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

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01149A000500080001-3
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 28
• Document Creation Date: November 9, 2016
• Document Release Date: July 20, 1998
• Sequence Number: 1
• Publication Date: November 30, 1956
• Content Type: REPORT

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--.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
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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
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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.
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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.
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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
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"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
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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.
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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.
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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.
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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
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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
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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
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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
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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
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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
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- 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.
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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 -
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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 -
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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
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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-
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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-
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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
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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
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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
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-DP_
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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
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