Created: 6/11/1958

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To estimate the current situation and probable developments in Indonesia.


Indonesia, the replacement of the provisional regimeuly electedis an essential step toward the developmenttable and effectiveWe believe that thewill probably meet itsto hold Indonesia's first national electionsarliament and for aassembly sometimelections in themselves, however, will not solve the many problems facing thenor will they necessarilytable government

Even after elections, much will depend on the actionsew political leaders, whose personal goals and motives are not readily discernible. At present,Sukarno is the principal national leader. His prestige is based on his early leadership in the struggle forhis popularity with the Indonesian people, and his claimed independence of political party. Hence, heocus of loyaltyariety of political and military factions.

The internal security problemajor obstacle to the development of stable government in Indonesia.of dissident elements has been hampered by political considerations and by the limited effectiveness of the army.

However, we believe that no dissiden group has the capability of overthrowin the governmenttable govemmcn develops, action against dissident group will probably become increasingly effec tive.

The strength of thendonesia derives from: (a) their positioiajor bloc in Parliament; (b) thel control of the dominant labor federation and (c) the presence of some Communist and Communist sympathizers in th armed services, the police, and the bu reaucracy. The Communists conse quently have the capability to cause scri ous disruption, though not to overthrow the government by direct military action The extent of Communist capabilitie after the elections will depend, formost part, on the attitude of the govern ment toward international Communisn and, in particular, toward the indigenou: Indonesian Communists; the effective ness with which the governmentmprove economic conditions; and thi ability of the government to suppres armed groups and to effectively malntair law and order.

The Indonesian economy, which de pends heavily upon raw material exports

is presently depressed because of the fall in world commodity prices. Thesituation will continue toespite theprospectontinued deficit balance of paymentsontinued low level of internal economic activity, aeconomic crisis does not appear likely

ndonesian foreign policy is chiefly motivatedesire to maintain anposition in the world, and by an attitude of neutrality in the East-West struggle. However, so long asmajor trade relations remain with the West, Indonesia will probablj continue to be closer to the West than tc the Soviet Bloc.

t best Indonesia will have only begun to solve her basic economic, political, and internal security problems by the endn time, the government mayits effectiveness, eliminate thedissident groups largely byand improve its economic situation. However, serious difficulties must bemany of which, If not effectively dealt with, might resultrisis wliich would seriously weaken, or even result in the collapse of, the central government.


ndonesia, which achieved Independence from the Netherlandsi nowto deal as an-independent state with the basic economic and social problems common to many underdeveloped areas. Theseinclude low productivity of labor,dependence on raw material exports and, in the case o* Java, overpopulation. More thanercent of Indonesia'sof aboutillion live in ruralwith over two-thirds of the total population concentrated on the islands of Java and Madura, where thereopula lion density ofersons per square mile. Roughlyercent of the population is Illiterate, and educational andfacilities are rudimentary. On the other hand Indonesia possesses certainadvantages. Itariety of natural resources, including petroleum, tin. coal, and bauxite, and is so situated as to be almost entirely free at present from the threat of external attack.

he Indonesian nationalists, who desired to end Dutch colonial rule and establish anIndonesian state, were given their first opportunity under the JapaneseThrough the puppet government wlueh the Japanese permitted them to establish, the Indonesians were able to learn something of administration. Furthermore, the principal leader of the Indonesian nationalistSukarno, became premier of thegovernment, and thus was in an excellent position to seize the opportunity forwhich was offered by the defeat of Japan. With the support of otherleaders. Sukarno proclaimed anrepublic in

For the ensuing four years, therefused to recognise Indonesianand periods of fighting alternated with periods of negotiation. Independence was finally achieved largely as the result of UN Intervention, In which the US played an active pail.

In the Round Table Agreementshe Netherlands formallythe independence of the United States of Indonesia. The most importantof these agreements were: (a) approval ol it provisional Indonesian constitution; (b) creationnion in which Indonesia and the Netherlands would be equal partners, joined by symbolic allegiance to the Dutch

crown; and (c) protection for existingother foreign economic interests.

Indonesians then undertookemocratic state, agovernment was set up in order to

on normal governmental functions and

establish internal security. Initial steps

were taken to rehabilitate thedamaged during World War nstruggle for independence, and toto the new conditions arising from severance of colonial ties. The Indonesian Government undertook toforeign policy in consonance with thespirit of nationalism and rogram was begun to pre-

the Indonesian people, largely illiterate,

for the electiononstituent assemblylegislature.



provisional government atederation of Indonesian

Inhis federation was

replaced by the present unitary state. This change was brought about by the Republic of Indonesia (the largest state in the federation and the leader of the independencein order to increase its own power and to reduce that of the other member states, most of which were under Dutcheople's Representative Council, generally referred to as the Parliament, was formed. The members of this body were appointed, not elected. No national elections have yet been held.

Sukarno has been ain Indonesian development; hisbased on his leadership in the strugglehis popularity with thethe Indonesian people, and, to ahis claimed independence0 provisionalmost executive power to thethan the president, and Sukarnoused lus prestige to extend the powerpresidency.

At present, the largest representation in Parliament is held by. the Masjuml (the Moslem Party) withfeats, the Indonesian National Party witheats, the Greater Indonesian Association witheats, the Indonesian Socialist Party witheats, and the Indonesian Communist Party witheats. The remaining representativesarge number of minor parties and non-political groups.he Masjuml and Nationalist parties have played leading roles in Indonesia's coalitionAll non-Communist political parties espouse nationalism, democracy, and some form of socialistic economy.

The Masjumiederation of Islamic religious and social organizations. Its strength derives largely from the fact that the Indonesian population is approximatelyercent Moslem. The Indonesian National Party draws its support from the smallclass and significant elements n! thebureaucracy. The GreaterAssociation is supported largely by civil servants. The Indonesian Socialist Party does not have the popular support enjoyed by the Masjuml and Nationalist parties but itell-org attired and politically conscious group, and Socialists hold important positions in the administration out of proportion to the party's parliamentary strength

The Indonesian Communists havegamed considerable pobtical strength, In spite of certain Communist Party actions which at the tlmn aroused considerableresentment. For example,6 the Indonesian Cornmunists staged an abortive revolt against the Republic of Indonesia.umerous Communist leaders wereon charges of plotting against the government but were subsequently released.owever, the Communists changed their tactics from opposition to avowedThe united front tactics, along with slogans of "peace andere well suited to dispelling some of the publicof the Cornmunists

One evidence of Communist political strength Is their positionajor bloc in

7 A* S

parliament. The Communist Party presently holdseats of its own, controls directlydditional scats held by three front groups, and can count on some support fromndependent members of Parliament. The Communist Party has also been able toIts influence indirectly through close cooperation with same of the minor parties and. more recently, with the Nationalist Party This latter development Is viewed with particular alarm by theecond major source of Communist strength lies in its control of SOBSI, the dominant Indonesian laborwhichembership estimated to beSOBSIillionj. Finally, the Communist political position is enhanced by the presence of someand Communist sympathizers in the administration and by the fairly effective propaganda activities of the Communists.

Because none of the major parties hasajority in Parliament, the various Indonesian governments sincehave been coalitions. Thesehave not included Communist Party representatives. The absencelearfor any party has made successivegovernments, faced with ancritical Parliament, reluctant to take firm decisions on controversial Issues. Moreover, the government has beenIn Its general administrative and budgetary operations because of the lack of trained personnel and established procedures. Largely for these reasons, no Indonesianhas yet exercised strongin Improving general economicin Increasing production, in carrying out genera] elections, or in suppressingand bandit activity.

During the last monthshe lack of strong leadership permitted factionalism and differences in the army over rcorganiza-tion to expandajor political crisis. The Defense Minister and leaders In the armed forces headquarters, in an effort tothe effectiveness of the array,plans to reduce Its size, modernize it, and centralize its administration. Otherin the army, principally those who would be eliminated under these plans,the program. They were supported by some members of Parliament who alsoto retain large numbers of already existing guerrilla-type forces- This dispute was magnified by members of Parliament who desired to weaken and discredit the Socialist Party, which allegedly dominated theof Defense and the armed forces

Parliament, after nearlydiscussion,esolutionfor the reorganization of theand new leadership of the arrayarmed forcesroupofficers,alled upon Presidentto dissolve Parliament and holdelections immediately. Althoughrefused these specific requests,that national elections wouldas soon as possible. In thesubordinate officers in three ofterritorial commands deposedand announced theirof the army high command, buttheir allegiance to Presidentgovernment later replaced theand accepted the resignationMinLiter of Defense. These stepsbut wereartial solutionproblem. Two territorial commandsunder control of the subordinateseized command, and the basicproblem of factionalism In thetoerious threat toof the Indonesian Government.

Internal Security

Internal security problem hasIndonesian Governmenthree and one-half years ofand four years of fightingthereide variety ofIndonesia has limited forcesto deal with this problem

Indonesian Army, with aofattalion units under territorial commands,


is poorly equipped and prorly trained. The National Police Mobile Brigade, whichotal strength ofetter equipped and better trained force, having been supplied largely by US grant aid. Its equipment, however, consists mainly ol small arms and personnel carriers. TheAir Forceersonnel strength ofilots) andircraft. The Air Force, having only aboutonventional fighters andight bombers,ery limited capability for defense of Indonesia's borders. It hason occasion in support of armyagainst dissident elements, but with limited success. The Indonesian Navyotal personnel strength ofumber of small former Dutch patrolincluding one destroyer. The navy has been primarily concerned withoperations and has performed thiswith fair effectiveness

The effectiveness of the army has been further limited by factionalism. Correction of defects In army organization has been preventedisagreement both between army territorial commanders and within the army general staff, which has only nominal control over the territorial commands. Two of the territorial commands are almostIndependent of the Ministry ofThe danger to the centralposed by these circumstances isby the apparent continued loyalty of the territorial commanders to President Sukarno, either becauseersonaldeveloped during the war ofor because of his official position as President. The greatest danger togovernmental authority Is not frombut rather from lowered morale and continuing deterioration of the army'sto cope with the dissident forces.

Despite the foregoing limitations on the effectiveness of the armed forces, thehas managed to suppress two armed revolts and to mam tain order In most areas of Indonesia. However, there remain many bandit gangs and sizable dissident forces, which totalen,one-half of whom are armed. Quel rilla and bandit groups In South Celebe have an estimated strength ofowever, the bulk of the dissidentn Java. The principal dissident group is th Darul Islam, concentrated largely in th mountainous country of West and Centra Java. It has an estimated active00 men, about one-third of whon have guns. Darul Islamheo cratlc Moslem states considerable pop ular sympathy, particularly in the Masjum Party. MasjumI influence in the govcrnmen* has been exercised to prevent military sup presslon offam

Communist overthrow of the Indoncsiar Government by direct military action is not an immediate possibility. Reports indicate that possibly as manyuerrillas may be Communist controlled. The Communis! Party has officially denied sponsorship of any guerrilla group, but Communist attempts tc influence or Infiltrate insurgent bands inmay be assumed. The CommunistsSOBSI, the principal labor federation, and some Communists and Communistare In the armed forces, the poUce, and some government rninistrles. Thewas able2 toeries of harbor strikesugar estate strike, but the Communists did not exercise their full capability to spread the strikes to otherand to commit acts of sabotage and violence By such means, the Communists probably could disrupt the Indonesianseriously.

While there have been reports thatgroups have received aid from outside Indonesia, these reports have not been

Economic Situation

economic well-being of Indonesiaupon foreign demand for Itsand mineral exports. Theseof rubber, petroleum, copra, tin.and palm oil. Not only does theexports determine the general level ofeconomic activity, butheavily upon its exports to pay for

essential imports o( rice, textiles, andThe government also normallyover one-third of its revenue fromand export duties.

The principal economic activity Inis agriculture. Close toercent of the working population Is engaged Inaboutercent of the national income is derived from agriculture, and agricultural products account for someercent of the value of total exports. Indonesianis divided between: (a) small-scale native farming, and (b) large-scale estate farming, developed and managed by Europeans on land held on long-term leases from the government, and directed toward production for export.

Before the war, the lands leased or rented by the estates represented aboutercent of the total land under cultivation, andfor roughly two-thirds of Indonesia's varied agricultural exports Foreignin estates was estimated at0 million, three-fourths of which was Dutch. However, estate production of allexcept rubber Is now far below prewar. The estates suffered considerable damagethe war and hi the period of civil strife which followed, and now account for only one-third of Indonesia's curtailed agricultural exports. Foreign operators have been re luctant to employ funds for rehabilitation of the estates, largely because of domesticand the uncertainty concerning the future status of the estates

The government has not determinedong-term policy with respect to foreign-operated estates. The government,that continued foreign management of the estates is for the tune being essential to the economy, has so far refused to yield to demands for nationalization or redistribution of the estate lands It presently plans, however, to Increase Its control over theof the estates by renegotiating theleasing arrangements as present estate contracts expire. Also, theduring the past two years hasto notlve farmers much of theland held in reserve by the estates.

Native farm output has increased some whatowever, serious agrarian problems remainonsequence of the low level of technology in native agriculture and the increasing pressure of population hi Java. One result of this situation has been the steady increase in number of landlessan important cause of unrest

The Indonesian Government hascries of small-scale programs designed to relieve agricultural unemployment,ore adequate system of agricultural credit, and increase the productivity of labor. The government is contmuing, thoughery limited scale, the prewar Dutch program of Javanese resettlement In the outer islands. Efforts are being made to develop lightto provide increased non-agricultural employment opportunities. Finally, theGovernment, with the assistance of US and UN technicians, is attempting tothe output of food in Indonesia,rice.

The present economic situation inis not favorable. During the0 andhen world prices for Indonesian exports were high, Indonesiaavorable balance of payments. In the last quarter1 these prices fell, and2 Indonesia suffered from depressedeconomic activity and from balance of payments difficulties. Export earningsstimated3 million,illion less thanhe main cause for the fall in export earnings was the decline of aboutercent in average export prices for rubber. Concurrently with the decline of exports, imports increased5 million15 millionills increase was causedonsiderable extentharp rise in rice imports.

esult of these changes, Indonesiaeficit on current account2 of0 million, most of which was financed by drawing upon theforeign exchange and gold holdings. At the endndonesia's net foreign exchange reserves, mostly in gold andhad declined to7 millionigh of6 million In


the middle of the year. In an effort to deal with this situation, the government tightened exchange controls and further restricted the importation of selected luxury and semi-luxury commodities.

government normally derivesof Its revenue from Importduties. Largelyesult ofin tradehe governmentestimated budgetary deficitonsiderable part of this deficitfinanced through an increase inwhich has contributed to

Foreign Policy

development of Indonesiansince Independence has beenlargelyesire to be free ofeconomic domination by otherforeign relations centercompleting the process of severingthe Netherlands, and (b) keepingapart from the East-West struggle.

Netherlands-Indonesian Relations

The Indonesians desire to eliminate what remains of the preferred Dutch position, and there have been increasing demands that tbe Round Table Agreements be abrogated The first step toward revising the formalbetween the two countries was taken in3 and resulted in an agreement to terminate, byost of the services of the Netherlands Military Mission, which was provided for in the Round Table Agreements.

Indonesian hesitancy unilaterally tothe Round Table Agreements may be due to the fact that the Indonesians have made little progress toward their objective of reducing their dependence on Dutch capital and on Dutch technical and managerialThe Indonesians lack both theand personnel to replace the large established Dutch industrial and commercial firms Likewise, Indonesia has lacked the framed administrators to enable it to dispense withutch officials who remained to serve the Indonesian

major issue left unsettled byTable Agreements was theWestern New Guinea (West Irian).popular excitement has beenover this issue. In theWestern New Guinea was included inNetherlands East Indies colonywas Included in the transfer ofto Indonesia. To the Indonesians,Issue to be decided is the politicalWestern New Guinea within theDutch, on the other hand, hold tothat they retain sovereignty overTwo conferences held atave failed to settle the issue,area remains under Dutch control.

Relations with the US

he US has replaced theas the country with which Indonesia carries on the greatest volume of trade. The US purchases the major share of Indonesia's rubber and tin exports. Moreover, the US has provided Indonesia with economic andassistance, equipment for its mobileforce, and an Export-Import Bank line of credit.

Indonesia has found it difficult toits independent foreign policy with its economic tics with the US. Inhe Sukiman government fell because of Parliamentary sentiment againstrovision of the US Mutual Security Act which was alleged to involve an abandonment of neutrality. Again, many Indonesian political leaders objected to signing the Japanese peace treaty, and the treaty has not yet beento Parliament for the treaty were based on the belief that it would violate Indonesia's Independent foreign policy by associating Indonesia with the US bloc. In addition, the Indonesians wanted assurance that their reparationwould be met and that they would receive satisfactory guarantees against the encroachment of Japanese fishing vessels in Indonesian waters. The government signed the treaty on the understanding that the US

use its influence in the reparationto assist the Indonesians in gaining adequate compensation. Indonesian leaders, who might prefer to remain uninfluenced by the US, have nevertheless been forced toboth the Impact of US power in the Pacific and the Importance to Indonesia of US trade

Relations with other Western Countries

of Indonesia's external culturaland her most important externalrelations have been with the West.other hand, the West Is associatedin Indonesian eyes, so thatovertures to Indonesia have beenconsiderable suspicion. However,and the desire to remain neutralEast-West struggle have notfrom accepting US aid,in the Colombo Plan, or observing theon the shipment of strategic materials

Relations with the Soviet Bloc

Indonesia's few overtures to the Soviet Bloc seem to have been aimed atounterbalance to the ties Indonesia already has with the West Despite immediate Soviet recognition of Indonesian independence,exchanges diplomatic representatives only with Communist China among theof the Soviet Bloc. However, Parliament has recentlyesolution favoring the establishmentiplomatic mission inbclore the endhe facts that the first Chinese Communist ambassador to Djakarta had once written articles attacking President Sukarno, and that the largestaff is suspected of subversive activities, have limited the effectiveness of the Chinese Communist mission. Indonesian citizens have been permitted to participate Infront meetings abroad and to attend the Moscow Economic Conference Inost Indonesians arc sympathetic to the cause of the Viet Minh in Indochina,it as primarily an independence movement

Indonesian trade with the Soviet Bloc has been small. mports from the

Soviet Bloc (primarily from Communist China and Czechoslovakia) accounted for onlyercent of total Indonesian imports, andto the Soviet Bloc (primarily toomprisedercent of total Indonesian exports. The exact amount of indirect trade is unknown, but is believed to be small.the past yearalf, Soviet spokesmen have made several well-publicized offers of capital goods and technical aid to Southeast Asia, and Communist China hasilateral trade agreement withsimilar to Its arrangement with Ceylon. No specific agreements have resulted Inuantity of rubberrivate company for shipment to Communist China, but the governmentthe export license, purchased theand therebyiolation of the UN restrictions on shipments to Communist China.

Relations with Non-Communist Asian and Pacific Area Countries

Relations with neighboring countries,Burma and India, are keeping with Its independent foreign policy, Indonesia has shown little interest In proposals for bilateral or regional alliances, such as the Filipino-proposed Pacific pact. Indonesia has cooperated closely with the Arab-Asian Bloc in the UN.

Relations with Australia have variedto the party In power in Australia The Australian Labor Government, which strongly supported the Indonesian causethe Indonesian-Dutch struggle, wasto be more sympathetic to Indonesia than is the Liberal-Country Party coalition now in power, whichro-Dutch stand during that period. However, both Australian governments have supported Dutch retention of Western New Guinea, and this hasrelations between Indonesia and Australia.

lthough Indonesia has not established diplomatic relations with Japan, consularhave been exchanged and economicare close.apan becamethird most important trading partner.


and. Inndonesia concluded what was generally regarded as an advantageous trade agreement with Japan. In thisJapan agreed to the deferred payment of dollar balances that had accruedormer agreement; this conciliatory position was probably occasioned by recognition of the importance of the Indonesian market.diplomatic relations with Japan willdependatisfactory settlement of reparations claims.


Little will be accomplishedesolving Indonesia's basic political,security, and economic problems.

Electiononstituent assemblyarliament is plannednd is anstep toward the development of an effective representative governmentmay provide the psychological sense of contact and rapport between the people and the government which will increase political stability. Members of an elected Parliament, and the government formed by them, might act with greater confidence than have the provisional legislature and cabinet. However, we are unable to predict the outcome of the elections or the policies that will thereafter be followed by any of the major parties. In any case, the elections will not solve the many difficult problems facing the country and political stability will by no means be assured.

We believe that the national elections,complicated and delayed by numerous technical problems, probably will be held sometimehe government's ability to maintain at least the present degree of internal securityritical factor inout the election plans. Also, even though the election law has been passed, regulations to implement the basic law must beand acted on. and the generally illiterate population must be educated and otherwise prepared to carry out its franchise. Various groups which sought to delay adoption of the basic elections law probably will raise other difficulties to prevent, or at least delay, the promised elections. In this situation, much will depend on the actionsew politica leaders, whose personal goals and motives art not readily discernible.

elections are not held asor if an effective government Isfollowing elections, the steadyof confidence in theonsequent weakeningauthority. In theseor all of the following might occur:

of the major armymight defect and refuse tothe authority of the central government;

areas might seek to re-establishfederation in which theyautonomy; (c) Parliament might beand full governmentalmall group of national leaders

probably headed by President Sukarno.

In the period before elections, thein Indonesia wil probably retain, and may enhance, their capability to Influence government policy through their activities in Parliament, to create economic disorder through their control of the labor movement, and to increase their numbers In the armed services, the police, and the bureaucracy. The extent of Communist capabilities after the elections will depend, for the most part, on the attitude of the government towardCommunism and, in particular, the indigenous Indonesian Communists; thewith which the government acts to improve economic conditions; and the ability of the government to suppress armed groups (bandits, dissidents or potential dissidents) and to effectively maintain law and order.

We believe that none of the existinggroups, Including the Communists, has the capability of overthrowing theby force. Moreover,tabledevelops following parliamentaryaction against dissident groups win probably become Increasingly effective.wc believe that Masjumi influence will continue to stand In the way of suppressive military action against Darul Islam, and that efforts to eliminate Its threat will be by way of negotiation.

he economic situation will continue to be precarious An economic crisis could occur if the government proved unable lo curtail expenditures, and If world prices for Indonesia's exports continued lo decline, thus further worsening the terms of trade for Indonesia. Under these conditions. Indonesia's foreign exchange holdings would be rapidly exhausted, domestic prices would continue to rise, dissatisfaction amongand estate workers would becomeand the Communists, through the unions they dominate, would be able to foment strikes and unrest. However, the government Is continuing measures designed to increase the production of food,nee. and of those raw materials which are in continued demand on world markets, and to curtail imports. Accordingly, despite the immediate prospectontinued deficit balance of paymentsontinued low level of internal economic activity, aeconomic crisis does not appear likely

Indonesia will almost certainly not change its policy of attempting to stand apart from the East-West struggle. Current diflerences with the Netherlands will probably remain unsettled for some time and will contribute to keeping alive anti-colonialism andconcomitant distrust of theWest. The Indonesian Government may eventually accede to the formallydesire of Parliament to exchange diplomatic representatives with the Soviet Union.

However, Indonesia's orientation toward the West will probably continue, so long as trade with the West continues to be essential lo the maintenance and growth ol Indonesia's economy. There Is considerable public pres sure In Indonesia to expand trade withSoviet Bloc In the belief that Indonesia wii therebyetter bargaininghe demand of the West and that ol the VI in particular for Indonesian exports shouli sharply decline, the Indonesiansven more favorably disposed to trade offer: from the Soviet Bloc.

Achievementruce in Korea woult probably enhance the UN's prestige inIndonesia would lookenera peaceful settlement in the Far Eastogical consequence of the truce. In the In doneslan view, peace in Korea would remove the necessity for East-West trade controls Should Indochina fall to the Communist' without overt Chinese Communist participa ton, it is likely that Indonesia would view the event asriumph ofBut if open Chinese Communist par ticipatlon were Involved in the fall ol any o! the Associated States or in aggressionIndonesia might be inclined to view the threat of Communist China much mon seriously. In any case, if major traderemain with the West. Indonesia will probably continue to be closer to the West than to the Soviet Bloc

At best Indonesia will have only begun tc solve her basic economic, political, andsecurity problems by the endn time, the government may increase its effectiveness, eliminate the remaining dissi-dent groups largely by attrition, and Improve its economic situation. However, serious difficulties must be overcome, many of which, if not effectively dealt with, might resultrisis which would seriously weaken, or even result In the collapse of, the central

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