PROSPECTS FOR INDONESIA

Created: 7/22/1964

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INTELLIGENCE ESTIMATE

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NATIONAL INTELLIGENCE ESTIMATE

NUMBER

Prospects for Indonesia

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TABLE OF CONTENTS

THE PROBLEM

CONCLUSIONS DISCUSSION

L INTRODUCTION

a THE POLITICAL SITUATION

THE ECONOMIC SITUATION

FOREIGN POLICi-

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PROSPECTS FOR INDONESIA

THE PROBLEM

To examine ihe mafor (rends In Indonesia anil to estimate probable developments, taking into account Implications of the campaign against Malaysia-1

CONCLUSIONS

Sukarno remains virtually all-powerful inthere is almost no chunce that Ids rule or his policies willchallenged by any group, movement, ur individuallifetime. Neither Increased economic stringency northe outer islands is likely to threaten Sukarno's position3)

the past year Sukarno has tended to reinforce thethe Indonesian Communist Party (PKI) and reduce theof the military. Although PKI Influence in iheremains relatively limited.s likely to continue growingas Sukarno remains in power. Sukarno does not seek todominance hut, over the long term, to fuse it with othernationalist elements thai he has slowly drawn intoobjectives. The PKI. well aware nf his tactic, will probablyostensibly to support Sukarno, in the belief that In the longCommunist cause will be the chief beneficiary of theand political disarray he will bequeath to Indonesia.

'Sam alto NIEIn.loiio.lni International OrlnitaUon."lundU Malavilan-Indonaalanatod1 Ths In both MtUnalM rrmalu naantlallv valid-

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campaign tu disruptataccelerate the drift toward the radical left and will do soas seems likely, the campaign continues. Sukarno willto seek to avoid open hostilities with Britishbecause of the uncertainty ofecisive trend inin South Vietnam, either way, would have some effectforces in Indonesia and upon the pitch of theBut, in any case, the mainsprings of Sukarno'sactions will continue to be found primarily in purely (Paras.

has speeded the deterioration of theThe most serious short-term problems are growingof foodstuffs and other consumer necessities,eavypayments deficit; prospects for improvement are not bright.Impact has thus far been slight, hut if food shortagesproblem of maintaining public order in urban areas could )

developments will probably not lead to anyin Indonesian foreign policy over the next few years.growing cordiality with Communist China will probablybasedear identity of short-term interests In theworld. The USSR, clearly disappointed by its failure toinfluence in Indonesia, even in the PKI. possessesinfluence with Sukarno despite its vast military assistance )

road ahead for Indonesiaroubled one ofexternal aggression, and overall Communist profit.will not brighten until and unless Indonesia's energiesfrom foreign ambitions, which probably includeand, in due course, the rest of New Guinea, and are devoted

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DISCUSSION

I. INTRODUCTION

L President Sukarno'i campaign againstto dominate Indonesian foreign policy. Confrontation ha* tome lo encompass the ma of all means short of overt hostilities to detach tha territories of northern Borneo from Malaysia and drive tlie British from Southeast Asia. Confrontation alto serve* to holster Sukarno's claim toeader of the "now emerging forces'* of the underdeveloped world and provide* him with (uvtiflca-tlon for his buildup of Indonesian military power. LlkoWest New Guinea campaign which it followed, confrontation has worsened the rolationt ofwith the Western powers and Increased Its inclination toward tho "socialist camp" Upon which It now depends almost exclusively ior military equipment and political support. Yet riespito this dependence and nn almost cumplete Identity ol position) on most cold war issues, Sukarno lias managed lo remain politically independent of tho Communist world and lo retain most of hit Unit* with ihe West-

ltldn Indonesia. Sukarno has also sought toalance between Communist and non-Communist force's. In this case tho Indonesian Communist Party (PKI) and tlio Indonesian military, tho only ^Igniflcunt contenders- (or political power. There has been,teady accretion of Communist influenco with Sukarno's acijusMeenco, especially over (ho past year. To some extent, this drift tn the left is atuibtitahle to Sukarno's need to protect his personal position against Communist attempts to csploll grtiwing economicThere Is,igh degree af volition tn Sukarno's support of the PKI. stemming mainly from his basic philosophic commitment toand socialist forms of government, and from an obsessive anti-colonialUm that has found its most powerful allies amonghese factors have induced Sukarno to Increase Communist participation In theand further to intimidate political moderates and potential dissenters. In tho context of confrontation, which Is strongly supported hy both the PKI and tho military, Sukarnoble to take such actions In tho name of notional

unity.

II. THE POLITICAL SITUATION

ukarno. Sukarno remains the unchallenged leader of Indonesiahis personal popularity lias been on the wane lor several years, ho retains two key assets In maintaining his controllingystique among Indonesians stemming from his role as Ihe leader ami symbol of tho Indonesian revolution;onsummate skill In tha manipulation oi individuals, groups, institutions, and tunas. Neither the PKI nor the military is prepared to challengepolitical pre-eminence, and Sukarno continues to be successful in balancing them against each other while retaining for himself tl* cmitrolling power

position. Nor does tlie nation's eiDnomic distress vet constitute mi Immediate danger to hint. Faced with die police controls of r. "gukkd tlemotracy"mused by the riaOceuutstlc uproar against Malaysia, most Imlonnians apnea* to liave passively accepted economic stringency. Tlw recent increase in armed dUsidence in tha Celebes pOSM no real threat to Sukarno's position The Army In moving vigorously to suppress tlie rebels and will probably succeed shortly in confining them lo tlie hilly interior. There are very minor problems of armed dissidence in Ccram and potential trouble- spots ui Sumatra and West Irian. Ixil none appears likely to developerious security problem

The Armed Forces. Tlie Indonesian military leadership isonservative force; in foreign aflain it I* ullranalloualist und in domestic affairs it is Interested primarily In maintaining iho considerable economic and political position it hai won over the past decade. While overwhelminglyits opposition toKI is Isased more iai Us desirr lo lifeguard thli position than on Ideology. Tlsough the military leaden retain considerable power, they have lost many of their political prerogatives and governmentover the past year or so, mainly because Sukarno view* litemreater potential tlueat to hu achievement of absolute power than dm I'KI and lias accordingly acted to erode their position.

Unu! recently, the Defense Minister and Chief of Stall oi the Armed Forces. Central Nasutlon, as the most prominent spokesman fur the military, hasajor force in Indonesian politics. Ua I* basically loyal to Sukarno whom he sees ai the irreplattmhla loader ol tlw nation, but In* has always been opposed to any encroachment on Army Interests, especially Sukarno's efforts to enlarge the PKi'i role In nationaleries oi cabinet reihufflestbe death of First Minister Djuanca tn3 moved Nasutlon from ilw inner circle of top pollcynvakenosition below that of dire* Vice Prime Ministers, who, with Sukarno, now comprise tbe Cabinet IVasldlum. Thoalio Introducedlements Into tho Cabinet and reduced the number and status of portfolios held by the military.

Perhaps Sukarno'a meat Important step in reducing Nnsutloni influence has been to raise tbe tutus of tha more pliable Army Chief of Staff, Generalormer Naaution protege. Sinceard, whose professional ability is highly respected, has had the direct control of the Army once held by Nasutlon; lie has beeneading rolo In tbe Malaysian confrontation; and. most Important, ho Is "In" with Sukarno. Yani, although reputed to he antl-CommunlsI. has acquiesced, apparently for opportunistic reasons, in the removal of certain militantly anti-Communist regional commanders, and hasendency to accommociaw to the leftists. Nasutlon'* passive acceptance of these actions and Yani* personal ambition havo weakened Ihe militaryorce capable of arresllng tbe apparent slide toward tlie leltf^"

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The military leadership illrominent mid iiifliientinl adrniiifetru-Uve rule Officers occupy ninny positions in centtnl government organs and participate fully in local government. In certain region* >ni(stde Java, regional commanders continue to exercise predominant political power and in many ease* haveto chock the PKI. PKI penetration o( ihe armed forces. among officers;ew hundred lira under CommunistWe lock information Irom which lo estimate Communist influence within the lower ranks. Tlw gieater danger lo tho position of Ihe military. Iiowever. is that lt "ill continue to uccept Sukarno's whittling away nf its politicalto the point where it cannot a% will not oppose any nf his polities

The innWsfcin Communist i'ailij. Tlie PKI Is Iho largest and bestpolitical party in Indonesia. Iloung mid vigorous leadership cud nowhe total meinbeuhip of its principolTIcmmla RuL/atnd Cemutueven greater. TIio PKI alio isHiInHs, dominates, or has heavily infiltrated other leftist polincal parties, including tome small ones close lo Sukarno, and such (pinsi-pollllcal groups as Hajxrki, comprised of ethnic Chinese. Above all, over the past decade, tho PKI bus exploited nalionalistie issues and Sukarno's benevoletK'e. toespectability scarcely apjwoBchedommunist parry In any other non-Communist cuuntiy.

tlie PKI diil nut auaeve Its long sought goal of overtIn tho reshuffle- of iutelUftt. pro-Communitl* gained the postsof Justice, Minister of tlio Central Bank, and Minister assigned toPreskllurn- Under the new Justice Minister, the Indicia] systembeen nothing more than an arm of lite executive In recent years) isopened lo Communist nvanipnUtions. particularly Inplans lor adminlsteilug the complex and poorly conceived landSukarno, tius urged the Justice Minister "to retooleplace) allwlm full lo understand the elements of tha revolution andwho oppose il* 'the Ihird mentioned pro-Conununlst mluistor, onlias muu to Inner Cabinet proceedincs Sukarno has alsoanti-Communist governors and confirmed tlie HKt as the dominantin tho management of AnMrn. Indonesia's government (and only)PKI Influence lias also become stronger in Ihe secretarial of thoFront,utsl-olficlul federation ol alllles and mavsit. Indonesia.

liile ostensibly backing Sukarno mi most issues, the PKI liasore aggressive- course In Iho past yeur. It lias renewed lis campaign forIn ihe cabinet and greater partleipallon ul ull levels of government and hasovernment's economic nolldns, focusing on shortages of food and consumer goods, lnnalkai. and neglect of ihe [wasanlry. Thesetactics and the patriotic enver offered by Its slirlll advocacy ofhave facilitated PKI Inlillratlon into various elements of Indonesian society. Inder the guise ol achieving uiitlonul gimls, the party has also taken Ihe lead

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in discrediting tlie Western political position In Indonesia und in tfffhltflM against Western economic investment f

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II, Despite Its considerable gnins. tlie PKI din itill exert only limitedon formulation of national rwlicy nnd control oi government machinery. Communist membership In policymaking bodies is small ond usually only ad-sisory in nature. Sukarno lias been slow to give tlie PKI increasedin government and will probably continue to be so. On tlie other hand, even limited anticipation in the government associates the party withpolicies, blunts its ability to open full-scale attacks on the government's gross intsiuindltug of the economy, und lends lo reduce the revolutionary zeal of parly members. Nevertheless, lbs party continues to viVw the policy ofwith Sukarno as in its best short-term interest.

he PKI is now clearly committed to tlie Peiping side in tbe Sino-Soviet dispute; the innfor differences within party councils now revolve around the precise degree oi contact to he maintained with the CPSU. Tlie views of tbe PKI and. for that matter, of Sukarno, on the necessity lor militant support for "national lilseratlon" movements accord well with those of Peiping. Tillsofore than any other single /actor, accounts for Sukarno'sflirtation with Peiping, his benevolence toward the PKI. ond the growing coolness in Djakarta toward Moscow.

rorjwcri. These trend* ore unlikely to change significantly over tho nest year or so. Sukarno svill remain the prime mover, with nearly absolute 'sower of decision in both domestic and foreigne will continue to seek Ihe eradication of Western influence in Indonesia and Its environs, and the espan-sion of Indonesia's and bis uwn prestige and influence. For these purposes, he will seek support at home and abroad wherever he can find II. .Sukarno will need the PKI to handle his agitprop chores, to help bring recakitranlinto line, and to balance the influence ol the military. He hopesto fuse tlie PKI with other radical and nationalist elements that have gradually born drawn into supporting his objectives. At (lie same time, he will need the militaryaintain public order, implement his expansionist policies, and provide InsuranceKI hid for power.

H. Tlie PKI will probably continue in mnve essentially in tandem with Sukarno. To be sure, the party will seek lo add to Its popular appeal by crfft-cuing government economic policies and portraying itself as the spokesman of tbe deprived. It will force thu pace oflionalizatioii ol Western assets Al long as Sukarno remain* in active control of Indonesia, however, die PKI will almost certainly maintainiaslcally nonviolent course. It does not have the iNgonioition. training, or brood geographic lutse to seize power, and any attempt to do ui would probably Inil because of tit* superior force of the Army and Sukarno'* substantial popularity. Even ifeizing power in Us

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nese stronghold, die purty wmild fute the certainly ol rebellion in tho rich outer island* and the possible fragmentation of the Indonesian state. Tlie PKI leaders apparentlyhat somehow, while Iho party is still under Sukarno'sil will become so deeply entrenched in the government diat, when Sukarno leaves the scene, tlie military will have no choke hut to acquiesce in uof the PKI's role. Any sudden shift in party tactics before Sukarno's death would probably lie in response inn Army crackdown.

Suvccmton. In tlie event of Sukarno's death, incapacity, highlyremoval from office within the nest few years, Ihe most

likely successor government wouldon-Communist military and The military would probably exercise much greater authority thanbecause lu support would be essential to the maintenance of public

order. The PKI, restrained by its limited potential for insurgency and Its desire to avoid provoking the Armyomplete takeover, would announce supportpeedy civilianeriod of political ferment would he likely, during which competing forces, including political groups now In eclipse orwould Jockey for position. The PKI would seek to strengthen its alii-anccs with non-Communist opportunists. like Snhandrio, wllh whom it tins already developed mutually profitable relationships. The resultant poliiicalwould provide opportunities,ealignment ol domestic political forces. The outcome cannot be estimated.

Is unlikely that Indonesian domestic or fureign policies wouldany major way, at least initially. Tlie drive toward socializationhut the aggressively nationalistic doctrines of tlw Sukarno era,commitment to regional hegemony, and the desire to remain onwith its chief military supplier, tha USSR, would persist and lilndertoward pro-Western positions in foreign policy. The new loaderscontinue lo focus on appeals to nationalist emulions rather lhanto solve practical problems, and would probablyn thecampaign even if only In low key. Lacking Sukarno's uncqualed giftsand expansionist campaigns, they might be unable to containdiscontent and tbe regional separatist pressures that he has kept

III. THE ECONOMIC SITUATION

rends. Confrontation has greatly aggravated Indonesia's chronicof economic mismanagement. Inflation, declining industrial production and falling raw material exports, foreign exchange shortages, and the growingof repayment obligations. Tlie heaviest economic burdens of the campaign ngalnsl Malaysia have been the cessation of legal trade with the Sini[apore

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The Immediate economic impact on confrontation fell most severely on exports of smallholder rubber from northern Sumatra nnd Borneo which hod formerly been token tn Singapore for processing and sale. Initial trade losses were very heavy, but Indonesia has managed to move much of the rubberto overseas markets and smuggling has further reduced stocks on hand; the loss in earnings may no longer bo very great. Estate rubber exports, usually shipped dlredly lo consumers, were not nflocted, but production lias beenby the seizures of some British plantations. Tin output has declined severely and tin earnings even more liecause of the increased costs incurred In snipping ores to the Netherlands for smelting rather than to nearby Penong. Foreign exclionge earnings have also suffered because of Inadequate shipping facilities to replace those once supplied by Singapore traders to movo Indonesian cargoes.

These short-term effects of confrontation liave Intensified moreproblems In Hie economic spliero. Foreign trade3 droppedercentxportsercent, and Imports, including much needed machinery, spare parts, and Industrial raw materials,ommodity trade surplus9 million was not sufficient to offset transport costs, remittances by foreign enterprises, and other services,ubstantial capital outflow in debt repayments. The resultoavy deficit in balance of payments which was met through foreign aid nnd drawing on gold nnd other foreign exchange reserves. Total reserves at the end3 wereillion, less than ono-fourth of the figure0 |ust before the West New Guinea crisis. Reserves may now bo close to tho vanishing point.

With decliningebt repayment burden estimatederice Import requirement of at0 million. Ihe avenues open to Indonesia in balancing III international payments uro limited: Imparts could be cut even further; it could demand further rescheduling of payments; or It could default on Us debts. Least likely of all. it could abandon Iheposture toward Malaysia which lias cost It Western financial assistance

As is the case with either underdeveloped countries tha revenues of the Indonesian Government depend heavily on foreign trade. Declining trade has meant Increased budget deficitset by borrowing from the Centralthe printinginflation Is rampant. In llie six months following ihennouncement of confrontation, tho moneyincreased SO percent and the cost ofercent.

To the average Indonesian, the problem of rising prices and commodity shortages focuses on food. Production of foodstuffs In Indonesia, always highly Inefficient, has not kept pace with population growth, and per capitais steadily declining; the point may have been reached at which severe food shortages In certain less-favored agricultural areas of Java couldegular occurrence between tho October and April horvesls. There was some

' Indonesia* total foreign tlsbt0 trillion. MKM million it owed in Commuaiit countries, mainly for military equipment,S million lo (lie US.

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WAtl hi eastern and central Jnva and on Bali earlier this year. Deficiencies h;Hlurltoo nie aggravated by inaesued demandoor dlitrtbutlon tyt'.trx Military activities in Borneo and the inclusion of Wait It lan and thehe Hum Archipelago {off Singapore) tn the govi-niment distributionroit: the past year compound the problem. The government itp!eiwnt (lie domeatK. lice harvest hy importing about one million tons airrnuuvost of BUY) millionone-fifth of total import eapendltures. Titers*littlef procuring additional rice and other foodstuffi under UiK-term iTrtlit arrangements or of allocating much nsure of the scarce foreign exeluiKc tohus iar. Imwever, tlie food shortage has apparently luiu little |HilitIo*it impact.

Zj. The decline in tho ocunumy almost certainly cannot Iw halted without extensive- liireign assistance, especially to finance imports of food, consumer goods, .mil industrial rawrospects in this regard are poor. Com-immui China cunnut nod ihe USSR probably will not makit thu rei|ulred heavy and ivntimiing cxpoiHllliire, although Pelplng has agreed toons of rice4 underommercial arrangement involving no cash payment ;md ihe t'SSH will almost certainly |wovldc some assistance, such as liberalized credit tii- Indonesian piiri-liaiea. (Confrontation has removed tlie once-brlelit piiKoetta coardlnnied Western program of flnanciul

iccvnt effort tn secure this type rrf aid tn Writ mi Kurop* alone

urrirn Aid and /in.oilnutnl. Economic aid from the llloc it now almost aWawcs entirely confined to specific development projects, though local currency short- ges have caused many of those to bo postponed. Tlie Communist countries have rescheduled Indoueaia't repayments for the vast amount of militaryprovided over tho past several years, hut repayment uhllgatlons remainmillion nnnuallv In tha case of tho USSR.

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rnngemenlt. un Indonesian device lor obtaining foreign capitaledium-term, telf-lkpddating basts. Tlie lime span for nationalization of"direct foreign Investment variea from IS loeari, depending on the company Involved, but the pace could bo ipiickeued liy political developments.estate* are partlcularlv vulnerable totirm-nllration of these holding! Is likely in come first.vuhieroble are the foreign oil companies, now operating as contractors lo die Indonesian Govern-ment under recently signed agreements.

ra,-cas Tho Indonesian economic situation will continue toFor-toachuig Internal rrformi and laige-soalo foreign aid are necessary to halt the decline, but these requirements will almost certainly not be met At long at confrontation Is continued, Western countries are not likely lo extend the economic assistance needed Neither the USSR nor othercountrlet are likely to fill the financial gap. Improved distribution methods and Increased agricultural efficiency could. In time, reduce the need for heavy rtee Imports mid thereby release substantial foreign exchange Inr other urgently needed imports. However, there is little chance of anyimprovement in this respect.

lie rural masses, who make up aboutercent of tho Indonesian population andarge eaient oomprisosubsistence economy, svillremain passive in tho face of 'economic distress. Urban living standards will probably continue to drop rapidly In the absence of substantial outside aid. In thehe problem of public order could lieoame critical if food shortages perilst and nubile service* continuo to dotorlorale. If so. the normal governing process might cease tu function, and martial law might lu.vc in beThe Communltti would greatly benefit If troopt became involved in heavy-handed suppression. Tlie eonnomic tltuatlon may contribute lo dlstidence in the outer Islands, at Djakarta continues to exploit their natural resourcea for the benefit of the Javanese ooonomy, ]

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IV. FOREIGN POLICY

on/roiUaikin We Iwbeve tlsat Sukarno Intends to continueat varying levels of intensity, until the way Is opened for Iho achievement of hit objectives, through the withdrawal ofor era from Borneo or the weakening of the Kuala Lumpur government. In currying out hitSukarno will teek to avoid provoking open svur. but ho may nuJralculata the UK response to hit actions, d.

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ver (lie next fewo lookonttliunlion of con-frontatkin and tha drift to the left "which ha* accompanied ft. Indonesia's growing cordiality toward Communist China will probably continue; it Is basedear identity of short-term interests in the Afro-Asian world and Sukarno's udmiration for Mao. The two have cooperated to mutual advantage In the organization of several Afro-Asian conclaves, ond Chinese leftists in Malaysia, probably with Pdplng's contnirrenee, are cooperating In Indonesian subversive efforts there Such ties are likely to become closer, even though Sukarno and most of bis top leaders nro awnro of the long-term dangers of growing Chinese strength in Southeast Asia. Most, however, see the Chinese threatistant one. to be considered when more immediate obstacles to their ambitions are overcome

Tlie USSR has been disappointed at tbe meager gains achieved inat so much cost in military hardwareinimum. Moscow had lioped to hecome the predominant foreign Influence In Indonesia, but today the USSR clearly ranks behind Peiping In the affections of Sukarno and those of tho PKI. Moreover, Moscow has been unable to obtain significant Indonesian support for Soviet participation in tbe forthcoming Afro-Asum conference. TheSoviet asset in their effort to retain some (nilutmce withheir vast military assistance program.eed to retain Soviet aid and to service and replenish the weaponry already acquired from the USSR will deter him from following policies openly offensive to Moscow. He might even grant to the USSR such tangible concessions as satellite tracking stations and tho limited use of Indonesian air and naval facilities.

vents elsewhero in Southeast Asia wltere the "now emerging forces" ore clashing with the West will have some Impact In Indonesia. Victories for the Viet Cong or Pathet Lao might embolden Sukarno to more forceful action against Malaysia. V

ukarno would probably continue his vocal support for the "national liberation movement in almost any circumstance. The mainsprings of Sukarno's foreign policy actions will in any cose continue to be found primarily In purely Indonesian considerations.

he road ahead for Indonesiaroubled one of domestic deterioration, external aggression, and overall Communist profit. This piospect will not brighten until and unless Indonesia's energies are turned from foreign ambitions, which probably Include Portuguese Timor and. In due course, tbe rest of New Guinea, and are devoted to the development of this potentially rich country. It Is unlikely thathift will occur so long as Sukarno dominates Indonesia.

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