PROBABLE DEVELOPMENTS IN INDONESIA THROUGH 1955

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01012A006000030013-0
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 18
• Document Creation Date: December 23, 2016
• Document Release Date: July 1, 2013
• Sequence Number: 13
• Publication Date: March 1, 1955
• Content Type: NIE

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NIE 6 5 ? 5 5
1 March 1955
-14015F
NATIONAL INTELLIGENCE ESTIMATE
NUMBER 65-55
PROBABLE DEVELOPMENTS IN
INDONESIA THROUGH 1955
Submitted by the
DIRECTOR OF CENTRAL INTELLIGENCE
The following intelligence organizations participated in the
preparation of this estimate: The Central Intelligence Agency
and the intelligence organizations of the Departments of
State, the Army, the Navy, the Air Force, and The Joint Staff.
Concurred in by the
INTELLIGENCE ADVISORY COMMITTEE
on 1 March 1955. Concurring were the Special Assistant, In-
telligence, Department of State; the Assistant Chief of Staff,
G-2, Department of the Army; the Director of Naval Intelli-
gence; the Director of Intelligence, USAF; and the Deputy
Director for Intelligence, The Joint Staff. The Atomic Energy
Commission Representative to the IAC, and the Assistant to
the Director, Federal Bureau of Investigation, abstained, the
subject being outside of their jurisdiction.
.21PINIET
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CENTRAL INTELLIGENCE AGENCY
DISSEMINATION NOTICE
1. This-estimate was disseminated by the Central Intelligence Agency.- This copy:
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3. When an estimate is disseminated overseas, the overseas recipients may retain
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quested of the forwarding agency to retain it in accordance with IAC-D-69/2, 22
June 1953.
WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
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COECET
PROBABLE DEVELOPMENTS IN INDONESIA THROUGH 1955
THE PROBLEM
To assess the current situation and to estimate probable developments in Indo-
nesia through 1955, with particular reference to Communist strength and influence.
CONCLUSIONS
1. Independent for only five years, Indo-
nesia has made little progress toward
establishing a base for long-term strength
and stability. The country's basic prob-
lems of economic development, internal
security, and administrative reform re-
main unsolved, while the government
centers its activities around efforts to re-
main in power. (Paras. 13, 34, 41, 45)
2. We believe the chances are somewhat
better than even that elections will be
held during the latter half of 1955. The
present coalition government, led by the
Nationalist Party (PNI) under Premier
Ali Sastroamidjojo, is likely to continue
in office during 1955 or until elections are
held. It is unlikely to make any sig-
nificant changes in foreign or domestic
policies before the elections. (Paras. 46,
47, 51)
3. We believe that a government domi-
nated by the Masjumi (Moslem Party)
will probably emerge following the elec-
tions. It is possible, however, that de-
spite the Masjumi's broad popular follow-
ing, the Nationalists and the Indonesian
Communist Party (PKI) will gain suffi-
cient seats to form the new government
in coalition. (Paras. 52, 53)
4. The use of force to overthrow the gov-
ernment appears unlikely during the
period of this estimate. However, such
action might take place if the PNI made
a determined effort to postpone the elec-
tions or if it became obvious that the PNI
was rigging the elections. Abrupt gov-
ernment efforts to remove the territorial
commanders who oppose the policies of
Defense Minister Iwa, unlikely at the
present, might also result in forceful
counteraction. In either case, if the pres-
ent government's political opposition and
the anti-Iwa elements in the army acted
in concert, the government would prob-
ably be defeated. Even if successful, how-
ever, the resort to armed action probably
would result in continued unrest and dis-
unity throughout Indonesia. (Para. 55)
5. Through its tactic of supporting the
present government, and of espousing
popular national and local issues, the
Communist Party has been able to in-
crease significantly its prestige and ap-
peal and has increased its membership
and extended its organization. It has
been able to win public support for inter-
national Communist causes, and to some
degree has influenced Indonesian govern-
1
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anS5r
ment policy toward labor and the armed
forces. Nevertheless the party continues
to face opposition from among principal
army leaders, members of the bureauc-
racy, and opposition political parties.
(Paras. 15-20, 22, 26)
6. A Communist attempt to take over the
government by force is unlikely in 1955.
Should the Masjumi come to power, either
through elections or by force, it is possible
that the Communists would attempt to
harass the government by causing eco-
nomic disruption through their control of
SOBSI (a federation representing some
70 percent of organized Indonesian la-
bor) . They could also adopt terroristic
tactics and seriously disrupt economic
and administrative activities in several
important areas. But they do not yet
have, and are unlikely to develop in 1955,
a paramilitary force strong enough either
I. PRESENT SITUATION
to take over the government or to
seize and maintain effective control of
large and important areas in Indonesia.
(Paras. 28, 56)
7. Indonesia's short-term economic pros-
pects are poor. Nevertheless, in view of
the fact that adequate supplies of food
and imported textiles will be available,
economic unrest probably will not reach
a level affecting the political situation in
1955. Indonesia probably has the re-
sources to attain a stable and expanding
economy in the long run, but the exploi-
tation of these resources will probably be
further delayed so long as political in-
stability and insecurity exist and foreign
capital or grant aid is discouraged. In
these circumstances, the Indonesian
economy is likely to remain in a pre-
carious position for some time. (Paras.
38-47)
DISCUSSION
Political Situation
8. Indonesia is a parliamentary republic with
a provisional constitution and legislature.
The legislature was appointed from some
twenty political parties and groups having
their origin in prewar nationalist and reli-
gious organizations, or representing the per-
sonal followings of individual politicians.
National elections for a constituent assembly
to draft a permanent constitution, and for a
new parliament to replace the existing ap-
pointed body, have been promised since inde-
pendence was achieved in 1949 but have not
yet been held. The difficulties involved in
holding such an election are great. The vast
majority of the Indonesian people lack politi-
cal awareness. Moreover, election procedures
and machinery must be developed by inex-
perienced officials, and the political party
structure is rudimentary. These elections
are now scheduled for 1955 and are absorbing
the attention of the government, the members
of the provisional parliament, and the bu-
reaucracy. The maneuvering for position to
control and influence the elections is partially
responsible for the political opportunism
which characterizes Indonesian politics today.
9. The present government under Premier
All Sastroamidjojo, in office since 30 July
1953, is a coalition led by the Nationalist
Party (PNI) and includes eleven minor
parties. The cabinet members, some of whom
are reputed to be Communist sympathizers
though not avowed Communists, have demon-
strated little administrative competence.
Supporting the government but not repre-
sented in the cabinet are the Indonesian Com-
munist Party (PKI) and its labor front, the
All-Indonesian Central Labor Organization
(SOBSI).
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419111111110;r_ 3
10. The PNI has the greatest number of seats
in parliament but runs a poor second to the
principal Moslem party, the Masjumi, in total
party membership and probably in popular
support. Although the range of political
opinion within the party is broad, the PNI
stands for nationalism, secularism in govern-
ment, "proletarianism," and anti-imperialism.
Leadership now rests with the leftist faction.
11. The PNI's political strength rests pri-
marily on its identification with the nation-
alist-revolutionary movement which opposed
Dutch rule, and on its entrenched position in
the bureaucracy. The influence of the bu-
reaucracy on the outcome of elections could
be considerable because the central govern-
ment continues the Dutch system of exercis-
ing administrative control from Djakarta
through appointed officials down to the vil-
lage headmen.
12. President Sukarno's support has been a
major source of strength for the Ali govern-
ment. Until 1953 Sukarno appeared to re-
main above the activities of all political
groups. Over the past year, however, he has
displayed an increasing partisanship for the
Ali government and the PNI. He probably
believes that if the Masjumi wins the elec-
tions, it would seek, if hot to remove him from
the presidency, at least to reduce his power.
His desire to retain power possibly reflects a
sincere belief that a Masjumi victory in the
elections would result in the development of
bitter religious and regional issues and the
eventual disintegration of Indonesia into a
vulnerable and weak confederation. It ap-
pears more likely, however, that his primary
concern is for his personal position. Rela-
tively lukewarm public reception of the Presi-
dent's partisan activities, including his pro-
jected "All Indonesia Congress" designed to
bring about a return to the nationalist unity
of the revolution, plus public criticism of the
circumstances of his taking a second wife,
indicates a drop in his prestige, particularly
among the elite. Despite this loss of pres-
tige, however, Sukarno remains the most in-
fluential person in Indonesia because of his
acknowledged leadership in achieving inde-
pendence.
13. The major concern of the Ali govern-
ment is to remain in power in order to en-
hance its prospects in the forthcoming elec-
tions. Since the government depends on
groups with widely differing interests, and
since its majority in parliament is small, the
government has been unwilling to take any
action, particularly with respect to essential
economic measures, that would antagonize
members of the coalition or the PKI.
14. In its efforts to remain in power, and in
the belief that the Communists can be "used,"
the PNI has welcomed PKI parliamentary
support and has thereby lost, some flexibility
in policy. The PNI's dependence on Commu-
nist support was highlighted during parlia-
mentary action on a motion of no-confidence
in December 1954 when the government's vic-
tory was made possible by the votes of the
PKI and fellow-travelers. PNI-PKI collabora-
tion has to some extent unified the anti-
Communist opposition and permitted the lat-
ter publicly to link the government with
Communism. The government's reliance on
PKI support can be expected to be the focal
point of opposition criticism especially as the
time for elections nears.
15. In opposition to the government are two
major political parties. More important is
the Masjumi, which is basically a federation
of Moslem religious and social groups. The
Masjumi has sections in almost every Java-
nese village and an extensive organization in
other areas. Of lesser importance is the In-
donesian Socialist Party (PSI) , which has
considerable influence among the intelli-
gentsia, the younger army officers, and civil
servants. In addition, there are some small-
er parties, the most important of which are
the Christian, Catholic, and Democratic
factions.
16. The policies that a strong Masjumi gov-
ernment would follow are difficult to identify
because of the broad range of beliefs repre-
sented in the party. In general, the Mas-
jumi would probably continue a strongly
nationalist, neutral foreign policy but would
probably be less rigid in its attitude towards
foreign investment and economic assistance.
The Masjumi would probably attempt to sup-
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0021010114,1P 4
press or limit Communist activity and would
tend to concentrate on domestic problems
rather than nationalist issues such as Irian
(Western New Guinea). The majority of
Masjumi leaders probably favor a relationship
between church and state similar to that in
Pakistan, which was established as an Islamic
state but which is administered along secular
lines. The most prominent Masjumi leaders
are Mohammed Natsir, Sukiman, Mohammed
Rum, and Jusuf Wibsono.
17. Despite its organizational advantage over
other parties at the village level, serious politi-
cal and religious schisms within the Masjumi
have weakened its unity. Splinter groups
now divorced from the party, such as the
government-supporting conservative Moslem
scholars party (NU) and the radical Islamic
Party (PSII) , have made no cooperative moves
in anticipation of the elections. Moreover,
the Masjumi will continue to suffer from
PNI-PKI efforts to associate it with extremist
Moslem dissidents in the Darul Islam. Both
the Masjumi and PSI will suffer from the
allegation that they enjoy "foreign imperi-
alist" support.
18. The PSI are strongly anti-Communist.
In common with all major Indonesian groups,
they support an "independent" foreign policy
but are more inclined to cooperation with the
West than is the PNI. Their economic philos-
ophy is similar to that of other Asian social-
ists, i.e., they favor gradual nationalization of
all major industry including foreign holdings.
The party leader, Sutan Sjahrir, is one of In-
donesia's most capable men.
19. A nonpolitical source of opposition to the
government is the Indonesian Army, a ma-
jority of whose leaders strongly oppose politi-
cal interference in the organization, adminis-
tration, and function of the armed forces.
On 17 October 1952, the principal army lead-
ers demonstrated against political interfer-
ence and called for a Presidential dissolution
of parliament. Since that time the govern-
ment has been fearful of the political poten-
tial of the army and, through Minister of
Defense Iwa, has tried to insure that the
army should not become unified in opposition
to the government. Despite the fact that the
opposition political parties also have opposed
the government's defense policies, there ap-
pears to be no firm bond or working coopera-
tion with the army's leaders, many of whom
continue to profess personal loyalty to
Sukarno.
20. Leadership for a unified opposition, espe-
cially if this opposition moved to take over the
government by force, might be found among
nonpartisan leaders such as Vice President
Hatta and the Sultan of Jogjakarta. Hatta
exercises a great deal of personal influence
among Indonesian leaders and appears seri-
ously concerned over PNI acceptance of Com-
munist support and Sukarno's increasing
partisanship. The Sultan, a former Minister
of Defense, retains considerable influence in
the army.. Neither is a member of a political
party, although Hatta appears increasingly to
be drawn toward the Masjumi while the Sul-
tan has been influenced by the PSI.
Communist Situation
21. The Indonesian Communist Party (PKI)
was originally organized in the 1920's by the
Netherlands Communist Party. The PKI
follows the international Communist line,
sends delegates to front meetings in Europe
and Asia, and its past and present leaders
have received training in both Moscow and
Peiping. The large Chinese Communist Em-
bassy and the more recently established
Soviet Embassy provide direct contact with
international Communism, but there is no evi-
dence to indicate the relative degree of Soviet
and Chinese influence on PKI policy.
22. The PKI has long been associated with
nationalist groups in the struggle for inde-
pendence. Indonesian political leaders, par-
ticularly those PNI leaders whose political
careers antedate the revolution, tend to regard
the PKI as a cooperative nationalist force.
The fear and mistrust of the Communists
which was engendered by their armed upris-
ing against Republican forces in 1948 have
apparently been somewhat dissipated by their
subsequent tactic, begun in early 1952, of
supporting the government coalition. Asso-
ciation with the government, in turn, gives
-41611ftir
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01141106Fiiif 5
the PKI an aura of respectability, an oppor-
tunity to organize freely, and facilitates its
efforts to infiltrate the bureaucracy and the
army.
23. Actual and "candidate" membership in
the PKI has probably increased by nearly
50,000 over the past year to a total of approxi-
mately 170,000. However, the Communists
exercise an influence in a much larger section
of the population than these membership fig-
ures would indicate, through their control of
various front groups and of SOBSI, a federa-
tion representing some 70 percent of organ-
ized Indonesian labor. In anticipation of the
elections, the PKI has been recruiting in-
tensively at the village level. Particular
efforts have been made to enroll peasant lead-
ers in the Communist-controlled Peasants
Organization (BTI) , while the bulk of organ-
ized estate workers belong to unions affiliated
with (SARBUPRI) a federation which is in
turn a member of SOBSI. Organizers from
SOBSI have been assigned to these and other
front organizations to help in the recruiting.
24. Efforts of Defense Minister Iwa to extend
his control over the armed forces, though
consistent with the government's desire to
control its military establishment, could be
extremely useful to the Communists if, as
his contacts and activities would seem to in-
dicate, Iwa is in fact a Communist. Iwa has:
(a) dissolved the Joint Chiefs of Staff and re-
moved the anti-Communist, anti-Iwa Chief of
Staff; (b) assumed personal control over serv-
ice promotions, assignments, and budgetary
allotments; (c) assigned pro-Iwa officers to
staff positions to replace anti-Iwa officers or
to weaken the position of the territorial com-
manders; and (d) attempted to keep the army
divided on the question of organization. How-
ever, these efforts have not overcome the pre-
dominantly anti-Communist sentiments of the
army, nor do they appear to have weakened
seriously the position of the territorial forces
and their commanders. In any event, Com-
munist efforts to exert influence over the army
by whatever means available is likely to con-
tinue. The Communists are likely to make
special efforts in the Djakarta area where con-
trol of the armed forces is likely to be the de-
cisive factor in control of the government in
the event of an armed coup.
25. In addition to attempts to exert influence
over the army, the Communists have made
several efforts to arm PERBEPSI, its veterans
front. Iwa, who has power under the Defense
Act to arm "volunteer" or citizens groups, has
been associated with this effort and has sought
to rationalize the move as the creation of an
"election guard." The government has so far
resisted this tactic, but Communist efforts to
arm PERBEPSI will probably continue.
26. The difficulty of distinguishing between
Communists and leftists or naive Indonesian
nationalists, prevents an accurate assessment
of the extent of Communist infiltration and
strength in the present Indonesian govern-
ment. In parliament, the PKI exercises some
control over legislation by virtue of the fact
that its vote is critical to the continuance in
power of the PNI-led coalition. However, this
control is limited by the fact that the PKI is
unwilling to destroy its present favorable posi-
tion, either by voting against the government
or by forcing the government to sponsor legis-
lation which might cause the more conserva-
tive factions to leave the coalition and thus
bring the government down. The PKI is not
represented in the cabinet although Defense
Minister Iwa has generally pursued policies
favorable to the Communists. To a lesser de-
gree both Labor Minister S. M. Abidin and
Justice Minister Djody are suspect. A few
other ministers, thought to be fellow-travelers
when the All government was formed, have
followed generally moderate policies. We be-
lieve that Communist influence is exerted at
the cabinet level with considerable persistence
through Defense Minister Iwa, and may also
be felt through other ministers from time to
time; however, it still does not dominate the
policies of the cabinet. Communist influence
in the bureaucracy has been increasing, and
we believe the Communists occupy some key
positions.
27. The PKI is forced to limit and conceal its
contacts with the large overseas Chinese com-
munity because of Indonesian envy and dis-
like of the local Chinese, the PKI's pose as a
nationalist party, and fear among the Indo-
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nesian elite of a powerful China. For doc-
trinaire reasons, however, the PKI must pub-
licly praise the new China and Mao, thus plac-
ing the PKI in a dilemma which anti-Commu-
nist forces are only beginning to exploit. It
is likely that Communists in the Chinese com-
munity provide some financial assistance to
the PKI, but they are unlikely to collaborate
openly. Should the Chinese community as
a whole take a public position in support of
the PKI, the indigenous Communist move-
ment would probably suffer a significant loss
in native support.
28. Despite the increase in Communist
strength and influence, the PKI does not now
have the capability of gaining and retaining
control of the government. Its organization
remains embryonic at the local level in much
of the country, and its armed strength is in-
sufficient to carry out a coup. However, in
view of the PKI's highly disciplined prepara-
tion for the elections and the evident lack of
preparation on the part of some other parties,
significant gains in the PKI parliamentary
strength are likely following elections.
Foreign Relations
29. The objective of Indonesian foreign policy
continues to be complete independence from
foreign political and economic influence and
noninvolvement in the East-West struggle.
Thus the Ali government is concerned that
acceptance of US aid in the absence of some
comparable relation with the Soviet Bloc
would give the appearance of pro-Western ori-
entation. Indonesia continues to be critical
of the US, particularly of US efforts to develop
a strong bloc of non-Communist Asian coun-
tries. However, US technical aid has been
well received, and a majority of Indonesian
leaders probably desires additional US aid un-
der conditions not considered to be adverse to
their national interests.
30. Indonesia recognized Communist China in
1950, and relations over the past year have
centered around Indonesian efforts to nego-
tiate an agreement ending the dual national-
ity of the two million overseas Chinese in In-
donesia. The Indonesian government appar-
ently believes the prospects for a favorable
6
outcome of these negotiations are good. A
trade agreement totalling $16,000,000 was con-
cluded with Communist China in 1954, but
the government still professes adherence to
the UN ban on the shipment of strategic ma-
terials to mainland China. Indonesia ex-
changed ambassadors with the USSR during
1954 and negotiated or renewed trade agree-
ments with several Bloc countries. So far,
trade agreements with the USSR and the
European Satellites appear to have been of
little practical economic value. During the
first half of 1954, imports from Communist
areas were at the annual rate of $9.4 million,
or roughly 1.5 percent of total imports. Ex-
ports to these areas have declined from 1.5
percent of total exports in 1952 to about .05
percent in 1954.
31. Although the Dutch agreed recently to
the dissolution of the Netherlands-Indonesian
Union and to the abrogation of certain agree-
ments relating to defense and economic re-
lations, Indonesian relations with the Nether-
lands remain strained. The principal imme-
diate causes are the Dutch refusal even to dis-
cuss the future status of Irian (Western New
Guinea) and Indonesian suspicion of Dutch
intentions and actions in Indonesia.
32. Indonesia's relations with Japan remain
strained because of Japan's reluctance to con-
sider Indonesia's large reparations demands
and because of Indonesia's failure to meet its
obligations to Japan resulting from a heavy
trade deficit. Indonesia receives most of its
textiles from Japan and exports rubber, baux-
ite, and petroleum to that country. Japan
could be a source for considerable investment
capital and for technical assistance. Rela-
tions are unlikely to improve, however, until
the touchy political issue of reparations is
finally settled.
33. Indonesia's interest in Asian regional co-
operation has increased. Indonesia is one
of the Colombo Powers and initiated the Afro-
Asian Conference, scheduled for 18-24 April
1955. , The government apparently hopes to
enhance its domestic and international pres-
tige by acting as host for the conference and
also, perhaps, to gain support for its claim to
Western New Guinea. Although Indonesia
01111P0iftrols
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SECRET 7
appears to follow Nehru's neutralist policies,
and relations with India are cordial, the In-
donesians do not necessarily follow India's
lead in foreign affairs.
Security Situation
34. Indonesia's greatest internal security
problem stems from non-Communist dissident
activity based on religious or regional inter-
ests. There are approximately 35,000 guer-
rillas active in Indonesia. An estimated 6,000
were eliminated in 1954. Despite army weak-
nesses and government inaction, the territori-
al commanders and the Mobile Police Brigade
of 18,000 have made some progress in restrict-
ing the area of operations of Darul Islam (a
fanatic Moslem organization) in West Java,
and the operations of the Atjehnese (a group
opposed to Javanese rule) in North Sumatra.
The army has dealt less effectively with dis-
sidents in South Celebes although they appear
to have been contained. There have been no
new outbreaks of dissidence during the past
year. While the presence of dissident groups
in Indonesia presents an opportunity for the
Communists to fish in troubled waters, there
has been no indication that the Communists
have succeeded in associating themselves with
or have profited directly from dissident ac-
tivities.
35. Despite some improvements, the Indone-
sian Army remains relatively poorly equipped
and trained, and weakened by factionalism
and political intervention. Against a modern
attacking force, the army with a strength of
180,000 would be capable only of guerrilla
harassing tactics. The loyalty of at least 10
of its 125 infantry battalions is in doubt be-
cause of sympathy either with one of the dis-
sident groups or with the Communist Party.
36. The Indonesian Navy, with a total person-
nel strength of about 10,000, is not an effective
defense force, and its capabilities are limited
to antismuggling operations. Communist
activities and infiltration in the navy are be-
lieved to be slight.
37. The Indonesian Air Force, with a person-
nel strength of 17,000 and 200 obsolete piston
aircraft, less than half of which can be operat-
ed at any one time, has demonstrated a fair
capability to operate against small dissident
guerrilla concentrations. The development
of an effective air force continues to be ham-
pered by a general shortage of supplies and
technical assistance, although the latter de-
ficiency may be slightly alleviated in 1955
through the implementation of a training
agreement with India. The air force com-
mander is a supporter of Iwa.
Economic Situation
38. Indonesia, although rich in natural re-
sources, has one of the lowest per capita in-
come levels in the Far East. The national
economy is heavily dependent on exports of
tin, rubber, oil, and agricultural products
which are vulnerable to world market fluctua-
tions. The small increase in national income
since World War II has been almost entirely
absorbed by population growth. The bulk of
the population of some 80 million continues to
have little better than a subsistence standard
of living.
39. Despite the fundamental problems which
exist in the Indonesian economy, as in most
underdeveloped economies, widespread eco-
nomic discontent does not exist. Smallholder
agriculture occupies about three-fourths of
the labor force and produces virtually enough
rice to make the country self-sufficient in this
basic element of the Indonesian diet. On the
other hand, Indonesian economic stability
continues to be threatened by a precarious
balance-of-payments position and lack of re-
sources for financing normal government in-
ternal operations, both of which factors con-
tribute to inflationary pressures. Indonesia
is caught between dependence on the export
of primary products, the earnings from which
can be expected to increase only moderately
under normal market conditions, and in-
creased import demands generated by the
needs of the urban population and by develop-
ment projects. The low level of domestic
capital formation and the absence of a flow
of international investment, has caused the
government to resort to deficit financing to
meet even its modest development and other
budgetary requirements.
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40. The Indonesian banking system is poorly
developed, has limited resources, and is so far
unable to control the volume or composition
of credit. The resources of foreign banks are
committed primarily to short-term trade cred-
its. Government pawn shops and Chinese
money lenders with their very high rates of
interest are the major sources of necessary
temporary rural and urban credit.
41. The Ali government, like its predecessors,
has concentrated on stop-gap economic meas-
ures designed to meet immediate difficulties.
Stringent import restrictions on consumer
goods, although tending to increase inflation-
ary conditions, have checked the fall of for-
eign exchange reserves. The budgetary defi-
cit in 1954 was held to approximately the
1953 level. Some progress has been made to-
ward planning for self-sufficiency in food.
The government has been attempting to ob-
tain long-term credits from foreign govern-
ments to cover imports of capital goods for
industrial and economic development. The
credits that have been confirmed total con-
siderably less than the $88 million claimed by
the Indonesian government, and the Indo-
nesians have been slow in drafting project
proposals that would satisfy the creditor na-
tions.
42. All Indonesian leaders are agreed on the
need for economic development. However,
the possibilities for mobilizing domestic re-
sources for investment are limited because
the margin between production and consump-
tion is narrow and uncertain, and capital
which is available must for the most part be
devoted to maintenance of existing facilities.
Moreover, Indonesia's ability to use capital if
it were available is limited by its lack of
trained administrators and technicians. Fur-
thermore, Indonesia has been handicapped
by political instability, internal insecurity,
and incomplete rehabilitation following the
Japanese occupation and the Indonesian revo-
lution.
43. Indonesia has a strong antipathy towards
private foreign capital and is suspicious of
grant aid from foreign governments. Many
Indonesian leaders view the operations of for-
eign capital as inevitably exploitative unless
closely checked, and in consequence foreign
investors have been the object of a continuous
campaign to limit their economic influence
and their profits. Restrictive regulations have
been largely directed toward Dutch-controlled
enterprises, which represent the bulk of for-
eign investment in Indonesia. American
petroleum interests, through negotiation with
the government, have received sufficiently
favorable terms so that they are embarking
on very substantial investment programs in-
volving expansion of production and refining
facilities. Even if all impediments were re-
moved, it is unlikely that Indonesia would be
able to compete ? except in the high-profit
exploitative industries ? with other areas,
particularly North America, in attracting
large-scale, long-term private investment. In
the prewar period such investment was a ma-
jor factor in economic development, notably
in estate agriculture.
44. All Indonesians are agreed that foreign
aid should be refused if it imposes any re-
strictions on Indonesian sovereignty or free-
dom of action. In general, grant aid offered
by any country to Indonesia is suspect be-
cause of its political implications. On the
other hand, Indonesia is apparently receptive
to large-scale technical assistance, to econom-
ic aid under UN and regional auspices, and, as
evidenced by recent developments, to loans
from Western sources.
45. At present, Indonesia has no comprehen-
sive plan for economic expansion, even though
several partial plans for industrial and agri-
cultural development have been publicized
since World War II. These incomplete pro-
grams fail to grasp the dimensions of Indo-
nesian requirements: they gloss over engi-
neering and economic considerations, and are
usually distorted in the direction of narrowly
nationalistic considerations. Under present
circumstances, government investment con-
sists of isolated projects frequently under-
taken solely on political grounds and often
abandoned because of unforeseen contingen-
cies. Their effective implementation is fur-
ther hampered by corruption and administra-
tive ineptitude at virtually every level of gov-
ernment. Government investments are the
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SECRET 9
source of almost half of Indonesia's gross in-
vestment and are likely to be the most im-
portant element in future development, given
the low availabilities of domestic and foreign
private capital and Indonesian policies toward
foreign aid. The compulsion to act has been
minimized because the economy has expanded
sufficiently to maintain the consumption
levels of the largely peasant population,
and economic conditions have not yet caused
popular unrest.
46. Indonesia's short-term economic prospects
are poor. Indonesia may decrease its foreign
exchange deficits somewhat in 1955, but for-
eign exchange holdings will remain at dan-
gerously low levels. Deficit financing and
import restrictions will continue to increase
inflationary pressures. Large numbers of
urban dwellers and government employees
with fixed incomes may suffer a significant
decline in real income. Nevertheless, in view
of the fact that adequate supplies of food and
imported textiles will be available, economic
unrest probably will not reach a level affect-
ing the political situation in 1955.
47. In conclusion, Indonesia probably has the
resources to attain a stable and expanding
economy in the long run, but the exploitation
of these resources will probably be further de-
layed so long as political instability and in-
security exist and foreign capital or grant aid
is discouraged. In these circumstances, the
Indonesian economy is likely to remain in a
precarious position for some time. The prin-
cipal saving factor in this situation will be
the likely steady increase in domestic food
production to match population growth.
H. PROBABLE DEVELOPMENTS
THROUGH 1955
48. The All government probably will retain
PKI support and remain in power until the
elections unless the opposition concludes that
the government is likely to succeed in rigging
the elections or in attempting to delay elec-
tions beyond 1955 for partisan reasons. With
interest centered on election preparations, the
All government is unlikely to make any sig-
nificant changes in its -domestic policies.
The government will continue to solicit par-
liamentary support from the Communists,
and government policies will continue to pro-
vide opportunities for further increases in
Communist strength and influence. Open
attacks on the position of army leaders who
oppose Defense Minister Iwa's policies are un-
likely. However, Iwa will probably continue
his efforts to fill command and staff positions
with his own appointees.
49. Indonesia's foreign policies are unlikely
to undergo any change. Efforts will prob-
ably be made, particularly during the Afro-
Asian Conference, to further the campaign
for Western New Guinea and to enhance In-
donesian prestige among the Arab-Asian
nations. Indonesia is unlikely to attempt to
expand trade relations with the Soviet Satel-
lites and Communist China so long as good
rubber prices hold in world markets. Rela-
tions with Communist China might be im-
paired if Communist China fails to agree to a
satisfactory solution of the problem of dual
nationality of overseas Chinese.
50. Indonesia will undoubtedly continue to
show interest in the continuation and possi-
ble expansion of US technical assistance. In
general, conditions for foreign investment are
likely to remain unfavorable, although it is
possible that companies willing to adjust to
local factors, as have some American enter-
prises, may find advantageous investment
opportunities.
51. National Elections. Commitments of
party and government leaders, the desires of
the small government parties, moral compul-
sion, and the possibility of civil strife if elec-
tions are unduly delayed again, make the
chances somewhat better than even that elec-
tions will be held this year. There is some
evidence that the PNI is attempting to ma-
nipulate the election machinery to favor its
cause.
52. Provided the elections are held in 1955
and are reasonably honest and within the
framework of the present law, three major
parties will probably emerge. The Masjumi
will probably win the most seats. The PNI's
popular following is unknown and possibly
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SECRET 10
smaller than claimed, but with the advantages
of its government position it will probably
rank second, followed closely by the
Communist Party. Three moderate-sized
parties ? the Socialist PSI, Moslem NU, and
conservative Greater Indonesian Association
(PIR) ? are likely to emerge from such an
election. Few of the smaller parties are
likely to survive because of the character of
the electoral system that will be used.
53. Following the elections, an anti-Commu-
nist government headed by the Masjumi
probably will be formed. Should the Masjumi
lack a majority, it probably would be able to
form a coalition government including the
PSI. Should the Masjumi's plurality be
small, the PNI and PKI might be able to
form a government. On the other hand, in
this situation the right wing of the PNI might
refuse to enter another coalition with the PKI
and might instead agree to participate with
the Masjumi in a coalition government, or at
least to support the Masjumi in parliament.
54. Should the Masjumi form a government,
either alone or in coalition, considerable re-
strictions would probably be placed on Com-
munist activity. Such a government, though
not pro-Western, would probably lean toward
the West and might seek aid for economic
development. Foreign investment might be
encouraged, and domestic economic and fiscal
policies would probably be more conservative.
Officials with greater technical competence
would probably direct government affairs.
However, the extent to which such a govern-
ment could depart from the position of the
extreme nationalists would depend on the
strength of its parliamentary position.
55. The use of force to overthrow the govern-
ment appears unlikely during the period of
this estimate. However, such action might
take place if the PNI made a determined
effort to postpone the elections or if it became
obvious that the PNI was rigging the elec-
tions. Abrupt government efforts to remove
the territorial commanders who oppose Iwa's
policies, unlikely at the present, might also
result in forceful counteraction. In either
case, if the political opposition and the op-
position army leaders acted in concert, the
government would probably be overthrown.
Even if successful, however, the resort to
armed action probably would result in con-
tinued unrest and disunity throughout Indo-
nesia. For this reason and because of a wide-
spread dislike of forceful methods, a decision
to use force would be taken only if there
existed an urgent sense of national crisis
among opposition leaders.
56. A Communist attempt to take over the
government by force is unlikely in 1955.
Should the Masjumi come to power either
through elections or by force, it is possible
that the Communists would attempt to harass
the government by causing economic disrup-
tion through their control of SOBSI. They
could also adopt terroristic tactics and serious-
ly disrupt economic and administrative activi-
ties in several important areas. But they do
not yet have, and are unlikely to develop in
1955, a paramilitary force strong enough
either to take over the government or to seize
and maintain effective control of large and
important areas in Indonesia.
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APPENDIX A
LAND AND PEOPLE
1. The 2,000 islands of the Republic of Indo-
nesia extend over 3,200 miles from east to west
and about 1,500 miles from north to south.
The island of Java contains two-thirds of the
80 million Indonesians and is the center of
Indonesian political and cultural life.
2. The "outer islands," however, are very im-
portant to Indonesia's economy since they
yield most of the internationally prized stra-
tegic raw materials: Borneo and Sumatra
have the richest oil wells in all of Eastern
Asia; tin mines are located on the small
islands of Bangka and Billiton near Sumatra's
east coast, and the largest Indonesian rubber
plantations are in Sumatra. Moreover, these
relatively underpopulated and underdeveloped
islands, vast portions of which are still under
heavy forest cover, hold out promise for Java's
crucial problem of overpopulation. Java's
reserves of arable land are virtually exhausted,
and the very small average landholdings are
becoming increasingly smaller by progressive
splitting.
3. Indonesia is a conglomerate of numerous
ethnically related groups, each varying in lan-
guage, temperament, social organization, and
material culture. Though the great majority
of the population is Moslem, the -Hindu reli-
gion is strong in Bali; animistic beliefs prevail
in the wilds of Borneo, and there are import-
ant Christian areas in Ambon and Flores in
East Indonesia and in parts of Java and Su-
matra.
4. Despite this great diversity, there are im-
portant unifying factors which help to wield
these peoples together. To the majority, the
Mohammedan religion provides a common
code of ethics, family law, and religious ritual
behavior. Common historical experience was
gained under a strong, centralized Nether-
lands Indies Government. The centralized
national Indonesian government headed by a
president whose popularity is widespread con-
tinues this cohesive effect. Symbolic of na-
tional unity is development of a national lan-
guage which is based on Malay. Finally, de-
spite a strong ethnic self-consciousness in
various tribal groups, there is a bond of com-
mon Malaysian ancestral stock. Only in the
eastern end of the archipelago, in the islands
dotting the ocean between Flores and New
Guinea, does ,this prevalent Indonesian type
begin to give way to the darker, stockier, and
frizzy-haired Melanesian type.
5. The vast majority of Indonesians are illiter-
ate and engaged in agrarian pursuits, either
on village land or on large foreign-owned
estates. The villages in which most live are
small closed worlds, and the news and rumors
exchanged in the market towns and the liai-
son between the head of the village and the
district or subdistrict authorities, constitute
the principal links to the outside. In a rural
atmosphere geared to the slow; steady rhythm
of long-embedded cultural traditions the aver-
age Indonesian probably thinks and acts sole-
ly on the basis of beliefs and attitudes ab-
sorbed during childhood in his native village.
The guiding principle of Indonesian village
life is "mutual assistance" or "cooperation,"
and the village is an organized whole includ-
ing the lands, irrespective of individual or
communal rights to them or their utilization.
There is little room in village society for the
competitive, acquisitive individual. The ha-
bitual inertia of village life is partly responsi-
ble for the complacent and largely unresisting
nature of the Indonesian rural community.
6. Indonesian wage labor, drawn from the
peasantry, still occupies a relatively minor
role in the country's economy. Of the esti-
mated 4.3 million wage earners, over one-third
are engaged in estate agriculture, which is
often a seasonal occupation, and many
catZESPr
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workers retain firm bonds with their native
villages. The rest are employed in a variety
of manufacturing and mining enterprises, in
the communications and transportation sys-
tems, and in other services.
7. Since the country gained its independence,
a middle class has begun to develop. It re-
mains relatively small, however, and exerts
little influence.
8. The present leaders are drawn from the
small group of political intelligentsia, who
spearheaded the fight for freedom. It will re-
NWT
12
main the most important class in Indonesia
and will most likely supply the country's
leaders for some time to come. Most of these
men have embraced "Western" concepts of
government and are acutely conscious of the
enormous gap between their own thinking
and that of the average Indonesian. Their
efforts to create a viable economy and an im-
proved social order are handicapped mean-
while by unstable internal political conditions,
lack of trained technicians and administra-
tors, and the absence in many leaders of a
highly developed sense of civic responsibility.
goasmodaz
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130
135 140
MIANGAS
(Indonesia)
J
....
BURU ?
ORD
oPULAU?PULAU
081
WAIGEO
AMBOIN:pboina
BANDA SEA
0
CZ,
130
PACIFIC
OCE AN
itzt;10UTEN-
EILANDEN
NETHERLANDS NEW GUINEA
(Status in dispute)
eg) PULAU-
? ?PULAU
ARU
oo
PULAU?PULAU
TANIM BAR
A RA FUR A S E A
135 140
5
10
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130
135 140
P. MIANGAS
(Indonesia)
Eastern boundary of
Maluku Province
approximate
H ALM AN ER
WAIGEO
PACIFIC
OCEAN
tzpicOUTEN.
El LAN DEN
pU LAU? PU LAU
OBI
? BURU to
AMBOINA AM b?i na
ETA
NETHERLANDS NEW GUINEA
(Status in dispute)
X
PANDA SEA.
0
PU LAU- PU LA U
TANI M BAR
PU LA U.
PU LAU
ARU
130
A R A FUR A SEA
135 140
5
10
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PROVISIONAL EDITION
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POPULATION and PRINCIPAL RELIGIONS
95 100 105 110
115
120
\
HE PH
125 130 135 140
Kutaradja
SOUTN C /-1 INA
SEA
BRUNEI
elawan
_
P. MIANGAS
(Indonesia)
-
Treaty Limits of The Philippines
PA IF IC
OCEAN
5
PULA
SIMEULUE
0
GREAT NATUNA
ISLANDS
e
PULAU-PULAU
ANAMBAS
?C7P
(tTarakan
CELEBE
S E A
PORE
Manado
PULAU
NIAS
FIALMAHERA
ctt
s.%
WAIGEO
a&
PULAU%
SI BERUT
Padang
SC21.7.10UTEN.
EILANDEN
Vt.
Bengkulu
BILLITON
tk?
aPULAU-PULAU
OBI
PULAU-PULAU SULA
s--%e
Amboina
AMBOIN
NETHERLANDS NEW GUINEA
(Status in dispute)
4,
Tjirebon
100 105
JAVA SEA
Makasar
PULAU
BUTUNG
BANDA SEA
PULAU-
PULAU
ARU
THE REPUBLIC OF INDONESIA
PRINCIPAL RELIGIONS
e, Mohammedan A Animist t Christian A Hindu
Approximately 90% of the population of Indonesia is Mohammedan.
POPULATION
(Population density in square kilometers)
2 5 10 25 50 125
z
V:We
0
(1 square kilometer equals .386 square mile)
100
200
300
400
Miles
100 200 300 400
Kilometers
Tjilatjap
joiN2'N?
L Es sE R
INOTE: Population data es of 1930.
A
Singaradja
De
e?
SUNDA
1SL ANDS
LOMBOK
WETAR
ffi'A
mere
SUM BAWA
Waingapu
OCUSSI
( Pot 40
fr,y
.`/1)
-sat
-211- e
PULAU-PULAU
TANIM BAR
A RAFURA SEA
110
115
120
125
130
135 140
5
10
13724 2-55
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Zia=
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