STUDY OF INDONESIAN DEBT RESCHEDULING AND ASSISTANCE REQUIREMENTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP70S00385R000100280002-9
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 6
• Document Creation Date: December 12, 2016
• Document Release Date: March 14, 2001
• Sequence Number: 2
• Publication Date: November 8, 1967
• Content Type: MEMO

EA/IND:RSLowen CONFIDENTIAL
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DA'V'E:November 8s 1967
SUBJECT: Study of Indonesian Debt Rescheduling and Assistance
Requirements
PART1C-F..,4T ,:Deputy Assistant Secretary Robert We Barnett, EA
Mr. William Morells Directory Office of Economic Research,CIA
Mr. John-Colman, Directory Office of International Monetary
Affairs., E/OMA
Mr. Roger S. Lowen, International Economists EA/IND
F
1
Mr. Barnett said he wished to discuss an important, even urgent,
matter concerning debt rescheduling and foreign assistance for Indo-
nesia. These problems should be analyzed particularly because they
could play a part in the President's forthcoming State of the Union
Message. He wished to emphasize, however, that the studies for which
he was requesting Mr. Morell's assistance should not be designed as
policy recommendations, but rather as clarification of the issues.
Mr. Barnett continued that Mr. Colman's offices the Desk, the IMF and
the DAC had all done considerable work on the balance of payments effects
of debt servicing by Indonesia over the next 15 years. These studies
contained high and low estimates and other variables. There was no
State Dept. declassification & release instructions on file
FORM DS-1254
a-a1
i.l;Sv la._,
American Embassy, DJAKARTA
Mr. Jo Mark Dions INR
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CONFIDENTIAL
lack of numbers and all the studies approached the problem with a
slightly different notion of what to do. It is apparent that the
IMF expects Indonesia's balance of payments prospects will require
a sizable aid input if the GOI is to move into the developmental
stage from the present stabilization stage. The IMF projections
assume that exports will increase at an arithmetic rate of some
4 m 5 per cent per year. He was somewhat more sanguine over Indo-
nesia's export prospects as a sudden break-through in a field such
as oil could lead to dynamic changes in earning potential.
What he needed to know, Mr. Barnett emphasized, was who is planning
to do what for the Indonesians in the form of debt rescheduling
and foreign assistance for the next 20 years - through 1987. This
was particularly important because debt rescheduling is in effect
untied aid because of the fungible nature of the assistance rendered.
If we can obtain an idea of who, when, and to what extent fresh
grant and loan aid is made available, then we can analyze the true
effect of such aid. As an example, Mr. Barnett cited the case of
Italy. Given :Italy's significant creditor position vis-a-vis
Indonesia and given its relatively small foreign assistance input,
Italy would get a free ride after 1971 as a result of receiving
loan repayments actually financed from other countries new assist-
ance. Mr. Colman cited the case of Turkey where this effect had
become so pronounced that the U.S. was now the only real donor
while the other "participants" had actually become beneficiaries.
Continuing, Mr. Barnett pointed out that the mix of debt servicing
under rescheduling arrangements plus the servicing of new debts
incurred by the government from aid plus the servicing of private
loans covered by government guarantees could impose on the GOI an
aggregate debt burden in 1977 and beyond of from 30 to 40 per cent
or more of projected foreign exchange earnings. Mr. Colman accent-
uated this point by stating that Indonesia was accumulating new
debts at the rate of $200 to $300 million per year. Mr. Barnett
suggested that once the grace period ended, countries currently
providing aid would have a hard time explaining to their legislative
bodies why they should continue to provide foreign aid to service
the debts of those countries lagging in providing foreign assist-
ance to Indonesia. In this connection, he stressed that we must
have a clear picture of the debt and repayment profile of both
the non-Communist countries and the Communist countries.
As we will be, in all likelihood, shy of aid resources during 1968
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and 19699 these above problems have tremendous operational relevance.
It appears that pressure is building at the highest levels of our
government to consider supplementary legislation for aid to Indo-
nesia. Mr. Ba::nett thought that the data to be developed by Mr.
Morell might very well reveal possibilities for the Congress to
authorize writing off a major part of the Indonesian debt. He
suggested that this might be particularly applicable to the large
debts incurred by President Sukarno and he opined that perhaps the
Indonesians could pay these debts on the basis of some formula
such as 10 cents on the dollar. Of course, such legislative
authority would probably be dependent upon the agreement of other
major creditors such as Japan, the USSR and the European creditors
to do likewise, This action could have tremendous appeal to Con-
gress as it coL.ld thus provide Indonesia with a large degree of
relief without additional expenditures of current resources.
Concluding, Mr. Barnett emphasizes' that he wants the White House
to realize that this is a possibility. Action would be difficult
because of the lack of a precedent, but conversely some would like
to establish this new precedent. Mr. Morell said he would get in
touch with Messrs Colman and Lowen and would use his staff to pre-
pare the relevant studies.
EA/IINTD RSLowen:es
11/ 13/6'7
CONFIDENTIAL
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 Ap
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UNCLASSIFIED 1L IDENTIAL SECRET
CENTRAL INTELLIGENCE AGENCY
OFFICIAL ROUTING SLIP
TO
NAME AND ADDRESS
DATE
I
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Chief, IRA 4-F-42
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ACTION
DIRECT REPLY
PREPARE REPLY
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DISPATCH
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FILE
RETURN
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SIGNATURE
Remarks :
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Chief, FW/O x5291 3G20
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Use previous editions
FORM 10. 237
 ember 1967
Dick: There are a couple of
problems associated with
this study which I have
discussed with the staff.
However, we believe we can
prepare a paper by the
middle of December that
will shed some light on
Barnett's questions.
ROOM NO. BUILDING J EXTENSION
I L
ovedDda F Ease a.Q.Q2LQ CIA-RDK 100
I F ES 55 WHICH MAY BE USED.
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MEMORANDUM FOR: D/CE
The attached Memorandum of Conversation of
your meeting with Mr. Barnett on 8 Nov 1967 was
given to me today by Mr. Colman. It covers all
of the items I would have included in a Memo
for the Record.
We agreed today with Mr. Colman to prepare
an outline of our study for Mr. Barnett. On
17 Nov, Mr. Colman will meet with us again here
to finalize the outline. We informed Mr. Colman
our study will be completed the first or second
week in December.
Chief, D/FW
13 Nov 67
(DATE)
r 0? REPLACES F 70S00385R0001002800
OR
M 10-101
1 AUG 54 VI WHICH MAY BE USED. (47)