DEAR BILL:

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP70S00385R000100290006-4
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 4
• Document Creation Date: December 12, 2016
• Document Release Date: March 15, 2001
• Sequence Number: 6
• Publication Date: April 14, 1967
• Content Type: LETTER

Approved Fo?elease 2001/08/27: CIA-RDP70S003 000100290(O6j4~'~~~'~
LIMITED OFFICIAL US
DEPARTMENT of STATE
State Dept. declassification & release instructions on file
Mr. William N. Morell APR 14 1967
Director
Office of Research and Reports
Central Intelligence Agency
Dear Bill:
Indonesia's progress toward economic and political
stability iE encouraging. As is always the case', as.
present problems recede or lose their urgency, new
problems arise. Indonesia is, of course, the major
nation of Southeast Asia and I believe the time has now
arrived wher. we must consider more carefully the effect
of its rehabilitation on the world economy, particularly
commodity markets.
If, as we hcpe, Indonesia moves rapidly to restore pro-
duction of its export sector to earlier levels and its
infrastructure is rehabilitated to the point where its
exports are moved easily and rapidly to the ports, world
supplies of certain commodities will obviously be in-
creased. The question is how much and what impact will
this have on world price levels.
We in EA need to know considerably more about these
questions. Foreign exchange earnings from rubber and
tin, for example, are vitally related to our political,
strategic and economic concerns, not only in Indonesia
but even more so in Malaysia and only to a somewhat
lesser extent in Thailand. Already a recent softening
of rubber prices has been attributed in part to an
estimate of the International Rubber Study Group of in-
creased availabilities of rubber in Indonesia this year.
There was a softening of copra prices in the Philippines
because of expectation of increased supplies from
Indonesia.
Indonesia is a leading producer of rubber and tin. Prices
of both commodities are already so weak they have produced
major problems for the producers and for our disposal
program. The demand for such raw materials is also
notoriously inelastic, particularly in the short run.
Thus, relatively small increases in-the available supply
on world markets has a disproportionate negative impact
on prices.
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Another factor may be operating concurrently which may
cancel out rluch of the impact of Indonesia's full return
to world commodity markets; the termination of our rubber
and tin stockpile disposal program scheduled for the next
two or three years.
Restoration of Indonesian agriculture may also have an
appreciable effect on world sugar and rice markets. Re-
calling that Indonesia was once an important exporter of
sugar, we checked with our Economic Affairs Bureau about
the possibility of getting a United States quota for.
Indonesia or at least getting it a share of the shortfalls
in quotas of other countries or increases in global quotas
allowed from time to time by the Department of Agriculture.
This would have the same effect as a substantial increase
in aid without being subject to appropriation. Our
Economic Affairs Bureau assures us, however, that the
countries eligible for quotas are spelled out in the Sugar
Act. It would be necessary to amend the Sugar Act to
include Indcnesia which would open up that Pandora's Box
again. Thus, this idea seems to be a nonstarter but one
which we arc keeping in mind when sugar legislation is
opened up again if Indonesia's performance continues
along present lines.
With regard to rice, Indonesia is not likely in the fore-
seeable future to become an exporting nation, but a
restoration of its agriculture could certainly cut down
its rice imports which would have the same effect on the
world rice shortage.
These are complex and difficult questions of which we must
know much more for policy planning purposes if we are to
avoid disagreeable surprises. They should be thoroughly
researched and projections made based on the most likely
sets of assumptions for at least the remainder of this
decade. I believe ORR is the only organization in the
Government with the resources to handle this research.
Working out price elasticities and making worthwhile
projections, considering all the vast uncertainties
involved, require fairly sophisticated economic analysis.
I am sure there is a considerable body of material
available not only in CIA but in our Economic Affairs
Bureau, Agriculture, Commerce and Interior.
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I like the way that we have managed to meet together from
time to time and to surprise each other with our separate
paths to agreement that certain things were clearly worth
doing. All of the foregoing represents a kind of report
on a skull session that Woody Woodbury, Claus Ruser and
I have had on research useful from the standpoint of our
present and future operations. Why not consider it as a
kind of agenda for a session that you, and STATINTL
the three of us can hopefully have rather soon. We may
want to focus a bit, on how precisely we should define
actual research requirements. Your views on this would
be as valuable as ours, of course. And on something
ambitious as these projects might turn out to be, I
should probably let INR know what we are up to.
Sincerely,
Robert W. Barnett
Deputy Assistant Secretary
East Asian and Pacific Affairs
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DATE 4/12/67
SENNY:
CLASSIFIED "1TERIAL
Copy For, ressee
FROM: Robert W $ rnett .- -TA
V 2090
S.
TO: XI I y ! 1!