PROBABLE DEVELOPMENTS IN INDONESIA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01012A002500050001-0
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 14
• Document Creation Date: December 22, 2016
• Document Release Date: September 20, 2012
• Sequence Number: 1
• Publication Date: June 11, 1953
• Content Type: NIE

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CURITY INFORMATION
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,NATIONAL INTELLIGENCE ESTIMATE
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PROBABLE DEVELOPMENTS IN INDONESIA
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'Approved 2 June 1953
Published 11 June 1953
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RECORD COPY
The Intelligence Advisory Committee concurred in this
estimate on 2 June 1953. The FBI abstained, the subject
being outside of its jurisdiction.
The following member organizations of the Intelligence
Advisory Committee participated with the Central Intelli-
gence Agency in the preparation of this estimate: The
intelligence organizations of the Departments of State,
the Army, the Navy, the Air Force, and the Joint Staff.
CENTRAL INTELLIGENCE AGENCY
RECORD COPY
RECORD CDP1
RECORD COPY
RECORD EPPY
ArCORD Copy
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PROBABLE DEVELOPMENTS IN INDONESIA
THE PROBLEM
To estimate the current situation and probable developments in Indonesia.'
CONCLUSIONS
1. In Indonesia, the replacement of the
provisional regime by a duly elected gov-
ernment is an essential step toward the
development of a stable and effective ad-
ministration. We believe that the gov-
ernment will probably meet its commit-
ment to hold Indonesia's first national
elections for a Parliament and for a con-
stituent assembly sometime in 1954.
? Elections in themselves, however, will not
solve the many problems facing the coun-
try nor will they necessarily assure a
stable government.
2. Even after elections, much will depend
on the actions of a few political leaders,
whose personal goals and motives are not
readily discernible. At present, Presi-
dent Sukarno is the principal national
leader. His prestige is based on his early
leadership in the struggle for independ-
ence, his popularity with the Indonesian
people, and his claimed independence of
political party. Hence, he provides a
locus of loyalty for a variety of political
and military factions.
3. The internal security problem is a
major obstacle to the development of
?1, stable government in Indonesia. Sup-
pression of dissident elements has been
hampered by political considerations and
by the limited effectiveness of the army.
However, we believe that no dissident
group has the capability of overthrowing
the government. If a stable government
develops, action against dissident groups
will probably become increasingly effec-
tive.
4. The strength of the Communists in
Indonesia derives from: (a) their position
as a major bloc in Parliament; (b) their
control of the dominant labor federation;
and (c) the presence of some Communists
and Communist sympathizers in the
armed services, the police, and the bu-
reaucracy. The Communists conse-
quently have the capability to cause seri-
ous disruption, though not to overthrow
the government by direct military action.
The extent of Communist capabilities
after the elections will depend, for the
most part, on the attitude of the govern-
ment toward international Communism
and: in particular, toward the indigenous
Indonesian Communists; the effective-
ness with which the government acts to
improve economic conditions; and the
ability of the government to suppress
armed groups and to effectively maintain
law and order.
5. The Indonesian economy, which de-
pends heavily upon raw material exports,
ZUNI/Eft 1
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4?1411MIPEM1.11
is presently depressed because of the fall
in world commodity prices. The eco-
? nomic situation will continue to be pre-
carious through 1953. Despite the im-
mediate prospect for a continued deficit
balance of payments and a continued low
level of internal economic activity, a seri-
ous economic crisis does not appear likely
in 1953.
6. Indonesian foreign policy is chiefly
motivated, by a desire to maintain an in-
dependent position in the world, and by
an attitude of neutrality in the East-
West struggle. However, so long as In-
donesia's major trade relations remain
with the West, Indonesia will probably
continue to be closer to the West than to
the Soviet Bloc.
7. At best Indonesia will have only begun
to solve her basic economic, political, and
internal security problems by the end of
1954. In time, the government may in-
crease its effectiveness, eliminate the re-
maining dissident groups largely by attri-
tion, and improve its economic situation.
However, serious difficulties must be over-
come, many of which, if not effectively
dealt with, might result in a crisis which
would seriously weaken, or even result in
the collapse of, the central government.
DISCUSSION
INTRODUCTION
8. Indonesia, which achieved independence
from the Netherlands in 1949, is now attempt-
ing to deal as an independent state with the
basic economic and social problems common
to many underdeveloped areas. These prob-
lems include low productivity of labor, eco-
nomic dependence on raw material exports
and, in the case of Java, overpopulation.
More than 90 percent of Indonesia's popula-
tion of about 75 million live in rural com-
munities, with over two-thirds of the total
population concentrated on the islands of
Java and Madura, where there is a popula-
tion density of over 1,000 persons per square
mile. Roughly 80 percent of the population
is illiterate, and educational and communica-
tion facilities are rudimentary. On the
other hand Indonesia possesses certain nat-
ural advantages. It has a variety 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.
9. The Indonesian nationalists, who desired to
end Dutch colonial rule and establish an in-
dependent Indonesian state, were given their
first opportunity under the Japanese occupa-
tion. Through the puppet government'which
the Japanese permitted them to establish, the
Indonesians were able to learn something of
administration. Furthermore, the principal
leader of the Indonesian nationalist move-
ment, Sukarno, became premier of the pup-
pet government, and thus was in an excellent
position to seize the opportunity for inde-
pendence which was offered by the defeat of
Japan. With the support of other nation-
alist leaders, Sukarno proclaimed an inde-
pendent republic in August 1945.
10. For the ensuing four years, the Nether-
lands refused to ? recognize Indonesian inde-
pendence, and 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 part.
11. In the Round Table Agreements of De-
cember 1949, the Netherlands formally recog-
nized the independence of the United States
of Indonesia. The most important provi-
sions of these agreements were: (a) approval
of a provisional Indonesian constitution; (b)
creation of a Union in which Indonesia and
the Netherlands would be equal partners,
joined by symbolic allegiance to the Dutch
Ignswirms-616
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-gieefteir
crown; and (c) protection for existing Dutch
and other foreign economic interests.
12. The Indonesians then undertook the task
of establishing a democratic state. A provi-
sional government was set up in order to
carry on normal governmental functions and
to establish internal security. Initial steps
were taken to rehabilitate the Indonesian
economy, damaged during World War II and
the struggle for independence, and to adapt
it to the new conditions arising from the
severance of colonial ties. The provisional
Indonesian Government undertook to develop
a foreign policy in consonance with the pre-
vailing spirit of nationalism and anti-coloni-
alism. Finally, a program was begun to pre-
pare the Indonesian people, largely illiterate,
for the election of a constituent assembly and
a legislature.
CURRENT SITUATION IN INDONESIA
Political Situation
13. The provisional government at first was
organized as a federation of Indonesian
states. In August 1950, this 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 independence move-
ment) in order to increase its own power and
to reduce that of the other member states,
most of which were under Dutch influence.
A People'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.
14. President Sukarno has been a strong
force in Indonesian development; his prestige
is based on his leadership in the struggle for
independence, his popularity with the mass
of the Indonesian people, and, to a lesser
degree, his claimed independence of party.
However, the 1950 provisional constitution
gives most executive power to the cabinet
rather than the president, and Sukarno has
not used his prestige to extend the power of
the presidency.
15. At present, the largest representation in
Parliament is held by: the Masjumi (the
Moslem Party) with 39 of the 213 seats, the
Indonesian National Party with 37 seats, the
Greater Indonesian Association with 15 seats,
the Indonesian Socialist Party with 14 seats,
and the Indonesian Communist Party with 16
seats. The remaining, representatives are di-
vided among a large number of minor parties
and non-political groups. Since 1950, the
Masjumi and Nationalist parties have played
leading roles in Indonesia's coalition govern-
ments. All non-Communist political parties
espouse nationalism, democracy, and some
form of socialistic economy.
16. The Masjumi is a federation of Islamic
religious and social organizations. Its
strength derives largely from the fact that the
Indonesian population is approximately 90
percent Moslem. The Indonesian National
Party draws its support from the small mid-
dle class and significant elements of the gov-
ernment bureaucracy. The Greater Indo-
nesian Association is supported largely by civil
servants. The Indonesian Socialist Party
does not have the popular support enjoyed
by the Masjumi and Nationalist parties but
it is a well-organized and politically conscious
group, and Socialists hold important positions
in the administration out of proportion to the
party's parliamentary strength.
17. The Indonesian Communists have recent-
ly gained considerable political strength, in
spite of certain Communist Party actions
which at the time aroused considerable pop-
ular resentment. For example, in 1948 the
Indonesian Communists staged an abortive
revolt against the Republic of Indonesia. In
1951, numerous Communist leaders were ar-
rested on charges of plotting against the
government but were subsequently released.
In 1952, however, the Communists changed
their tactics from opposition to avowed coop-
eration. The united front tactics, along with
slogans of "peace and nationalism," were well
suited to dispelling ,some of the public resent-
ment of the Communists.
18. One evidence of Communist political
strength is their position as a major bloc in
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'MEESIMIMS. 4
Parliament. The Communist Party presently
holds 16 seats of its own, controls directly 14
additional seats held by three front groups,
and can count on some support from about
8 independent members of Parliament. The
Communist Party has also been able to in-
crease its influence indirectly through close
cooperation with some of the minor parties
and, more recently, with the Nationalist
Party. This latter development is viewed
with particular alarm by the other non-Com-
munist parties. A second major source of
Communist strength lies in its control of
SOBSI, the dominant Indonesian labor fed-
eration, which has a membership estimated
to be about 800,000 (SOBSI claims 3 million) .
Finally, the Communist political position is
enhanced by the Presence of some Commu-
nists and Communist sympathizers in the
administration and by the fairly effective
propaganda activities of the Communists.
19. Because none of the major parties has
commanded a majority in Parliament, the
various Indonesian governments since inde-
pendence have been coalitions. These coali-
tions have not included Communist Party
representatives. The absence of a clear ma-
jority for any party has made successive In-
donesian governments, faced with an out-
spokenly critical Parliament, reluctant to
take firm decisions on controversial issues.
Moreover, the government has been handi-
capped in its general administrative and
budgetary operations because of the lack of
trained personnel and established procedures.
Largely for these reasons, no Indonesian ad-
ministration has yet exercised strong leader-
ship in improving general economic condi-
tions, in increasing production, in carrying
out general elections, or in suppressing guer-
rilla and bandit activity.
20. During the last months of 1952, the lack
of strong leadership permitted factionalism
and differences in the army over reorganiza-
tion to expand into a major political crisis.
The Defense Minister and leaders in the
armed forces headquarters, in an effort to in-
crease the effectiveness of the army, formu-
lated plans to reduce its size, modernize it,
and centralize its administration. Other ele-
410111
ments in the army, principally those who
would be eliminated under these plans, re-
sisted the program. They were supported by
some members of Parliament who also pre-
ferred to 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 the Min-
istry of Defense and the armed forces com-
mand.
21. The Parliament, after nearly three
months discussion, passed a resolution call-
ing for the reorganization of the Defense
Ministry and new leadership of the army and
the armed forces headquarters. A group of
army officers, following a demonstration on
17 October 1952, called upon President Su-
karno to dissolve Parliament and hold na-
tional elections immediately. Although Su-
karno refused these specific requests, he
promised that national elections would be
held as soon as possible. In the following
weeks, subordinate officers in three of the
seven territorial commands deposed their
commanders and announced their independ-
ence of the army high command, but prq-
claimed their allegiance to President Sukarno.
The government later replaced the army
chief-of-staff and accepted the resignation of
the Minister of Defense. These steps eased
tension but were only a partial solution of
the problem. Two territorial commands re-
main under control of the subordinate officers
who seized command, and the basic unre-
solved problem of factionalism in the army
continues to constitute a serious threat to the
authority of the Indonesian Government.
Internal Security
22. The internal security problem has plagued
the Indonesian Government since 1949 when,
after three and one-half years of Japanese
occupation and four years of fighting the
Dutch, there existed a wide variety of guerrilla
groups. Indonesia has limited forces with
which to deal with this problem.
23. The Indonesian Army, with a total
strength of approximately 180,000, organized
in battalion units under territorial commands,
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is poorly equipped and poorly trained. The
National Police Mobile Brigade, which has a
total strength of about 18,000, is a better
equipped and better trained force, having
been supplied largely by US grant aid. Its
equipment, however, consists mainly of small
arms and personnel carriers. The Indo-
nesian Air Force has a personnel strength of
about 7,600 (including 250 pilots) and about
290 aircraft. The Air Force, having only
about 25 conventional fighters and 35 light
bombers, has a very limited capability for
defense of Indonesia's borders. It has oper-
ated on occasion in support of army opera-
tions against dissident elements, but with
limited success. The Indonesian Navy has a
total personnel strength of about 7,500 and
a number of small former Dutch patrol ves-
sels, including one destroyer. The navy has
been primarily concerned with anti-smug-
gling operations and has performed this mis-
sion with fair effectiveness.
24. The effectiveness of the army has been
further limited by factionalism. Correction
of defects in army organization has been
prevented by a disagreement 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 almost com-
pletely independent of the Ministry of De-
fense. The danger to the central govern-
ment posed by these circumstances is les-
sened by the apparent continued loyalty of
the territorial commanders to President
Sukarno, either because of a personal rela-
tionship developed during the war of inde-
pendence, or because of his official position
as President. The greatest danger to cen-
tral governmental authority is not from re-
bellion but rather from lowered morale and
continuing deterioration of the army's effec-
tiveness to cope with the dissident forces.
25. Despite the foregoing limitations on the
effectiveness of the armed forces, the govern-
ment has managed to suppress two armed
revolts and to maintain order in most areas
of .Indonesia. However, there remain many
bandit gangs and sizable dissident forces,
which total about 130,000 men, approxi-
mately one-half of whom are armed. Guer-
rilla and bandit groups in South Celebes
have an estimated strength of about 4,000.
However, the bulk of the dissident forces is
in Java. The principal dissident group is the
Darul Islam, concentrated largely in the
mountainous country of West and Central
Java. It has an estimated active strength of
10,000 to 15,000 men, about one-third of whom
have guns. Darul Islam advocates a theo-
cratic Moslem state and has considerable pop-
ular sympathy, particularly in the Masjumi
Party. Masjumi influence in the government
has been exercised to prevent military sup-
pression of Darul Islam.
26. Communist overthrow of the Indonesian
Government by direct military action is not
an immediate possibility. Reports indicate
that possibly as many as 4,000 guerrillas may
be Communist controlled. The Communist
Party has officially denied sponsorship of any
guerrilla group, but Communist attempts to
influence or infiltrate insurgent bands in gen-
eral may be assumed. The Communists con-
trol SOBSI, the principal labor federation, and
some Communists and Communist sympa-
thizers are in the armed forces, the police, and
some government ministries. The govern-
ment was able during 1952 to settle a series of
harbor strikes and a sugar estate strike, but
the Communists did not exercise their full
capability to spread the strikes to other in-
dustries and to commit acts of sabotage and
violence. By such means, the Communists
probably could disrupt the Indonesian econ-
omy seriously.
27. While there have been reports that dissi-
dent groups have received aid from outside
Indonesia, these reports have not been con-
firmed.
Economic Situation
28. The economic well-being of Indonesia is
dependent upon foreign demand for its agri-
cultural and mineral exports. These consist
primarily of rubber, petroleum, copra, tin, tea,
tobacco, and palm oil. Not only does the level
of exports determine the general level of In-
donesian econcmic activity, but Indonesia
depends heavily upon its exports to pay for
Nitesitbr
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essential
-
essential imports of rice, textiles, and ma-
chinery. The government also normally de-
rives over one-third of its revenue from im-
port and export duties.
29. The principal economic activity in Indo-
nesia is agriculture. Close to 75 percent of
the working population is engaged in agricul-
ture, about 75 percent of the national income
is derived from agriculture, and agricultural
products account for some 70 percent of the
value of total exports. Indonesian agricul-
ture is 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.
30. Before the war, the lands leased or rented
by the estates represented about 15 percent
of the total land under cultivation, and ac-,
counted for roughly two-thirds of Indonesia's
varied agricultural exports. Foreign invest-
ment in estates was estimated at about $800
million, three-fourths of which was Dutch.
However, estate production of all commodi-
ties except rubber is now far below prewar.
The estates suffered considerable damage dur-
ing the war and in 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 domestic un-
rest and the uncertainty concerning the
future status of the estates.
31. The government has not determined upon
a long-term policy with respect to foreign-
operated estates. The government, recogniz-
ing that continued foreign management of
the estates is for the time 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 the oper-
ation of the estates by renegotiating the tra-
ditional leasing arrangements as present
estate contracts expire. Also, the govern-
ment during the past two years has redis-
tributed to native farmers much of the un-
used land held in reserve by the estates.
32. Native farm output has increased some-
what since 1945. However, serious agrarian
problems remain as a consequence of the low
level of technology in native agriculture and
the increasing pressure of population in Java.
One result of this situation has been the
steady increase in number of landless per-
sons, an important cause of unrest.
33. The Indonesian Government has initiated
a series of small-scale programs designed to
relieve agricultural unemployment, provide a
more adequate system of agricultural credit,
and increase the productivity of labor. The
government is continuing, though on a very
limited scale, the prewar Dutch program of
Javanese resettlement in the outer islands.
Efforts are being made to develop light indus-
tries to provide increased non-agricultural
employment opportunities. Finally, the In-
donesian Government, with the assistance of
US and UN technicians, is attempting to in-
crease the output of food in Indonesia, par-
ticularly rice.
34. The present economic situation in Indo-
nesia is not favorable. During the last quar-
ter of 1950 and in 1951, when world prices for
Indonesian exports were high, Indonesia had
a favorable balance of payments. In the last
quarter of 1951 these prices fell, and during
1952 Indonesia suffered from depressed in-
ternal economic activity and from balance of
payments difficulties. Export earnings in
1952, estimated at $903 million, were approxi-
mately $350 million less than in 1951. The
main cause for the .f all in export earnings
was the decline of about 50 percent in average
export prices for rubber. Concurrently with
the decline of exports, imports increased from
$805 million in 1951 to $915 million in 1952.
This increase was caused to a considerable
extent by a sharp rise in rice imports.
35. As a result of these changes, Indonesia
had a deficit on current account in 1952 of
approximately $200 million, most of which
was financed by drawing upon the govern-
ment's foreign exchange and gold holdings.
At the end Of 1952, Indonesia's net foreign
exchange reserves, mostly in gold and dol-
lars, had declined to approximately $257
million from a high of almost $386 million in
siE4i1altrar
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SECRET
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.
36. The government normally derives over
one-third of its revenue from import and
export duties. Largely as a result of the
decline in trade in 1952, the government had
an estimated budgetary deficit of $400 mil-
lion. A considerable part of this deficit has
been financed through an increase in note
issue, which has contributed to inflationary
pressure.
Foreign Policy
37. The development of Indonesian foreign
policy since independence has been deter-
mined largely by a desire to be free of political
or economic domination by other countries.
Indonesian foreign relations center around
(a) completing the process of severing ties
with the Netherlands, and (b) keeping Indo-
nesia apart from the East-West struggle.
Netherlands?Indonesian Relations
38. The Indonesians desire to eliminate what
remains of the preferred Dutch position, and
there have been increasing demands that the
Round Table Agreements be abrogated. The
first step toward revising the formal relation-
ship between the two countries was taken in
March 1953 and resulted in an agreement to
terminate, by December 1953, most of the
services of the Netherlands Military Mission,
which was provided for in the Round Table
Agreements.
39. Indonesian hesitancy unilaterally to ab-
rogate the 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 managerial ex-
perience. The Indonesians lack both the re-
sources and personnel to replace the large
established Dutch industrial and commercial
firms. Likewise, Indonesia has lacked the
trained administrators to enable it to dispense
with approximately 5,000 Dutch officials who
7
remained to serve the Indonesian Govern-
ment.
40. The major issue left unsettled by the
Round Table Agreements was the disposition
of Western New Guinea (West Irian) . Con-
siderable popular excitement has been gen-
erated over this issue. In the Indonesian
view, Western New Guinea was included in the
former Netherlands East Indies colony and
thus was included in the transfer of sover-
eignty to Indonesia. To the Indonesians, the
only issue to be decided is the political status
of Western New Guinea within the Republic.
The Dutch, on the other hand, hold to the
view that they retain sovereignty over the
area. Two conferences held at The Hague
since 1949 have failed to settle the issue, and
the area remains under Dutch control.
Relations with the US
41. Since 1951, the US has replaced the Neth-
erlands as 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 and tech-
nical assistance, equipment for its mobile
police force, and an Export?Import Bank line
of credit.
42. Indonesia has found it difficult to recon-
cile its independent foreign policy with its
economic ties with the US. In February 1952,
the Sukiman government fell because of
Parliamentary sentiment against accepting a
provision 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 been sub-
mitted to Parliament for ratification. Objec-
tions to 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 reparation de-
mands would be met and that they would
receiye satisfactory guarantees against the
encroachment of Japanese fishing vessels in
Indonesian waters. The government signed
the treaty on the understanding that the US
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would use its influence in the reparation nego-
tiations to assist the Indonesians in gaining
adequate compensation. Indonesian leaders,
who might prefer to remain uninfluenced by
the US, have nevertheless been forced to recog-
nize both the impact of US power in the
Pacific and the importance to Indonesia of
US trade.
Relations with other Western Countries
43. Most of Indonesia's external cultural con-
tacts and her most important external eco-
nomic relations have been with the West. On
the other hand, the West is associated with
colonialism in Indonesian eyes, so that West-
ern overtures to Indonesia have been received
with considerable suspicion. However, this
attitude and the desire to remain neutral in
the East-West struggle have not prevented
Indonesia from accepting US aid, participat-
ing in the Colombo Plan, or observing the UN
ban on the shipment of strategic materials to
China.
Relations with the Soviet Bloc
44. Indonesia's few overtures to the Soviet
Bloc seem to have been aimed at creating a
counterbalance to the ties Indonesia already
has with the West. Despite immediate Soviet
recognition of Indonesian independence, Indo-
nesia exchanges diplomatic representatives
only with Communist China among the mem-
bers of the Soviet Bloc. However, Parliament
has recently adopted a resolution favoring the
establishment of a diplomatic mission in Mos-
cow before the end of 1953. The facts that
the first Chinese Communist ambassador to
Djakarta had once written articles attacking
President Sukarno, and that the large em-
bassy staff is suspected of subversive activities,
have limited the effectiveness of the Chinese
Communist mission. Indonesian citizens
have been permitted to participate in Com-
munist-front meetings abroad and to attend
the Moscow Economic Conference in April
1952. Most Indonesians are sympathetic to
the cause of the Viet Minh in Indochina, re-
garding it as primarily an independence
movement.
45. Indonesian trade with the Soviet Bloc has
been small. During 1952, imports from the
Soviet Bloc (primarily from Communist China
and Czechoslovakia) accounted for only .6
percent of total Indonesian imports, and ex-
ports to the Soviet Bloc (primarily to Poland) ,
comprised only 1.1 percent of total Indonesian
exports. The exact amount of indirect trade
is unknown, but is believed to be small. Dur-
ing the past year and a half, Soviet spokesmen
have made several well-publicized offers of
capital goods and technical aid to Southeast
Asia, and Communist China has shown in-
terest in a bilateral trade agreement with In-
donesia similar to its arrangement with
Ceylon. No specific agreements have resulted.
In early 1953 a quantity of rubber was pur-
chased by a private company for shipment to
Communist China, but the government re-
fused the export license, purchased the rub-
ber, and thereby avoided a violation of the UN
restrictions on shipments to Communist
China.
? Relations with Non-Communist Asian and
Pacific Area Countries
46. Relations with neighboring countries, par-
ticularly Burma and India, are friendly. How-
ever, in 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.
47. Relations with Australia have varied ac-
cording to the party in power in Australia.
The Australian Labor Government, which
strongly supported the Indonesian cause dur-
ing the Indonesian-Dutch struggle, was in-
clined to be more sympathetic to Indonesia
than is the Liberal-Country Party coalition
now in power, which took a pro-Dutch stand
during that period. However, both Australian
governments have supported Dutch retention
of Western New Guinea, and this has im-
paired relations between Indonesia and
Australia.
48. Although Indonesia has not established
diplomatic relations with Japan, consular offi-
cials have been exchanged and economic rela-
tions are close. In 1951, Japan became Indo-
nesia's third most important trading partner,
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and, in July 1952, Indonesia concluded what
was generally regarded as an advantageous
trade agreement with Japan. In this agree-
ment, Japan agreed to the deferred payment
of dollar balances that had accrued under a
former agreement; this conciliatory position
was probably occasioned by recognition of the
importance of the Indonesian market. Nor-
mal diplomatic relations with Japan will prob-
ably depend on a satisfactory settlement of
reparations claims.
PROBABLE DEVELOPMENTS IN INDONESIA
49. Little will be accomplished in 1953 to-
wards resolving Indonesia's basic political, in-
ternal security, and economic problems.
50. Election of a constituent assembly and a
Parliament is planned for 1954, and is an es-
sential step toward the development of an
effective : representative government. Elec-
tions may 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.
51. We believe that the national elections, al-
though complicated and delayed by numerous
technical problems, probably will be held
sometime during 1954. The government's
ability to maintain at least the present degree
of internal security is a critical factor in carry-
ing out the election plans. Also, even though
,the election law has been passed, regulations
to implement the basic law must be formu-
lated and 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 actions of a few political
leaders, whose personal goals and motives are
not readily discernible.
52. If elections are not held as currently
planned, or if an effective government is not
established following elections, the steady de-
cline of confidence in the government will
continue, with a consequent weakening of
central authority. In these circumstances,
any or all of the following might occur:
(a) certain of the major army territorial
commands might defect and refuse to recog-
nize the authority of the central government;
(b) certain areas might seek to re-establish an
Indonesian federation in which they would
have autonomy; (c) Parliament might be dis-
solved and full governmental authority as-
sumed by a small group of national leaders
probably headed by President Sukarno.
53. In the period before elections, the Com-
munists in 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 toward inter-
national Communism and, in particular, the
indigenous Indonesian Communists; the ef-
fectiveness with 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.
54. We believe that none of the existing dissi-
dent groups, including the Communists, has
the capability of overthrowing the govern-
ment by force. Moreover, if a stable govern-
ment develops following parliamentary elec-
tions, action against dissident groups will
probably become increasingly effective. How-
ever, we 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.
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55. The economic situation will continue to
be precarious through 1953. An economic
crisis could occur if the government proved
unable to curtail expenditures, and if world
prices for Indonesia's exports continued to
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 among fac-
tory and estate workers would become wide-
spread, and 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, particu-
larly rice, and of those raw materials which
are in continued demand on world markets,
and to curtail imports. Accordingly, despite
the immediate prospect for a continued
deficit balance of payments and a continued
low level of internal economic activity, a seri-
ous economic crisis does not appear likely in
1953.
56. Indonesia will almost certainly not change
its policy of attempting to stand apart from
the East-West struggle. Current differences
with the Netherlands will probably remain
unsettled for some time and will contribute
to keeping alive anti-colonialism and Indo-
nesia's concomitant distrust of the "imperi-
alist" West. The Indonesian Government
may eventually accede to the formally ex-
pressed desire of Parliament to exchange
diplomatic representatives with the Soviet
Union.
57. However, Indonesia's orientation toward
the West will probably continue, so long as
trade with the West continues to be essential
to the maintenance and growth of Indonesia's
10
economy. There is considerable public pres-
sure in Indonesia to expand trade with the
Soviet Bloc in the belief that Indonesia will
thereby gain a better bargaining position. If
the demand of the West and that of the US
in particular for Indonesian exports should
sharply decline, the Indonesians would be
even more favorably disposed to trade offers
from the Soviet Bloc.
58. Achievement of a truce in Korea would
probably enhance the UN's prestige in Indo-
nesia. Indonesia would look for a general
peaceful settlement in the Far East as a
logical consequence of the truce. In the In-
donesian view, peace in Korea would remove
the necessity for East-West trade controls.
Should Indochina fall to the Communists
without overt Chinese Communist participa-
tion, it is likely that Indonesia would view
the event as primarily a triumph of nation-
alism. But if open Chinese Communist par-
ticipation were involved in the fall of any of
the Associated States or in aggression else-
where, Indonesia might be inclined to view
the threat of Communist China much more
seriously. In any case, if major trade rela-
tions remain with the West, Indonesia will
probably continue to be closer to the West
than to the Soviet Bloc.
59. At best Indonesia will have only begun to
solve her basic economic, political, and in-
ternal security problems by the end of 1954.
In 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 result in
a 'crisis which would seriously weaken, or even
result in the collapse of, the central govern-
ment.
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