The Central Intelligence Agency and th* Intelligonce organiioTloro of therfStoh) and Driame, and iho
A dm. Rufui L. Taylor, Deputy Director. Central jntelligentaGaorga C. Denney,or tha Director ofrl",':
Mol Gen. Robert R. Gfan, for the Director, Defeme intelligence Agency Dr. lc.ii W. Tordefla, forirector. rWorJoS
Abstaining?
Dr. Chortct H. fteichordr for th.verol Monoger/Am ; million and Mr. wii am O. Crec,v. for jIvV juiHtant Dr>ecior, of Investigation, the subject being outside
contents
THK I'HOBLEM
CONCLUSIONS
DISCUSSION
I. INTRODUCTION
II THE SUHARTO REGIME
HI. POLITICAL PROBLEMS AND PROSPECTS
and the Communists
"New Order" and the Civilians
C Prospects
IV. ECONOMIC PROBLEMS ANDFOREICN AFFAIRS
PROSPECTS FOR INDONESIA
THE PROBLEM
To assess current trends in Indonesia and to estimate prospects over the next year or so.
CONCLUSIONS
and his anti-Communist military and civilianclearly in charge in Indonesia and are likely to remain so, atdie next year or two. Although Sukarno's influence ishe isajor preoccupation of the regime, anits daily work,ource of political embarrassment.however, he will probably be stripped of all effectiveretaining at most the ability to offer occasionalfrustrated leftist elements.
the Communist Party already destroyed asoday's politics, the neutralization of Sukarno wouldthe outlook for political stability in Indonesia.will still be major problems of adjustment. Civilianbe in conflict with military leaders reluctant to share power.mass parties of the Sukarno era will have to compete forresurgent and reformist political elements closer toorder."
Indonesian economy cannot quickly recover from amore of ruinous mismanagement, but it is probable thatwill at least cease to deteriorate and begin to improveyear or two. If foreign assistance continues at high levels andadministration Ixrcomes more effective, an economicprobably be sustainedhe need for foreigncan only be expected lo come from theand Westernassures continuation ofs new Western-leaning foreign policies.
l introduction
L Sixteen month* ago, Indonesia appeared lo be on the threshold ofommunist state, or in Sukarno's words, "entering tbe socialistnder the aegis of Sukarno, thenosition of unchallenged power. Communists and their supporters hadajorhe gos-erximcnt. TheParty (PKI) had established itself as the best otgani/ed and most dynamic political entity in tbe country. Overt anlicornmunism had becomerime. In foreign relations, Sukarno had aligned Indonesia svith Peking in vehement opposition to US policies ln East Asia and elsewhere in the world. Perliaps most important, Indonesia's anti-Communist army leadership, the only element capable ofommunist takeover, appeared unwilling to act against the dictates of Sukarno.
he eventsew days in early5 dramatically altered this situation. roup calling itselfeptember Movement"
iki, irrnvGeneral
discussion
Mill ll. wtl
kidnaped and murdered six generals, including the army cssmmander. General Yam. and announced the formationtrongly leftist Revolutionary Council to take over the government. The Movement was crusheday or two by the army under the leadership of General Suharto. Taking advantage of the PKl's involvement in the coup attempt, the army moved to destroy the party. When it became apparent that Sukarno was actively opposing the anti-Otin-munist campaign and the resulting changes in the country's domestic and foreign policies, the army broadened Its objectives to include the drastic reduction of his authority and the elimination of his doctrines. In the army's view, these had brought Indonesia to the brink of Communist domination, econornic chaos, and war with Britain.
be campaign against Sukarno has made considerable progress. Though be still holds tbe titles of President and Prime Minister, real power in Indonesia has [Hissedoalition of anti-Communist and anti-Sukarno generals and politicians. The PKI has been destroyed as an cfiective political force, while established non-Communist parties and groupings have gained strength. New political elements have emerged which are vigorously opposed to Sukarnoism and other forms of authoritarianism. The Suharto government has promised to hold nationwide legislative elections before
his generally favorable prospect is clouded, however, by the influence still exerted on the political scene by Sukarno, by vestiges of Sukarnoism. and by remnant Communists and their sympathizers. Moreover, the singlo-mlnded-ness of purpose among the anti-Cornmuiiist, anti-Sukarno forces has weakened along with the threats that united them The civilian politicians bave become incTcaslogly aware that the military leadership does not Intend to return to parliamentary government as it existedS. Within civilian tanks, longstanding cleavages between Muslim and secularist, modernist and tradi-
SECJrEt
tiooaUst. Javanese and non-Javanese have also become apparent Pervading and exacerbating all these political issuesritical economic situation.
II. THE SUHARTO REGIME
Suharto. The reins of government in Indonesia are held by General Suharto, the army's Chief of Staff. Suharto bas retained the leadership of the military over the pastonths because he is personally acceptableery broad spectrum of high-ranking officers. They respect his considerable military abilities and they see him as the legitimate heir of the martyred General Yanl. They especially admire his prompt and forceful response in tlie threat posed byeptemberuharto has also won tho approval of most of his peers for lib skill in reducing Sukarno's powerinimum of domestic conflict. Inevitably, perhaps, some nulitary liawks and certain civilian elements have become impatient with Suharto's cautious 'Javanese" approach to the Sukarno problem and are highly critical of him. But no real rival to Suharto has appeared among the military leadership. General Nasution. once tbe leading Indonesian military figure, has accepted relegation to aposiboo-
In the government. Suharto Is chairman of the Cabinet Presidium of five "firstach presidingroup of portfolios. lib own includes defense, internal security, and the army. His inner circle is made upmall personal staff of politically oriented army colonelskitchen cabinet" ofr so army generals who occupy key military positions or head importunt ministries. Suharto altoumber of civilian intellectuals, primarily university economists.
The Army. The predominance of the army leadership depends basically on the armed strength ofman force under its command. But it has also benefited fromears of active participation in domestic political and economic affairs. As this experience accumulated, army leadenody of doctrine to justify the pervasive role of tbe military in rational life. In it they portrayed the army as tbe instrument best suited by dedication, braining, and experience to guide the destiny of Indonesia.
Theow free to take this leading role. Though Suharto has refrainedomplete military takeover, in order to preserve constitutional forms and hold the goodwill nf non-Communist civilian parties and groups, he has been generous in apportioning executive and administrativel every level lo tbe military. The majority of provincial governors ure now army officers. In some parts of the country, Sumatra for example, army commanders now exercise virtually tin limited political and economic power.
The Civilians. The armyose working relationship wilh many able and influential anti-Sukarno political figures. Suharto's leading civilianin thedam Malik, who presides over domestic political affairs and the foreign ministry.robably the most brilliant and dynamic member of tbe administration. He haseader in the effort to diminish Sukarno's power, and single-handed engineered Indonesia's return to tbe UN
and other world bodies. Thougheader of moderate elements in the small Murba (Proletarian) Party, Malik at present has almost no organized political following; this endears him to Suharto and the other generals who tend to be suspicious of politicians. Malik's dedication to the preservationajor civilian role in government, however, bas caused friction with those army leaders who would moveilitary junta. The only othermember of the Presidium is Buwono IX, the Sultan of Jogjakarta, who heads the Cabinet's economic and finance sector. The Sultan, though ineffectual in his job, brings to the government the prestigeationally respected and revered aristocrat. In tbe event of Sukarno's death or removal from office, he would bo among the likely contenders for the Presidency.
The army leadership must also rely on thousands of civilian administrators, legislators, party leaders, and political activists to operate the government and the economy, Most of these figures are holdovers from the Sukarno era. men now willing to play the political game by the army's rules.
A major new factor in Indonesian political life was the formation,inf mass organizations called actionhese are confederations of anti-Communist functionalScholars, labor, women, teachers, farmers, businessmen, andaffiliates of the various religious parties. These organizations, particularly the student fronts, put more steam into the anti-Sukarno campaign by means of repeated mass demonstrations. They gained the encouragement and assistance of Malik and the army. Most of the action commands, however, proved to be ephemeral. The student fronts continue to support Suharto although they have been displeased by his cautious approach to the reduction of Sukarno's power.
The established, non-Cornmuiust political parties have playedinor supporting role in the Suharto government. In the months immediately following the pro-Communist Putsch, Suharto found their mass organizations, particularly the youth affiliates, cooperative in crushing the PKI, and their leaders willing to bock him vocally in the campaign to denigrate Sukarno.ime, therefore, there was an unaccustomed unity of action among Indonesia's non-Communist political elements. But this unity was founded on self-interest: the parties were eager to reassert themselves after years of subordination to Sukarno and his Communist cronies; and they viewed the army as theto return them to the power and influence they enjoyed priorS and the imposition of Sukarno's "guidednevitably, as thothreat and Sukarno's power dimmish, the politicians have become less Inclined to accept military leadership and arc reverting to their longstanding intramural rivalries.esult, ties between the army and the parties are becoming seriously frayed.
At present, the influence of the old-line parties is exerted most prominently in the legislative organs of the IndonesianPeople'sAssembly (chaired by Nasution) and the Parliament. Under the Sukarno regime, both were appointive, rubber-stamp bodies. Under Suharto, they have
beenore meaningful role and have been purged of Communists and Sukarnoists; ihelr seats have been allotted to groups sympathetic to armyThe Assembly is coiuHtutionally the nation* highest policymaking body and has been used by Suharto to legitimize major changes in Indonesian political life- The Parliament, which is subordinate to the Assembly, has tbe respoiWbility for proposing and passing legislation.
III. POLITICAL PROBLEMS AND PROSPECTS
A. Sukarno ond the Communists
Sukarno. In their cflorts to reorder the Indonesian political seem- and proceed with the economic rehabilitation of the country. Suharto and hisare encountering numerous obstacles. Their most immediate problem is President Sukarno himself. Though his power has been severely cireumscribed, he has not accepted defeat and continues to use his remaining assets to harass the Suharto regime.
Most Indonesians probably remain in awe of Sukarno whom they regard as the father of their country. Many are still prepared to acceptarticularly true of his fellow Javanese in Central and East Java (as diflereirtiated from the Soudanese who dominate Westhesealreadv confront the Suharto regime with what it considers toerious security threat, one which would be aggravated by an outright attack on Sukarno. Suharto might be willing to risk civil disorder as the price for dumping Sukarno outright if be could be certain of support from the armed forces in these areas. But the army itself is not united in opposition to Sukarno. Tbe govera-:neiit believes that junior officers and troops of the Diponcgoro (Central Java) and Brawidjaja (East Java) Divisions generally remain loyal to Sukarno.they believe that he is strongly supported by significant elements of the Marinesighly trained force ofnd thoPolice Mobile Brigade, both of which are still powerfid in Central and East Java.
Sukarno's principal political support at this juncture Ls to bo found within the Nationalist'Mne of tbe two remaining mass politicalin tho country. It was founded by Sukarno and has popularized and perpetuated itself largely by identifying with him and his "Marhaenbt"ort of fuzzy Marxism. The PN1 leftwing, which has great strength in Central snd East Java, has always been slavishly devoted to Sukarno and for some years has been heavily penetrated by Communists. The party's leftist leadership was replacedore moderate and compliant group inut this change has not greatly diminished pro-Sukarno sentiment among tbe rank-and-file of the PNI. There is evidence too that former members of the PKI are being recruited into the PNI to strengthen it against its Muslim opponents There are Sukamoitcs rlscwhere in the Indonesian political spectrum, mainly amongwho share FNJ fearsrend toward Muslim political domination in the eventomplete Suharto victory over leftist-iiatlonalLst elements.
JEGKtt
ukarno's strengths arc counterbalanced by many weaknesses, lie has insufficient press am! propaganda support to counter the intensive campaign mounted against him try the regime and Its supporters. He no longer controls the governmental hierarchy, dispensing favors to the loyal and striking down opponents. He has been conspicuously unsuccessful In attempts to divide the army leadership. Finally, there is tbe heritage of rmsmanagernent. corruption, and procommunism which Sukarno embodies and which the show trials of his former lieutenants have emphasized to the Indonesian public.
IS. The Communuti Much of Sukarno's present weakness, of course, is attributable to the loss of hb strongest political ally, the Communist Party, which once i1embers. The PKI was severelv damaged in the after-math of theeptember coup attempt. About one-ball of tbe Centralwas killed or imprisoned, including almost the entire Politburo. Party members and sympathizers constituted the vast majority ofersons estimated to have been killed in Ibe months following the abortive coup. Finally, inhe PKI and its numerous fronts were officially banned.
n the face of this onslaught, allard core of the PKI appears to have melted away. The party has been reducedoosely structured underground organization of unknown sue. One Indonesian official estimates PKI numbers, but we cannot judge the validity of this figure. In any case, the PKI has apparently reconciled Itself to the near impossibility of making any sort of political comeback within the next few years and bas rejected the alternativearamilitary course of action. Instead, theoncentrating onits shattered organization along classic underground lines.
n order toavorable atmosphere in which to recover, PKInow urge tbe membership to assist pro-Sukarno forces to any extent possible.ehicle for such operations andseful cover for its members, the party has urged certain members to join the PNI and its youth and other affiliates. In addition, tbe Communists are infiltrating ncighrxrbood and village associations In Central and East Java in hope of exploiting the weakness and corruption of rightwing officials, and the critical economic situation.o question that tlie PKI and its front organizations, wliich Once dominated theseajor potential there. Indeed, one of the chief problems facing the Suhartohe provision of political alternatives for the millions who ome looked to tbe PKI and its front organizations for alleviation of their social and economic problems. Failure to make some progress toward this objective might result in the developmentarge PKI underground.
B The "Now Order" and the Civilians
nother major problem for the Suharto regime lies in its ambivalentwith civilian political elements. On Ihe one hand, the ruling Suharto clique has shunned the termccorded major admiiustrativeto civilians, and preserved, and even strengthened, existing forms ofgovernment. Thelso pledgedold legblatlvc elections
before8 and, in turn, Ibe legislative bodies are toresident (presumably not Sukarno) and Vice President of Indonesia.
On tbe other hand, the military is dearly determined to preserve itsleadership position well beyondew order" envisioned by the army Is, in effect, tbe replacement of Sukarno's highly personalized, semi-mystical rule by Institutions which would permit tbe army to retain general policy and administrative control while providing some sort of participation infor the nation's varied political, religious, and functional components. Civilian political participation would be carefully limited to avoid what the army considers to be the excesses of the parliamentarianseriod in which the political parties spent most of their energies jockeying for power. Indeed, the army found little difficulty in supporting the more authoritarian rulein that year by Sukarno under the name of "guided democracy."
The old-line parties and the action fronts are aware of the army'sbut they too are determined toeaningful political role in the post-Sukarno era. Their leaders are constantly in motion, striking bargains and exploiting whatever assets they possess lo extract concessionsie regime. Among tho established parties, there Is particular concern lest Suharto permit the resuscitation of competing parties proscribed by Sukarnobe country's largest party, the traditlonalistic NahdatuI Ulama (Muslim Teachersfears the revival of the Masjumi. another large but more modernized Islamic party. Tbe leftist PNI is somewhat apprehensive about the possible formationroad democratic socialist coalition which might include liberal Masjumi elements, former Socialist Party members, and the recently revived Murbahe five other legitimate political parties, none of them ever very strong, fear further dilution of their influence. The established parties arc also greatly disturbed by tlic growth of the action fronts and tbe intimate relationshipsaction front leaders and Suharto's top aides.
The action fronts comprised of students and intellectuals are probably the closest apprua.ii to an kiealistically motivated prodemocratic force on the current Indonesian political scene. Over the corning year, the action front leaders will bave the task of reconciling their supporters, particularly- the youth, to tbeof indefinite military direction of the government. It is apparentegree of disillusionment with the military hav already taken hold among these youthful reformers. To help counter this trend, Suharto has given many of their leaders appointive positions in the legislative bodies and is encouraging theof tho action commands into permanent movements on functional lines to rival the established old-line parties.
The election law being drafted by the armv is likrU to bringocus many eiisttng and potential frictions between the regime and the civilian politi-
'oalition, driirno) toff-.itinula- political bemjrould probablyan fciBowing comparable to that of ihe PNI or NU. Tbeofitmunlft left ia Indonesia hai never beenihik. probably because the NiittonaltaU include enouftli loculiWn In thru appeal to uiMly allelative handful ofK and Intetiectiuils.
be law may provide for ihe wholesale enlargement of both legislative bodiesany of the new seats apportioned lo representatives of the action fronts, the functional groups, and the military itself, and. possibly, elements of the banned moderate parties. Tbe influence of the PNI aod NO would thereby be greatly diluted. The law may alsowitch from the existing propor-lional representation electoral system to one based on single-memberThis would further cut PNI and NU strength by lowering the number of seats allotted to Java where these parlies have their main strength
C. Prospects
is likely that the Suharto regime will be able to maintain itsover the next year or two. Neither Sukarno, ihe Communists, thenor any combination of hostile political elements is capableSuharto so long as ihe army leadership remains sulislantiallyhim. Although there are some high-ranking officers and somewhose first loyalty is to Sukarno and whose attitude towardtherefore equivocal, they are outgunned by the pro-Suharto forcesest of strength.
Is possiblearticularly clumsy altempl by the Suhartooust or persecute Sukarno wouldtrong public reaction inEast Java which would gam the support of some pro-Sukarno elementsarmed forces. In actual combat, these elements could probably bror confinedew isolated districtshort time.Suharto wants to avoid clashes of this sort; he fears irreparable damageunity of the armed forces, which to him fs the bedrock of Indonesianstability- It is probable therefore, that despite the urguigs of thewill for the time being handle Sukamo with much the. .same cautionlas shown sincehere will probably be continuing efforts(he President; additional restrictions on his power; and newhis freedom of speech and movement. In the end. he may beoffice "temporarily" or be may be completely ignored by the regime.point he may decide to leave the country rather than submit tothis course would be heartily welcomed by Suharto. In anyb probable lhat7 Sukarno will be stripped of all effective political
power
c
fot eliminatedajor factor on the political scene,ear or so, hb presence will exacerbate the political frictions likely tothe preelection period. His voice would strengthen the campaigns of leftists seeking lo discredit the military as Inefficient and corrupt, and to publicize its failures, particularly in the economic realm. He would alsobehind the scenes in support of nonlcftisf interests willing to engage in political deals with him. He might even become tbe symbol or focusoncerted effort by old-line politicians to maintain or expand their prerogativesb the military. Should this or similar thread to its continued leadership
develop, chances are belter than even that Suharto would postpone8 elections indefinitely.
If Sukarno is effectively removed from the political scene in the corning months, the establishmentore solidly based regime89 would probably be feasible. The conversion process is, however, likely to be plagued by intensified conflict between the military and the civilians, and between the old-line politicians and those of the "new order"he action commands and the Sukamo-banned moderate parties).
Over the longer term, these conflicts will tend to merge with politicaleven more fundamental to Indonesia's political evolution: the role of Islam; the legitimacy of Marxism; Java-based centralism versus outer-Island federalism; and the conflict between traditional authoritarianism and Western democracy. Resolution of these issues could eventually involve new political upheavals in Indonesia; the danger of this will increase if the new regime Is unable to achieve measurable progress in economic matters.
IV. ECONOMIC PROBLEMS AND PROSPECTS
Problems. Next to the problem of nullifying Sukarno's influence, theconcern of the Suharto government Is the resuscitation of the Indonesian economy after years of neglect, mismanagement, and corruption. Since the, domestic agricultural and mineral production (except for petroleum) has generally stagnated. The output of manufacturing and processing industries has declined sharply, mainly because of shortages of raw material and spare parts. Production problems have been exacerbated by rapid deterioration of an already inadequate transportation system.
The economic malaise has become especially acute in tbe past two years or soesult of massive government budget deficits. These were brought about by heavy expenditures for the upkeep of the civil and military bureaucracy, the inordinate currency demands of Sukarno's prestige projects, the direct and Indirect expenses of the campaign against Malaysia, and heavy requirements for the repayment of foreignoney to meet these needs was provided mainly by the printing press. This practice, coupled with the insufficiency of domestic production and the virtual absence of foreign exchange reserves with which to pay for imported goods, hasevere inflation, demoralizing to the urban populaceindrance to economic recovery.1
* Indonesia's external debt at the end of62 billion, more thanercent in long- and medium-term debts. Debt repayments due60 millionarrears olillion5 end0 million it duerfaults on debts to Communist countrtos have occurred2 and to other countries
'The Djakarta cost-of-living index, for example, increued morefold between4 and
espon&et. The Suharto regime appears determined to alleviate thesituation. It has brought technically competent economists into high government circles, accepted assistance from inlemational economic and technl-
S^ET
cal organizations, andenerally' open-minded and pragmatic approach to the solution of itstabilization program ban been prepared with help from the International Monetary' Fundt Is aimed at reducing the rate of inflation and increasing output in all fields. Key objectives include: austerity in expenditures, to Ih* achieved7 mainly by suspension of Sukarno's grandiose projects and other nonessential government investment; increased tax collections; revision of the banking system, including exchange and currency reforms designed to increase export incentives; strict credit controls; and promotion of private in vestment, domestic as well as foreign. With regard to foreign investment, liberalized regulations have already been adopted and some foreign property seized during the confrontation campaign has beenIn addition. Indonesia has rejoined the UN and its agencies, and applied tor readnmskm to the IMF and the World Bank, it has also joined the Asian Development Bank. Filially, confrontation of Malaysia has been officially ended, opening the way for large reductions in navy and air force expenditures and favorable Western consideration of Indonesian economic requirements.
reat extent the stabilization program and other recent domestic economic measures are designed to meet Ihe requirements of Indonesia's foreign creditors. Creditor nations were approached concerning rescheduling of debt repayment obligations and additional aid in tbe form of food staples, industrial raw materials (chieflynd spare parts. In general, the response has been good. Hepeesentarives of Free Worldgreed in6 tone-year moratorium on principal and interest payrnents duehese payments along with defaults prior7 total0 million and are to be rcsclieduled over an eight-year period beginningo decision was made with regard to0 million in payments due8 and thereafter under old schedules, but remedial action by the creditors8 appears likely. Sinceoo. several Western count-res and Japan have agreed to provide new financial assistance0 million. The provision of an0 million in credits is under discussion.
The European Communist nations hold aboutercent of Indonesia's foreign debt; the USSR0 millionotal0 million is held by Czrehoslovralria. Yugoslavia, and East Germany. Despite its refusal to sit down with the Western creditors to discuss Indonesiiin needs, the USSR has agreed bilaterally to reschedule almost all of Indonesia's debt to it An agreement reached in6wo-year moratorium on virtually all medium- and long-term debt, and schedules payrnents overearsinn addition, the USSR agreed to ease repayment schedules for certain short-term commercial debts. The other Communist creditors appear likely to follow the Soviet example to some extent.
Prorpeeti. Aside from debt relief. Suhartos economic stabilizationis still largely in the planning stage. Although prices have steadied in
'The croup uK-futiri fouredltun (Japan, the US, Wnt Ctrmany, andhree minor creditors (the Netherlands, Italy, and Usend Australia and New Zealand.
recent weeks mid tax revenues are reportedly increasing under lightenedprocedures, ibe success of the stabilization program remains in doubt. Sustained Implementation will be difficult. More thanercent ofexpenditures are (or salaries; major budget culs would disturb such key elements of the population as the military and the civil bureaucracy. These groups as well as other urban elements would suffer from removal of price subsidies on certain categories of domestic goods. And there would be general disapproval of measures lo tighten lax collection. Aware of the potential explo-sivonets of the situation. Suharto will probably not find it politically expedient to implement all the measures set forth in his plans for balancing the budget
There arc also major roadblocks to rapid increases in production for the domestic market or for export. Ihe output of agricultural and mineral prod-ucts may climb, but it is unlikely to do so in any significant way until modem production techniques are introduced and take hold, even under optimumthis could rake several years. An exception is the production ofand petroleum products. largely in foreign hands, which could show major increasesear or two Certain manufacturing industries could also increase output relatively quickly if adequate supplies of raw materials and spare parts become available soon.
Much will depend on tbe willingness of foreign nations to extend credits. The IMF estimates that7 at0 million of new foreign commodity credits will bo required to finance needed imports of essential consumer goods, spare parts, and raw materials. Though this amount may be realized, some potential donors will base their decisions in part on Indonesian economicto date; in some cases, this may lend to stem tho Bow of needed assistance lo the Indonesians. Without such assistance, economic conditions would almost certainly' continue tounaway inflation would probably develop in the urban sector of the economy, urban discontent would rise, and civil disorder might result.
The difficulties in stabilizing the Indonesian economy are apparent, but some aspects are mildly encouraging. Foremost, theational and apparently convinced that economic progress is the key to its eventual political success. Of equal importance. Free World nations havoutuality of interest in assisting Suharto's efforts and several will probably provide major new credits. Indonesia will look primarily to the US and Japan for such aMiitonrp.
n summary, although Indonesia cannot undo the consequencesecade or more of economic neglectear or two, we believe that ecoimmvc conditions will at least cease to deteriorate and liegin lo improve during that period. If foreign assistance continues at high levels and governmentbecomes more effective, an economic upturn could probably be sustainedew years more, perhaps
onger term prospects for economic growth, however, will depend mainly on Indonesia's ability to expand exports and toomestic resources
forForeign developmental assistance cannot provide moremall part of the investment required to achieve substantial economic growth. And repayments of foreign debts will grow during, eating up an mcrcasingly high proportion of export earnings which might otherwise finance imports of nuchuiery and equipment Even if Indonesia couldarge increase in such imports, its low per capita income would make it difficult to secure the domestic financial resource required for substantial investment.
V. FOREIGN AFFAIRS
The reversal of the Indonesian political situation5 has been matched by events in the foreign policy sphere. Sukaraos Djakarta-Peking "axis" has disappeared, to be replacedosture ofnis newounded on bidonesian fear and distrust of Communist China and its ambitions in Southeast Asia.esser but important degree,nsed on Djakarta's need for massive economic assistance, which can only be expected to oome from the US, Japan, and Western Europe. In practical terms, therefore,estern leaning nonaligmnent.
The new pragmatism in the conduct of Indonesian foreign policy Is also evident in the Suharto regime'^ attitude toward tlie "thirdukarno's costly effort to place Indonesia at the head of the world's "new emerging forces' in the struggle against "impcrialbrn" has been replaced by near-total disinterest in the affairs of laitin America. Africa, and the Arab world. Regional ambitions, on tbe other hand, undoubtedly persist in Djakarta. But unlike Sukarno, the military leadership appears willing to wilwdinate them, at leasto the exigencies of tbe critical domestic economic situation.
Mtihijbia. Inndonesian and Malaysian officials announced agreement on the termination uf Sukarno's three-year campaign to dismember Malaysia. Indonesian paramilitary activities In East and West Malaysia and Singapore ceased shortly thereafter, and the bulk of the Indonesian force in the frontier areas has since been withdrawn. Indonesian-sponsored, anti-Malaysia rebeb in Borneo bave similarly ceased paramilitary action, and some groups have been disbanded- Several hundred Indonesian-trained, ethnic Chinese rebels from Sarawak, however, have retreated into remote areas ofBorneo and refused to surrender their arms. The Suharto government probably intends to keep its bargain with Kuala Lumpur and will forgo any
significant guerrilla or terrorist activity in East or West Malaysia for thefuture,
end of confrontation signifies, among othereevuluationproblems and opportunities in Borneo and elsewhere innow seems to beew and subdued course toaims in these areas. It will probably cooperate closely with thein suppressing dissidenor among ethnic Chinese in Sarawakhoping thereby toegitimate internal security- role and ain these territories. At the same time, however, Djakarta will prob-
ably assist those non-Chinese political dissidents who favor and will workroadening of Indonesian influence in Malaysian Borneo.
new Indonesian tactics look beyond their immediateBorneo. Tbe Indonesian loaders almost certainly look forward to theof an extremely close politico-military relationship withwhieh Indonesia is clearly the senior partner. This arrangement isIndonesian eyes by the "threat" posed by the ethnic Chinese ofMalaysia, Althoughnlikely to achieve the hegemony it seeks
the Malaysian area over the next few years, it will probably make some >gress toward this objective, chiefly in terms of closer political and military with tlie Malaysian Covemment and an increased Indonesian presence in Sarawak and Sabah Indonesia's chances will be enhanced by the generally favorable attitude of the Malay leaders and populace toward the Suharto group.
There is also real interest in Indonesia inegional grouping to include the members of the Association of Southeast Asia (Thailand. Malaysia, and the Philippines) and possibly Burma. Cambodia, and Laos as welL There is little question however, that Indonesia sees itself assuming eventual leadership ofroup. One obstacle, among many, to Its formation is Malik's fear of compromising Indonesia's "nonaligned'" status.
There has been no indication thai the Suharto regime intends to modify the long-held Indonesian doctrine that all waters within and leading into the Indonesian archipelago are Its territorial waters. In attempting to establish this principle, Indonesia will probably continue to require prior notification with regard lo the movement of warships through waters it claims to be territorial.
Communist China and EUeuJiere In the Western Pucific. The generals In Djakarta have always slewed the threat from Peking as the foremost concern of the Indonesian defense establishment. And they were quite ready to believe that Communist China had encouraged and assisted the pro-Communist plotters who murdered the six army generals and attempted to seize powerctober. Consequently, relations between Djakarta and Peking have deteriorated rapidly since that time. There have been vituperative radio broadcasts and denunciatory diplomatic notes on both sides. Tbe Chinese Embassy and other Pekingin Djakarta have been attacked on several occasions. All ChineseMakasar, andbeen closed.of both countries has been sharply reduced and is now led in each capitalharge d'affaires.
Apparently, neither country hat wanted to go so farormal break in diplomatic relations. Malik and the generals are probably concerned about damage to their Afro-Asian and neutralist image, and may also be apprehensive about unnecessarily provoking the Chinese. Peking probably does not want to lose contact with Indonesia's large Chinese community and the China-leaning Indonesian Communists. Relations are unlikely to improve, however, so long as tbe Suharto government holds power in Indonesia. Some unforeseenperhaps one involving Indonesian persecution of its Chinese com-
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munity or Chinas steadily increasing support for dissident Indonesian leftists resident in Peking, could leadomplete diplomatic break in the near future.
Djakarta's split with Peking has had an impact on Indonesian relationships with other states of South and Southeast Asia. In general, there hasooling of relations with countries associated with Communist China andimprovement with those hostile to China. For example, relations with India, which reached their nadir when Sukarno provided military aid to Pakistan inre vastly improved; relations with Pakistan arc now cooL
Another measure of Indonesian movement away from the cliches of the Sukarno era is its quietly emerging leUtionship with Nationalist China,has focused on securing modest quantities of economic assistance from Taipei, hut there have also been moves toward arranging some sort ofor consular representation for the Nationalists in Djakarta in order to offer an alternative to Indonesia's powerful Chinese business interests. Consular relationsouth Korea, broken by Sukarno, have already been reestablished and it is probable that diplomatic representation will also be restored. Foreign Minister Malik does not wish to offend Pyongyang, but he apparently values economic and political relations with the South Koreans more. Nor is there any great hostility in Djakarta toward Hanoi. Indeed, many Indonesian leaders clearly sympathize with North Vietnam In its present predicament, and some hope eventually to become acceptable as mediators of the Vietnam war;Indonesia Is moving toward consular relations with the rival Saigon regime.
Good Indonesian relationships with Australia and Now Zealand have been restored with the termination of confrontation. Friendship with Australia has been further bolstered by Malik's expressed intention of cooperation withand The Netherlands on matters concerning West New Cuinca. He has apparently decided to honor the agreement2 to hold some sort of plebiscite in that territorynd Indonesia has begun joint surveys of the border between West and Australian New Guinea. Friendship toward Australia and New Zealand does not, however, carry over into relations with the UK. Djakarta remains anxious to see the end of the British military presence in Malaysia, Singapore, and the protectorate of Brunei.
The USSR ond the US. The US has clearly benefited from the downfall of Sukarno and his Communist allies. Tlic Soviet attitude toward the turnabout in Indonesian domestic affairs is ambivalent The USSR is pleased by the elimination of Peking's influence in the government and not unduly upset by the downfall of the pro-Peking PKI leadership. The end of confrontation was probably welcomed too. But it is concerned by the violently anti-Communist and anti-Marxist orientation of the Suharto regime and the pro-Western altitudes of most of its leaders. Moreover, there is real apprehension that Suhartos "new order" will move even further to the right domestically and, driven by fear of Communist China, into outright military alliance with the US or some of its Asian associates.
To forestall such trends, and to safeguard their own extensive military investment in Indonesia, the Soviets areorrect, though cool, relationship with Djakarta. After much haggling, they have agreed toIndonesia in the matter of rescheduling debts. They have promised to resume shipments of military equipment, suspended for moreear. Certain minor joint economic projects may also be resumed. On the other hand, the rnilitary shipments will probably be little morerickle of replacements and spare parts; credit terms will be relatively rigorous. And it will be made clear to the leaders of the Indonesian armed forces, largely equipped by the Soviets, that expansion or contraction of this flow depends on continued adherenceolicyn alignment.
In estimating the extent of Suhartos deviation from acceptable patterns, the USSR will probably pay close attention to the course of Indonesian relations with such countries as the UAR, Yugoslavia, and North Vietnam on one hand, and its developing ties with Nationalist China, the Philippines, Thailand, and South Korea on the other. Aware of this scrutiny and eager to maintain some semblance of balance between East and West, Djakarta will probably try to handle its future relations with such countries cautiously, avoiding anyaffront to the USSR. Nevertheless, so long as the US continues to assist In the lehahUitartoii of the Indonesian economy and the Indonesians retain hope of even greater assistance, their relations with the US are likely to remain as close and cordial as at present. Future relationships may be complicated by Indonesian requests for large-scale US military aid, but as yet this has not become an issue.
Original document.
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