INDONESIA

U.S.A. Offer
I attach for your information a copy of a telegram received from
Batavia giving the text of a note presented by the American
Consul-General at Batavia to the Indonesian Government. [1] You
will observe that, in the final paragraph, the United States
Government suggests that, if there is a decision to set up an
interim Government, the United States would be willing to discuss
means of assisting in the reconstruction of N.E.I. by financial
aid.

You will observe that there is no firm commitment in the United
States' offer, nor, as far as we know, has any plan of aid been
put forward either to the Republican or the Dutch authorities.

Australian political policy
The policy of the Australian Government with respect to the
present situation in Indonesia is that, if there is to be
mediation, or if the two parties desire the good offices of any
third party, Australia should be that third party. The reason for
this is that it is believed that only by retaining initiative in
this respect can Australian economic and security interests be
promoted. For your confidential information, the good offices of
the Australian Government have been offered to both Republican and
Dutch authorities. At the moment, however, it would seem that a
joint request for mediation will not be made to Australia or to
any other Government, at least until it is clear that negotiations
between the two parties reach a position of complete deadlock.

Present position
The present position is therefore that, while it is the policy of
the Government to ensure Australia takes a leading part in the
future political and economical development of Indonesia in order
to protect Australian economic and security interests, the United
States Government has made a tentative offer which, in the
financial circumstances of both the Dutch and the Republican
authorities, would appear to be an attractive one. Already the
United States has shown her interest in commencing trade with
Dutch and Republican areas, and there is little doubt that the
offer of financial aid which has been made has been made with due
regard to the return which can be counted on in such a rich area
as N.E.I.

Suggested Australian policy
We have therefore been giving consideration as to precise ways and
means by which Australia can not only follow up the offers of
mediation already made, but can also effectively pursue our
economic and security interests in that area.

A Loan?
One means would be to offer to the Dutch and Indonesian Republic,
or to the interim Government when it is established, a loan
enabling the interim Government to make purchases inside or
outside Australia. To be effective, such a loan would have to be
on a large scale and, in fact, we would find ourselves in
competition with the United States Government.

Direct assistance by supplying goods and services
Our own experiences are that a more effective and in practice less
expensive means of achieving our objectives is by more direct
assistance than a financial loan permits. For instance, we have
been undoubtedly successful in achieving a certain degree of
political and economic influence in Portuguese Timor, not by
making credit available, but by personal contact with the
Administration [2], and by direct assistance in the procurement of
the particular goods which are required day by day by the
Administration.

In the case of Indonesia, it is our understanding that the basic
problem of rehabilitation is related to the overhaul of machinery,
the replacement of parts, technical advice on production methods,
and also the supply in not very great quantities of certain
essential requirements, for example, medical requirements,
transport, educational facilities, and perhaps certain types of
foodstuffs. While these latter would involve, at any rate
initially, a credit pending the resumption of production and of
export from Indonesia, the former would involve an administrative
plan rather than financial expenditure.

Proposed approach to Republican and Dutch authorities
It is considered that the Government should now be in a position
to follow up the initial approach already made to the two parties
by a concrete suggestion that, provided the interim Government is
established, we would be prepared to assist in the rehabilitation
of Indonesia. In more detail, we would be prepared to send to
Indonesia technical advisers and supply officers who would
ascertain plant and other immediate requirements necessary for the
recommencement of production. Every endeavour would be made in
Australia then to meet requirements. For these and for consumption
goods immediately wanted we would be prepared to arrange credit
facilities.

The way in which such a proposal is put forward is, in these
present circumstances, as important as the proposal itself and
consideration might be given to arranging for Mr. Richardson of
the Commonwealth Bank to visit Batavia, taking with him authority
to put forward a proposal along these lines. It would not be
practicable to suggest an upper limit of commitment, but there
seems little doubt that, while there might be an initial outlay of
perhaps 3,000,000, even before that sum were expended there would
be a flow back which would take care of any further outlays which
might be required.

Machinery
The supply side of such a programme in Australia would not be
within the jurisdiction of this Department, though, in fact, in
the case of Portuguese Timor, we have had so far to carry through
the initiative we took. N.E.I. would be a far greater job.

Consideration should therefore be given to the appropriate agency
for handling such a plan. Perhaps temporary arrangements could be
made for a small group of persons to be loosely attached to this
or another Department for this purpose. At the end of a period of
two to three years, normal trading channels would have been
reestablished on the pattern set during this time, and continued
executive work would be unnecessary. At the same time, it should
be kept in mind that similar action is required in respect of New
Caledonia, Malaya, and India. In all cases the initiative will
probably have to be taken by this Department. A board of trade
representing all interested Departments, with a small executive,
and chaired by this Department might be the simplest and most
effective machinery to carry out such a programme.

Your early comments would be appreciated, both on the particular
question of Indonesia, and also the general question of machinery.