Foreign Aid to Indonesia and Its Political Implications

Abstract

FOREIGN AID is primarily a tool with which donor governments seek to produce political results of benefit to themselves. In recent years economists have engaged in much research on the economic aspects of aid, but little has been done to assess its political effects. This article examines the case of Indonesia, a country receiving substantial aid from many governments, Communist, Western and non-aligned. First, an outline is presented of the sources, amounts and utilization of aid received by the Indonesian government; then follows an examination of the short-term and longer-term effects of the aid on the political situation within Indonesia. In December i949, the Netherlands recognized Indonesian sovereignty over all of the former Netherlands East Indies except West New Guinea. The United States agreed to continue its scheduled delivery of Marshall Plan aid to the archipelago and the new Indonesian government was granted $40 millions with which to purchase vital consumer goods, especially rice and textiles. A year later the Netherlands extended a credit of $53 millions to help Indonesia meet its current debts to the Netherlands,. During the first six years of full independence, Indonesia received aid from Western countries, though in generally decreasing amounts. From i95i to i955 inclusive, the United States, as the foremost donor, granted approximately $7 millions a year as technical assistance, and loaned $9i.8 millions for various development projects. This low level of aid was due not only to American reluctance to grant more, but also to hesitancy on the part of the Indonesian governments to give any indication that they were aligning themselves with the West. The first Ali Sastroamidjojo cabinet, which held office from July I953 to August I955, was led by the nationalist party, PNI. It excluded the generally pro-Western Masjumi and the democratic socialist party, PSI, and it received, and became dependent upon, the parliamentary support of the Indonesian Communist Party, PKI. Aid from the United States declined markedly, but at the same time the Indonesian government began to seek normal relations with the Sino-Soviet countries. In the first half of i954, embassies were opened in Moscow and Peking. The Communist countries, which were just embarking on a policy of wooing the non-aligned nations, reciprocated with both trade agreements and offers of aid. In i952, Indonesia and Hungry signed a trade and payments agreement which was renewed in July I954. In I954 also, similar agreements were