SOVIET BLOC ECONOMIC PENETRATION OF INDONESIA CIA/RR Project #42.1669 30 November 1956

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CIA-RDP79T01149A000500080001-3
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July 20, 1998
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November 30, 1956
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- Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 --.101111111?01111:l111111611?1.1b1147411111 SOVIET BLOC ECONOMIC PENETRATION OF INDONESIA DNQ CHANGE IN CLA S. Li OCUMENT NO. DECLASSIFIED C SS.CHANGEDTO: TS $ C CIA/RR Project #42.1669 NEXT REVIEW DATE: AUTH: HR 70-230 November 1956 DATE: REVIEWER0 571 04 juN 1980 WARNING THIS DOCUMENT CONTAINS INFORMATION AFFECTING THE NATIONAL DEFENSE OF THE UNITED STATES, WITHIN THE MEANING OF TITLE 18, SECTIONS 793 and 794 OF THE U.S. CODE, AS AMENDED. ITS TRANSMISSION OR REV- ELATION OF ITS CONTENTS TO OR RECEIPT BY AN UN- AUTHORIZED PERSON IS PROHIBITED BY LAW. N notorala Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 ft-simagr' LAB4LE ck.,C[liiTENTS ,Slatitarki:Lt7 - fj..., no-Sovict Trade Promotional ., Trade Agreements with. Blo Cmintriee B. ? remanent Trade Otrices . . . O. Participation in Djakarta international rrade F..airs , D, Intensified Advertising , . . . 2 . . a a a a a a a 4'0 III. Bloc Developmental Assistance to Indonesia 0 0 . . , . . . A. East Germany . . ? . 00 a a a a a* a aw,a 8 B. Czechoslovakia . *000 0 atiall,*0 a**a 400 a 12 C. Rumania .... ?.............. ,a . 14 D. The Soviet Union . . . *0000? .0.0 a a* saa 16 4 E. Other Bloc Countries . . Oa a ? a a a Oa 9 . a a a 18 F. Training Facilities Offered by the Bloc . . 4, , - labEs 1. Indonesian Foreign Trade 1951-1956 . la li 4 a , 4 . 40 19 2, Lndonesian Textile Imports , . ? , . . a 0 . . . . . 21 APPENDIXE6 I. Local Representatives Handling Bloc Products . ii 4, ,th . 23, II. Free World Assistance and Investment , . . , a a a a a 44 Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 ? Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 qUEM7Y-AVOLSailAblalan Indonesian trade in 1955 with theSine-Soviet Bloc, although still a small share of the total trade, showed a sizeable increase over previous years ? During the past several years the Bloc countries hays made considerable efforts to inarease trade and economic relations with Indonesia. These efforts have included the conelusion of trade agreements, the establishment of permanent trade miasions, participation in the Djakarta International Trade Pairs and, more recently, offers of technical assistance for Indonesia08 economic development? During 1956 the Bloc has intensified its efforts to develop closer relations with Indonesia, In April the Soviet Union made its first concrete proposal to give Indonesia economic assistance for development in all fields and in September a $100,000,000 credit agreement was signed? Tut. agreements providing for Csech assistance were also announced in April, President Sukarno visited the Soviet Union and Communist China. Indonesia sent parliamentary missions to the USSR, Poland, Csechoslo- vakia and Communist China, To date the Sino-Soviet Bloc has provided Indonesia with known oredits totalling $112.3 million. Of this total, the USSR has provided $100 million and the European Satellites $12,3, The Soviet credit program will undoubtedly involve large shipments of capital equipment to Indonesia, Following the pattern established in India and Afghan- istan, Soviet technicians will probably be sent to man the installations in their initial phase of operations and to train Indonesians in the use of the equipment, Prior to the signature of the Soviet credit agreement in September 1956, Floc technical assistance to Indonesia was limited to small=. acale projects-'the construction of a sugar refinery, a canvas-producing factory, a tire factory and an enamelware factory, Under the Soviet credit agreement, however, technical assistance will probably be extended to the large-seale development projects such as hydroelectric installntinns, coal-mines and the development of non-ferrous metal ore deposits all of Which have been given a high priority by the Indonesian 0overnmera in its industrialization program. The Soviet mission which will begin anroey work in 1957 in the above fields will be in a position to exer- nine considerable influence in establishing a format for their development. The amount of Bloc credit has been small compared with the assistance Indonesia has received from the US. Total US assistance to Indonesia nince 1950 has amounted to approximately $10 million which includes a 3100 million Export-Import Bank credit extended in 1950. An agreement ander Public Law 480, signed in March 1956, provides an additional gum of $77,4 million to be used for economic development purposes. aSMIPN.,0?111" Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 With Indonesia's economic developsent severely handicapped by a 1,..T. of capital and a shortage of skilled personnel, it is apparent t's.,a Indonesia will require appreciable outside assistance if an ? asive development program is to be undertaken. The Indonesian Gc enment, in line with its neutralist policy? has indicated its wIllingness to receive assistance from any source provided it contains nc olitical or military commitments. Indonesia will probably continue to 9ek a large share of its capital and technical assistance require- csint s from the Free World, but there is an increasing receptivity tc Lloc offers of assistance. If the Bloc countries continue to make of re which conform to Indonesia's expressed aims, Bloc aid will ? inue to be accepted. Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 I Foreign Trade Sino-Soviet Bloc trade in. 1951-1956, as Shown in Table 1, represented an insignificant percentage of Indonesials total trade. Indonesian trade with the Bloc countries in 1955, although still a relatively small share of total trade, Showed a sizeable increase over 1954. Indonesian exports to the Bloc in 1955 totalled $33,898$000 (3.6 percent of total experts) compared to exports in 1954 of $900820000 (1.1 percent of total experts). Similarly, Indonesian imports from the Bloc in 1955 increased to $40,366,000 (6.6 percent of total imports) from $15,333,000 (2.4 percent of total imeerts) in 1954. The gradual increase in the volume of trade with the Blee evidenced in the first half of 1955 was somewhat offset by a decrease in the second half, partially attributable to the policy of the Harahap Cabinet Which restricted Czech, Polish and Hungarian imports from July to mideDecember because of unfavorable trade balances. Trade statistics for the first half of 1956 (Table 1) indicate a repetition of the 1955 pattern. However, since new trade agreements are being concluded with the European satellites which require payments in "effective currency" in place of the barter arrangements used earlier, it is not now possible to ascertain whether second half 1956 trade will tend to balance imports and exports on a country-by-country basis. Czechoslovakia, Communist China and Hungary are Indonesia's most important Bloc trading partners. Rubber, copra, pepper, coffee, cane sugar, and coconut oil are exported to the Bloc countries in exchange for light manufactures notably textiles, cement, motorcycles, and machinery. Of Indonesia's three principal export commodities - rubber, tin and petroleum - only rubber is exported to the Bloc, although under the current bloc agreements tin is included on Indonesia's export lists. Even though rubber accounted for approximately 63 percent of total Indonesian exports to the Bloc in 1955, rubber exports to the Bloc accounted for only 5.6 percent of total Indonesian rubber exports. In 1956 low rubber exports began to evoke reactions in the Tndoneeian rubber producing areas. Further alarm was evoked by President Eisenhower"e statement to Congress that the US could be self-sufficient in synthetic rubber production within 2 years. On 7 June 1956 an Indonesian Cabinet decision to lift the embargo on rubber shipments to Communist China was announced. Although the Bloc provides only a relatively minor market for Indonesian rubber, it is apparent that with a decline in rubber exports Indonesia will be under pressure not only to expand rubber Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 "MEN, shipments to the Bloc countries but also, with the recent Indonesian cabinet decision, to take steps to open possibilities for the export of rubber to Communist China. In 1955 the Bloc took significant pro- portions of certain agricultural products, as follow: coffee, 7.5 percent; copra, 11.4 percent; sugar, 18.8 percent; spices, 38.6 percent and coconut oil, 92.4 percent. Commodity statistics for 1955 thow that textiles accounted for about half of the Bloc exports to Indonesia, while cement and semi- firuthed iron and steel accounted for about 10 percent each, with miscellaneous light manufactures making up most of the balance. Bloc supplies of textiles to Indonesia increased considerably in 1955. Although the Bloc had sold only about t5 million worth of textiles to Indonesia in 1954(3.6 percent of total textile imports), it sold over f17 million worth in 1955, increasing its Share in this import market to 10.8 percent (see Table 2). Indonesia is highly dependent upon external sources for textiles since only 10 percent of requirements are met by domestic production. It is worth noting too, that existing American business practices are causing US suppliers to loss out to European exporters in the textile field. American suppliers refuse to give a firm contract for goods "subject to the iseuance of an import license". Local importers in Medan (commercial center in Sumatra) are turning to European firms - Czech, Hungarian, Dutch and West German - which have indicated their willingness to enter into firm delivery contracts prior to the procure- ment of an import license (Czech and Hungarian representatives have been particularly active in this respect). Under the Indonesian system of liceneing, Indonesian import firma must, when they get an order, get quotations from their suppliers and then apply for an import license at the price and in favor of the company quoted. This process is tima- consuming and an import license, once granted, cannot be changed either In terms of price or source. If an American supplier of textiles raises the price of his goods between the time a quotation is given and an import license is secured, the Indonesia importer must apply for a new license with a resultant delay in delivery to local customers. The Bloc is not limiting its sales in the textile field to textiles clone. Czechoslovakia provided 34.5 percent of Indonesia's imports of textile machinery in 1955. Whereas Czech sewing machines comprised only 0.4 percent of the total imported in 1954, their share increased - 2 - Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 to 10 percent in 1955. Bloc overtures in this field have not come solely from Czechoslovakia. Communist China in 1955 offered to provide eqwpment for textile mills on a long-term credit basis. East Germany also has made offers of equipment, and following the 1954 Djakarta Trade Fair it donated an automatic weaving machine and two knitting nachines to the Textile Research Institut* in Bandung. In view of Indonesia/a intended expansion of its textile industry, he Bloc may continue to be an important supplier of equipment. In 954 Indonesia had 65 textile mills in operation and the textile industry as equipped with about 95,000 spindles, 12,000 mechanical looms, and 70,000 hand looms. In September 1955, the head of Indonesia's Textile 3e:search Institute, Dr. Safuin, accepted an invitation to visit a Czech Lextile machinery exhibit. Before his departure he declared that Indonesia At that time had only 20 percent of its minimum requirements of textile machinery. The potential impact of Bloc equipment upon Indonaaials textile industry is therefore significant. Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 0)aetet _ Peone:ione iCfl 7r, eir.eicarett eio efeatriee heve made oreiderabie efforts in ,ee eevlrai yvers te prelote and increase eeonomic relations with ,elene!. 4, These efforts h,ve included the conclusion or trade agree- ments, the eetareeiehment ef permanent trade offices in Djakarta, attive parti::.,etioe in the Ojakaste International TrAe Fairs,: and intensified advertng ?4nce the inetellation of the Ali governments, varieas good e; i1 trips neve been me to Bloc countries by the President and deIegetione or members of earliament? A. Trade Agreements with Bloc Countriee leeenesa currently afierember 195t) trade agreements with the 11:, ezecheelovakia, and Communist China. There is .also a speeial agreement beteeerethe Eaet German Chamber of Foreign Trade and the Indonesian Naeional Trade Organisation. Expired aenual agretemente with Hungary, Poland. Rumania and Bulgaria are being renegotiated in the so-called "new terms" calling for emits payments of charges rather than barter typal cancellation of balances. Under the Ali Government which held office from July 1953 to August 1955 government policy led to a strengthening or trade relations with the Bloc. Closer trade ties were negotiated as trade agreements were concluded for the first time with Communist China, Rumania, and Bast Germany. In early 1955 the Ali Government began to Show disillusion- ment with 'Bloc trade: Implementation under the agreements had not measured up to expectations; Indonesian products sold to the Bloc countries were being resold on the European markett at lower price; and the Bloc, in seeking outlets in Indonesia appeared to favor local Communist businessmen. After the Harahap Cabinet took office in August 1955 special trade patterns - the parallel transactions* formerly used extensively with Eastern Europe - were abolished- (lovernment decelerations issued in October 1955 indicated that trade errengements with the Blot countrieu had been unsatisfactory and had resulted in a general deterioration!. in the foreign exchange position. The Prime Minister, in a Parliamentary ' debate, pointed out that raw materials exported to the Bloc had been retraded in ether markets in direct competition with normal Indonesian exports and that, under parallel transactions, Indonesian exports were usually sold below world market prices with the deficit made up by charging Indonesian consumere more for imports. Under parallel transactions the commodities of one country are exchanged for commodities if the other without transfer of funds. allIMPFM1 awar.mvs=.0.11?Afti Approved For Release 1999h09/21 : CIA-RDP79T01149A000500080001-3 _ ' Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 pulsarian Trade Mission, - A trade mission, headed by a Mr, Gumnuroffs has reopened a trade office in Djakarta. C. PartisiRstlen in the DlikGrta InpulgtimaiTradt Falrs Communist China, Czechoslovakia, East Germany, Hungary, Poland and Rumania participated in the 3rd International Trade Fair held in Djakarta from 18 August - 26 September 1955. Poland and Rumania had only information booth e and East Germany exhibited through a local agent. While the Bloc oountries did not dominate the Fair aa they had in 1954, they nevertheless made a very impressive showing. The Czechs were the most aggressive in publicizing their exhibit, running a series of ads in local newspapers about the proaucts on display. As in the past, the Bloc countries used the Fair for major propaganda purposes, exhibiting their products in an effort to convince Indonesia they were capable of supplying Indonesian requirements for capital and .consumer goods. Remarks made by some Indonesian officials and business- men indicated that China, Czechoslovakia, and Hungary had, to some extent, succeeded in establishing such a conviction. D. laidaltUad Advertjsjji The Bloc countriee have advertised extensively to promote sales of their products. Polish advertisements appearing in the Indonesian . press have listed 14 Polish trade organizations which claim to be able to deliver a wide range of goods including heavy capital equipments ships, and motor vehicles. The Czech Commercial representative attached to the Czech Consulate General,-. inan effort to interest local importers in Medan in Czech products, distributed to importers a catalogue listing a wide variety of available products. In included machinery, vehicles and light engineering products, textiles and leather goods, ceramic and glass products. A Rumanian delegation was also in Madan demonstratinR agricultural machinery -- a crawler tractor, a triple-gang plow, disc harrows, and other farm equipment -- to the employees of the Office of Agriculture in North Sumatra. The Soviet Embassy is planning to launch a large-scale publishing and information program in Indonesia. 6 - Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 ItI,Zatiotair ne EConomic deVelopment a in riven high priori t,;' bv. the Indonesian vertneeata tut 1tiite finanets1 resources have prevented a sic:A/leant !%groseeIn tvl rate of mpitarinvestment. Private oapltal has failed t cave/tote far t 1 ',veldt government investment. Governmental ecndittaned ay intense,nstIonelignand directed at t;-,e 61/ndo. tiveleniention" or 411 (vignettes). hatwucht to Limit the eeonomie, teflusneroftorelen Investors*. FailtMt ty.dovelop a realistic foreign I:Iva/Anent law to provide guareinteelearreinst nationalization, do4b1c texas. tlae saititolement of land concession K0)1414 and assurunces that profits can be "teansferree abroad tate diseoursteed reinvestment as well as new immanent In; foreign capital& Foreign aid programs !aye beeil re,trif,ted by Indanealan attitudes e a fear of having restrictIons Imposed Of: their sovereignty and freedom of action and a sensitivity to foreign influence. At the sane tine Indonesia has not had the domestic resources arid economic institutions to undertake an extensive economic development nronr.am ti th- Int outside assistance( To date, the SineeSoviet floc has Trovided Indonesia with known crenits totalling n112.3 atililono j)1' this total, the USSR has provided :4100 Pillion and the niropean Satellites 12.3. The Soviet credit program will undoubtedly involve large shipnents of capital equipment to Indonesia. Following the pattern established in India and Afghanistan, Soviet technicians will probably be sent to ran the installations in their initial phase of operations and to train Indonesians in, the use of the equipment. Prior to the signature of the Soviet economic aid airreenient in serta.-.nez. 1956e plan technical assistance to Indonesia was limited to wall. ectic projec tsp.the construction of a suear refinein.? a canvas...producing fuctor y ? a tire factor:, and an onanelware factory. Under the Soviet credit anreenent, however, tec';nical assistance will probably be extenned to the .Larze-scale development a- ae, nanii as 1;ydrnelectrie inatallationsj coni-mines and the development of non-ferr-us netal ore ta.,?:.osits all of vf.i.b have been given a hich priority by tle Indonesian r,"overnment in its industrialize tion prorrem. The Soviet mission ATI-lien will bcnin purvey work in 1957 la the above fieles will be in a position to exercise considerable influence in establis!line a forret for their develoirtei:te Prior tn 1756 Bloc assistance had been carried out by the ruropean Satellites* Trrinarily rt nermarry and Csechoslovakia. It is evident that the Bloc intends to participate in indonesials economic development on a Iarne-seale. The Increased Bloc aid programs are supported by Prime Ttinister All's covernmenta Approved For Release 1999/09/21 : CIA-14147.5T01149A000500080001-3 Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 1, rast Certr.z An 'flat 4.111-14n o',rtrnof was *.ine':t 1.55, for rietirJn of a l'et,N;7,7 in Jor.jak;A-1.;2, (6otil.,!ra)Therl'HY.ar fs'ect,?ry will 1-1ve a c4pucty of 2OCri tons of 131mr per 24 liours distilIer:..11acity of 1s500 tons e: sprit daily, It '-vAt -:.*eported. tAt.a7:174.Nkstol'.; 1,200 heetarrs of' 71at.!r.1 (about will be p14nte 4L sr cane to 74upply 1,:; 711110 The f.7x1d)r7 is 1, enploy 10,000.wort,ers, 111,2 total cane ..rir(dnr capacity per 21i .1zs of Ind,nrisla's rrTar fartories is currently 7,27ton3, TIv2 tIf4rta factor:!. vIll 1nrres.,1 total cane rrlYldn pacity yr 2h hours by 3 pement, ? Fast,fler'lany showed an active interest 1:17, obtaininc the contract for this proect. In :eptember 195h R77ckff Deputy Chief f:if icorT1R (Fooe /nstallation of. 7)4A Invest-Export antL,Ped. Djakarta as. a -ember of?tLe traJe'?inn ilc.cause he h;7.d some te&nkal knewledre about surar factories, the sanc period Pech, head of the Indonesian, 7rk1sh, and. "Tort cotion of ITTY* was. sent, to Indonesia to Plan the establishment of sucar factories, .'Altllongh the Indonoian. ;anistor of F'naneh announced ir rove: ,her or 7A7!co.ber 195L t,ttt o decision liad r-e:tchoti for the constl-ctior, of-the surar fklet:;ry (offers had reived from ? 10,5t :(.!T7VIlly the Nether1an0s, Czecoslovakia and 'ast Clermany)y infor- mation received at this time finoied that V171 17 7K had received the contract t,roll.rO PIA Invest-Trt, In 'ehri.lar77 roma). Contract fnr the construction of the aup,ar factcry was sirned with rt Germany., Me terms of the contract spec*a& tstat, inf i'er'an: nm ieliver .the equipment in such a way to enabTh rav curar.facto (A.Ainr, power station, molasses-tanks su7ar 1.a,.7.oratm-y, ane' transport installations) to be put into operation or 7056; Jt soar stare on 15 September 1756; the spirit 'plant on 7 t179,;; an the workshop and foundry on 1 7.1arch 1957,, Invest-EXport wl.!.s established in April 1951 to faciliUte the e;coort, of complete industrial installations and is responsible for ceTIUJetinr foreirn firms and necotiatinr contracts? VIT INEX vas established to carry out the more technical work of contracting for ali equipment for a riven plant and to supervise the execution of ccAltracts, amlnINIMIND Approved For Release 1999/09/21 : CIA-RDP7T61149A000500080001-3 Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 7.1nder the tern s nf the contract the total costs of thf lmrnt for the factory were listed as 2,819,549 pounds sterling .mr:natcly :"1,0 Installation expenses and the travel o-A,tavs and sPlarlee of the East German technicians were included in rallre'xino rArIce of t2le equipment, Fstimmtes made of the total costs nptrietty ?iuch a l'Ectory have nlaced the value as high as '12 rtilion,, -..Anenzku Buwono, head of the self-governing region Tiakartas indicated at the unloading af the first shipment of machinerr ractory that 90 i11f on rupiahs (approximately n7.8 million using ; ,:onvervier nate of 1 rupiah/07) had already been earmarked for for the factory and that an additional 60 million rupiahs (apr,ruxiFately '500 million) would be needed. Payment is to be made in 6 annual installnents over the period 1956,1961 and in the following way: (a) up to 1 Pee 1956 0 . 40 percent of the first annual installment on 15 Jan 1957 g 0 0 g . 60 percent of the first annual installment (h) on 1 Aug and 30 Sep of 19570 1958, 1959, 1960, and 196/ . 0 . 0 . 50 percent of the annual installment payable at the fixed dates. There is nothing in the terns of the contract to indicate payment will be nade by Indonesian deliveries of sugar as has been indicated by some sources. The terms specify that payments made to the special account of the neutschen Noten Dank to have been established 14-ith the Dank of Indonesia can be used by Fast Germany for the purchase of Indonesian products listed in an attachment to the contract. This list includes products normally exported by Indonesia to the Bloc.-the most important of which are rubber and tin. An Fast German PIA Ineest.Export representative arrived in Jogjakarta in SepteMber to diecuss certain clauses in the contract for the purchase of Fast German machinery. As a result of the talkss DIA Invest-Export made preparations to open an office in Jogja in order to speed up the construction of the mill and to expedite transportation of the equipment ordered from East Germany. A nr. Sifert was named as the Must Germany PIA representative. ailikner Approved For Release 1999/09/21 : CIA-RDP711311.49A000500080001-3 Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 The sugar factonrmas scheduled to commonce initial operations in i?st 1956, but only one-third of the machinery had arrived by the one 4f June. In April it vas reported that apprcximately Pp 25 million C*2.2.million) had been spent, with only part of the foundations of the p1 41't completed and work partly finished on housing for personnel and r ?!onnecting railway spur. There have been indication's that inadequate domestic financing .fr the local costs of the factory is a problem, According to the Sultan, t:c, central government !Its released only a portion Of the Rp 200 million redit whleh had been promised to eover the locel costs of the planto In spite of the fact that the delay may have been caused in part by the failure of Indonesia to provide adequate financing and transportation facilities for the equipment, the Past Germans will almost certainly be blaned. A number of Indonesian officials have expressed dissatisfaction with the Fast Genvin contract and disappointment in the execution of the plans. DrMuanda, State Master for Plannine, has stated that the Sultan of Jogja proceeded with the project against the advice of the government. The Sultan himself admitted that the factory was costing 3 to 6 times the original estimate, He claimed one of the reasons for the increase in cost was that East Germany was not accustomed to erecting a complete sugar factory but Only in manufacturing some of the equipment? To date there is no definite date mentioned for the completion of the sugar' factory although the central goverment is anxious that it be completed by the end of 19570 Completion of the plant will primarily depend on the availability of domestic financing which is still questionable. Sugar production in Indonesia has steadily increased since the liar, with 1955 production estimated at 850,000 m. t0 compared with 718:000 mo to for 1954 and 619,521 m, t. for 19530 Domestic consumption ' requirements have almost equalled annual production, however. The following table shows Indonesia's domestic consumption of white sugar for 1950-1955s Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 ? Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 5r1011168e. Year ......... Domestic Production Metric Tons .P..a..24k4..it.aq reiRro Production 1950 224,700 C4 1)51 421,467 98 1952 4560404 99 1953 518,01 83 1954 4980o1 69 1955 665,186 78 The construction of the rast German plant falls 'within the government's plans for agricultural projects, the primary purposes of which are to rake Indonesia self-sufficient in food and to increase the exportation of agricultural produce in order to acquire foreign exchange? Stew Approved For Release 1999/09/21 : CIA-RDP79T0q419ATI00500080001-3 ? Approved For Release 1999/09/21 : CIA-RDP792101149A000500080001-3 S. GseehoslovSkia Czech efforts to provide technical assistance for Indonesia's economic development met with very little success in 1955. Only one email-scale project, the construction of a canvas-producing factory, waiw undertaken with Czech assistance. A January 1955 article in Amigo in reporting on this project, indicated most of the textile machinery bed arrived and Czech technician* were assisting in the mounting and operation of the machinery. An Embassy check-up revealed the press velem)* Vis italgersitedi, the texti.la machinerrhad not arrived or had construction work begun. Date of arrival of either the textile machinery or the Czech technicians is not known. ,Reports that Czechoslovakia is building an electric power plant, a factory for radio receivers, a pharmaceutical plant, and a factory for small and medium-sized agri- cultural machines have not been confirmed. Hoverer, Indonesian Economic Ministry sources revealed on 13 April that the Czech Government had submitted a draft credit agreement to the Indonesian Government under which credits would be granted to Indonesia for the establishment of such industries as steel, cement, textiles, glass, paper and pulp, and fertiliser. The Foreign Office has stated this vas a revision of the draft on which the countries had failed to agree in Jay 1955. The Embassy understood that the total line of credit is not specified but that subsidiary agreements are to be reached on a project-by-project basis. The terms call for payment in sterling with 10 percent down,15 percent on the first shipment and the balance 9 semi-annual insallments. The draft envisages the use of Czech technicians whose expenses will be paid in local currency. The agreement was signed on 16 May and the press reported the first credit under the agreement was the $1.6 million credit to the Indo- nesian Tire and Rubber Company. The credit will be used by the Indonesian Tire and Rubber Company to equip a tire factory in Djakarta. A contract for this purpose was signed between the Bank of Industr* and the Czech firm, Technoexport. Information received from the Goodyear Tire and Rubber Company reveals that the total coat of equipment for the tire factory is ftp 50 million ($4,386,000). Equipment valued at ftp 18 million (*1.6 million) is scheduled to arrive in Djakarta in January 1957. The plant, scheduled to begin operations in January 1958, is to produce 600 tires per day in two sizes, 6.00 x 16 for jeeps, light trucks and mf=lieemieelmem Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 - 12 - Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 `15111110 passenger cars, and 7.50 x 20 for heavier trucks. The existing factory in Indonesia, operated by Goodyear, produces about 1,000 motor vehicle tires per day and supplies about 65 percent of the market. In early 1956 Prague announced the conclusion of a second contract by Technoexport (under the Czech credit agreement) for the construction of an enamelware factory which is to turn out 750 tons of enamel utensils a year. The Czechs are to deliver the complete equip- ment including an electric power station. Czech technicians are to install the equipment and train Indonesian workers in the servicing or the machinery and in production methods. According to press reports, part of the enamelware factory equipment has arrived in Indonesia. Czechoslovakia is continuing to exert considerable effort to promote the sales of its industrial products. It has been reported that Czechoslovakia is, planning to have a mobile exposition of its industrial products tour the large cities of Indonesia. A standing offer has been made to send Czech experts to train Indonesian techni- cians in the use of Czech industrial machinery ordered by Indonesia, Currently there are two Czech technicians working, without pay, in Modjokerto in East Java province, testing bulldozers, bestry trucks, and locomotives ordered from Czechoslovakia by the East Java Publi Works Service. The equipment, valued at approximately $780,000, will be sent to Kediri residency in south Java for use in construction work on the Brantas River flood control project and in the digging of a new irrigation canal. Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 Approved For Release 199 0 ? - DP79T01149A000500080001-3 C. Rumania A Rumanian-Indonesian agreement of August 1954 included a provision for Rumanian assistance in the construction of a cement mill, in drilling oilwells and working mineral deposits. In October 1955 the head of the Rumanian Trade Office in Djakarta made an offer for the construction of a cement mill on long. term credit. Rumanian technicians were due to arrive in January 1956 for a 2-month survey to select a suitable site for the plant. Indonesia already has one cement plant in operation and construction work is pro- gressing on a cement at Gresik, near Surabaya (East Java), which is being financed by an Export-Import Bank loan. Anticipated production of the Gresik plant, added to current production, is expected to bring local cement output close to the present demands of the domestic market. Dr. Djuanda has stated that the plant at Gresik will save Indonesia approximately $6 million per year in foreign exchange. Construction of this third plant would make Indonesia self-sufficient in cement and might even supply a surplus for export. It also would have the con- comitant result of displacing Bloc exports of cement in Indonesia. Over half of Indonesia's total cement imports in the first half were supplied by the Bloc. Of total Bloc exports of cement to Indonesia in January..June 1955 approximately 70 percent was supplied by Czecho- slovakia, 23 percent by Rumania, and the remainder by Poland and Hungary. Although the Indonesian Government has not announced that Rumania has been awarded the contract for construction of this cement plant, it seems likely that RUMWAftfl aeuistance will be accepted. IrJuly 1956 an offer was made by tuntania to operate the North Oumatre oilfields for a period of 10 years,, This offer is still under coneideration by the Indonesian Government.. Least Germany hnd Czechoslovakia have alis expressed an Interest in providing tee.:heleal assistanee in thee The government appeared to be split over the issue of the oil- fields, with one faction fev:e.tne nationalization f the eilfielde, seeond feetica ravortne expi1t.atIi f the fia:1 ay NjWv, a jeit Netherlenheelndonesian petroleum teaTany, and a etrd feveinA 4 re of thc fielde to EWM, a Dutch Al c.4epany? A reort IrAca that within s?. years Indonesia. would have to L'. rt keroesne as icAae consumption would exceed prAuctiot has apparei7 made te the problem more urgent. Tne Lrabes:.y has Ind-ted tY..et t1le - 14 - Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 Approved For Release 199_9 /09/21 ? CIA-RDP79T01149A000500080001-3 look better for having NIAM take over oil exploitation concessions in North Sumatra. It is unlikely that anything will come of the aimanian offer of assistance if negotiations are succeesful with HAM. On the other hand, it it is decided to nationalize the oilfields Bloc: oifers of assistance will more than likely be accepted. Indonesia's failure to establish a stable petroleum policy presents a sizable drawback for foreign investors. Under present conditions each foreign firm must make separate arrangements Zor con- cessions, taxes? and the use of foreign exchange -- all of which are. subject to change. In mid-September the Indonesian Economic Minister indicated that the draft petroleum bill involving deoisions on renewal, extension, and revision of oil exploitation concessions by foreign companies was ready for discussion by the Planning Council. He stated that the bill was aimed at the most efficient possible exploitatien or Indonesia's oilfields. - 15 - Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 14.1 CONTINUED CONTROL D. The SovAet Won Joint talks on the USSR's offer of technical and economic aid took place in Djakarta in August 1956. One stumbling block to the conclusion of the talks appeared to be the question of repayment of the loan. The Indonesians wanted repayment to begin after the project was completed, but the Soviets wanted repayment to begin when the goods were shipped. Proposals made by the Soviet delegation ;or some aid projects, including credit offers, of $50 to $100 million* were consistently rejected by the Indonesians on the basis of the incomplete status of their 5-year Plan. The Soviet-Indonesian economic and technical aid agreement was signed on 15 September 1956. The agreement provided for a Soviet line of credit equivalent to $100 million for industrial projects. The credit which will be repaid over a 12-year period at 2i percent interest beginning 3 years after the loan has been made is payable in sterling or Indonesian raw materials. The Soviets will make experts available for research in peaceful uses of atomic energy' and will train Indonesians in this field. It was announced that Soviet credits would be used for financing 11 government-operated projects in the electric power, coal, chemicals, pulp and paper, and cement industries. Separate agreements are to be concluded later for specific projects* A Soviet mission, scheduled to be sent to Indonesia in 1957* will start preliminary surveys of the coal, nonferrous metal, hydro- electric, and industrial raw material resources. The draft proposal Which was drawn up by the Indoneelan delegation outlined the following projects for Soviet technical assistance within the scope of the aid agreement: Coal Mining Industry - Conduct geological surveys of coal deposits in Kalimantan and West Sumatra and conduct research work on the industrial utilisation of these deposits. Inspec- tion of the Umbilin coal mines in Sumatra and geological survey's of the coal reserves of the used mine fields in the region. Render advice on increased production methods for the Umbilin coal mines and on the industrial utilisation of the deposits in the region. ser-ferrcae Industry - Conduct geological surveys of nickel deposits in Sulawesi and research work on the technological process of working the ores. Render advice on the industrial utilization of the deposits. Aerhorplairilmussalio CONTINUED CONTROL Approved For Release 1999/09/21 : CIA-RDP79T011491000500080001-3 Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 ivine A A r"n" CONTINUED OWTROL Electric Pewsr Plan4 Conduct exploratory _work in the Lake Towuti area to determine the best utilization of its hydroelectric resources and render advice on the construc- tion of a water power plant. Render advice on the extension or reconstruction of existing iteam power plants. WasaugAtterial Industry - Conduct a survey to determine cement raw material reserves in the region of Mekaosar (Sulaweei), Ternate (Halmehera Island), and Flores. Advice on the construe- tion of a cement plant. Conduct research on the tedhnological process of the manufacture of building materials on the basis of local materials. Paper ;nduetry - Inspect forest regions in Kalimantan and conduct research on technological proeess of pulp manu- facture. Render advice on the industriel utilization of forest regions for the manufacture of paper and rayon fibers. Hoed 9onetruction NO Waterways - Survey highways on Sumatra and Kalimantan islands to determine the work necessary for their reconstruction. Conduct research to determine the effort necessary to deepen the bottoms of rivers. Agriculture and Fishery - Visitors and fellowehipe as required by the Ministry of Agriculture. It is not certain that all of the Projects listed above will come under the Soviet line of credit. CONTINUED CONTROL !211""4""r -17- Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 Approved For ReleasellefilliMporpilifibliilailiga01149A000500080001-3 E., Other Bloc_Countrjep Both Poland and Communist China have made vague offka'& technical assistance to Indonesia. The head of the Polish to Indonesia announced in November 1956 that Poland was willing to give industrial and textile manufacturing aid to Indonesia.. The government in studying the Polish offer. In a November 1956 epeech to army officers President Sukrno disclosed that during his visit to Communist China Mao Tse-tung had offered Indonesia credits at low intpreat. The offer eas repeatee to Foreign Minister Abdulgani by Chou En-lei and Marshal Chan Yi, as communique mettle renewal of the Communist Chineue-Indonesian traee agreement revealed that Peiping offered to train indonesiane in the ',me of light industrial equipment which it would make available undok the agreement. F. ajzijng F&Cjlitie3 Offered to Indonesia be The Bloc countries have granted a number of echolarekd.,,e to Indonesianetudenta for specialised studiea in Communist universeteee. East Germany granted 15 scholarships for study at East German universities and Czechosloyaio offered 9 scholarships to InCon,4i_all Andante. The Chairman of the Indonesian Industrial Board statue in September 1956 that aince 1955 the USSR made a standing oi7ee scholarships for technical training and 200 scholarships for endusetriai training at gussian universities and technical institutes. The board is planning to send 15 students to the usapt in 1957 for indneteeal training. The departure in November 1956 of 23 Xndonesian sturknts for the USSR and Poland to study under scholarships was postponed dee to the tense international situation. The Indonesian Government is aware that it must overceeo ita shortages of trained personnel in order to successfally implemeet its economic development program. One of the utepa the governmeLt has taken in the expansion of its educational program his been to sena Indonesian students to colleges and graduate schools abroad. ?1 ILJ11- Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 AttlI 2.2:C.XALLLAZ VONEE47,21; PLIA'48 19 1 fOR.MIVOL,I.,910V.slata,,W,T,II.arin,auialibw. 4,41,4129101x 4:4 Lr.'. +?.V. tbtr 4,1 i2,79M-4.-IC WO (,`Zior.,11 (Nra 41,504,3* Jp. artegt. tmlifinlwasr e.S6, itstyi isv$P 785 I'?A)63i 1,9416 ..%9 Co?, 0,5 (-9 193, ;LL 0 ? 3 $9 ?078 11,n, 1%6 j," ? 4089 .1.3v"tr. !C LI at:T.4,T 3,952, 87391E5 6s3A. _ o.8 rat?, : 2959e. . 1953 Da;f,,,91-c 41, Th ()? 9 1S514 ',5::;?-',-13,?cc,? 15 DM3 24, k. 503 %ITV ? 401,366 6,. 6 z33 ? 9e5eS) . . 2710426 Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 ME Ell El, MI LIP 394 3.954 1955_ 3$56 atn- IBM .a 1931 1502 1.95 1954 105 3.956 ala- Arne Tobila 1 (fteeklemea) Mass la themormdm or is us) Dat 222ffi Wien Palgald emeeboglamegio INA, ILL Lao . Liu Li* LB* LI. ILL 103 Li. Lae ' Li. LB. 3,8 Li. La. 1,633 2,7i8 LB. Li. 56 LB. 48 ILL L. 3,069 11.R. 943 LL 2, 5 323 LB. LL 2, Z.L. 1,592 ILL NJ. 7,766 LL 2,570 ILL Li. 17,g3 itaa. 8,271 cx. 32 2,857 18093 1,676 3.,wr NAG Li. 4,261 LB. 631 276 32,8a3. 1,446 9,411 L. 320 111.B. 331 Li. 301: ti. 2,908 4692 707 79 a. Less than OW 1. Ma for 1956* ain-Jkas Sources Dezerbwent or Commerce, Bureau or Porelem Camerae, Vbeleitsitied Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 TAM 2 ititum D?c?attr 4955 Silk yarns for weaving Cotton yarn and thread Yarn of syn. staple fibers Cotton fabrics standard type Fabrics of fin; animal hair, pure or mixed with teX. fibers other than silk and gyn. not incl. laces, ribbons and spec. fab. for tech. use Fab, of syn. tex, fibers, standard type, not incl. sarongs, lace fab., lace and narrow fabrics Curtains, upholstery and drapery mat., n.e.s. .Lace fab., lace, trims, ribbons, and other sim. wares-, 221,0?15., of cotton Spec, textile fabrics, and related products , Held. linens; blankets and coverlets of cotton and of fine Pnlme, hair Mal AV WSW Iota Bl inat Ifetric Metric Value , Tone , Value 31.4 1.3- 1.2 15.6 34 159 10 50 19,616 27,672 237 350 13,135 14,951 39 179 53,281 91,835 8,939 14,361 413 1,698 132 WI 9,229 16,163 669 1,555 27 83 11 22 119 293 9 32 7,383 8,296 145 283 ......1111????1?? 104,246 161,796 10,284 17,520 Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 35.4 9.6 26.5 10.9 3.4 10.8 Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 TAUS a (040,90 ihnagrt- Begeeber 19,k Silk yarns for weaving Cotton yarn for weavings single, unbleached Cotton sewing thread, other than on reels and claws Cotton fabrics, stand type, not incl. narrow and spec. fabrics Fabrics of fins animal hair, pure, or mixed with text, fibers, other than silk or synthetic, not incl. pile, fab., laces,ribbons and spec, fab. for tech. use Oil-cloth and sim, fabrics expect for upholstering, articles thereof Ropes, cables cord, sail twine, packing thread and fishnet Belting silk gauss, filter cloth, trans and coma. belts and sim, tax. n.e.s. used for manufacture of ind. acc. Cotton blankets and coverlets, except carded blankets Total tcon Wor14 Marie .10a. Iola 92 504 ;Iota frost Nap Kstrjo 24 100 19.8 10,058 13,092 30 36 0.3 40 116 5 4 3.4 58,851 107,614 2,255 4,143 3.8 427 1,514 10 40 2.6 70 86 6 360 4.4 2,020 1,393 44 53 3.8 60 166 1 3 1.8 82 67 010?111?11 6?0 75,693 " 132,817 2,494 4,753 3.6 Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 01111111Pe. AMal tonal Rapressatatives:: for Bios Products gatailiklakki N. V j3.j Trading Ce, Gusting &hard Ping Sjam and Camps, DJ]. }Was Wuruk 31 N. V. Pd. Perintis, Djalan Peraiagaax 72 N. V. MASS, Djalan Djendral Sudirman N. V, Libby, Petjenongan N. V. Hardjasaris 34 Djalax Assem Baru N, V% Alpixo, Kramat Raja 16 N. V. Iraloprom 21 Djalan Gadjah Mada EMU=laz Ichsani, Ltd., Djalan Gripe 70 Asram Incl,, C. V. bin= Firmallutstechnicum Leidemeyer, Djalan Raja Kramat 74 Csepel Motorcycles N. V. Populair, Isar Baru ?3 aced* and Toe machine teals Chensind dyestuffs and iOnstrial chemicals Skoda and Slavia engines Skoda and Motokov Motor Vehicien Java bicycles and motorcycles ,Shoe machinery, Brno firearms Keys printing machinery Zeteor tractors CheMapol Pharmaceutical Chemicals Sole agent for sale et mattsixervexhibited at 3rd Iaternational Trade Fair Sole representative for the IFA auto factory in Past Germany Rahway. howl Tungsram light bulbs and radio tubes Sole agent for textiles P. D, Moms. Dial" Approved i-or Remrasne TWUNI.PAIS : CIA-RDP79T01 inii1POWN8pgpi -3 cement Angierms' Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 AMEgja Free World Asalstasce and. Iaveetment (Other than U. 34) Apart from the Netherlands loan of 1950 for $75.7 million assistance from *thorn... World coustries through June 1956 had been amine 1a 1954 the Minister at Finance, me. Ong Eng Die reportedly stated that the government had obtained loans abroad totalling Rp. 1 billion (approximately $88 million) 400 million (approxinertely $05 millien) from France, Bp. 300 million (approximately $26 million) from West Germany and 816 200 million (approximately $17.5 million) from the Netherlands. A subsequent Tmbassy check with members of other Missions and officials in the Ministry of Finance revealed the status of the credits from these countries to be Mg follows: ?ranee - France and Indonesia reached an agreement in June 1954 at the conclusion of their trade agreement negotiations which provided for credits totalling 12 million francs (approximately $35 million) to be Used within one year and repayable ever a period of 7 years. The oredits were to be used for the puroLase in France of capital goods?hydroelectric installations, power and electric equipment, building equipment, ships, mining equipment. As of the end of 1954 no agreement had been reached on the terms for the implementation of the credit and the French Government was becoming impatient and had asked the Indonesian Government to come to some early oonclusions or release the credit for use by France in other parts of the world. West Germany. - An agreement with the Bank Verein Westduetschland, Dusseldorf, simply provided that the Dank mould consider requests for credit from Indonesia, and if the project was considered sound and terms of credit could be agreed upon, the Bank would grant the credit. The amount and credit terms were not stated. There had been no specific requests submitted to the Bank for credit as of December 1954. Ike Netherlands - The Bank of Indonesia was authorised by the Monetary Council on 9 April 1954 to conclude a credit agreement with the N. V. Export Financiering Hij, the Hague for approximately 75 million rupiahs (Mor.ex- imately 4.5 million). According to the Commeroial Counselor of the Office of the High Commissioner for the Netherlands none of the credit had been used as of December 1954. He added that the credit is to be used for projects which must have the prior approval of the Netherlands Government and can, in no sense, be dispensed freely by the Indonesians as claimed by the Minister of ApprovidifWeglease 1999/09/21: CAA- 49A000500080001-3 -DP_ Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3 Failure of the Indonesiae Goiennment to provide the necessary guarantees for foreign investtent?guarantees against nationalisation and double taxation, settlement dr lend cencession rights and assur- ances that profits can be transferred ebroad--hes discouraged rein- vestment as well as new investment by foreign capital. The withdrawal of Dutch capital, primarily invested in rubber plantations, has been most extensive, but in 1954 British. and US interests also announced their intentions of liquidating particular holdings. US petroleum interests-Standard Vacuum and Caltex-expect, however, to invest approximotely $140 million in Indonesia over the next four or five years. NUnthly transfer of profits is tied to commitments of new investment of 47040 million by stanvac and of $60 million by Caltex. On 27 April 1956 the Indonesian press announced Indonesian and Japanese governmental approval for the establishment of a joint Japanese- Indonesian National Reconstruction Bank. The bank will have a capital of 50 million rupiahs (approximately 44.4 million), 49 percent of which will be provided by a Japanese compaey and 51 percent by private Indo- nesian investors. The Japanese investor, /sshivara Sangyo Company, has reportedly paid its first installment. The bank will net engage in foreign exchange transactions but it will lend money for the develop- ment of Indonesia 2s petroleum industry, interisland shipping services, and other industries. In mid-June 1956 a contract to finanie machinery for a rice straw paper mill in Central Java under a four-year credit wen concluded between the State Industrial Bank and an Italian firm "Cellulose Pomilie." The m411, scheduled to open by mid-1958, in to have an annual capacity of 7,500 tons. A second State Industrial Bank.prejeet for an asbestos cement factory near Gresik (test Java) is to have Italian teshnical aid and financial aid from New Zealand under the Celotbo plan. New Zealand assistance has also been reported for planned Usury and glass factories. The Indonesian foreign credits committee.has samouneed the continued opportunity for sapital goods imports odor ltageterm credits from the Netherlands, West Germaty, Frans., &Wee, Italy, Osethoslovakia, the DIE and the DB. m25.0 Approved For Release 1999/09/21 : CIA-RDP79T01149A000500080001-3