I have the honour to forward the accompanying report on the operation of the Colombo Plan in Indonesia during the past twelve months.
2. The application of the Plan to this country is empirical to a large degree, and satisfactory procedures are likely to be developed only as the result of experience not merely on our own part but on the part of other agencies providing foreign aid. Nevertheless, if account is taken of the circumstances obtaining in Indonesia at the present time, the progress made by ourselves and others gives hope of more positive achievement, and provided there is a fair measure of patience and elasticity in the application of it,foreign aid should prove in the long term to have good effects not merely in helping stabilise the country but in bringing its people into closer touch with Western techniques and Western ways of thought.
COLOMBO PLAN IN INDONESIA: REVIEW OF FIRST YEAR
After one year's operation in Indonesia, the Colombo Plan has become firmly established as one of the recognised sources of foreign aid. Administrative machinery has been created, with responsibility for policy vested in the Economic Division of the Ministry of Foreign Affairs and the control of operational matters in a special branch of the Planning Bureau. The various Ministries are becoming increasingly aware of the possibilities of acquiring assistance under the Plan and are slowly learning the procedures and formalities connected with it.
Acceptability of the Plan
2. Practically no criticism has been heard against Indonesia's membership of the Colombo Plan, which may be taken as a sign of its growing acceptability. At least the misgivings felt just before the Indonesian Government decided to join are not any longer being expressed. Since that decision no part of the press has objected to Indonesia's membership of the scheme1 and recent allusions to the Plan, although few in number, have mostly been warnings against too hopeful an estimate of its possible benefits. Indonesia's participation in the last Consultative Committee meeting (for the first time) seems to have built up support for the Plan in key sections of the administration, and if, as some reports suggest, there are still pockets of resistance in some political quarters, these critics have been quiet.
Limited achievements of the Plan
3. While the growing acceptability of the Plan gives some cause for satisfaction, it is nevertheless true that its achievements to date have been limited. They consist almost exclusively of economic development aid from Australia to the value of about �A225,000, approximately 100 scholarships and fellowships awarded mainly by the Australian and the United Kingdom Governments, and a few minor items of equipment under the Technical Co-operation Scheme. A total contribution of about �� million can make only a slight impact on a country which has a population of 80 million, a budget deficit of Rp.2,500,000,000 (1953) and an estimated foreign exchange deficit of between US$170 – 200 million (1953).
4. By far the strongest reason for this modest progress is Indonesia's shortage of funds out of which to meet the local costs associated with economic aid from abroad. This is one result of the serious budget deficit. For several months past the Finance Ministry has positively discouraged the acceptance by other departments of any foreign aid commitments which might aggravate this deficit, and at the present time the Indonesian Government is prepared to consider proposals for help from abroad only in respect of projects of the highest national priority. Other factors prejudicing the absorption of aid may be found in the serious if understandable weakness of the Indonesian administration, (this, for example, is responsible for abnormal delays) and the desire of some Ministries to have United Nations experts complete basic surveys and recommend broad programme of development before they request aid from other sources. Another factor which may affect the provision of foreign aid (and is in fact holding up progress on one or two large-scale projects) is the prospect of reparations from Japan.
5. Opportunities exist nevertheless for giving increased help to Indonesia in the current year. The New Zealand Government has already undertaken to provide buildings and equipment, valued at more than �A120,000, for a vocational training centre at Malang. The United Kingdom will supply aircraft for training purposes valued at �A62,000, while Australian commitments for 1954 include aviation equipment to the value of �A80,000. In addition, more or less formal requests have been made to Australia for diesel engines for fishing vessels (�A400,000) and mobile cinema vans for mass education work (about �A30,000).
Other foreign programmes
6. The tendency in Indonesia is to regard, in one broad context, the activities of all foreign agencies providing the means of economic development, and to calculate the benefit to the Republic as the aggregation of their respective achievements. As a result, the limited contributions made by the Colombo Plan countries in the past year have to some extent been concealed. During 1953, for example, roughly 130 experts were at work in Indonesia under the United Nations Expanded Programme of Technical Assistance (70) and the American Point Four Programme (FOA) (60). The most important projects operating under these programmes were in the fields of food production, education and technical training, health, civil aviation, mining and labour regulation. The two programmes provided about 300 training awards in 1953, of which the United Nations contribution was about one-sixth.2
7. Some foreign experts in Indonesia claim that there should be some functional integration of foreign aid programmes and that particular roles ought to be assigned to each of the various agencies. One idea put forward is that the Colombo Plan might undertake to supply equipment needs only, relinquishing offers of expert advice and training in favour of the United Nations Programme. The argument used is that expert advice is more palatable if it originates from a wholly international source; but while it is the case that some Indonesian agencies prefer United Nations advice to that of TCA (or FOA as it is now known), there is no evidence to show that technical advice given under the Colombo Plan is likely to be less acceptable as long as the (admittedly limited) international character of the Plan is maintained.
8. Although apt to obscure the international character of the Colombo Plan, provision of aid on a bilateral basis has certain technical advantages. For example it keeps down the number of stages between the raising of funds in the donor country and their ultimate disposal, thereby making programming easier and reducing delay in meeting requests for help. On the other hand, it could be argued that the dispersal of the Plan's resources among several donors (always bearing in mind the organisational difficulties in the way of running joint projects), means that it cannot assemble in any one place (either in the donor country or in the field) a body of experienced administrators and technical experts comparable with programmes such as those of the United Nations Technical Assistance Administration, some of the Specialised Agencies, and the American Foreign Operations Administration. In consequence, it is difficult for the Colombo Plan to exert the same comprehensive and sustained influence on a particular sector of the economy as, for example, that of UNESCO in the field of education or the United States Foreign Operations Administration in the field of technical training. Insofar as our own role is concerned one officer, however competent and diligent, cannot when locating projects (or when dealing with the preliminary organisation of such projects) expect to possess the specialised knowledge available to some other agencies which have, apart from greater numbers, expert status and more local contacts3; nor is one officer, however competent, in a position to furnish more than a limited amount of advice, except with the help of those agencies, as to the point at which need really lies and the manner in which it can best be met. In theory, of course, these are matters on which the Indonesian authorities are expected to inform us; in practice, because of the deficiencies of the Indonesian administration, all foreign aid agencies have found it necessary to do on a more or less informal basis a great part of this work themselves. In all these circumstances, our help must inevitably be directed towards somewhat limited objectives (which is the policy of the UnitedKingdom in Indonesia) and there must generally be recourse to the expert advice of other foreign aid programmes which possess better facilities. This situation perhaps entails a rather secondary role for the Colombo Plan in contributing to the technical and economic development of the country.
The case for foreign aid
9. The basic case for foreign aid needs to be considered in the light among other things of this country's economic situation, of which its large budget deficit, declining reserves of foreign exchange and creeping inflation are the chief features. While these conditions obtain, restriction rather than an extension of development is inevitable, and Indonesia's primary objective at the present time should be to arrest her drift towards international insolvency and to check inflation. The rate at which her foreign exchange reserves are falling is likely to result in further attempts to cut imports this year, and if the large budget deficiencies of the last twenty-four months cannot be reduced, there will be a further intensification of inflationary pressure. In particular, unless public services are retrenched4, which might not be politically feasible, development and capital expenditure may soon have to be cut to a level below which existing capital works and other services can even be maintained.
10. In these circumstances, and from an economic point of view, foreign aid to Indonesia will be of assistance only if it:
(a) helps Indonesia to reduce her foreign exchange expenditure, that is if it takes the form of goods and services which Indonesia would attempt to pay for even with her diminished foreign exchanged resources;
(b) does not result in any unnecessary budgetary pressure (in the form of local costs of developmental activity);
(c) directly assists in the maintenance of essential capital works and services;
(d) directly assists in increasing Indonesian exports or the substitution of home-produced goods and services which are at present imported.
11. If these conclusions are valid, they add up to a solid case against attempts by Indonesia to undertake large-scale capital development at the present time. Further reasons for a cautious attitude towards capital imports may be seen in such weaknesses as inadequate planning, deficient executive capacity and widespread corruption, and an inadequate supply of almost all technical and semi-technical skills. As a result of partial realisation at least of the acute financial situation, the Finance Ministry has for several months positively discouraged the acceptance of any commitments for foreign aid which may entail expenditure not already provided for in the budgets of the various Ministries, and only in a few isolated instances where a very urgent need exists has the Government agreed to accept offers of aid other than for training purposes involving the minimum provision of local funds. Omnibus lists of equipment requirements prepared during 1953 have been shelved for the time being. There have been no drawings for quite some time on the balance of the 100 million dollar loan for the Import-Export Bank. In addition, the TCA (FOA) programme is lagging, and little encouragement has been given to Colombo Plan donors which, like Australia, have expressed an interest in providing help under the Economic Development Programme of the Plan.
The aid required
12. The National Planning Bureau is now examining ways of overcoming the budgetary difficulties lying in the path of developmental activity. Some members of the Bureau have been thinking of a Development Fund to which foreign aid programmes might be invited to contribute by gifts of consumer commodities now absorbing scarce foreign exchange which could be sold by the Government on the open market. If some such proposal eventuates, it might overcome some of the present obstacles to development but it would in no way solve the overall inflationary problem which will go on calling for very severe retrenchment. However, some high priority projects, especially in the fields of food production, power and communications will have to be maintained particularly where stoppage of activities would result in a wastage of work already completed. But in the main, if sound financial policies obtain, large-scale imports of equipment will be out of the question. In such circumstances, the most useful ways of contributing to the country's needs will be in the form of limited quantities of equipment for particular projects of the highest developmental priority and the provision of experts and training facilities (and incidental equipment) under the technical assistance programme.
13. Those actively associated with foreign aid administrations in Indonesia believe that there is a real need at the moment for small quantities of carefully selected equipment but that the prior requirement is technical advice and training designed to raise managerial as well as technical skills. It is also widely held that only in special cases does training abroad produce results in any way commensurate with the expenditure involved. Under the United Nations Programme particularly, training awards almost invariably have a definite relationship with the work of the expert in the field and there is a very clear nexus between the studies undertaken abroad and the duties the trainee will perform on his return. The offer of training awards wherein no assurance is forthcoming that the official knows what he is looking for, and why, tends to lower the standing of the agency responsible and may possibly encourage those responsible for the selection of candidates to view the matter, as some of them are alleged to do, in the light of a tour. It is in cases where the need is actively felt in the country, and positive arrangements are made for the employment of newly-acquired skills, that training abroad achieves its best result.
14. It is difficult to quote facts and figures in proof of the positive achievements of foreign aid programmes in Indonesia because most projects are either in the first phase of being developed or have not yet passed the preliminary stage of planning. Among the former, however, there are some which are beginning to have noticeable effects on the country's economy. For example, TCA (FOA) assistance is partly responsible for the rising production of sea fisheries; the use of new mechanical equipment in agriculture made possible largely by TCA, and in a lesser degree by Colombo Plan aid, is achieving good results; and the training programmes maintained by ICAO should assist the Government in the establishment of its own airlines. If less tangible achievements are to be mentioned one could speak of those Indonesians sent abroad under a variety of awards who in addition to obtaining knowledge of use on their return, also experience useful contact with outside countries which should break down some of their prejudices. But perhaps an equally effective way in which foreign aid is helping this under-developed country is the practical contribution being made in the field of higher administration by foreign experts who have assumed a variety of executive functions, perhaps outside the strict scope of their assignments, for the simple reason that there are not enough Indonesians qualified enough or competent enough to undertake them.
Indonesian attitude to foreign aid
15. Although they look forward to the time when they will manage their own affairs with the minimum of foreign interference, the attitude of many Indonesians who have positive views on the subject is that the world has something of a debt to pay them, a form of compensation after years of 'colonial exploitation', and in this way they soften the impact of their prestige which the receipt of foreign aid seems to them to entail. It is held in some quarters also that Western self-interest, or at best the preservation of a common interest (i.e., opposition to Communism) is the motive behind some foreign aid programmes. This attitude, while it does not preclude some show of appreciation, might suggest that relations between Indonesia and the West should not be regarded as resting too heavily upon grants of foreign aid and that the main benefit should perhaps be seen in the stabilising effect which, in the longer term, the application of foreign aid can have on this country, particularly in technical and administrative fields. From our point of view a special advantage to be derived (in this instance from the Colombo Plan) is the fact that it has periodic uses of great importance in helping us ride out occasional political difficulties.
Present Australian role
16. Australia's role as the pioneer, chief contributor and first interpreter of the Colombo Plan in Indonesia is as secure now as it was at the beginning of 1953. There are several reasons for this, chief among them being the interest expressed by Mr. Casey when Indonesia joined the Plan, the unparalleled (in foreign aid circles here) speed with which the initial consignment of economic aid was despatched, the influence of the training programme conducted prior to Indonesia's assumption of formal membership, and the good relations existing between the Embassy and officials within the Indonesian administration as a result of which interpretation and guidance has often been sought and always readily given by the Embassy. A useful factor in the latter respect was the inclusion of Mr. Vawdrey5 in the Australian delegation to the Consultative Committee Meeting in New Delhi, and the subsequent visit to Djakarta of the head of the Department's Economic and Technical Assistance Section.
[NAA: A10299, Cl6]