic purposes, to support civic action projects and strengthen US rapport with the Indonesian military through training of Indonesian military officers in US service schools.

Discussion.

The State Department has prepared a paper for the NSC meeting (Tab A)/2/ which concludes that the new Indonesian Government has made sufficient progress in reversing President Sukarno's foreign and domestic policies to justify USG consideration of short-range economic and military assistance. State's recommendations are based on proposals contained in Embassy Djakarta's 144 (Tab B),/3/ which includes specific MAP funded projects. However, these actions would have to be preceded by a Presidential Determination as required under Section 620(j) of the Foreign Assistance Act and by the removal of certain legal obstacles to the resumption of aid arising from provisions of the Hickenlooper Amendment to the Foreign Assistance Act. The JCS have recommended (Tab C)/4/ a small and highly selective military assistance program that would include support for civic action projects and a CONUS training program for Indonesian officers.

/2/Not attached, but see enclosure to Document 215.

/3/Not attached, but see footnote 2, Document 213.

/4/In JCSM-473-66, July 25, attached but not printed.

We are in general agreement with the State Department paper, except that we see no military justification for a military assistance program at this time. The civic action proposal is essentially a political effort designed by the Indonesian Army to improve its image with the public and to avoid large demobilization. While a case can be made that economic and financial assistance to Indonesia is now in the US interest, the same is not true of military assistance. The US has little to gain by building up the Indonesian Armed Forces, which are among the best equipped of any indigenous armed force in Southeast Asia. The Indonesian Army is fully capable of maintaining internal security in the major islands and has received more equipment from the Soviet Union and the United States than it has been able to use. On the other hand, it might be very advantageous to the US to have substantial numbers of young Indonesian officers study in US service schools, as well as in civilian institutions, and also for the USG to support the Indonesian Army's civic action program by providing technical advice, spare parts for engineering equipment, and perhaps some new equipment.

Conclusions.

1. There appears to be no military justification for a MAP in Indonesia in the foreseeable future.

2. Training (especially CONUS training) is probably a good idea. I recommend it (in US).

3. I recommend against other MAP items. I do not want a "non-training" MAP program resumed in Indonesia. The civic action program has political importance, however. I therefore urge that technical assistance, spare parts for civic action equipment, etc., be covered by AID (which may be hard legally) or through sales financed by the Indonesian budget.

John T. McNaughton/5/

/5/Printed from a copy that indicates McNaughton signed the original.

 

217. Notes of the 563rd Meeting of the National Security Council/1/

Washington, August 4, 1966.

/1/Source: Johnson Library, National Security File, NSC Meetings, Vol. 4, Tab 4, 8/14/66, Indonesia. Secret. Drafted by Jorden who described them as "Informal Notes."

The President opened the meeting by calling attention to the recent dramatic change in Indonesia's internal political situation and its foreign policy orientation. He recalled that just one year ago the NSC had met and decided to cut off most U.S. aid to Indonesia which was then rapidly moving toward becoming an out-and-out Communist state.

He asked Secretary Rusk and Mr. Helms to report to the group on recent Indonesian developments.

The Secretary noted that on his recent trip to Asia, he had met with many signs of a new mood and new confidence in Asia. He said the atmosphere was clearly attributable to two things:

(1) Our obvious determination to stand fast in Viet-Nam and to help preserve the physical security of the area;

(2) The abrupt reversal of Indonesia's course.

An important question was whether the Indonesian changes were going to stick. He thought that all things considered there was a good chance they would. There was an outside chance of a revival of Sukarnoism. There was a chance, too, of internal bickering in the armed forces that could break into open conflict. But the Secretary thought both of these chances were remote.

On confrontation with Malaysia, the prospects for an end looked promising.

The main problem was economic. He underlined the external debt problem and the need for rescheduling. He noted the large debt to the Soviets and said we had to be careful that we were not giving aid to Indonesia that merely went into repaying the Soviets.

He estimated the probable need for economic assistance from us at about $50 million the first year.

He stressed the desirability of working through a multilateral framework in providing aid to Indonesia. He said the Japanese role would be particularly important.

Regarding U.S. policy, the Secretary said that we had deliberately moved slowly to date. This was largely a response to Indonesian desires that we not assume too great or obvious a role. We and they recognized that an excessive U.S. reaction to internal events could be the "kiss of death" to the present leadership.

In the short run, our assistance would move largely through PL-480, and he noted that we had already sold rice and cotton to Indonesia through this channel.

He said we were working on the problem of the Hickenlooper amendment, looking to a Presidential Determination that would find aid to Indonesia in our national interest. This awaits certain actions by the Indonesians.

He said it was important to get the Indonesians and the IMF to knuckle down to a comprehensive development plan for the country.

We would have to expect that we would face making a distinction between what the Indos will want and what we think they can effectively use in terms of economic aid.

The Secretary summarized his views by saying:

the problem of Indonesia is of vital importance;
we must be ready to move quickly and effectively;
we must try to speed up the multilateral approach to the problems of debt rescheduling and aid.

The Secretary said he was of the impression that the Congress was in a mood to support this general approach.

Mr. Helms said he concurred in the Secretary's description of the problem.

On confrontation, [less than 1 line of source text not declassified] Malaysia's Foreign Minister Razak would be going to Jakarta at the end of August. He would reach agreement with the Indos that:

(1) Confrontation should be ended;
(2) Full diplomatic relations would be restored as soon as there was reconfirmation of the desire of Sabah and Sarawak to remain in the Malaysian family.

Regarding the present government, Mr. Helms thought the new cabinet was the best in years. He admitted it was somewhat weak in the economic field. But he said it was behind the Triumvirate and strengthened the latter's hand. He thought the three leaders (Suharto, Malik and the Sultan of Jogjakarta) were all good men and that the administration had an aura of stability.

He underlined the economic problems, noting, for example, that 55% of the country's transport was inoperable.

The President said he thought we should follow the line recommended by Secretary Rusk. He stressed the importance of keeping Congressional circles fully informed of developments and of our thinking. He asked for the Vice President's views.

Vice President Humphrey agreed with the need for keeping Congress aware of developments in Indonesia. But he said there was a far more sympathetic mood on the Hill now. He said many Congressmen saw what had happened in Indonesia as a consequence of our firmness in Viet-Nam.

He said it was vitally important for us to encourage other countries to lend a helping hand in Indonesian economic rehabilitation. He noted he had talked with Minister Miki of Japan about this and that Japan had recently granted Indonesia a $30 million credit.

The role of the IMF was discussed and it was noted that there was a problem of Indonesia's $47 million debt to the Fund which would have to be solved.

The President asked for Mr. Rostow's views.

Mr. Rostow said two things were worth noting:

(1) That Indonesia provided a chance to establish a new pattern of multilateral help in Asia;
(2) That here was an opportunity to link multilateral assistance with the newly established Asian Development Bank.

This was a pioneer case and there was a chance to develop around Indonesian aid the Asian equivalent of CIAP in Latin America. Asians who needed help should go to Manila, not to Paris; a new and encouraging pattern could emerge and should be encouraged.

The President asked whether this was not along the same line as the recommendations for Africa in the Korry report./2/

/2/Dated July 22, 1966; printed in part in Foreign Relations, 1964-1968, vol. XXIV, Document 215.

Secretary Rusk said that the African Development [Bank] would be weaker, but that the Asian Development Bank would have real strength.

The President asked for an estimate of how much the proposed assistance was going to cost.

Mr. McNaughton thought the cost of military aid would be small--less than $10 million.

Secretary Rusk thought that the overall cost--including PL-480 and cooperation in multilateral aid--would be less than $100 million.

There was a brief discussion of the cost for assistance to Viet-Nam.

Mr. Gaud said the problem in Viet-Nam was less a matter of money than of priorities and Vietnamese capabilities to absorb.

On Indonesia, Mr. Gaud said that the emphasis on multilateralism could not be too great. He said that the Indonesian case provided an opportunity to give an effective answer to Senator Fulbright.

He also noted that the requirements for additional aid might be less than we think. He noted that refunding of Indonesia's large debt would free considerable funds which could take the place of external aid. He also noted that with our PL-480, the Japanese loan and other sources, some $80 million had gone into Indonesia in recent months in short-term assistance.

The President asked what the chances were for a comeback by Sukarno.

Mr. Helms said he thought the president [present] leadership in Jakarta could control this.

Secretary Rusk noted that the Army and others knew their lives would be in danger if Sukarno, Subandrio and Co. returned to power. They therefore had a large personal stake in preventing any revival of Sukarnoism.

The meeting ended with Secretary Rusk commending the Korry report on Africa to the principals as one of the best jobs of its kind he had seen in a long time.

W. J. Jorden

 

218. Intelligence Note From the Director of the Bureau of Intelligence and Research (Hughes) to Secretary of State Rusk/1/

No. 501

Washington, August 12, 1966.

/1/Source: Johnson Library, National Security File, Country File, Indonesia, Vol. VII, Secret; No Foreign Dissem; Controlled Dissem.

SUBJECT
The Indonesia-Malaysia Accord: Possible Pitfalls Ahead/2/

/2/The CIA's Office of National Intelligence prepared a memorandum for the Director, August 16, entitled, "The End of 'Confrontation:' The Debit Side," which concluded that although the end of confrontation would eliminate the threat of open warfare between Indonesia and the British Commonwealth and allow Indonesia to concentrate on economic affairs, it would also lead to increased Indonesian political influence in Malaysia and progressive diminution of British political and military influence. These developments would alter Malaysia's pro-Western orientation, and increase tension between Malays and Chinese. Although Indonesia gave up efforts to subvert Malaysia, it would not abandon its long-term goal of becoming the dominate power among peoples of Malay blood. (Ibid.)

The signing of the Bangkok Accord in Djakarta on August 11 ends Indonesia's military confrontation of Malaysia, but Indonesia's interest in dismembering Malaysia remains active and there are still obstacles to stable relations.

Terms of the Accord. The terms of the Bangkok Accord, negotiated by Malaysian Deputy Prime Minister Razak and Indonesia's Foreign Minister Malik at the end of May, are brief and simple. The tone is set by the reference in the opening phrase to "the brotherliness" between the peoples of Indonesia and Malaysia "bound together by history and culture from time immemorial." In Article One, Malaysia agrees to a reaffirmation by the people of Sabah and Sarawak "in a free and democratic manner as soon as practicable through general elections" of "their previous decision about their status in Malaysia." In Article Two, Indonesia and Malaysia agree to resume diplomatic relations and exchange diplomatic representatives. And, finally, in Article Three, both countries agree that "hostile acts between the two countries shall cease forthwith."

Secret Letters. Although Malaysia promptly accepted the Bangkok Accord, Sukarno refused to sign it. As an inducement to Sukarno, General Suharto in June proposed an exchange of secret letters with Malaysia at the time of the formal signing of the Bangkok Accord. These would delay implementation of Article Two until Article One had been carried out; in other words, de jure establishment of diplomatic relations would have to await the elections in Sabah and Sarawak. With considerable reluctance and after the exchange of many draft letters, the Malaysian government agreed.

It seems doubtful that the secret letters will remain secret for long. Neither government however seems to fear that public disclosure, if it occurs, will undermine its ability to portray the Bangkok Agreement as a national victory: for Kuala Lumpur a victory in bringing about Indonesian recognition of Malaysia and for Djakarta a victory in bringing about a reascertainment in Borneo.

The Promise of Reascertainment Could Cause Problems. The reaffirmation provision is one that the Malaysians found it very difficult to accept. Initially they were given to understand by the Indonesians that the requirement was pro forma; in exchange for inclusion of the commitment in the agreement, Indonesia would refrain in future from insisting that it be implemented. In subsequent negotiations, however, it became clear that the Indonesians had shifted from this position and regarded an actual reascertainment as indispensable. Present Malaysian expectations, bolstered by the language of the agreement, are that the requirement can be satisfied by a question on the ballot at the next regular election in each state that will, in effect, produce an endorsement of the existing situation.

Nevertheless, the promise of reascertainment may bring political rumblings within Malaysia. As far as is known, political leaders in Sabah and Sarawak were not consulted. Indeed the Chief Minister of Sarawak, upon hearing the rumor that the Bangkok Accord provided for a reascertainment, announced that he would not allow such a question to be put on the ballot in his state.

In addition the date of the elections could be controversial. Indonesia wants them held as soon as possible. Although Razak has said they will be held "next year," Malaysia is not necessarily prepared to act very quickly. Elections are not mandatory in Sabah until mid-1969 and in Sarawak until mid-1968. While there are domestic political reasons why an election might be held in Sabah in 1966 or 1967, there is serious doubt that electoral districts could be delineated and voter lists compiled in time for an early election in Sarawak. More compellingly, it is unlikely that Kuala Lumpur, which only this June put the present government of Sarawak into power by somewhat questionable means, would want that administration tested in an early election.

Quite apart from the question of timing, other issues may make the reaffirmation provision a troublesome one. Indonesia, where interest in dismembering Malaysia is by no means confined to Sukarno, is already supporting dissident Sabah and Sarawak politicians and is stepping up the infiltration of agents into both East and West Malaysia. Moreover, there are indications that Indonesia may request observers at the elections. If it does so, the Malaysians, recalling the problems over observers for the UN survey in August 1963, may be reluctant to comply. There could be disagreement on this point and delay while the question is settled, or Indonesia could use the absence of observers as a pretext to denounce the results of an election just as it denounced the UN survey.

Whether either side will refrain from exploiting the ambiguities of the reaffirmation procedure to make difficulties with the other, will depend heavily on the survival of conciliatory attitudes in Kuala Lumpur and Djakarta. Kuala Lumpur must continue to see the advantages of obtaining Djakarta's full formal recognition of Malaysia's sovereignty within present territorial limits as outweighing distaste for going through even the motions of a reaffirmation and overlooking the clandestine activities the Indonesians seem intent on maintaining. Restraint in Djakarta on the other hand, may be closely tied to the calculation that prospects for substantial economic assistance from the West are significantly related not only to the termination of military confrontation but also to the maintenance of normal and amicable relations with Malaysia.

 

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

Djakarta, August 13, 1966, 1200Z.

/1/Source: National Archives and Records Administration, RG 59, Central Files 1964-66, AID (US) INDON. Confidential. Repeated to CINCPAC for POLAD.

749. Joint State/AID/DLG message. U.S. Short Term Assistance to Indonesia. Ref Djakarta 144./2/

/2/See footnote 2, Document 213.

1. I recommend that we now proceed with implementing program of US short-term assistance to Indonesia outlined in reftel and spelled out in greater detail in follow-up messages.

2. Since sending of reftel one month ago, Indonesia has installed a new cabinet which, together with filling of subcabinet positions, has provided Indonesia with greatly improved government, especially taking into consideration Sukarno's ever-dwindling influence. Moreover, during past month, Indonesia has brought its three-year-old costly confrontation with Malaysia to a close and in other ways as well has abandoned reckless jingoism in favor of a constructive role in international affairs. The road to resumed US assistance has been further opened by our investigation of ways to remove statutory obstacles impeding resumption such aid, such as lack of procedure to settle private claims, and I believe they now have been resolved. Claims for damages to Embassy are being paid.

3. Though GOI will continue to face problems of enormous magnitude in rehabilitating its long neglected economy and will be challenged all along the political front, the triumvirate, backed by major segments of the army, students, and population generally, will strive toward objectives which we regard as consistent with our own interests and purposes. If current momentum is sustained, Indonesia is likely during next several months to rejoin the UN and other international agencies including IMF and IBRD and to assume an ever closer relationship with its immediate neighbors (Malaysia, Australia, Thailand, Philippines) as well as retain close behind-the-scenes consultations with US officials. Given this momentum, we can see real prospects for a new and wider association of Southeast Asian countries in which Indonesia, larger in population than all the others combined, will play a fraternal role. Though less clear, we would hope to see Indonesia face up in more dynamic fashion to handling its economic problems.

4. However, we do not believe that this momentum will be sustained without adequate early evidence of assistance from other countries, especially the US. Aside from argumentation contained reftel, there is strong belief here amongst all officials, notably amongst military who likely continue to be dominant element in Indonesia for some time, that foreign aid and investment are vital and urgent. Their belief in this causal relationship has been a key factor in shaping rational official decisions. If Indonesian Government supporters believe that needed aid is unavailable, we may see government giving in to counsels of discouragement and a resurgence of the Sukarnoists who will argue that present GOI policies have been built on false expectations. Top-level Western-trained Indo economists, now hesitating over whether to participate fully in new government, will drop out if they feel US support for new government is lacking. Moreover it is inadvisable to await outcome of Tokyo talks before lending real helping hand. Even though we fully agree on desirability of multilateral approach to Indonesian assistance program this may take some time to work out. Meanwhile there are compelling needs for some assistance immediately.

5. I therefore request authorization now to discuss with Malik short-term bilateral US assistance on basis program outlined reftel and subsequent messages. We hope be forthcoming soonest, at least on educational exchange and hopefully on additional activities proposed reftel. In particular, we recommend quick action on: (a) participants and book program; (b) authorization for negotiations for rice and cotton on PL 480 Title I basis as preferable to Title IV in view overall stabilization and debt rescheduling objectives; (c) authorization for negotiations on Title II few programs based continuation Indramaju project and initiation high-impact elements new Demak proposal; and (d) authorization for negotiations on spare parts and raw materials loan, with consideration being given both to IBRD/IDA channel (if IBRD technician can accompany IMF team and thus reach Indonesia sooner than technicians under any other possible arrangement), and to direct bilateral loan which would have advantage of restriction to US suppliers only. Additionally, we believe it would be useful sometime soon to commence negotiations on investment guarantee agreement which would be of major immediate help to our current discussions with US business representatives now visiting Djakarta as well as considered essential to long-term maintenance of American private investors position in Indonesia. We will be commenting further on this point.

6. The MAP proposal set forth reftel remains unchanged and represents a logical and manageable start in this highly important facet of assistance. Certain areas of assistance for the Indonesian military are not finite and depend in some measure on priorities which are currently being determined by the Indonesian army staff under its G-4, MajGen Hartono. In the main, it is expected that the military side of the overall assistance program will be dominated by an emphasis on civic action in its broadest sense to include schooling, spares for engineer equipment, overhaul and repair of transportation means and equipment. MAP and aid will be complementary in many areas and especially in civic action. General Suharto's outer island development plan including aerial survey is not included in present recommendations pending further study. Indications are that it remains high on General Suharto's personal list of priorities.

7. Request urgent action be taken ensure I receive instructions for discussion with Malik while current momentum resulting from signature Malaysia-Indonesia agreement is high and before his departure for Moscow (still uncertain, possibly as early as August 27), so that no obstacle is left to prevent GOI cabinet action on further forward steps in Malik's absence.

8. Country Team concurs.

Green

 

220. Memorandum From William J. Jorden of the National Security Council Staff to President Johnson/1/

Washington, August 26, 1966.

/1/Source: Johnson Library, National Security File, Country File, Indonesia, Vol. VII, 5/66-6/67, [2 of 2]. Secret. Rostow "OK"ed and initialed this memorandum on August 28.

SUBJECT
Presidential Determination on Aid to Indonesia/2/

/2/The Presidential Determination was attached to Rusk's memorandum (see footnote 3 below) and is also in the Johnson Library, National Security File, Country File, Indonesia, Vol. VII, 5/66-6/67, [2 of 2].

Secretary Rusk recommends/3/ that you sign the attached Presidential Determination under Section 620 (j) of the Foreign Assistance Act. The Bureau of the Budget (Acting Director Hughes) concurs/4/ as does AID Director Gaud.

/3/Rusk's recommendation was in an August 23 memorandum to Johnson. (National Archives and Records Administration, RG 59, Central Files 1964-66, DEF 19-8 INDON)

/4/Philip S. Hughes concurred in an August 25 memorandum to Johnson. (Johnson Library, National Security File, Files of Walt W. Rostow, Meetings with the President, Apr.-Dec. 1966)

The Determination will permit State to begin talks with the Indonesians on an interim assistance program. As discussed at the recent NSC meeting on Indonesia,/5/ our hope is that long-range assistance can be worked out on a multilateral basis.

/5/See Document 217.

Ambassador Green hopes we can tell the Indonesians that we are ready to move ahead on short-term emergency aid for the Indo economy before Foreign Minister Malik leaves for Moscow on September 2.

Items that might be considered for action under this Determination are: (1) PL 480 food and cotton; (2) spare parts and replacements for U.S. equipment now in Indonesia; (3) participant training; (4) technical assistance, including advice, textbooks and training aids; (5) possible inclusion of Indonesia in regional development programs; (6) modest scale resumption of civic action training of the military.

State and AID estimate that such interim programs, excluding PL 480, might cost somewhere between $12 million and $22 million. There is no commitment on any of the above; the list is only illustrative.

Congressional leaders have been kept informed of Indonesian developments. The specific question of immediate, short-term aid resumption has not been posed.

State and AID wonder whether you prefer:

1) to proceed with PD as is;

2) to sign PD but withhold announcement until key Congressional leaders and Committee chairmen can be informed;

3) to get a reading from key Congressmen before proceeding.

The Indonesian economy is in shambles. The new government desperately needs short-term help. It would be to our great advantage to move quickly on some of these modest but psychologically important programs before a mood of desperation sets in Djakarta. It would help greatly to be able to tell the Indonesians of our willingness to begin talking about some of these matters before Malik takes off for Moscow.

I would therefore recommend course 2 above./6/

/6/There is no indication on the memorandum as to Johnson's preference, but after consultation with key Congressional leaders, as described in a memorandum of conversation by Douglas MacArthur II, August 30, and a September 1 memorandum from Rusk to Johnson (both National Archives and Records Administration, RG 59, Central Files 1964-66, POL 19-8 US-INDON), the President approved and signed the Determination. (Memorandum from Rostow to Johnson; August 31; Johnson Library, National Security File, Country File, Indonesia, Vol. VII, 5/66-6/67, [2 of 2]. The signed Determination, September 1, is ibid.

Bill Jorden

 

221. Memorandum Prepared for the 303 Committee

Washington, September 20, 1966.

[Source: National Security Council, Special Group/303 Committee Files, Subject File, Indonesia. Secret; Eyes Alone. 1 page of source text not declassified.]

 

222. Memorandum From Vice President Humphrey to President Johnson/1/

Washington, September 25, 1966.

/1/Source: Johnson Library, National Security File, Name File, Vice President, July 1, 1966, Vol. II. No classification marking.

SUBJECT
Memorandum of Conversation with Adam Malik

I met with His Excellency Adam Malik, Foreign Minister of Indonesia, at the Sheraton Ritz Hotel, Minneapolis, Minnesota, on Sunday, September 25, 1966. Accompanying Mr. Malik were his aide, Mr. Widjatmika, and General Suharto's personal advisor, Colonel Soejono.

Mr. Malik expressed his appreciation of my seeing him in Minnesota. He said that he was specifically requested by General Suharto to extend his personal greetings and recognition of my encouragement to the anti-Communist forces of his country, dating back to 1963.

Mr. Malik reported on his conversations with U.N. Secretary- General U Thant and indicated he expected Indonesia to be formally re-seated at the General Assembly by Wednesday or Thursday of this week. In response to my questions and in the course of our conversation about Indonesia's future U.N. role, Mr. Malik stated that as part of its transition from President Sukarno's leadership, which had favored the admission of Communist China to the U.N., his government's delegation this year would abstain and thus retreat from their previous position. He stated that he and his government preferred a two-China policy in the U.N.

Mr. Malik stated that his government desired to strengthen its relations with Taiwan and was, in fact, entering into an agreement for Taiwan to process cotton to provide Indonesian clothing.

Mr. Malik made clear to me his country's sympathetic understanding of the U.S. role in Asia and Vietnam. He has instructed his government's representative in Cambodia to try to open channels of communication to Hanoi. He stated that General Suharto's success in defeating the Indonesian Communist forces was directly influenced by the U.S. determination in South Vietnam. He too hoped for a negotiated settlement to end the bloodshed and commended your heroic efforts in this regard. But he made it clear that a U.S. withdrawal and a Communist victory in Vietnam would be a direct threat to his country.

Mr. Malik was uncertain as to how effective a role his government could play in Vietnam. He deeply regretted that his private conversations with President Marcos of the Philippines as to Indonesia's possible mediation role there was reported to the U.S. press by Marcos. He said this would set back their efforts for the time being.

He and General Suharto understand that with Indonesia's large population and great potential wealth they could play a major future role in Asia and the U.N. They would like to do this increasingly as a friend of the U.S. For the moment, however, they are severely handicapped by a dire economic emergency. Their own government's political stability depends upon their being able to provide food and clothing for their people.

Mr. Malik, in response to my question, agreed with the U.S. early reluctance to take the lead in helping the new Indonesian government and thus possibly provide President Sukarno with ammunition in that country's internal political struggle. Colonel Soejono, however, speaking for General Suharto, felt the concern was unwarranted. This was the only difference between the two to manifest itself. Both, however, were now eager for immediate aid.

Specifically, Indonesia requires large amounts of rice and is attempting to obtain rice not only from the U.S. but also from Burma, Thailand and some from Taiwan. They need much more from the U.S., however, than they now have reason to believe they will receive.

Indonesia's cotton need is also great and Mr. Malik referred to the U.S. overabundance of cotton. He said Indonesia is eager not only for PL 480 aid in cotton but would like to begin making commercial purchases under long-term credits.

I suggested increased uses of wheat and bulgar, but was told that there was a consumer resistance due to a lack of understanding and custom. Mr. Malik agreed that it would be in the long-term interest of Indonesia for wheat and bulgar to be increasingly introduced.

Mr. Malik emphasized that his country's urgent rice and cotton needs were also essential to feed and clothe the troops. With the ending of confrontation on the Malaysian border and to keep the military from becoming restless, it was necessary to keep the large numbers of troops in Indonesia satisfied and occupied. General Suharto intends to turn the army into a public works engineering corps to improve internal transportation problems and undertake similar projects.

Mr. Malik hoped you would recognize that his government has acted responsibly and expeditiously to help itself and to play a responsible role in the world community. He pointed to the ending of the confrontation in Malaysia and to the U.N. readmission as examples. He also assured me that his government was taking all proper steps to meet its economic problems.

Indonesia:

(1) is working closely with the World Bank and the IMF and intends to join the Asian Development Bank.

(2) is cooperating fully with the Tokyo group of creditor nations.

(3) is about to enact new legislation to encourage foreign capital investment.

(4) is eager to sign an agreement with the U.S. for an investment guarantee program.

(5) would like to begin a student, leadership, and cultural exchange program with the U.S.

(6) would like USIA assistance in providing low-cost paperback books for students in both English and Indonesian.

The conference concluded with my urging Mr. Malik to keep in very close touch with Ambassador Green in Jakarta. I assured Mr. Malik that the Ambassador had our government's greatest confidence. Mr. Malik expressed his respect and warm friendship for Mr. Green and his appreciation of Mr. Green's understanding and cooperation. He also stated his satisfaction at his meeting in Washington with Assistant Secretary of State Bundy and with the assistance already under way in food, cotton and spare parts. He expressed his hope that I would continue to maintain a personal interest in a democratic Indonesia and would continue to keep in touch with him.

 

223. Memorandum of Conversation/1/

Washington, September 27, 1966, 12:30-1 p.m.

/1/Source: National Archives and Records Administration, RG 59, Central Files 1964-66, AID (US) INDON). Secret. Drafted by Underhill and approved in S on November 26. The memorandum is Part I of III. On September 24 Bundy sent Rusk a briefing memorandum and talking points for this meeting, which Rusk saw. (Ibid., POL 7 INDON) The time of the meeting is from Rusk's Appointment Book. After the meeting Rusk hosted a lunch for Malik and his party. (Johnson Library, Rusk Appointment Book)

SUBJECT
Indonesian Economic Situation

PARTICIPANTS

Indonesian Foreign Minister Malik
Ambassador Palar
General M. Jusuf, Minister of Light Industry
Mr. A. Sani, Under Secretary for Political Affairs
Colonel Sudjono
Mr. E. Tobing

The Secretary
Assistant Secretary William P. Bundy
Ambassador Green
Mr. Francis T. Underhill, Indonesian Country Director

The discussion during Foreign Minister Malik's call on the Secretary concentrated on Indonesia's economic situation and Viet-Nam. Indonesia's readmission to the UN, multilateral organizations, and Indonesia's non-aligned foreign policy were touched on briefly./2/

/2/Malik met with William Bundy and Ball on September 23. (Memoranda of conversation, both September 23; National Archives and Records Administration, RG 59, Central Files 1964-66, POL INDON-US and POL 2 INDON) In describing the discussions with Ball and Bundy to the Embassy in Djakarta, the Department stated that the meetings "covered familiar ground with Malik laying stress on economic situation and importance of interim assistance." (Telegram 53857 to Djakarta, September 24; ibid., POL 7 INDON) In a September 26 meeting between Malik and Thompson and Green, Malik stated that there was probably no substance to statements made in 1965 that Indonesia would explode an atomic device. Malik assumed it would have had to have been a Chinese device, but he doubted that China would have permitted it. Malik also discussed Indonesia's relations with the Soviet Union and North Korea. (Ibid., POL INDON-US)

Economic Situation

1. Foreign Minister Malik said that Indonesia's principal short-range problem was providing adequate food for its population and sufficient clothing for the Muslim Lebaran holiday in December. He acknowledged the assistance which the United States has already provided to help meet these needs. He went on to say that it was not the size of foreign assistance that was important, but rather the right kind of assistance that would help Indonesia's own productive capacity to improve. Indonesia, the Minister continued, is suffering from the legacy of the former regime and is saddled [with] economic chaos. There is also, he added, a continuing residual threat from Communist elements.

2. The Secretary noted that Ambassador Green had been discussing with the Foreign Minister various kinds of emergency assistance which the United States was prepared to furnish, and said that there was understanding and sympathy for Indonesia's problems within our government. The IMF and the creditor nations are organizing, he continued, for a cooperative effort to help Indonesia, and we are ready to do our part. The Secretary stressed that external resources could play only a marginal part in the development effort and that Indonesia itself must carry the main burden. He cited the Alliance for Progress in Latin America and United States assistance to India as examples. In connection with the Tokyo meetings, the Secretary said that in his talks with Soviet Foreign Minister Gromyko in New York he had expressed our views on the importance of Soviet cooperation in a multilateral solution of Indonesia's debt problems and emphasized that the creditors meeting should in no sense be considered as an anti-Soviet conspiracy. Mr. Gromyko, continued the Secretary, received these views without polemics, but gave no indication of his government's position. The Secretary noted the importance of non-discriminatory treatment of all of Indonesia's creditors and said that any settlement that would imply payment of the Soviet debt at the expense of the United States and other western creditors would give us serious political problems. Mr. Malik said that he anticipated no difficulty in obtaining Soviet cooperation; they had in fact little choice but to accept the Tokyo principles.

 

224. Memorandum of Conversation/1/

Washington, September 27, 1966, 10:45-11:05 a.m.

/1/Source: National Archives and Records Administration, RG 59, Central Files 1964-66, POL INDON-US. Secret. Drafted by Green and approved by William Jorden on September 30. William Jorden also prepared a memorandum for the record of this meeting on September 27. (Johnson Library, National Security File, Country File, Indonesia, Vol. VII, 5/66-6/67) The meeting took place in the White House. The closing time of the meeting is from the President's Daily Diary. (Ibid.)

SUBJECT
Indonesian Foreign Minister's Call on the President

PARTICIPANTS

The President
Indonesian Foreign Minister Adam Malik
Mr. A. Sani, Director General of Indonesian Foreign Office
Col. Sudjono, Personal Aide to General Suharto

Walt W. Rostow
William Jorden
Ambassador Green

1. After thanking the President for this opportunity to visit his office, Foreign Minister Malik described what he regarded as Indonesia's most significant steps forward in recent months: Ending of Confrontation, entering into a constructive role in Southeast Asia's regional affairs, resuming membership in the IMF, IBRD, the UN and its specialized agencies, as well as participating in the ADB.

2. The President asked the Foreign Minister as to his views on what might be done, that is not already being done, to bring peace to Viet-Nam.

3. The Foreign Minister replied that his Government had had talks with officials of Thailand, Malaysia, the Philippines and other Asian countries regarding Viet-Nam. He felt that all these countries had a strong common stake in seeking peace for Viet-Nam. However, Indonesia believes that any role which it could play in promoting peace should be pursued quietly with minimum public notice. Indonesia would thus hope to be in a position at the right time to exert a useful influence toward resolving the conflict. Meanwhile, it was his view that South Viet-Nam and its allies were left with no alternative but to maintain a strong position in defending South Viet-Nam.

4. As to the President's specific question about what the U.S. should or should not be doing in Viet-Nam, the Foreign Minister said that his country felt it was going to be difficult to reach any peaceful solution as long as the bombings of North Viet-Nam continued. He nevertheless recognized that North Viet-Nam is sending men and supplies to South Viet-Nam so that it may be difficult for the U.S. to cease bombing of installations related to these operations.

5. The President agreed with this latter observation, commenting that the U.S. is prepared to stop the bombing if the other side halted its aggressive actions. The President then inquired whether, in the Foreign Minister's opinion, the Communists had been decisively beaten in Indonesia.

6. The Foreign Minister replied that the PKI has suffered a major setback but it still retains recovery capabilities which, if the new Government proves unable to improve economic conditions, could well lead to a resurgence of Communism. Thus, Indonesia's fundamental task is improvement of the nation's economy.

7. In response to the President's inquiry as to what is being done to cope with this problem, the Foreign Minister replied that his Government's immediate need is food and clothing for the people, reactivation of industries, infrastructure improvement, and above all, overcoming the serious inflation now gripping Indonesia. Mr. Malik referred briefly to the Government's stabilization program which is now getting underway and which envisages a balanced budget in 1967 assuming an adequate amount of new foreign aid.

8. Mr. Rostow elaborated on steps which Indonesia is taking in the field of economic recovery. He described the role of the Fund and the Bank in advising Indonesia on its stabilization program, the outcome of the Tokyo meetings on debt rescheduling, and the close cooperation we hope to achieve with other countries in regard to future assistance to Indonesia.

9. The President said that he thought it most important that close cooperation be maintained between Indonesia and those countries providing assistance in order to make most effective use of all resources, external and internal, required for Indonesia's economic rehabilitation. He believed that these efforts should relate to a specific rehabilitation and development plan drawn up in consultation with a competent, objective authority such as the IMF.

10. The President said he was watching developments in Indonesia with the greatest interest, and he extended to Foreign Minister Malik and his associates his best wishes.

Volume XXVI Index


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