Washington, 11 April 1950

CONFIDENTIAL

Economic Assistance to South and South-East Asia

1. The State Department at present seems to have no firm ideas about technical and other assistance to South-East Asia. As we pointed out in an earlier memorandum,¹ the two relevant sections of the Department are disorganized by the recent shifts in Assistant Secretaries and by Congressional attacks on the loyalty of some of the State Department officials.²

2. Members of the Department have stressed to us the meagre and vague nature of much of the necessary basic factual material, and have spoken of the much greater difficulties in this respect in planning for South-East Asia than in planning for Europe.

3. The general opinion seems to be that the amount of assistance that can usefully be given will not be large�certainly it will not be large when compared to the Marshall Plan for Europe. But so far we have not been able to obtain an absolute figure. It also seems to be generally agreed that private investment will play a comparatively small role, at least in the initial stages. Indonesia is regarded as the country where there will be most opportunity for private investment, but this will depend upon the effectiveness and speed with which the Indonesian Government can put down the present rebellion³ and maintain order.

4. Health seems to have first priority in the thinking of State Department officials, with agriculture second. This may change when the Griffin reports have been received. Only preliminary reports have come in so far from Griffin, the first stressing the urgency of aid for Indo-China.

5. As a result of representations by the U.S. Embassy in Canberra, Griffin was asked to see Eaton in Djakarta, to discuss matters frankly with him, and to give him whatever information he wanted. The State Department therefore believes that you will be possibly better informed on Griffin's views than they are themselves at this stage.

6. In State Department thinking, Indo-China seems to rank first, with Burma a probable second. These, of course, are the two countries which are in most imminent danger, but there would seem to us to be a risk that Indo-China may prove a bottomless pit into which more and more American assistance is poured at the expense of other countries of this region. This risk may be reduced if there is adequate advance planning for the region as a whole.

[NAA: A1838, 708/9/2 part 2]

1 Document 46.

2 Dean Rusk had replaced Walton Butterworth as Assistant Secretary of State for Far Eastern Affairs in March 1950 and George McGhee had assumed responsibility for South Asian affairs in October 1949. The State Department's Loyalty Security Board was in dispute with Senator Joseph McCarthy over whether its policies permitted the employment of security risks. A specific target of McCarthy's campaign was the Asia specialist, John S. Service.

3 On 5 April, East Indonesian rebels attacked an Indonesian Government military instillation in Macassar and occupied a number of strategic positions in the city.