QUARTERLY REPORT TO THE COUNCIL ON FOREIGN ECONOMIC POLICY SINO - SOVIET BLOC ECONOMIC ACTIVITIES IN UNDERDEVELOPED AREAS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP92B01090R000100210004-3
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 6
• Document Creation Date: December 23, 2016
• Document Release Date: June 5, 2013
• Sequence Number: 4
• Publication Date: January 1, 1958
• Content Type: REPORT

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OPEP
'E`C-RE&*
N? 53
QUARTERLY REPORT
to the
COUNCIL ON FOREIGN ECONOMIC POLICY
SIN? - SOVIET BLOC
ECONOMIC ACTIVITIES
IN UNDERDEVELOPED AREAS
1 January 1958-31 March 1958
NUMBER 4
PREPARED JOINTLY BY
THE CENTRAL INTELLIGENCE AGENCY
AND
THE DEPARTMENT OF STATE
ThwEeRET,
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WARNING
THIS MATERIAL CONTAINS INFORMATION AFFE&r-
ING THE NATIONAL DEFENSE OF THE UNITED STATES
WITHIN THE MEANING OF THE ESPIONAGE LAWS;11.
TITLE 18, U.S.C., SECTIONS 793 AND 794, THE TRANSMIS-
SION OR REVELATION OF WHICH IN ANY MANNER TO
AN UNAUTHORIZED PERSON IS PROHIBITED BY LAW.
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SINO-SOVIET BLOC ECONOMIC ACTIVITIES
IN UNDERDEVELOPED AREAS
1 JANUARY - 31 MARCH 1958
The Economic Role of the Sino-Soviet Bloc
in the Indonesian Crisis
1. The Sino-Soviet Bloc has responded quickly to recent appeals
for assistance made by the Central Government in Indonesia, in particu-
lar to the urgent requests of the Sukarno regime for military equipment
and shipping. Arrangements have been made to fulfill, at least in part,
both of these requests In addition, economic assistance has been offered.
2. In December 1957 the Indonesian government sent purchasing
missions to Europe seeking military goods from both Bloc and Free
World countries. An earlier decision of the Indonesian Cabinet to seek
up to $250 million worth of arms from any source prompted these mis-
sions. Purchases probably amounting to more than $100 million have
already been repor.;ed. Military equipment has been bought from Euro-
peanSatellites, but much of the material will undoubtedly come from the
USSR. This equipment includes bomber, transport, and fighter aircraft,
a variety of ground-force weapons and vehicles, 2 submarines, 4 de-
stroyers, and 8 smallnaval vessels. Military equipment, probably pro-
duced in the Bloc, has also been purchased in Yugoslavia and Egypt.
3. A few aircraft are expected to be delivered during April 1958
and the remainder within 6 months. Delivery dates for the other items
are not known. Nearly 4, 000 Soviet jeeps and weapons carriers have
been purchased and delivered to Indonesia during the past year.
4. Neither the Indonesian Air Force nor its Navy has men trained
in sufficient numbers to operate all of the equipment that has been or-
dered, particularly the aircraft and naval vessels. Arrangements have
been made to train some Indonesians in Egypt, Poland, and Czecho-
slovakia, and others will probably be trained by Bloc officers in Indonesia.
But meanwhile much of the navy and air equipment may be operated by
Bloc personnel.
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5. A contract for the delivery of merchant ships totaling 35, 000
deadweight tons (DWT) was signed with the USSR in March. These ships
represent a considerable part of the shipping required to satisfy Indo-
nesia's most urgent current needs for troop transport and inter-island
trade. Approximately 200, 000 DWT of shipping were lost to Indonesia
as the result of its moves against Dutch shipping lines. At least 9 Soviet
ships have already been delivered, and 5 more are scheduled for early
delivery. Soviet crews accompanied the ships, and some key Soviet per-
sonnel will remain in Indonesia to serve as ship officers and to train in-
digenous personnel for eventual manning of the vessels. A Polish offer
to provide 30 merchant marine officers at once has been accepted by
Indonesia. These officers are expected to assist in the operation of the
Indonesian shipping industry.
6. The largest Bloc credit known to have been accepted to date is
for $100 million from the USSR agreed to in 1956 but not ratified by the
Indonesian Parliament until February 1958. The Soviet ships sold to
Indonesia were financed under this line of credit, but no economic de-
velopment project contracts have yet been signed. In addition to this
line of credit, the USSR has offered a glass factory, the foreign exchange
costs of which would be financed by a $2. 5-million credit. Moreover,
the Soviets reportedly have offered to participate with Poland in furnish-
ing roadbuilding equipment under a $15- million credit. Communist China
has.offered a credit of from $20 million to $40 million to finance a tex-
tile mill as well as imports of 20, 000 tons of rice and 70 million yards
of textiles.
7. Since acquiring independence in 1949, Indonesia has been faced
with the tasks of rehabilitating its economy, weakened by the damage in-
flicted during World War II and the ensuing struggle for independence,
and of establishing economic progress. .Since 1949, government eco-
nomic policies have been aimed at eradicating Dutchinfluence over eco-
nomic activities rather than at economic development. Furthermore,
domestic financial and technical resources have not been adequate to
permit rapid rehabilitation and growth, nor have they been employed
effectively. As a result, rehabilitation has lagged, and?despite sub-
stantial financial assistance from abroad, little economic progress has
been made. Economic improvement, or even maintenance of present low
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standards of living, is heavily dependent on external assistance. The
chronic need for such aid is a fundamental factor in the country's vul-
nerability to the Bloc offers of economic and military assistance.
8. Indonesia's basic economic weakness has been compounded by
the campaign against the Dutch and by the dispute of the Central Govern-
ment with the Padang rebels. This distress has been magnified by fall-
ing foreign exchange earnings and government revenues, and a large ad-
ditional burden has been placed on the Djakarta government's slender
financial resources. In addition, Western confidence in the Djakarta
regime has weakened. The United States and most Western European
nations have refusedthus far to respond to recent Indonesian appeals for
assistance. The attractiveness of offers of aid from the Bloc consequently
has increased enormously. Bloc protestations that no political commit-
ments are attached to its aid and that the Indonesian government will at
all times retain complete control over aid programs may have helped to
assuage Indonesian qualms about the acceptance of large amounts of
Bloc as sistance .
9. The Bloc has already struck a serious blow against the Western
position and at the same time has managed to identify itself more closely
with Indonesian nationalism. This has been accomplished by encouraging
the neutralist posture of the Indonesian government, by supporting its
attempt to eradicate Dutch economic interests, and by fostering military
repression of the revolutionary movement.
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SECRET
SECRET
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