290. Memorandum From Michael V. Forrestal of the National Security Council Staff to the Assistant Secretary of State for Far Eastern Affairs (Harriman)0
SUBJECT
- Aid to Indonesia
I have gone over rather carefully the “Plan of Action for Indonesia” dated September 15, 1962 (as revised).1 I still have the doubts which I expressed to you after a cursory reading of the Plan. I think generally that it tends to get us too deeply involved in the very large and complex problems of Indonesian balance of payments and internal inflation.
I think it would be quite dangerous for us at this early stage to start planning for long-range Indonesian recovery and development. The Plan gives some indication of the enormity of the problem, pointing out that Indonesia’s 1963 balance of payments deficit will total $295 million of which more than half ($170 million) represents repayment of outstanding foreign debts which are largely Soviet. I think it would take something of a political revolution to get a meaningful program through Congress if our object is to tackle their balance of payments problem. Not only are the amounts involved staggering, but the political repercussions of even indirectly paying off debt incurred for military equipment in the Soviet Union would be deafening.
Even leaving aside problems of size and domestic politics, I seriously question whether Indonesia presently has the kind of Government [Page 634] with whom we could fruitfully cooperate in achieving fiscal stability and economic reform. My impression from the cables is that attempts by us to cajole and induce the Indonesian Government to follow classic policies towards monetary reform would not only be met with resistance, but also with suspicion. To the extent we became identified with some of the unpopular reforms such as those suggested in the last paragraph of page 5 of the Plan, we could become most unpopular. I am not at all sure either that we can successfully hide behind the skirts of the IMF, since at some stage or other we would be called upon to associate ourselves with any IMF plan and, as the memorandum recommends, assist in financing it.
The “immediate program” set forth in the Plan is, I think, worth the doing. We certainly should be eager to offer whatever emergency food relief and spare part assistance that seems justified. The same holds true for civic action, Peace Corps, and paramilitary assistance. Perhaps as we learn more about their physical needs as distinguished from their fiscal and monetary problems, we will be able to recommend other programs and possibly projects which could be useful. But I do not think we ought to encourage the Indonesians to think that we can bail them out of their international payments problems or their budgetary difficulties until we are convinced that they have the insight and the guts to carry out needed reforms on their own.
- Source: Department of State, Central Files, 798.5-MSP/9–2462. Secret. A note on the source text indicates that Ambassador Jones, who was in Washington for consultations, saw the memorandum. A note at the end by Deputy Assistant Secretary of State for Far Eastern Economic Affairs Avery F. Peterson reads: “In short, for reasons you know of, Mike comes down for emergency support only at this stage. AVP”↩
- A draft of the enclosure to Document 291.↩