501.BC Indonesia/6–1049: Telegram
The Acting Secretary of State to the Consulate General at Batavia 1
320. Usgoc 379. From State and ECA: Dept has recently noted from various sources expressions of a defeatist attitude on part of certain Neth and Repub officials re eventual outcome in Indonesia. Concern of these officials centers upon danger that Hatta Govt, after restoration, may not be able successfully to resist extremist pressures. Both sides imply that large measure of responsibility devolves upon US for achievement polit settlement within framework SC Bes Jan 28, which remains objective US Indonesian policy.
In view foregoing we think present propitious time effectively to put forward measures designed to strengthen ability of Hatta Govt to carry out its commitments under recent agreement. Fact that Slav Group has officially for first time at recent GA session attacked Hatta Govt, supports the view that suitable aid from this Govt at this time [Page 421] may be essential to Repub Govt’s final integration into stable non-Communist USI.
As one such measure Dept has explored with ECA possible resumption ECA aid to Indonesia along line set forth below. Prior to reaching final decision on such program Dept wishes your very frank and considered opinion as to its feasibility and timeliness.
Unexpended balance of final 1949 ECA allotment to Indonesia is about $5 million which might be increased to $9.1 million if Neth consents to re-transfer to Indonesia $4.1 million, representing off-shore purchase of copra by Bizone in Indonesia. This sum might be quickly made available by ECA, and ECA might also provisionally allot part or all of $10 million contained in fiscal 1950 estimates for Indonesia submitted to Congress.
Plan wld be to announce resumption ECA aid to Indonesia specifying (a) Resumption only for interim period until settlement between Dutch and Indonesians reached (for ECA unable operate in areas which are not dependent areas of participating countries and direct assistance thru Neth impractical and undesirable), (b) Aid being renewed for area as whole with expectation aid be distributed throughout Indonesia in accordance economic requirements of various parts of an integral economy, (c) Resumption aid made possible by cooperative attitude both Repubs and Dutch in reaching agreement to make settlement.
In broaching with Neth Govt resumption aid Indonesia here described ECA wld base its offer on expectation May 7 agreement will in near future create conditions suitable for effective economic program throughout entire area including Repub territory. ECA and State Dept would make clear that pacification of Indonesia had resulted from agreement reached by Dutch and Repubs and that this had made possible temporary renewal aid to Indonesia as whole. Repubs cld therefore claim credit as well as Dutch for ECA supplies thus assured Indonesia. Assume where distribution normally through private channels this wld be continued by Dutch. State and ECA cld however suggest to Dutch that Repub authorities shd handle distribution whenever distribution normally through local govt channels. May be possible to formulate distribution plan for entire area by both sides by asking authorities in Indonesia to submit full statement requirements and proposed distribution program of available supplies of particular commodities throughout Indonesia. Moreover, shd State report obvious discrimination by Dutch against Repub areas ECA prepared consider ad hoc remedies.
Resumption aid shd afford opportunity during interim period to explore and secure means later non-ECA financing. In view importance [Page 422] Indonesia as substantial potential dollar earner for ERP countries, ECA considering taking initiative enlisting interest International Bank and/or Eximbank in financing Indonesian recovery. Resumption aid plan might therefore be fol by sending economic mission Indonesia to appraise possibilities.
Your comments requested. Specifically Dept wld like your estimate as to whether suggested course wld strengthen Hatta Govt vis-à-vis extremists or have reverse effect. Dept mindful of possibility (a) it might appear in Indonesia as pro-Dutch move by US inasmuch as ECA agreement wld be between US and Neth Govt and subject in whole or in part to Dutch administration or control, and (b) it might subject Hatta to criticism on grounds that he wld be sacrificing best interests of Repub under pressure of promised ECA aid. On other hand, it wld promise promptest available means of alleviating acute econ shortages in Repub territory as well as in other parts Indo and thus might contribute substantially to achievement political settlement and to viability such settlement when reached.
If plan appears to you helpful, what are your views as to timing in relation to restoration.
- Repeated as 499 to The Hague “for info. Baruch and Valentine.” The latter headed the ECA mission in the Netherlands.↩