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DATE
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DOCUMENT
1. Report U.S. Policy Interests in the Asian Pacific Area
10/75
A
Introduction (1 p.)
Folder I
Execut ve Summary (10 pp.)
Table of Contents (1 P.) open
Summa Report (76 pp.)
Ackno edgements (4 pp )
open
Folder 2
Bibliography (8 pp.)
open
Table of Contents (1 p.)
open
Appendix One - Asia in the Shifting Balance of
World Power (46 PP.).
Folder 3
Appendix Two - Security Intersts, Concepts,
Threats and Capabilities (80 pp.)
Appendix Three - U.S. Economic Policy Toward
folder.,
the Asian Pacific Area (69 pp.)
Appendix Four - The Cultural Denominator in
Folder
U.S.-East Asian Relations (21 PP.)
Annex 1 - Japan and the Structure of Peace in
Asia (42 pp.)
Annex 2 - Korea: Cockpit of Confrontation in
Northeast Asia (22 PP.)
Annex 3 - The Republic of Taiwan: Whither the
Folder 6
U.S.? (14 pp.)
Annex 4 - Vietnamese Power: To What End (14 pp.)
Annex 5 - ASEAN: Political/Economic/Security
Potential (9 Pp.; pages 1-10 with no page 5)
Annex 6 - An Asian Identity for the
Folder7
Philippines (26 pp.)
Annex 7 PART Thailand Faces the Future (25 pp.)
Annex 8 - Indonesia: Great Expectations (20 pp.)
Annex 9 - South Asian-Indian Ocean-Persian
folder 8
Gulf (22 pp.)
Annex 10 - Australia-New Zealand and the South
Pacific (25 pp.)
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Marsh Files
General Subject File
Asian-Pacific Area - U.S. Policy Interests
Boxes 4-5
RESTRICTION CODES
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WHM, 12/4/85
GENERAL SERVICES ADMINISTRATION
GSA FORM 7122 (REV. 5-82)
3. An Asian Identity for the
Philippines (Ann. 6)
PIDECLASSIFIED
03LJISS01030
UUI!! ILII. LESSAL
AN ASIAN IDENTITY FOR THE PHILIPPINES
I. INTRODUCTION: ASPECTS OF CONTEMPORARY US-PHILIPPINE RELATIONS
Since independence in 19.46 the Philippines' key foreign policy problem
has been how to maintain its "special relationship" with the United States
while trying to develop an Asian identity. As other newly independent
states have found, it is difficult to develop nationalism, self-respect,
and international political capabilities while remaining dependent upon a
stronger partner in an alliance relationship. Too often the long-term
interests of the junior partner are subordinated to the immediate interests
of the senior partner. Until recently, the Philippines served US regional
interests through its contribution to the American "forward basing strategy,"
the containment policy as operationalized in military alliances, and as a
respectable example of a pluralistic economic and political system planted
by Americans during the colonial period.
Both the Philippines and the US would prefer to retain some aspects of
the relationship that have evolved over the past seventy-five years. However,
barring a major conflict in Asia, relations between Manila and Washington
must inevitably become more "correct and proper." Ironically, the deep-
seated affinity between Americans and Filipinos and the mutual interests which
have developed in their partnership makes this necessary transition difficult
to manage. The Filipinos, after all, are still the strongest ally the
Americans have in Southeast Asia.
Annex 6.
LISGRAY GERALD f. FORD
CONFIDENTIAL
Since 1901 when the U.S. established. in Manila its only colonial
administration, the Philippine people have experienced an evolution
in their own economic, political and military capabilities--from colony,
to commonwealth status, to independence in 1946. Between 1946 and 1974
the Philippines had special reciprocal economic arrangements with the
United States. The US-Philippine Mutual Security Agreement initially
concluded in 1952 is still in force. Politically, until September 1972
when martial law was declared, the Philippines was America's "showcase
of democracy in Asia." An open political process functioned with a
two-party system, regularly-scheduled elections, an extremely free press,
and a military subordinate to civilian authority. Despite the short-
comings of the process, the Philippine political system was relatively
stable. By the late 1960s, however, it became increasingly apparent that
the American democratic system would not work in a social system dominated
by oligarchs and politicians who increasingly alienated the populace.
Government inefficiency, corruption, and economic shortcomings brought
about by inadequate management could not generate the national support
needed to capitalize on the Philippines rich natural and human resources.
Dissident elements were bringing the political process to a standstill.
Internal political and economic chaos, increased insurgent operations
in central Luzon and political unrest in Manila, the personal desires
of Ferdinand Marcos to perpetuate his rule, and, very possibly, the
realization that the Nixon Doctrine required the Philippines to get its
own house in order--all contributed to an end to the democratic
FORD LIBRAFT
1030
experiment and the "temporary" adoption of an authoritarian system for
governing the Philippines. In a very brief period of time, the previous
"showcase" had become a focus of concern by those who questioned an
American "special relationship" with yet another system of one-man rule.
Martial law helped stimulate substantial growth in the faltering Philip-
pine economy. Despite the devastating floods of July-August 1972, the subse-
quent draught and initial concerns over economic prospects under the more
central management of the martial law regime, the real growth rate in 1973
reached 10% and the Philippines weathered the international economic up-
heaval of 1974-75 with growth rates in the 5% to 6% range.
While proclaiming a national revolution, Philippine economic policy did
not diverge greatly from the pre-1972 period except as the government was
freed of haphazard Congressional obstructiveness. While civil authorities
and civil managerial personnel remained in most of the key position, martial
law introduced the political stability required for development. A re-
structured and enforced tax system provided much of the revenue to support
new and needed development projects.
There was no nationalization of private industry. The American-type
free enterprise system began to work better, but within a political system
under authoritarian supervision from the highest level of national leadership.
However, the government's role in key economic areas, especially in certain
major exports, increased.
To affect changes in Philippine society, President Marcos diverged from
the American mold by employing the military as the action arm of the new
OSC:
regime. Civilian authority employed the military's organization, mission-
oriented philosophy and material to supervise and execute many of the
government's proclamations and directives.
These domestic changes did little to provide an Asian identity for the
Philippines. Americans are aware that their client in the Pacific has
diverged from the ideal, but few Asians consider events since 1972 as very
meaningful to their own acceptance of the Philippines. US-Philippine
economic and security links have not been altered substantially. The Philip-
pines remains the only Catholic country in Asia, the only English-speaking
people in the region, the only country whose young men can join the US
military, and a country that still retains special preference for private
US investment and and a degree of special consideration on economic and
military assistance as a result of its historic links with the US.
II. US INTERESTS IN THE PHILIPPINES
A. Security
The three basic agreements which govern US-Philippine defense and
security relations are: the Mutual Defense Treaty of 1951, the Military
Bases Agreement of 1947, as amended, and the Military Assistance Agreement
of 1953.
The mutual Defense Treaty contains the basic US commitment to the
defense of the Philippines. The first paragraph of Article IV of that
treaty states:
"Each party recognizes that an armed attack on the Pacific
area on either of the parties would be dangerous to its own
peace and safety and declares that it would act to meet the
common dangers in accordance with its constitutional process
GERALD
1030
Article V of the treaty specifies that an armed attack includes:
"An armed attack on the metropolitan territory of either
of the parties, or on the island. territories under its
jurisdiction in the Pacific or on its armed forces,
public vessels or aircraft in the Pacific."
The presence of U.S. forces on Philippine soil helps guarantee that an
attack on the Philippines would invoke the operative clause of the treaty.
Philippine foreign policy elites have for some time, however,
questioned the "automaticity" of a U.S. response to external aggression.
While recognizing that its earlier efforts to get a renegotiated treaty
more closely paralleling its perception of the U.S. commitment to NATO
is not possible under present circumstances, the Philippines has sought
for some time to reassure itself that the terms of the treaty and the
U.S. shield remain viable. Recent events in Indochina, in particular the
attitude of the U.S. Congress in March 1975 towards the continued defense
of South Vietnam, as well as the War Powers Act, have prompted serious
concern among Filipinos about the utility of the continued U.S. presence
in the Philippines.
The Military Bases Agreement of 1947 is the basic instrument which
grants the U.S. extensive rights of access, control, utilization and
operation of its bases in the Philippines. While there have been a series
of renegotiated settlements over U.S. facilities, the Philippines has
sought for some time to exercise greater sovereignty over U.S. bases. To
date the two governments have agreed: to relinquish large portions of
land previously reserved for bases but no longer needed for military
operations; to effect prior consultations before the U.S. uses the
GERILO P. FOR
1030
bases for military combat operations outside the scope of the treaties;
and to shorten the duration of the Military Bases Agreement from 99 to
25 years. Additional agreements relating to customs and criminal juris-
diction have also been negotiated.
For the U.S., the air and naval facilities of Clark Air Force Base
and Subic Naval Base remain of foremost strategic value. A key U.S.
foreign policy objective vis-a-vis the Philippines is to insure the
continuous, unobstructed use of these facilities. The US seeks
to maintain access to these facilities on the basis of the Mutual Defense
Treaty, with the U.S. providing for the defense of the Philippines in
exchange for rent-free use of the facilities.
President Marcos şet the tone for renegotiating the basing agree-
ments in July 1975:
"Without compromising our territorial integrity and self-
respect, there should be a conscious effort to support
America's effort to maintain herself as a. Pacific power.
By mutual agreement, we're now ready to enter into negotia-
tions with the United States on our Mutual Defense Pact,
the Military Assistance Pact and the Military Bases Agree-
ment we want to put an end to the practice of extra-
territoriality in our country. We want to assume control
of all these bases and put them to a productive, economic
as well as military use there is no reason why we should
deny those facilities which our historical ally might, or
must, need in fulfilling its assigned role for the maintenance
of peace in the region."
Several points are significant in this statement. First, President
Marcos welcomes and acknowledges the US role as an Asian power, and he places
considerable credence in US willingness to fulfill its role in maintaining
regional stability. Second, Philippine bases are important for the US
to fulfill this role. Finally, the
GIRALD F. FORD
two points which bear directly upon future base negotiations; concern with
aspects of control and the Philippine intention to put the bases to a
productive, economic use. If the control aspect can be satisfied by
hoisting the Philippine flage over the bases and Бу transferring the adminis-
trative supervision of the bases to a Filipino commander, the Philippines
will obtain "maneuvering space. If, however, the Philippines seeks a degree
of control which compromises operational flexibility in the use of the
facilities, the US may find the Marcos position unacceptable. Further, as
our on-going negotiations over US facilities in Turkey reveal, the US is
not prepared to beg for the opportunity to share the defense of an ally.
B. Economic
American investors have long favored the Philippines' natural
resources base and the capability of the government in Manila to maintain
favorable conditions for economic development. Agriculturally, the Philippines,
although today a food importer, has the potential of being self-sufficient
in many food crops. Minerals, while at present untapped to any great extent
except copper and timber, abound.
The Bulk of American investment in the Philippines occurred during
the tenure of the Laurel-Langley Agreement (1955-1974). This agreement
exempted American investors in the Philippines from various restrictions on
foreign business activity. American investment in the Philippines currently
stands at $1 billion or more in market value.
Philippine nationalists have long charged that the "parity" provision
of the Philippine Constitution and the related Laurel-Langley Agreement
actually created a "disparity" favoring the American investor whose superior
technology and financial backing gave him an advantage over his Philippine
competitors. These parity provisions were resented by many Filipinos and
became the focus of extensive nationalist policy in the 1960s and early
1970s. This resentment was a major factor in the US decision against re-
negotiating the Laurel-Langley Agrement and in favor of efforts to evolve a
less preferential economic relationship.
As with US-Philippine security relations, economic relations will in
the final analysis depend upon the Philippine domestic climate. Growing
uncertainty over the Muslim or NPA (communist) insurgency or continued
uncertainty over the succession to the Marcos martial law regime will ad-
versely affect the Philippines' competition for capital and technological
investment. The Philippine economy with its heavy dependence on foreign
trade and financing is highly sensitive to international economic develop-
ments as well.
Assuming that internal political stability can be maintained, the economy
of the Philippines is likely to grow and present additional opportunities
for foreign trade and investment. Official US economic assistance, which
averages $50 million annually is part of the extensive foreign aid provided
through the consultative group chaired by the World Bank. (Totaling over
$400 million in 1975.) Foreign private financing has provided larger sums
on normal commercial terms. The Philippines will continue to require outside
GERALA FORD THE
financing in similar or greater magnitude for some years to come if it is
to achieve its development goals. Awarness of this need is an important
factor in determining GOP economic policies. US willingness in providing
assistance can therefore serve both our economic and security interests
in the Philippines.
III. PHILIPPINE OBJECTIVES, NEEDS AND OPTIONS
A. Objectives and Needs
The developments, initiated by the US, which have most seriously
caused a reassessment of the US-Philippine alignment are: the Guam Doctrine
of 1969 in which former President Nixon made it clear that Washington sought
to share more of the security burden with its allies; the US opening with
China in 1972 which indicated that Washington was less concerned about
the Chinese threat than seeking to build a global balance of power; and
the 1973 Paris Agreement to withdraw forces from Indochina. For the
Government of the Philippines, the pressing need to reassess its relations
with the US came with the 1975 fall of the governments of South Vietnam and
Cambodia. The Filipinos see the Indochina debacle as a result of the US
Congress constraining the Chief Executive with the 1973 War Powers Act
and the refusal of Congress to continue to support with military aid the
struggle against Hanoi and its allies in Peking and Moscow. To adjust to
the realities of the new Asia, the Philippines wanted to become more
self-reliant in its defense capability, more accommodating to Chinese and
Soviet influence in the region, and more accommodating to its other Asian
neighbors. This meant a "loosened" US relationship.
GERALS
Not only was the U.S. security blanket no longer seen as a guarantee
in the Philippines' effort to provide for its own internal and external
security, but as Secretary of Foreign Affairs Carlos Romulo suggested in
July 1975, the U.S. relationship was a hindrance to more cordial relations
with Asian countries.
The reassessment of US-Philippine ties was not precipitous. In
1965, as President Marcos was beginning his first term in office, he made
the following observations to the Philippine Congress about Philippine-US
relations:
"Our relations with the United States shall be maintained
on a basis of common ideas and interests, of mutual
respect and consideration. We are convinced that this
great nation would want nothing better than to see our
nation prosper in dignity and freedom."
By May 1975 the reassessment was becoming more operational. After
stressing that "national interest, not ideology" must dictate the Govern-
ment of the Philippines' relations with other states, President Marcos
listed the following foreign policy guidelines:
1. Enhance relations with ASEAN;
2. Normalize relations with communist countries;
3. Enhance closer identification with the Third World;
4. Continue beneficial relations with Japan;
5. Support the Arab cause in the Middle East and Palestine;
6. Continue efforts to find a new basis for maintaining the
healthy relationship with the U.S. in light of emerging
realities in Asia.
GERALD
1. ASEAN
Greater regional cooperation through ASEAN is inhibited not only
by the inability of the members to contributé significantly to regional
efforts but also by the unwillingness of the Philippines' neighbors
(particularly Malaysia) to put present suspicions and conflicts aside.
The ASEAN states view Philippine efforts toward regional cooperation as
selfishly motivated means for obtaining ASEAN assistance in the resolution of
problems stemming from the disputed claims to Sabah and the Muslim insurgency
in, the Southern Philippines.
The needs of the Filipinos for economic and military assistance
and external security guarantees will be met, if at all, by the US, not by
neighbors. Finally, with close links to the US, the Philippines will likely
be suspected of serving as the "front man" for Washington to influence
Southeast Asian designs. Filipino achievement of an "Asian identity"
through ASEAN appears highly unlikely at this time.
2. Communist Countries
The Marcos scheme to normalize relations with the communist states
is nearly complete. While formal relations with the Soviet Union are not
yet established active: negotiations are reportedly continuing to this end.
Formal ties are already established with Peking. When Manila will recognize
Hanoi and/or Saigon remains an open question. The Philippines has publicly
suggested that Hanoi be invited to join ASEAN (although the invitation is
unlikely to be accepted, to the great relief of Manila).
Philippine relations with the Soviet Union and the PRC are designed
primarily to enhance the îndependence of the Philippines and in part to
1030
GERALD
12
obtain whatever economic assistance either communist state might be
willing and able to exchange for Philippine exports. These relations
are also designed to balance off the two communist powers and to lessen
US influence. Marcos apparently is prepared to face the prospects
of enhanced "party to party contacts" between Moscow and PKP (Moscow-
oriented Philippine Communist Party) and between Peking and the CPP(M/L).
While desiring to maintain commercial ties with Taiwan, Manila
would like to diversify its oil resources by importing from China as
well as the Arab world as is now the case. In return, the Philippines can
provide timber, agricultural products and copper to meet some of Chinese
domestic needs. Of some concern, however, is the prospect. for the
control of Taiwan which lies a mere 400 miles from the northern Philippines.
Communist control of Taiwan could eventually represent a security threat
to Manila.
The Philippines may hope to diversify its exports of sugar to the
Soviet union in exchange for Philippine imports of cotton. While not
encouraging greater Soviet involvement in the region, the Philippines
recognizes the realities of Soviet capabilities vis-a-vis both China and
the US. Should the strategic Balance between the US and the Soviet Union
change in Moscow's favor or were the Soviet Union to gain access to Vietnam
port facilities, Manila would then perceive a threat not presently
apparent and would have to reassess relations with the Soviet Union.
3. Third World
Manila's efforts to identify with the Third World, with whom it
has both shared and conflicting interests, is part of an effort to realize
its own identity. However, the OPEC oil price increases have hurt the
is
FURD
Philippines significantly, and it could be threatened further by an Arab,
GERALD
73
oil embargo if the Muslim problem in the Southern Philippines is not
settled "correctly." Manila is, nevertheless, intrigued by the apparent
successes of some Third World countries in using the oil weapon.
Philippine desires to identify with the Third World are
inhibited by the historic relationship with the US and awareness of the
benefits of a close link to US security and economic assistance. Manila
also must be conscious of the fact that visions of grandeur through a
sugar or copper cartel have at best limited prospects for success.
4. Japan
The memory of Japanese occupation during World War II inhibits
Philippine relations with Japan. Japan's political and economic
activities are suspect through much of Southeast Asia. Barring any
major shift in US or Japanese policy, Manila-Tokyo relations will improve
slowly. Japan has the necessary capital and technology to aid the
Philippines, and it serves today as Manila's principal trading partner.
However, bilateral economic arrangements are concluded under lingering
Philippine suspicions. As Marcos noted in 1966, "there will come a time
when Japan has to rearm." Before that time comes, the Philippines hopes
to have realized significant economic benefits through its relations with
Japan, although it is wary of an economic association which eventually
might be reinforced with military and political power.
GERALD FORE
5. Arab World
The Marcos pledge to support the Arab cause in the Middle East is
clearly an effort to obtain Arab sympathy for Manila's view of its Muslim
insurgency in Hindanao. Ironically, the same Arab formula for the parti-
tioning of Israel is one which has been advanced as a solution to the
Philippine problem between Christians and Muslims. The formula is to create
a separate Muslim state, which might eventually merge with the disputed and
rebellious Malaysian state of Sabah.
6. United States
Marcos' efforts to develop more healthy or "correct and proper"
relations with the United States, while last in priority in the May address,
is of utmost concern to his administration. In this regard the Philippines
seeks: greater sovereignty over present US bases in the Philippines; a greater
economic advantage, possibly through rental levies on the bases; a more
decisive US security guarantee; a continuation of some special trade preferences
previously realized under the Laurel-Langley Agreement; continued economic and
military assistance; and a greater appreciation Бу the US of the Philippines'
domestic and international needs.
B. Philippine Options
The Philippines has three basic policy options:
1. It could attempt to persuade the US to recommit itself to the
independence, viability, and security of the Philippines through a strengthened
mutual security agreement;
1030
GERALD
2. Conversely, the Philippines could sever all "special arrange-
ments" with the US, including economic and military arrangements, and
adopt a neutralist posture; and
3. The Philippines could seek an adjustment to "correct and
proper" links with Washington in which it could assume a more independent
foreign policy, yet continue to advance their mutual interests.
The first two options appear as "straw men," Neither Philippine
nor American politics would permit a return to an era of Washington sovereignty
over the foreign policy of the Philippines. Nationalism in Asia has become
too much a part of the landscape to permit the reîmposition of a neo-colonial
relationship. Further, affairs in the Philippines have become so linked on
a bilateral basis with other states that it would be impossible for the US
to try to overturn the present pattern of economic and political relations
so as to return to a previous mode of US-Philippine relations.
Finally, the first option is unrealistic because the American Congress
is unlikely to seek closer identification with a state into which the US
might be drawn as part of a domestic insurgency, and which has diverged from
the democratic model which heretofore justified America's contribution.
The second option, that of severing all "special arrangements" and
adopting a policy of armed or relatively armed neutrality, is even less
likely. Manila cannot meet its security needs without US economic and military
support and the US commitment to the defense of the Philippines. Without some
US presence the Philippines would become more susceptible to Soviet and/or
Chinese influence.
1030
THALD a FORD LIBERST
For the foreseeable future the Philippines needs the US and,
despite their "pinpricks" at American installations, most Filipinos realize
that the "special relationship" continues to provide Benefits.
The US military bases of Subic and Clark are significant in
Philippine domestic considerations. These bases employ 40,000 Filipinos.
Ifithe US were to pull out, the economic dislocation to a large segment
of the Central Luzon population would be considerable. Unless Manila is
able to utilize the base facilities in its own regional development, the
economic and social impact on the nation would be adverse. Estimated
annual dollar expenditures by Americans assigned to these facilities range
from $150 million. to $200 million. It is unlikely that the government would
be able to obtain these significant foreign earnings through other uses of
the land, especially within the next ten days.
Accordingly, it is along the middle range of the spectrum, between
severed and enhanced relations with the US, that the Philippines must seek
its Asian identity.
IV. PHILIPPINE CAPABILITIES
The factors most directly relevant to the capacity of the Philippines
to "survive" are: the current internal security problems; the nature of
and future prospects for the Marcos martial law regime; and the economic
factors which have become of increasing concern to Manila as US economic
guarantees have lapsed.
GERALD FORD
-
17
A. Internal Security Problems
Current internal security problems in the Philippines are represented
by "Maoist" new Peoples' Army (NPA) and the significant Muslim insurgency
in the southern provinces. The NPA is the military arm of the Communist
Party of the Philippines, Marxist-Leninist branch. A modern version of
the Huks, communist insurgents- in the 1950s, the NPA has conducted
insurgent activities throughout much of Luzon and to a limited extent
in the Visayan Islands. The NPA is at present not a major threat to
overall political stability, and if present armed forces are freed
from the south, Manila could even more readily cope with the NPA.
The "southern problem," as it is often referred to by Filipinos,
is the strife between Muslims and Christians in Mindanao, and it is of
considerable concern to the government. Descendants of the Moros, who
remained ungovernable under both the Spanish and American colonial
administrators, are presently embroiled in a conflict centering on disputes
over land titles, maldistribution of resources and Muslim belief that the
Philippine Christian nation is attempting to absorb both their territory
and culture.
Martial law, which was designed in part to establish law and order
throughout the Philippines, provoked the present level of conflict to war-
like conditions. Specifically, the martial law program, which included à
decree to collect firearms, was perceived by the Muslims as a further
effort to restrict their way of life and to subordinate them to Manila.
The armed forces of the Philippines, sent to enforce the martial law
decrees and to provide for the security of all inhabitants in the southern
1030
LIVERSA GERALD ? FORD
98-
islands, has nearly 75% of its combat elements committed in the south.
Manila is constrained by the Muslim-Arab oil producers who have
threatened an oil embargo on the Philippines if the AFP initiates genocide-
like operations against the Muslims. Further, it is limited by its own
resources to both meet the political (autonomy) and economic (development)
demands of the Muslims. The US can do nothing to help the Manila govern-
ment solve this problem.
B. Martial Law
Jean Grassholtz noted in her 1974 Asia Survey article that the
Philippines entered a stage of "post-independent politics" in 1972 when
it began a restructuring of society away from its colonial pattern. Un-
like other developing states, the Philippines never went through a period
of instability; of trying out different constitutional faces; searching
for its own. When Philippine nationalism emerged earlier, it was coopted
by a native elite bent on collaboration with the Americans. When
independence came, the mode of politics was set and a truly Philippine
model was slow to develop within the American-imposed political structure.
Since 1972, however, the. Philippines, under Ferdinnand Marcos,
GENILD R. FORD
structured a new political process; a "new society" within the context of
The shattering of the "democratic tradition" in the Philippines,
despite certain economic and stability advantages, has and will continue
to inhibit Washington's close identification with the Marcos regime.
Fraser Committee hearings in July 1975 on the issue of human rights
in South Korea and the Philippines reflected the growing impact. of U.S.
domestic politics on its foreign policy. Unless there is movement towards
implementing the Philippines' 1973 constitution or reinstating the 1935
constitution, both of which provide a framework for democracy, Washington
will become increasingly identified with the current suspension of
certain democratic processes and human rights, despite U.S. public
announcements designed to encourage Marcos to reinstate a more open
political process.
The suspension of a constitutionally-based political process also
threatens future stabililty in the Philippines if Marcos is suddenly
removed from power. Further, the longer the political opposition remains
muted, the more uncertain are the prospects for a gradual return to
democratic practices. For American policymakers to project US-Philippine
relations beyond the immediate operational environment, it is necessary
that the "succession problem" in the Philippines be solved at the
earliest possible time. As with other issues, however, any solution
must come from within, and it must have mass support.
171 GELITO f. FORD LIBRANT
C. Economics
Since martial law there has been a sharp increase in the level of
economic and development activity in the Philippines. Increased domestic
output and an improvement in the external terms of trade resulted in a
10% plus increase in gross national income in 1973, compared to about 4% in
1972. The rate of unemployment remains quite high. Inflation neared 40%
in 1974 but in 19.75 is expected to be less than 10%. Despite uncertainties
and fluctuations in the international economy, growth momentum was maintained
in 1974 and 1975. Possible balance of payments difficulties, however, have
created some anxieties for 1976.
The government's record in introducing a number of needed social
and economic reforms has been impressive, particularly with respect to taxa-
tion, infrastructure development, customs administration, tariff revision
and the restructuring of banking and government organization. There have
been substantial efforts to improve agricultural productivity and improve
rural income, although resettlement programs, community development and land
reform have had only limited success.
The Philippines obtains 95% of its oil from the Middle East, notably
Saudi Arabia and Kuwait, and thus desires to diversify this dependency.
Manila spends $700 million per year in foreign exchange reserves to
meet energy needs. Unless the Philippines discovers oil deposits off
the southern islands, or until nuclear energy is available, Manila will
continue to pursue a foreign policy which maintains access to vital
foreign energy sources.
FORD is LIBRARY
Long term prospects for export growth are good for the Philippines.
They are well endowed with raw materials for export. Copper, nickel, timber,
coconuts, sugar, pineapples and bananas are a few of the important products.
The economy is diversified and has better prospects for expansion than the
one-or-two-crop economies of many "less developed" states. Prospects for
development of industrial exports are also good if investment needs can
be met.
It is this long term expectation, coupled with an enhanced law and
order situation, that underlies the basic confidence of international
creditors in the Philippine economy. Manila as a regional financial center
is also gaining increasing prominence.
D. External Security
The Armed Forces of the Philippines (AFP) are neither organized nor
equipped to provide for the Philippines' own external defense. Even prior
to the Japanese attack in 1941 it was recognized that the US would have to
provide for the defense of the Philippines. The symbolic representation of
the Philippines in the UN Force in Korea, however heroic, and Filipino pacifi-
cation efforts in Vietnam, tend to mask the fact that Philippine security
forces are only сараб1е of a limited internal security orientation.
Peace in Asia is the basis for Philippine security. Peace depends
both upon the intentions and capabilities of the actors in the region
and on the US ability to deter threats to the Philippines. Manila is
limited to maintaining its own political stability, containing its
insurgency, avoiding offensive moves (such as a reassertion of its claim
FORD & LIBRARY
22.
to Sabah which would provoke Malaysia) and soft-pedal its weak claim to
the Spratly Islands which, if pursued vigorously, might provoke China
or Hanoi.
V. FUTURE US-PHILIPPINE RELATIONS
A. General
The Philippines is likely to assess the utility of American
economic and military assistance as a "correct and proper" implicit
quid pro quo for continued US use of the bases. If, subsequently, a
less explicit set of agreements for the US defense commitment to the Philippines
permits the Filipinos to realize their potential through an Asian identity,
it is unlikely that US-Philippine relations will undergo more than a
change in form. Several factors will probably ensure that the transition
in US-Philippine relations over the course of the next few years may be
more form than substance:
1.. The US continues to value its access to base facilities in
the Philippînes. These bases enhance American capacity to maintain treaty
commitments to the Philippines, South Korea, Taiwan and Japan, to provide
a balance to Soviet and Chinese great power influence in the region and
to maintain flexibility in US presence within the entire Asian setting.
2.
The naval facilities at Subic Bay, for example, enable the
US to sustain its naval operations in the South China Sea and into the
Indian Ocean. The continuous surveillance of the vital sea lanes adjacent
to the Philippines and the forward deployment of US forces is enhanced
by these facilities. Finally, US civil and military communications
centers in the Philippines are important links in the American global
communication network.
GERALJ V.. FOHD LIBRAST
3.
It is possible for the Philippines to achieve an Asian
identity within a US security framework. Arrangements can be made which
will permit the US to continue its commitments to the Philippines and its
access to Philippine facilities without requiring the Philippines to abrogate
past agreements.
4.
Future mutually beneficial US-Philippine relations are
largely contingent upon the ability of the Philippine Government to resolve
its pressing Muslim insurgency, to meet its stated goals of social and
economic reform, and to institutionalize a political process which will per-
mit the future transfer of power in a constitutional manner.
5.
The close relationship of the two states has resulted
in a valuable reservoir of goodwill and understanding between the two
peoples. A Western tradition in domestic education and religion, a
Western-educated elite, the English language, all, however, lead to the
possibility for misperceptions, especially by Americans. Sensitive to
their personal relations, the US needs to recognize that Filipinos cannot
be taken for granted, nor should they be permitted to imagine that the
US is treating them other than as equals. Filipinos are well aware of
the differences in economic prosperity and political power between Manila
and Washington, but they may not be willing to have the relative dis-
parity between partners reflected in the US Government and American
approach to the Philippine Government and Filipino people. Day-to-day
contacts, especially between the sizeable American community in the
Philippines and their Filipino associates, will in the final analysis be
as much of a determinant of future US-Philippine relations as a willingness
of the two governments to cooperate with each other.
LIBRARY
DECLASSIFIE
B. Through the Remainder of the Century
It is reasonable to assume that present US interests in the
Philippines will remain for the next twenty-five years. Provided the
US is willing to maintain its Asian power status, American entry to the
region through the Philippines in exchange for a US guarantee to
Philippine security is a reasonable quid pro quo. The present military
profile of the Americans may be significantly reduced to a point at which
the US maintains only a permanent naval presence in Subic Bay. The Clark
Air Field complex may revert to complete Philippine utilization both as
a military and commercial facility, although access to the US for opera-
tions directly in support of Philippine security will more than likely be
accepted by Manila. Undoubtedly, a change in base utilization can be
expected between now and the expiration of the present base agreement in 1991.
The overall pattern of future US-Philippine relations will depend
upon the state of Philippine domestic affairs and the US public reaction
thereto. Continued growth of the insurgent cancer, coupled with economic
stagnation and political frustration, could lead the Filipinos to question
the benefits of association with the US. The American people on the other
hand, could also conclude that the junior partner has lost its attractive-
ness, thus nullifying the utility of the Washinton-Manila connection.
Should the US be called upon to spend an inordinate amount of scarce resources
to shore-up this former colony, the US Government may well decide to
develop more expeditiously secure basing facilities within the Pacific
Commonwealth of the Marianas.
GERAID ? FORD
D30
VI. POLICY RECOMMENDATIONS
A. Security
1. Base Negotiations. The US should be willing to make
concessions on non-essential aspects of the base arrangements which will
make the UStennants on Filipino bases. Such a move could preempt those
more nationalistic pressures against US use of base facilities. Opposition
elements to Marcos may eventually seek an alignment with the more liberal,
leftist groupings which were the most vocal against US occupancy of the
bases prior to martial law. If and when the opposition becomes less con-
strained, continued adherence to the form and structure of existing basing
arrangements may be perceived as American support of the martial law adminis-
tration.
2. MAP. The US should continue to support the modernization
of the Philippine Armed Forces with a MAP and FMS program for at least
the next three years and through FMS thereafter.
B. Economic
The US should support economic and social development within
Congressional imposed AID limits while encouraging the Philippines to
utilize multilateral forums (IMF, IBRD, GATT) to promote its own economic.
well-being. Such an approach may in turn enable the Philippines to be
accepted more as a developing Asian country instead of an American
protege, an image which has hindered its regional acceptance as well as its
self-identity. A free and open trade policy, with "Most Favored Nation"
BERAID FORD
26
CONFIDENTIAL
status with the US, should also encourage a more independent posture
which could redound to the development of a more diversified, yet
resilient export industry.
C. Cultural
The Filipinos obtained a unique American cultural and political
heritage, the Marcos Government martial law regime notwithstanding.
Americans and Filipinos should together seek to delineate the contributions
to and obstacles to the Philippine development process that have issued
from this heritage.
Filipinos worry about their Asian identity. Perhaps their best
interests and those of other Southeast Asian nations would be better
served if they all clearly understood the uniqueness of "the Filipino"
in Asia--not as an American "little Brown Brother" but as a Malayo-
Polynesian colonized first for 500 years by the Spanish and then for 48
years by the Americans. There is much that Americans and Filipinos can
do together and with other Asians to study Filipino culture in Asia--and
the fact that the first people in Southeast Asia to fight for freedom and
equality with Europeans were the Filipinos. The US and Philippine govern-
ments should explore the feasibility of support for such study either by
the governments, or more preferably, through encouragement of interests
and effort from private foundations or educational institutions.
FORD i LIBRARY
4. Thailand Faces the Future
(Ann. 7)
CONFIDENTAL
October 31, 1975
THAILAND FACES THE FUTURE*
I. INTRODUCTION: THE ENDING OF A SPECIAL RELATIONSHIP
The close alliance between the United States and Thailand lasted
from the early fifties until the collapse of American efforts in Indochina.
However reasonable in terms of the acute problems of the period, it
represented a deviation from the traditional policies of both countries.
There is now occurring a fundamental and far-reaching psychological change
in US-Thai relations. The process of change is incomplete and in the
spring of 1975 was highlighted by abrasive official exchanges and increasing
vocal anti-Americanism among student and political activists throughout
the land.
The causes of these changes are basically four in number. The first
and most immediate is the nature and scope of the collapse of American will
to sustain its Vietnamese and Cambodian allies and the overall failure of
American policies in Indochina. The second cause is internal political change
in Thailand itself which surfaced strongly in October 1973 when Thai students
sparked the overthrow of the military oligarchy and set in motion the latest
in a series of attempts to build a constitutional, responsive political
system of government in Thailand. A third cause is the American opening
with China which helped vitiate its policy of confrontation with communism
in Southeast Asia. The final cause of change in Thai-American relations is
related to the third and also to the fact that the overly-close relationship
*Annex 7.
FORD is LIBRARY GERALD
CONFIDENTIAL
1030
of the previous 25 years did not rest on an equivalent set of mutual
interests--identified and accepted by elements in Thai society outside of
the main group of clique leaders themselves. : Since the initial forces which
prompted this relationship have evaporated, the two states are groping for
policies which correspond with their present interests and which larger
numbers of their opinion and policymaking elite can and will support. An
ironic facet of this adjustment process is that the "special" relationship
between Thailand and the United States was always more perceivable in Bangkok
than in Washington.
The pressing problem of Thailand, however, is that the new adjustments
in its foreign policy and posture have to be made under highly unfavorable
conditions and may involve considerable concessions to communist powers
which will remain, in an ultimate sense, a threat to the entire present
structure and character of Thai society. This threat is particularly acute
for Thailand because of the insurgencies in North, Northeast and South
Thailand to which both communist China and North Vietnam provide considerable
support.
In addition, Thailand has long been unhappy with its Japanese and US
trade imbalances, and optimistically (perhaps naively[ sees in China a giant
new market close at hand. Thailand, however , may well Бе overestimating
China's potential as a trading partner.
Finally, whatever foreign policy course Thailand chooses will have
considerable impact on the structure of international politics in Southeast
Asia--particularly the future of ASEAN and its role in Asian regionalism.
ADVERIT GERALD F. FORD
1030
CONFIDENTING
New Realities Affecting Thai Foreign Policy
The Thais view the collapse of the twenty-year American effort to
prevent a communist takeover of Indochina as a major debacle. The United
States was unable to preserve the right of the peoples of Indochina to
choose their own future. What will or can it do to preserve Thailand's
options? The new realities the Thai face in the aftermath of communist
vîctory in Indochina can hardly be reassuring.
A. The Indochina Debacle
The North Vietnamese/Soviet/PRO political and psychological vic-
tory over American power and policy in Indochina shattered the 5edrock of
Thai foreign policy: the Thai-American "alliance." Thailand, in joining
SEATO with a special US commitment reinforced by the Rusk-Thanat Communique
of 1962, had tied its future to the will and intent of a foreign power in a
way unprecedented in Thai history. It is true that the Thai themselves
chose to enter this alliance.
I
Thai assistance was indispensable to US efforts against communist
aggression in Southeast Asia.
The Thai made their choice believing that the United States would
achieve its goals in Southeast Asia. America was the most powerful nation
on earth. Had not President Kennedy declared that "the enemy" should make
no mistake: America "would bear any burden, pay any price...?"
CONFIDENTIAL
FORD & LIBEARY GERALD
Ho Chi Minh's picture now hangs in the Presidential Palace in
Saigon. Tough Khmer communists rule Cambodia; the Hanoi-backed Pathet Lao
dominate Laos. The North Vietnamese, with massive, unfaltering Soviet aid
and considerable PRC assistance, demonstrated more staying power than the
most powerful nation on earth. They needed to win and did. Today, the
communist forces that dominate Thailand's Laotian and Cambodian borders
remember well from whence came the American planes opposing them in the past.
B. Vietnamese Power
The Vietnamese, directly or indirectly, will dominate Indochina.
Theirs is the strongest state in Southeast Asia:
1. The Vietnamese army, including former South Vietnamese
soldiers, the best of whom will be absorbed into it, is the largest most
battle-tested and Best-equipped force in Southeast Asia--in fact, one of
the best in the world.
2. The Vietnamese navy and air force are without peer in South-
east Asia. The navy in particular will enable the Vietnamese to play a
dominating role vis-a-vis other Southeast Asia states in the South China Sea
and the Gulf of Thailand. With its navy Vietnam will be able to extend
and protect its claim to fishing and oil resources in the South China Sea.
Conflict with Thailand and Cambodia over some of these resources seems
inevitable. Indeed, the Thais and Cambodians will also be competing for
these resources.
MEKALO R. FORD
DECLASSIFIED
3. The Vietnamese successes throughout Indochina against the
leader of the capitalist world has vindicated Vietnamese military and
political/psychological tactics and strategy. of revolutionary warfare.
4. Vietnam will have political stability and national discipline
unparalleled by any other Southeast Asian states. The current difficulties
with remnant ARVN military units in a few rural areas of South Vietnam cannot
last without outside support. The Lao Dong Party under North Vietnamese
control will eventually hold sway through the South just as it does in the
North.
5. Vietnam has a fairly strong resource base, and with the
Mekong Delta under Hanoi's control, can even become a major rice exporting
country--and economic competitor to Thailand in this field. The long war
forced Vietnamese of both the North and South to handle and maintain a vast
array of technologically-advanced equipment. The skilled labor force thus
created may have prepared Vietnam for a rapid industrial take-off if capital
is available and more rapid exploration of resources other than coal occurs.
These elements of strength do not, however, guarantee success. Communist.
states have nowhere shown great skill in mobilizing economic resources to
their fullest advantage. Failure to do so in Vietnam would, of course,
affect our current estimate of Vietnamese power--both within and outside
Vietnam.
6. Finally, the Vietnamese can continue to draw upon substantial
Soviet (and perhaps Chinese) assistance. Indeed, they even have considerable
political and moral support throughout the Third World. The long term con-
sequences of North Vietnam's victory have yet to be fully witnessed.
FORD
6-
C. American "Withdrawal"
For the Thai, American actions following the January signing of
the Paris accords in 1973 were for the most part enigmatic but were finally
seen in the spring of 1975 to be an abdication of responsibility and effec-
tive power in Southeast Asia. America appears as an uncertain, unreliable
nation, lacking a sense of purpose for which it will develop and sustain
alliances and other forms of cooperation with a small nation.
The Thai wish the truth were otherwise. They fear having to play
a power balance game with only the PRC, USSR and Hanoi, supported only by
their much weaker ASEAN associates. They need a strong non-communist leg
to pivot on as well.
What of the Thai-American "alliance?" American leaders have
spoken about continuing to honor commitments and remaining true to "allies
in Asia." But hardly any public notice and no discussion has taken place
concerning the nature and scope of American interests in and commitment to
Thailand or how those commitments might best be honored. US Congressional
and to a lesser extent State Department disenchantment with Southeast Asia
is obvious. Suddenly Thailand seems to stand alone, without reliable non-
communist moral, political and economic support in a period of fearful un-
certainty.
It is little wonder that the Thai at first seemed to have panicked
in their search for a new source of security. Much of the current vocal
anti-Americanism arises with leftist-oriented activists who resent past US
association with the previous military government. For other Thais 3 however,
LEALO FORD
DECL
there is a feeling of disappointment; with the end of their usefulness as
an American ally against communist expansion in Southeast Asia, they find
themselves seemingly discarded--written off along with Indochina.
gir
Some rationality has since returned. Thai-Chinese relations seem
to be off to a good start. The Thai Government in August 1975 announced that
an undisclosed number of American military advisors. would be permitted to
remain in Thailand after US forces are withdrawn. Though the Thai joined
the Filipinos in calling for a phase-out of SEATO, they have not renounced
the Manila Pact which is their only formal security link to the US.
The Thai do not want to join an anti-American crusade in South-
east Asia, but they have still not had much of an indication that the United
States wants to retain an active and close relationship with Thailand.
Apparent American insensitivity to the Thai plight and pique at Thai criti-
Gisms of the American presence in and policy toward Thailand will not make
it any easier for the Thai to deal with the PRC; the USSR or the Vietnamese.
Such pique and insensitivity will, however, eventually compromise the still
reasonable possibility for some continued US presence in Thailand and
thereby the prospects for maintaining a balance with rising communist
influence in Southeast Asia in the future.
FORD
D. Adjustments with Communists
Thailand must accept high risk no matter which way it turns be-
tween the Russians, Chinese or even the Vietnamese. Moreover, all three
of these states practice and seek to propagate and impose a political pro-
cess that threatens to destroy, directly or indirectly, the Thai social-
cultural-political system. The threat is not territorial rather it aims
right at the heart of the Thai way of life and national identity. The
Thai fame for diplomatic dexterity is derived from 19th Century balancing
of British imperialism expanding through Laos and Cambodia. The Thais
maintained their independence through a variety of concessions, including
some territory.
The central issue today is not necessarily the preservation of
Thai territory (although Hanoi may wish to include certain Northeastern Thai
provinces into an expanded Laos) but the preservation of the Thai social-
political system centering around the institution of the monarchy. This is
the nub of the Thai problem. The civilian and military elite who now run
Thailand may be signing their eventual death warrant if they belive that
competition between the DRV, the PRC and the USSR will reduce support from
these states to any communist efforts to destroy the present system. Thai
accept somewhat less risk in trying to develop a "working" relationship
with the PRC and could play them off; against the North Vietnamese. Success,
however, depends on (1) how sincere China is in its claims that it does not
seek "hegemony" in Southeast Asia; and (2) how intensely Hanoi decides to
push the northeast insurgency, thereby forcing competition with the Chinese.
CONFIDENTIA!
E. Insurgency
The Chinese are in a favorable position to exploit Chinese
minorities in Thailand
I
and also
(ats)
support insurgents in their efforts to compete with the Russians and
Vietnamese in Southeast Asia. The Vietnamese, too, can and do play a
major role in the Northeast Thai insurgency.
The Thai have active communist guerrillas in various areas on
virtually all borders.
50
At the very least, the
PRC and DRV can keep the insurgents active enough to continuously "bleed"
Thai efforts to achieve effective momentum in their economic, social and
political development programs.
The Thai elite are now trying to preserve the special character
and cohesiveness of the Thai institutions and values that enabled Thailand
to survive previous threats to its existence. This elite must now institute
and successfully manage a regenerative revolution that will bring greater
social and economic justice to the great majority of the Thai people.
The Thai leadership recognizes that strong domestic institutions provide
the best protection against subversion, as well as provide the sinews
against external aggression.
(
1,3
(a)(s)
FORD
-10-
CONFIRENTIAL
I
However much the Thai smile at the communist neighbors,
1.3
it is highly unlikely that any of them (except possibly the PRC) want
(ats-)
Thailand to become a truly successful, non-communist democracy in stark
contrast to communist Indochina. Certainly, the Communist Party of Thai-
land does not want to see a successful Thai democracy, and it will do all
it can to get outside support to keep up the insurgency--most especially
if the government begins to develop successful momentum toward partici-
patory government.
F. Internal Political Restructions
One of the most frustrating of all the new realities the Thai
must deal with is the fact that they are trying to restructure their
entire political process. The Thai are engaged in creating a viable
constitutional and responsible political system to replace the military-
dominated, clique-oriented political process the students overthrew in
October 1973. The "institutionalization" of their new processes and
systems, however, has hardly begun.
Thai foreign policy is no longer the personal preserve of a
few army and air force marshals.
I
1.3
(ats)
Thai academics, students, political activitst, parliamentarians, political
parties and other government agencies all aspire to some voice in defining
Thai foreign policy. Currently, the more leftist-oriented elements in all
GELANO FORD
U
these groups make the most noise, but Prime Minister Khukrit Pramot
appears capable of coping with them. Nevertheless, the sense of abandon-
ment created by the US debacle in Indochina, the new realities issuing
therefrom and the myriad of disparate pressure groups seeking a voice
in foreign policy does not give Thailand a stable domestic platform on
which to develop its options in Southeast Asia.
III. THAI FOREIGN POLICY OPTIONS AND OBJECTIVES
The primary Thai foreign policy problem is how to adjust to these
new realities in a way that will preserve the Thai Monarchy, their
Buddhist faith and basic Thai "way of life" under non-communist government.
A. Options
Thai foreign policy options are at least six in number with
some overlap in a few of the options.
1. Active Neutrality. Withdraw from SEATO, end active mili-
tary cooperation with the US. Remain active in ASEAN. Establish a
"cooperative" relationship with the PRC. Establish at least correct,
non-antagonistic relations with Hanoi. Accept limited expansion of Soviet
political presence. Continue to accept Japanese economic assistance as
well as increasingly limited US aid, but look more and more to multi-
lateral organizations.
2. Adopt an Active Pro-Peking Foreign Policy. While attempting
to retain a non-communist political system, seek Peking's support for
curbing any Vietnamese or Soviet interference in Thai foreign and domestic
FORD
THALD
1030
-12-
DECLASSIFIE
policy and reduction or cessation of all outside material support for
Thai insurgents. Cool relations with the US to the extent Peking thinks
is desirable.
3. Acquiesce to All Vietnamese Terms for Establishment of
Diplomatic Relations. Cut all ties to SEATO and the Manila Pact and
cease military cooperation with the US in any form. Follow Hanoi's lead
in foreign policy whenever necessary. Definitely avoid opposing Viet-
namese interests and activities in Southeast Asia. Lobby on Hanoi's
behalf in ASEAN and perhaps the UN. Accept on faith that the Vietnamese
will cease support for the Thai insurgents.
4. Seek An "Adjusted" But Continued Close Relationship
with the United States. Reduce if not eliminate US military presence,
but consider granting "reentry rights," Seek "correct" relations,
generally anti-Soviet in character, with Peking. Be prepared to establish
relations with Vietnam, but not on a capitulation basis. Make ASEAN a
major focus of attention and actively work to make it a politically effec-
tive force in Southeast Asia--with or without Hanoi, but certainly not
subservient to Hanoi.
5. Adopt a Pro-Soviet Posture but Not Actively Anti-Peking.
Keep Chinese and Vietnamese at arm's length and rely on Soviets to en-
courage cessation of Vietnamese support to the Thai insurgency. With-
draw from SEATO and the Manila Pact and end close relations with the US.
Remain in ASEAN, but generally inactive except where Soviet interests are
involved.
FORD
1030
6. Low Profile, Burmese-Style Neutralism. Retrench.
Antagonize no one, most especially the communists. Have only formal
relations with major powers; accept only limited assistance, if any.
Withdraw from SEATO and Manila Pact; become inactive in or withdraw from
ASEAN.
B. Thai Foreign Policy Objectives
1. Detente--Peaceful Coexistence with Communist States. A
common theme in all of these options is the clear rejection of any active
anti-communist effort in Thai foreign policy. The Thai will, within
reasonable limits, avoid antagonizing communist states in Asia--most
especially the North Vietnamese. They will try a policy of peaceful co-
existence. Thai relations with Laos and Cambodia will be tense, although
not intentionally antagonistic from the Thai side. Thailand may have an
easier time trying to normalize relations with Cambodia than Laos--
partly because Cambodia seems to be trying to tend to its own house first
and ultimately may be able to express its anti-Vietnamese feeling more
successfully than the Pathet Lao. Continued Pathet Lao and NVA support
to the northeast insurgency will remain a constant source of anxiety.
Burmese-style neutralism, however, is definitely not a
viable objective for Thailand. It has not helped Burma make much progress
on its economic and social development problems; it certainly seems out
of character for the Thai in any case. (What could be done with Bangkok's
luxury tourist hotels?)
FORD i 076839 LIBRARY
-14-
The best Thai option, therefore, seems to be a combina-
tion of options--A.1 and A.4 above--which might best be described as
active, selective neutralism. The Thai will attempt to reach "detente"
with communist states, but will try to "hedge their hopes" by retaining
a viable political and economic relationship with the United States
and working toward making ASEAN an active political fact of life. The
Thai will continue to expand relations with as many non-communist states
as possible, but seek a qualitative balance with them. They will try
to develop a cooperative relationship with the PRC, achieve "correct"
relations with the communist states in Indochina, but avoid a pro-Soviet
or Vietnamese policy that would risk raising the ire of the Chinese who
are in a better position than the Soviets to make life difficult for the
Thai through the insurgency or Chinese minorities. The Thai hope that
the Chinese will limit their material support to the Thai insurgency,
and encourage the Vietnamese to do the same. The Thai seem to recognize
that such expectations may not be realistic, but they have no choice.
The Chinese and Vietnamese will always retain the option to do whatever
they want with the "National Liberation" movement within Thailand.
3. ASEAN: Source of Political, Psychological and Economic
Security. Thai Ambassador to the United States, Anan Panyarachum,
speaking before the American Association for Asian Studies in April 1974,
stated that ASEAN must become a political fact of life in Asia. The
GELANIA R. FORD
J5
ASEAN states need to move more purposefully toward close political and
economic cooperation both within Southeast Asia and in larger world
bodies such as the UN. Thailand may now seek much closer working arrange-
ments with the ASEAN states, particularly within the ASEAN framework.
Thailand could seek strength in numbers and hope that her fellow ASEAN
states would all recognize that their best interests demand far closer
cooperation and interdependence than has been the case in the past.
Development of ASEAN into a political fact of life would greatly enhance
the prospects for retaining political integrity and long term security.
ASEAN's future and Thailand's participation therein, as well as its
"active neutrality," however, will be very much affected by the intentions
and actions of the major powers in Southeast Asia.
IV. THE INTENTIONS OF OTHERS: HANOI-PRC-USSR and JAPAN
A. Vietnam
The intentions of the Lao Dong Party and its Politburo in
Hanoi remain at this writing the major unknown in the future of inter-
state relations in Southeast Asia. As outlined above, Vietnamese political
and military strength is without parallel among the states of the region.
If Hanoi decides that ASEAN must not become a political fact of life that
compromises in any way Hanoi's potential preeminence, ASEAN's future
development will be difficult, if not impossible. The Vietnamese are not
likely to accept gracefully the prospect that ASEAN could become a more
viable political and economic entity than Indochina under the Lao Dong
Party.
i
FORD
CALD
-10-
The ASEAN states currently have no intention of an ASEAN
"confrontation" with Hanoi. They are toying with the idea that ASEAN
should include Vietnam, Laos and Cambodia. Once in Vietnam would, how-
ever, tend to try to dominate the organization. The Vietnamese might
try to move ASEAN toward the radical left in the Third World "campaign"
against the great powers. The Indonesians, the Filipinos and Lee Kuan Yew
in Singapore would not likely accept such Vietnamese politicking for
long and ASEAN would soon disintegrate.
Even from outside, however, Vietnam could try to seriously
impair ASEAN's future. Vietnam could attempt to play on Thailand's
fear of antagonizing her and try to pressure Thailand into a pro-Vietnam
posture that would at least inhibit full Thai participation in ASEAN.
Without Thai participation ASEAN would be measurably weaker than a
Vietnam-dominated Indochina.
In light of Khukrit's recent trip to Peking, however, and the
apparent successful establishment of friendly relations between Thailand
and China, the prospects for Vietnames meddling in Thai foreign affairs
seem less bright than they were wieh Saigon collapsed. In addition, the
other ASEAN members could also decide to challenge Vietnam and provide
full support to Thailand in order that Thailand might acquire sufficient
internal resiliency to stand and resist any Vietnamese political harrass-
ment. The prospects for some increased polarization of Southeast Asia,
nevertheless, seem high no matter what the PRC and the USSR intend to do
in the area.
FORD i LICAL
B. PRC
The PRC is primarily concerned with the possible expansion of
Soviet political if not military "presence" in Southeast Asia, and believes
such expansion will be inevitable if the US moves out entirely. However,
China is not likely to tolerate a higher level of influence for Vietnam
in Southeast Asia than China itself can obtain. Chinese-Vietnamese
hostility is likely to increase in the future, thus providing opportunities
for increased Soviet "activity." The PRC could, therefore, as its state-
ments during Khukrit's visit to Peking indicate, become a strong "neutral"
supporter of ASEAN and thereby help limit the regional influence of either
Hanoi or Moscow. The Thai expectations that the Chinese will not be too
demanding in dealing with Thailand and could support some Thai interests
in Southeast Asia are not entirely naive. Indeed, the Chinese themselves
seemed to go out of their way during Khukrit's visit to caution the Thai
about the dangers of being so concerned about wolves (the Americans) at
the front door that bears and tigers come in the back door (the Russians
and Vietnamese).
C. USSR
How deeply do the Soviets worry about the Chinese? How intent
are they on "containing China?" Is a potential military threat on China's
southern flank necessary and worth the risk of higher tension between
the PRC and the USSR should Soviet warships call at Cam Ranh Bay? Can
the Russions, by improving their political presence and relations with
FORD
ito
Thailand and other Southeast Asian states, limit Peking's influence in
the area without military risk? Currently, the Soviets are increasing
their activities in Laos and trying to expand their mission and activities
in Thailand. If they ever do intend to gain a toehold in Southeast Asia
the Soviet may wait until their political relations are stronger and
more "accepted." In the final analysis, the Chinese, through Chinese
minorities, insurgency and physical presence, are in a better position
to harm or help the ASEAN states. The PRC will not look kindly on any
attempts by Thailand to "cozy up to" the USSR. The Thai are aware of
this fact and are unlikely therefore to go beyond "correct" relations
with the Soviets. Nevertheless, PRC concern over the Soviets will affect
the nature of Peking's influence in Southeast Asia by requiring that
Peking treat its neighbors, such as Thailand, perhaps a bit more circum-
spectly.
D. Japan
The Japanese will remain primarily motivated by their economic
interests in Southeast Asia. They will, however, attempt to improve their
business image in each country. The Japanese remain a major source of non-
communist capital, and assistance and over the long run will still be more
welcome as a "neutral" source of economic assistance and investment than
any of the major communist states. Japanese trade relations and transit
routes through the region are vital to Japan's economic well-being. The
Japanese will sustain their economic activity in Southeast Asia, although.
THE
FORD
1030
they will "package" it more attractively and will cooperate more with
regional institutions such as ASEAN and the Asian Development Bank. In
Thailand, for example, the Japanese apparently intend to help the Thai
increase their exports into Japan. Japan has recently converted its
Trade Center (JETRO) into a "reverse trade" center.
VI. THAILAND AND THE UNITED STATES
The President and Secretary of State continue to reaffirm American
commitments in Asia. The United States has no intention of withdrawing
its support to its Asian allies. Curiously, public declaratory state-
ments rarely mention Thailand. There have been a number of low key actions
by the US that demonstrate the sincerity of American interests in and
support for Thailand. The Thai, however, know that most members of the
American Congress are indifferent to Thailand and seem to lump it with
the "it shouldn't have happened disaster" in Indochina. Since Indochina,
the President's words reach Asia's skeptical leaders only when they have
strongly-expressed Congressional support.
Finally, there is lacking a clear definition of a creative, long term
American purpose in or toward Asia. The need to reassess American
interests and options after Vietnam explains the current uncertainly in
American policy. Even if the US spells out its interests and commitments
in Southeast Asia and gains firm US Congressional support for them, the
Thai have no choice but to try to make the best deal they can with those
who currently pose the major external threats to Thailand's national
integrity.
i
FORD
gilo
20
CONFIDENTIAL
An American Opportunity
Because of the nature of its relationship with Thailand since the
end of World War II, the US has acquired some responsibility concerning
Thailand's future. The responsibility continues regardless of the out-
come of America's Indochina involvement. The responsibility is a subtle
one, bordering on a debt of honor for Thai willingness to permit the
United States to bases so many of its Indochina-oriented operations on
Thai soil. An honorable great power should not forget such an obli-
gation.
But beyond whatever "obligation" the US might have toward the Thai
people for the easements that their erstwhile
give
leaders made with us, there are other US relationships with Thailand
which should place US ties with Thailand in a special category. These
relate to the preponderant role which the US has played in the moderni-
zation of Thailand in the past quarter of a century. In many ways the
interaction the United States has experienced with Thailand approximates
that which the country has had with the Philippines and South Korea.
The past quarter of a century of intimate and many-sided mutual
cooperation between Thailand and the United States has helped bring about
considerable transformation in Thailand's economic structure and has
introduced a variety of social and political changes, particularly in
urban areas. Much of Thailand's hydroelectric power, major port
facilities, airports and its major road networks throughout the Kingdom
CONFIDENTIAL
FURL & CITYZO LIEBERY
1930
are a direct result of American assistance. In the field of institutional
development, American assistance played a major role in establishment
of the Thai Bureau of the Budget, the National Institute of Development
Administration and the District Officer's Academy. The American economic
assistance program has provided training in the US and third countries
for over 10,000 Thai. The military aid program has trained another
14,000 Thai military officers. Private American foundations (Ford, Asian
and Rockefeller) and private business have also added considerably to
Thailand's pool of skilled manpower--which numbers in the hundreds of
thousands if one included those Thai who have worked for and been trained
by American military forces, government agencies and private industry in
Thailand.
Many of the Thai academics and student leaders who played leading
roles in the October 1973 uprising and the organization of new political
activist, labor groups and political parties since then had come to the
United States to study during the 1960s and early 1970s. As a final
example, all four of the new members of the Board of Governors of the
Bank of Thailand received their PhDs in the United States.
The United States has, in effect, played the leading role in training
the rising generation of Thai leaders, who are about to run the country
if they are not swept aside by communist revolutionaries. They should be
given the chance to reform the old Thai bureaucratic political system
HERALD
1030
and bring about a more performance-oriented, constitutionally based,
responsive social and political order with the overall support of an
enlightened Thai Monarchy.
In recent years, the tempo of the Thai internal evolution has never
been faster. In part this can be traced to the considerable infusion of
American and other Western ideals into the Thai social-political structure.
It was not accidental that the motto of the October 1973 revolution was
Lincoln's "of the people, by the people, for the people." The US
cannot gracefully abandon a people whose coming leadership has so acknow-
ledged the potential relevance of some of our ideals to their development
needs.
i
FORL
GERALD
030
23
CONFIDENTIAL
POLICY RECOMMENDATIONS
The United States should reaffirm its devotion to its ideals by helping
to assure their survival in a beleaguered country which in its own way is
trying to put them into practice.
Specifically, the US should:
A. Continue to withdraw its combat forces from Thailand, but not
faster than the Thai themselves desire.
B. Continue to maintain some American military advisors and a
modest MAP and FMS program to help reorient and enhance the Royal Thai Army
and police forces' capacity to combat insurgency.
C.
D. Remain flexible on termination date for US agriculture and popu-
lation programs in Thailand. The US should explore with the Thai the feasi-
bility of closer cooperation in these areas with additional assistance pro-
grams from Australia, the Republic of China (despite termination of diplo-
matic relations) and Japan. It is entirely possible that opportunities
exist for new efforts (or even resurrection of some past efforts) in rural
development programs that did not exist under the political-social con-
ditions prior to October 1973. US and Thai economic and social development
planners have since October 1973 engaged in little sustained two-way
1030
GERALD FORD
24
dialogue on the relationship between political and economic development
and how the political and social changes now underway in Thailand either
open new opportunities or frustrate more rapid and equitable economic
progress for all the people of Thailand.
The US Government should reconsider with the Thai Government the
overall development needs of Thailand and how international consortia
might best assist the Thai to meet these needs. (See Economic Appendix.)
The US could take the lead in trying to obtain funds through these con-
sortia for Thailand.
E. Try to find a way to develop an informal dialogue between US
Congressmen and Thai Parliamentarians that could perhaps lay the founda-
tion for a new Thai-American relationship that does not rely on a US
military presence in Thailand or even extensive economic assistance pro-
grams. The US Executive Branch would not involve itself directly in a
US Congress-Thai Parliament dialogue. The purpose of such a dialogue,
however, would be to:
1. Explore Thai perceptions of the precise role the United
States can usefully play in Southeast Asia, how Thailand fits into the
political/security balance in Southeast Asia and what the Thai on their
own are prepared to do to help the US play the role they belive it should.
2. Understand the current status and direction of political,
social and economic change in Thailand and the nature of US interest
therein; and
GENALO H. FORD
1030
25
DECL
CONFIDENTIAL
3. Define precisely the nature and scope of social, economic
and military assistance the US might render Thailand over the next 3-5
years.
The benefits of this approach go beyond the development of a
basis for a more clearly thought out assistance program that really helps the
Thai Government reach the common man in Thailand. A Thai Parliament-US
Congress dialogue would also:
1. Encourage the Thai to continue their "peaceful political
revolution" and thereby help increase the Thai military's tolerance for
the newly emerging political process.
2. Assure the Thai that even though American forces will not
be used in Thailand, the United States does consider Thailand's political
and territorial integrity important and worth assistance by other means.
Thailand will not be left standing alone against the potential and sub-
versive threat of North Vietnam.
3. Establish the basis for a continuing but more creative
political and psychological "presence" in Southeast Asia that does not
necessarily depend on a military presence or military bases.
FORD it LIBRARY
CONFIDENTIAL
5. Indonesia: Great Expecta-
tions (Ann. 8)
CONTHIENTAL
October: 31, 1.475
INDONESIA: GREAT EXPECTATIONS*
A. Indonesia's Role in Southeast Asia
Much has been said and written about Indonesia's potential as a
regional leader, and many contend that it is the natural counter to an
increasingly powerful and potentially aggressive Hanoi. In view of the
significance attached to Indonesia, this paper seeks to examine the
factors which create such expectations, as well as those which may hinder
their realization.
Indonesia is the largest and most populous country in Southeast Asia,
encompassing about half of the region's population and ranking as the fifth
most populated çountry in the world. It is an archipelago nation composed
of more than 13,000 islands, stretching over 3,000 miles along the Equator
from mainland Southeast Asia to Australia and Papua New Guinea. In
addition, the archipelago sits astride the vital air and sea routes between
the Pacific and Indian Oceans. Along with its strategic location and
population, Indonesia has a wealth of natural resources, not the least of
which is oil.
For these and many other reasons, it is natural to look upon Indonesia
as the future leader of non-communist Southeast Asia. Indonesia has played
a prominent role in the development of regional consciousness, and it
continues to have significant though not dominant influence among the non-
communist nations of the area. Jakarta undoubtedly aspires to a more clear-
cut position of leadership, but is fully conscious that this is a sensitive
*Annex 8.
FCRD
07.13.
CONFIDENTIAL
LIBIAST
-2-
issue with its neighbors, dating back to Sukarno days.
Nevertheless, Indonesia is exceedingly active in seeking to achieve
regional stability, for it views such stability as having a direct effect
on Indonesia's development. It has, moreover, worked out a fairly specific
idea of how it wishes the area to develop.
Jakarta proclaims a position of non-alignment and sees this as the
eventual goal for most of the region. This version of non-alignment is
not, however, doctrinaire in the usual Third World sense, but has instead
provided a cloak of Third World respectability which allows Indonesia to
pursue independent policies which often have been in line with US interests.
The communist victories in Indochina have significantly heightened
the urgency which Indonesia places upon the development of regional cohesion
in Southeast Asia and the growth of political, economic and (largely behind
the scenes) military cooperation among the non-communist states of the area.
The speed with which the communist victories took place upset the Suharto
Government's calculations that they still had some years to develop their
internal strength before confronting, if they must, a successful Hanoi.
Working particularly through ASEAN, the five-member Association of South-
east Asian Nations, Indonesia seeks the emergence of a group of states
which eventually will be strong enough militarily, economically and
politically both to prevent outside interference in the affairs of the
region and to allow Southeast Asia, particularly Indonesia, to pursue an
independent, self-reliant future.
The Indonesians know that this goal is not yet at hand. For the
present Jakarta hopes to see the maintenance of a balance of the major
forces in the area--the US, Japan, USSR and China-- which would preclude
the dominance of any one (particularly the PRC) and would allow the regional
FCED
nations time to adjust to the changes in Indochina and to strengthen their
own positions. For the present Jakarta sees China as the primary external
threat, with the USSR and Japan as potential meddlers in the region.
B. Communist Powers in Southeast Asia
Of particular significance are Indonesia's perceptions of the current
play of forces in Southeast Asia. While Indonesia does not at this time
anticipate a direct overt threat from any of the communist powers, including
Hanoi, it is concerned about possible increased subversion and support to
existing or potential insurgency movements in various ASEAN countries,
particularly in Malaysia and Thailand. The main thrust of policy adjustment
for Indonesia is not so much to placate the communist countries, as is the
case with its more exposed neighbors, than it is to place even greater
stress than in the past on the concept of "national resilience" (the mobili-
zation and utilization of the nations' own resources in the defense of
its interests), and to take precautions against possible flow of arms and
agents from Indochina to Indonesia.
Indonesia has relations with Hanoi which, as in the case of Pyongyang,
have continued uninterrupted since the Sukarno era. In contrast to
Thailand and the Philippines, it is not pressing to reestablish relations
with Peking, although there appears to be a split in the Indonesian leader-
ship on this issue that dates back several years. Foreign Minister Malik
believes that Indonesia should proceed to reestablish relations with
China, while a number of key Indonesian military leaders reportedly
remain firmly opposed. Indochina developments may be a factor in Malik's
renewing the question at this time, but his position is believed to be
based more on the changed Chinese posture of the last few years, PRC entry
into the UN and Chinese detente with the United States. Longstanding,
FORD
xenophobic feelings toward the Chinese are likely to prevail for the
foreseeable future.
As for the USSR, Indonesia, and Malik in particular, has sought in
the last year to improve relations with the Soviet Union and Eastern
Europe, partly as a means of eliciting an alternative source of aid and
partly reflecting multi-power diplomacy. In this Indonesia has had some
success, as the Soviets have promised to restore certain of their long-
disbanded aid projects. However, the Soviets continue to have no real
entree to Indonesia and will be allowed a limited role only to the degree
that it suits Indonesian convenience, and that will be within severe
limitations and with great suspicion.
In short, Indonesia will hold both major communist powers at arms
length and will view Hanoi with suspicion and reservation whatever its
declaratory policies may be. It will seek to play off the communist
powers against each other and will provide little room to any of them to
exert significant influence. The two major communist powers will include
Indonesia in their state-to-state courting activities, but less strongly
than in more favorable terrain, and will maintain a cool or correct friend-
ship with Indonesia as a balance against the other. The major power
equation as it involves the communist countries is hence of secondary
consideration, although the Indonesians may attempt to raise its importance
in conversations with the US officials for obvious reasons of national
self-interest.
C.
The Role of ASEAN
The current primary vehicle for Jakarta's regional aspirations is
embodied in the Association of Southeast Asian Nations (ASEAN). Following
FORD
F330
the Indochina War, Indonesia has been a leading spokesman in favor of
strengthening ASEAN's "regional resilience" and has attempted to promote,
through the organization, a Southeast Asian bloc with sufficient internal
cohesion to discourage outside interference fostered by the potential
threat of Hanoi and by the clash of great power interests.
There is considerable debate among Indonesia watchers as to the impor-
tance the Indonesian leadership attaches to ASEAN. Some argue that
Indonesia's interest in ASEAN goes only as far as its usefulness to
Jakarta, but in reality this statement could be made about all ASEAN
members whose national interests are of primary concern. The argument is
put forward that the military leaders in Indonesia, with whom decision-
making power rests, do not support ASEAN as enthusiastically as officials
within the civilian government and would drop out of the organization
should it entangle their interests to the point that their choices become
limited. Here again, however, this same attitude applies to the other
member nations.
What is most significant regarding ASEAN is that, since the spring of
1975, its solidarity is looked upon by all the member nations as a necessity
for stability in the region. Indonesia is no exception in this instance,
and its leadership comprehends perhaps more than most the urgency with
which the ASEAN nations must create a sense of unity and collaboration
which, combined with a balance of the great powers, appears to Jakarta to
be the best possibility for at least short-term regional stability.
There is disagreement as to whether or not Jakarta desires the
eventual membership of Indochina and Burma into ASEAN. If, as some claim,
Indonesia perceives no territorial threat from Hanoi and believes that
rund
Hanoi would peacefully join the Southeast Asia community, this view is
acceptable. However, some argue that the Army leaders perceive a threat
from Hanoi and envision Southeast Asia divided into two core groups,
with Indonesia leading one and Hanoi the other. Still others insist that
Indonesia looks upon ASEAN as a potential military force in the region.
The varied viewpoints with regard to decision-making in Indonesia reflect
the complexities of its power structure, and perceptions of the goals and
priorities set by Jakarta are subject to much debate. However, it seems
apparent that ASEAN's potential, for whatever purpose they choose for
it, will remain a primary target of Indonesian foreign policymakers in
the foreseeable future.
D. Indonesian Non-Alignment
As a charter member of the non-aligned group, Indonesia has made
independence in international affairs a mainstay of its foreign policy.
Nevertheless, since Suharto took power in 1966 Indonesia has been more
sympathetic to the western point of view while maintaining correct but
rather formal relations with the USSR and ending all diplomatic contact
with the PRC. It has been helpful to the US in a number of international
matters; its membership in the Vietnam ICCS, its troop contribution to
the Middle East UNEF, its attempt to preserve the seat of the former
Lon Nol government at the 1974 UN General Assembly, and various other
actions.
Within the Third World, the Government of Indonesia has adopted
moderate, non-confrontational positions. Indonesia continues to set great
store by its non-aligned status, which occasionally leads it to adopt
positions opposed by the US. Indonesia's stand on North-South economic
FUND
ASSIFIED
relations and the proposal for a New International Economic Order (NIEO)
is moderate; it does not wish to alienate the US, Japan and Western
Europe, but it remains skeptical about how far the US is willing to go
in meeting what the Indonesians construe to be the legitimate demands
of the Third World. It perceives positive advantages to be gained from
commodity agreements or other mechanisms to transfer capital to the LDCs,
but is cautious to avoid a negative reaction among its aid donors.
In the face of the spring 1975 Indochina events, Indonesia sees the
need and importance of a continued, though not necessarily permanent, US
presence in the area. This presence may be a modified one in comparison
to the past role, as for example in terms of the number and extent of US
bases in the area. Jakarta undoubtedly looks to the US as the most
acceptable and least threatening of the major powers in Southeast Asia.
E. The Recent Past
Following a pattern familiar in newly independent countries, Indonesia's
post-independence experiment with parliamentary democracy in the 1950s
gave way late in the decade to Sukarno's authoritarian rule. Under Sukarno
the pursuit of Indonesian objectives became progressively more belligerent
and anti-West. The strident campaign to take over West Irian was followed
by the even more disruptive confrontation against Malaysia which culminated
in Indonesian withdrawal from the UN. Dutch, British and finally American
holdings were nationalized. Meanwhile Sukarno's aspirations to Third
World leadership contributed still further to anti-western postures and
to increasingly close identification with Moscow and Peking, particularly
the latter.
The Army displaced Sukarno following the unsuccessful left-wing coup
attempt of 1965, and the Indonesian Communist Party (PKI) was shattered
in the late 1965, early 1966 upheavals when hundreds of thousands were
killed or imprisoned.
General Suharto took over from the discredited Sukarno with the
support of most major elements of Indonesian society, as well as with the
(essential) backing of the Army. Sukarno's foray into Third World leader-
ship took a tremendous toll on all aspects of Indonesia, particularly its
economic condition, which he had virtually ignored. President Suharto
immediately set about to correct matters. His government reversed the
direction of foreign policy, dropped confrontation and posturing on the
international stage, rejoined the UN, repaired its relations with the
US and the West, and turned to the West for relief from the burden of
massive foreign indebtedness and for economic aid to restore Indonesia's
shaken economy. Domestically, it gave first priority to development and
to restructuring the Indonesian political system.
The Suharto government's economic policies were strikingly success-
ful during the early years. The economy was stabilized, rampant inflation
brought under control, massive foreign aid attracted, and a sizeable
increase in the GNP achieved through well-conceived development plans.
Despite its domination by the military, the regime exercised a marked
restraint in military expenditures. The regime's achievements, plus its
moderate and cooperative foreign policy, created an impression abroad of
Indonesia as pretty much a model developing country. As with other
developing countries, however, the problems of management have duplicated
at a rapid pace, and a reordering of priorities has become a necessity.
T. FURC
F. Prospects for Internal Stability
While Indonesia has a multitude of strengths that distinguish it from
the defeated Indochina regimes, a complex of severe socio-economic and
political problems threaten in the longer run to erode the country's
present stability. Population pressure is the most intractable of these
threats, with Java's 80 million people already as densely crowded as
almost any on earth. Administrative inadequacies and a severe shortage
of skills hamper attempts to overcome the resulting unemployment and
dislocation. Corruption, endemic in Indonesia at all levels, has been
increasing alarmingly and is progressively alienating former supporters
of the Suharto government. Reacting to its dwindling popularity, the
Government of Indonesia has adopted authoritarian practices that have further
narrowed its base. At present the Suharto Government remains firmly in
control; however, the future picture could be more ominous unless the
Government is able to carry out major reforms which significantly improve
the lot of its people.
Although Suharto's regime accomplished a great deal in improving
Indonesia's economic and political status following Sukarno's disastrous
reign, the policies pursued have not, as noted above, served to raise the
standard of living, particularly among the increasingly indigent population.
For example, planned projects for the next five years include such new
industries as a $1 billion copper mining complex that will employ about
600 workers, a $1 billion steel mill which may employ a few thousand, and
an Alcoa aluminum project costing approximately $1.25 billion which will
employ 2,000. Such planning is hardly responsive to the needs of a country
whose unemployment rate is approaching 40%. Priority has been given to
industrialization in a country which consists of an 80% rural population
and agriculture-related jobs are rapidly being taken over by machinery.
In fact, largely due to modernization within the agriculture and fishing
industries, the population trend is moving more toward the already over-
crowded Java cities, thereby adding to their population and unemploy-
ment woes. This situation is likely to increase prospects for restlessness
and lawlessness, which in turn may spur the Government toward stronger
authoritarian rule.
The most dramatic sign that all is not well with the Suharto regime
came in January 1974 with the Jakarta riots, triggered by the visit of
the Japanese Prime Minister. Paradoxically, Chinese merchants were a
major target of these riots. Shocked by this unexpected manifestation of
discontent, the regime reacted by jailing opponents and imposing further
restrictions on political expression.
Unless the Suharto Government is able to deal more effectively with
the immediate concerns of its population, it would not be illogical to
predict additional such protests of considerable magnitude, with a
potential for severe internal upheaval.
G. The Economy
Since 1968 the Indonesian economy has grown at about seven percent
annually. An inflation rate which had reached 640% in 1966 was stabilized
by 1968, although in recent years rice shortage and the effects of overseas
inflation have revived inflationary tendencies somewhat. Impressive
advances were realized during Indonesia's first Five-Year Plan (1968-1973):
the mining sector, led by petroleum, grew by 180%, the manufacturing sector
by 67%, construction by 180%, transportation by 80%, and trade by 77%.
While these sectors constitute 48% of the GNP, they employ only 21%
of the work force. The agricultural sector, comprising 40% of the GNP
1930
ASSIPIED
and 60% of the labor force, grew only 14%. Taking into account population
growth of 11-13% during the Plan period, this constituted essentially no
growth.
The Suharto regime has taken a positive approach to population
planning, and (along with foreign aid donors) has vigorously supported
programs in family planning that give promise of favorable results in
several areas. When the magnitude of the problem is considered, however,
it is obvious that the surface has barely been scratched. Demographers
still foresee the possible doubling of the populations of already grossly
overcrowded Java, Madura and Bali by the year 2000, to 150-160 million
people out of a total of 225-230 million.
Although agricultural output has increased with government-subsidized
inputs, Indonesia must still import a substantial quantity of its staple
food, rice, 240,000 tons of which are scheduled to be imported in FY 1975-76
to help meet a projected consumption of about 17 million tons. Estate
agriculture, especially many of the former Dutch rubber and sugar estates,
is still being rehabilitated. The Indonesian Government has a good
agricultural development plan, but it will be necessary to place even
greater emphasis on food production in an effort to become self-sufficient.
The role of outside investors in Indonesian rice plantations is signifi-
cant to this effort.
A commendable start has been made by the Suharto regime in restor-
ing and improving infrastructure, in determining the extent of Indonesia's
mineral resources, and in exploring and developing them. These projects
are capital intensive, however, and many of them are situated in the
outer islands. While they will ultimately and indirectly benefit the
FURU
whole Indonesian people, their immediate impact on the under-employment
1930
-72
problem and on the daily lives of the majority on Java, Madura and
Bali is slight.
Unlike other countries suffering from monumental problems of
development in an environment of mass poverty and population pressure,
Indonesia does have a major asset; oil. The increase in crude oil
prices in January 1, 1974 opened the prospects for major new financial
resources which the Government could apply to an accelerated attack
on its domestic problems. Subsequent events, however, have somewhat
reduced the magnitude of the anticipated windfall. Doubt is beginning
to emerge that the Government will reach its 1979 production target
of 2 million barrels per day, let alone the 3.0 million optimistically
forecast by government officials last year. Meanwhile, new oil dis-
coveries are counter-balanced by declining output from the Central
Sumatra fields which still account for most of Indonesia's production.
Greatly complicating Indonesia's developmental efforts is the
continuing lack of managerial talent. Despite numerous training
programs intended to foster the growth of indigenous enterpreneurs and
managers, much-needed skills are still lost because trained personnel
are more often placed in high status, paper-shuffling jobs than in
jobs dealing with practical needs. Most educated Indonesians see
education as the pathway to the government bureaucracy, traditionally
regarded as infinitely preferable to a job even vaguely associated
with blue collar or agricultural labor. These cultural biases rein-
force a more fundamental problem that Indonesian education has been
unable to overcome; the lack of sense of civic responsibility among
FCh
Indonesians at all levels of society. This expresses itself in
nive
innumerable ways--from petty to grand corruption, from job irresponsi-
bility to prodigal waste of natural resources. from a cavalier attitude
by the elita trward the miseries wt the: Podr, to: the shortsightedness
of the poor with regard to their common plight. These attitudes
constitute major obstacles to successful economic and political
development.
H. The Pertamina Problem
Until March of this year, the Suharto Government generally
permitted Indonesia's economic development to be planned and executed
from two centers--from Pertamina, the state oil enterprise for the
oil sector, and from the Ministry of Planning for all other sectors.
This natural but uncoordinated division of economic planning and
implementation resulted largely because of President Suharto's high
confidence in the exceptional business talents of Pertamina's president-
director, Lt. Gen. Ibnu Sutowo.
In 1972 and increasingly in 1973, General Sutowo believed that
the time had come to use Pertamina's higher revenues to develop some
of the many new investment opportunities opening up in the oil sector.
Moreover, President Suharto and other. senior government officials,
chafing under their own budgetary constraints, started nudging
Pertamina into major responsibilities outside the oil sector, such
as the resuscitation of the abandoned Soviet steel mill project.
To seize the opportunities it believed were opening up and to
discharge the peripheral tasks thrust upon it, Pertamina evaded the
provisions of the IMF Stand-by Agreement which limited its medium-term
foreign borrowing (1-15 years). Unwisely, Pertamina obtained large amounts
of short-term credit to finance projects which would not yield their
projected revenues for many years, apparently with the unwritten
understanding of the foreign bank lenders that these credits could be
john
1030
34
rolled over anmily fct tine sinde "fucure When some of the foreign
banks refused in late 1974 to renew their one-year loans, Pertamina
suddenly found itself in a liquidity crisis.
In February, Pertamina defaulted on at least two foreign bank syndi-
cations totalling $100 million. This news quickly threatened the Indonesian
Government's own ability to borrow from these banks. In addition, by
March 1975 Pertamina had failed to pass along to the Indonesian treasury
about $800 million in foreign oil company revenues; perhaps 20% of the
anticipated budget revenues for 1974/75.
These danger signals finally caused President Suharto to take
corrective action. The Central Bank of Indonesia informed foreign bankers
privately and publicly that while it was not assuming or guaranteeing
Pertamina's debts, it would insure that Pertamina had the funds to meet
its remaining obligations on schedule. (Those falling due in the 1975/76
fiscal year total well over $1 billion.) The bank added that Pertamina
would be enjoined indefinitely from contracting foreign debts independently.
A special committee was set up to evaluate all the development projects
in Pertamina's $4 billion 1975/76 budget (two-thirds of the national
budget) with a view to eliminating all the marginal ones. The steel mill
project was removed from Pertamina's responsibility. The Bank of Indonesia
engaged three foreign investment banking houses (British, French and
American) to advise it.
In June 1974 a syndicate led by Morgan Guaranty raised $425 million
in five-year funds to help the Government of Indonesia meet Pertamina's
debts without drawing down its reserves. At the same time some Japanese
banks raised $150 million for the Indonesian Government for the
identical purpose.
STRALD FORD LIBHAST
ECONFIENTIAL
Nevertheless, the damage had been done. Incredibly, the country's
foreign exchange windfall in 1974 from doubled oil prices could not
prevent Indonesia's reserves from actually declining by $9 million
between March 31, 1974 and March 31, 1975. Most of this disappointing
performance is due to the need to repay Pertamina's debts. The $1
billion-plus carry-over burden will likewise severely dampen Indonesia's
balance of payments performance in the current fiscal year.
However, Pertamina's liquidity problem has produced two affirmative
results. In the first instance, the Government of Indonesia has shown
that it can take prompt corrective action when necessary. Secondly,
and more importantly, economic planning and implementation in
Indonesia are likely to be coordinated more effectively in the future.
I. U.S. Military and Economic Assistance to Indonesia
It was to seek assurance of a continued active US role in Southeast
Asia that Suharto made an official visit to the United States in
July 1975. Another important purpose of his trip:was to convince the
US officials that Indonesia merits continued economic assistance
despite its oil revenues, as well as military assistance to shore up
its neglected armed forces.
The Indonesian military has a limited defense capability, although
the Army's fighting capability is rated as excellent. The Government
of Indonesia does not want a large US military presence in their country,
as they are confident of their abilities to defend themselves internally.
In fact, Indonesia's "Territorial Defense Concept" has and continues
to serve them well. This plan involves stationing military men through-
out the country to enhance resoluteness against insurgent activities.
BERALD FURD LIBRARY
DEC
26
1.3
7
The Indonesian-
Malaysia relationship is "special", and Indonesian officials watch
with particular concern developments within its closest neighbor.
Indonesian military concerns are focused on their lack of coastal
surveillance capabilities, and thus the Government is interested in
receiving, through the FMS program, such items as helicopters, ships,
jeeps and radar and communications equipment on a concessional basis.
Such a request is likely to be received favorably in Washington, as
the Indonesian 'Government is wisely lobbying the US Congress for this
support.
Continued US economic assistance is desired in the critical areas
of agriculture, education and birth control. Suharto is well aware of
the world-wide cutbacks in US aid, and thus he was particularly anxious
to come to the US to present his case. Again, effective lobbying efforts
may make the difference.
J. US Interests and Objectives
The principal US interest in Indonesia is that it not become a
threat to the stability of Southeast Asia or to the US position in
the region, either through a return to militant foreign policies or
through domestic unrest on a scale that would involve Indonesia's
neighbors or attract outside meddling. Related to this interest is
the US desire that Indonesia realize its leadership potential as a
(
stabilizing factor in the region.
Another important interest the US maintains in Indonesia is its
FORD is 076870 LIBRARY
CONFIDENTIAL
-17-
very strategic location ide international and shipping lanes.
There is currently disagreement between the US and Indonesia with
regard to transit rights. Indonesia's formulation of the archipelago
concept has included insistence on the right to subject the transit of
military vessels to a requirement of prior notification. The US, as
a courtesy, gives prior notification of vessel transits, but is unwilling
to accept this as a treaty obligation in view of the overall implications
of control of the Straits. Bilateral discussions are on-going between
the US and Indonesia on this matter, and it is probable that a mutually-
acceptable archipelago concept can be negotiated for inclusion in
a comprehensive global Law of the Seas treaty.
Lesser US interests include access to Indonesia's energy and
natural resources (as well as access for US allies, especially Japan),
access to Indonesian markets for US agricultural and industrial exports
and continued access for private investment. Of still lesser importance
but nonetheless noteworthy is Indonesia's tremendous size and population.
US objectives in Indonesia include: the development and maintenance
of Indonesia's capability for internal defense and limited participation
in efforts to maintain regional security; assurance of Indonesian
acceptance of the right of free transit through and over international
-straits; and continued encouragement of Indonesian bilateral and regional
security relationships with other Southeast Asian nations and South
Asia. Beyond this, the US wants Indonesia to lend effective support to
US policies, both in the Southeast Asian environment and in the world
at large, although not at the expense of Indonesia's Third World status.
This support can be particularly helpful in two areas where Jakarta has
at least some weight: in negotiations between OPEC and the consumers
and in the overall relationships between the non-aligned nations and
FORD i GERALD LIBRARY
1030
T8
the West. The US equally is interested in limiting the influence of
the Soviet Union in Jakarta, as well as that of any other third country
whose interests could conflict with ours.
Additionally, the US wants the Government of Indonesia to extend
to its people those rights specified in the Universal Declaration of
Human Rights and to support their extension in other parts of the
world. In particular, it would be beneficial to see a satisfactory
solution to the problem of the estimated 35,000 political prisoners
detained in connection with the 1965 coup attempt, the continued de-
tention of whom has created concern in the US and elsewhere in the
world. The human rights issue has become increasingly important in
light of the focus Congress has placed on it and thus will have a
significant influence on US aid to Indonesia. Recognizing this con-
cern, the Indonesian Government has been systematically releasing
prisoners, with plans to continue this at a rate of 2,500 a year.
Another unsettling situation is the internal instability in
Portugese Timor. Indonesia would prefer to absorb this section of
Timor rather than permitting it to become a weak, independent state
open to possibly detrimental outside influences. However, to do so
militarily without the expressed encouragement of the Portugese
Government would be detrimental to Indonesia's image in Southeast
Asia, the UN and throughout the Third World. Incorporation of this
territory into Indonesia would be acceptable to the US and Australia,
which retains a vital interest in Timor developments, but only with
the acquiescence of the Portugese Government.
In summary, the US desires a "nationally resilient" Indonesia,
capable of providing leadership and encouraging unity in non-communist
is
FOHD
1030
GERALD
LIUNARY
Southeast Asia as a psychological counter to Hanoi.
K. Policy Recommendations
Despite the many problems facing Indonesia, its solid potential
and importance in Southeast Asia cannot be disregarded. Lead by an
anti-communist, leaning-to-the-West regime, Indonesia's struggle for
"national resilience" deserves continued US support. Specific policy
recommendations include:
1. Continue and possibly increase US economic assistance to
Indonesia, particularly in the fields of agricultural production,
education and family planning;
2. Continue and possibly increase US military assistance to
Indonesia. Such assistance should be responsive to the needs and
desires of the Indonesian Government and dispersed in as low profile
a manner as possible;
3. Express, where appropriate, encouragement of Indonesian active
participation in ASEAN affairs. The US should not, however, take an
active role in ASEAN affairs unless specifically requested to do so;
4. Encourage continued cooperation between the non-communist
nations of South, Southeast and Northeast Asia;
5. Encourage increased Japanese and Australian economic assistance
to Indonesia;
6. Continue to push for enactment of legislation in the US Congress
to amend Section 502(b)2 of the Trade Act to permit the President to
extend GSP to OPEC countries such as Indonesia which did not participate
in the oil embargo of 1973/74;
7. Maintain a low profile in Indonesia, holding down the number
of US officials in the country, and be prepared to accept inevitable
FORD it GERALD LIBRARY
20
changes in Indonesian domestic style;
8. Continue fruitful negotiations with Indonesia regarding
transit rights through the archipelago, bearing in mind not only its
importance to the US but also to US allies, especially Japan. This
issue is significant also in other areas of the world, and it is
important that the Law of the Seas Treaty reflects the right of
transit world-wide;
9. Encourage US, Australian and Japanese correlation and
consultation with regard to Indonesia;
10. Continue and increase US business investment in Indonesia.
The Soviet Union would be more than willing to step in and
(a)(s)
)
take over economic assistance should the US abandon this role. A
strong, independent Indonesia represents a definite plus for the
overall goal in maintaining a power equilibrium in Asia.
FORD is LIBRARY
CONFIDENTIAL
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"ocrText": "The original documents are located in Box 5, folder \"Asian - Pacific Area - U.S. Policy\nInterests (7)\" of the John Marsh Files at the Gerald R. Ford Presidential Library.\nCopyright Notice\nThe copyright law of the United States (Title 17, United States Code) governs the making of\nphotocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United\nStates of America his copyrights in all of his unpublished writings in National Archives collections.\nWorks prepared by U.S. Government employees as part of their official duties are in the public\ndomain. The copyrights to materials written by other individuals or organizations are presumed to\nremain with them. If you think any of the information displayed in the PDF is subject to a valid\ncopyright claim, please contact the Gerald R. Ford Presidential Library.\nDigitized from Box 5 of the John Marsh Files at the Gerald R. Ford Presidential Library\nNATIONAL ARCHIVES AND RECORDS SERVICE\nWITHDRAWAL SHEET (PRESIDENTIAL LIBRARIES)\nFORM OF\nCORRESPONDENTS OR TITLE\nDATE\nRESTRICTION\nDOCUMENT\n1. Report U.S. Policy Interests in the Asian Pacific Area\n10/75\nA\nIntroduction (1 p.)\nFolder I\nExecut ve Summary (10 pp.)\nTable of Contents (1 P.) open\nSumma Report (76 pp.)\nAckno edgements (4 pp )\nopen\nFolder 2\nBibliography (8 pp.)\nopen\nTable of Contents (1 p.)\nopen\nAppendix One - Asia in the Shifting Balance of\nWorld Power (46 PP.).\nFolder 3\nAppendix Two - Security Intersts, Concepts,\nThreats and Capabilities (80 pp.)\nAppendix Three - U.S. Economic Policy Toward\nfolder.,\nthe Asian Pacific Area (69 pp.)\nAppendix Four - The Cultural Denominator in\nFolder\nU.S.-East Asian Relations (21 PP.)\nAnnex 1 - Japan and the Structure of Peace in\nAsia (42 pp.)\nAnnex 2 - Korea: Cockpit of Confrontation in\nNortheast Asia (22 PP.)\nAnnex 3 - The Republic of Taiwan: Whither the\nFolder 6\nU.S.? (14 pp.)\nAnnex 4 - Vietnamese Power: To What End (14 pp.)\nAnnex 5 - ASEAN: Political/Economic/Security\nPotential (9 Pp.; pages 1-10 with no page 5)\nAnnex 6 - An Asian Identity for the\nFolder7\nPhilippines (26 pp.)\nAnnex 7 PART Thailand Faces the Future (25 pp.)\nAnnex 8 - Indonesia: Great Expectations (20 pp.)\nAnnex 9 - South Asian-Indian Ocean-Persian\nfolder 8\nGulf (22 pp.)\nAnnex 10 - Australia-New Zealand and the South\nPacific (25 pp.)\nFILE LOCATION\nMarsh Files\nGeneral Subject File\nAsian-Pacific Area - U.S. Policy Interests\nBoxes 4-5\nRESTRICTION CODES\n(A) Closed by Executive Order 12356 governing access to national security Information.\n(8) Closed by statute or by the agency which originated the document.\n(C) Closed in accordance with restrictions contained in the donor's deed of gift.\nWHM, 12/4/85\nGENERAL SERVICES ADMINISTRATION\nGSA FORM 7122 (REV. 5-82)\n3. An Asian Identity for the\nPhilippines (Ann. 6)\nPIDECLASSIFIED\n03LJISS01030\nUUI!! ILII. LESSAL\nAN ASIAN IDENTITY FOR THE PHILIPPINES\nI. INTRODUCTION: ASPECTS OF CONTEMPORARY US-PHILIPPINE RELATIONS\nSince independence in 19.46 the Philippines' key foreign policy problem\nhas been how to maintain its \"special relationship\" with the United States\nwhile trying to develop an Asian identity. As other newly independent\nstates have found, it is difficult to develop nationalism, self-respect,\nand international political capabilities while remaining dependent upon a\nstronger partner in an alliance relationship. Too often the long-term\ninterests of the junior partner are subordinated to the immediate interests\nof the senior partner. Until recently, the Philippines served US regional\ninterests through its contribution to the American \"forward basing strategy,\"\nthe containment policy as operationalized in military alliances, and as a\nrespectable example of a pluralistic economic and political system planted\nby Americans during the colonial period.\nBoth the Philippines and the US would prefer to retain some aspects of\nthe relationship that have evolved over the past seventy-five years. However,\nbarring a major conflict in Asia, relations between Manila and Washington\nmust inevitably become more \"correct and proper.\" Ironically, the deep-\nseated affinity between Americans and Filipinos and the mutual interests which\nhave developed in their partnership makes this necessary transition difficult\nto manage. The Filipinos, after all, are still the strongest ally the\nAmericans have in Southeast Asia.\nAnnex 6.\nLISGRAY GERALD f. FORD\nCONFIDENTIAL\nSince 1901 when the U.S. established. in Manila its only colonial\nadministration, the Philippine people have experienced an evolution\nin their own economic, political and military capabilities--from colony,\nto commonwealth status, to independence in 1946. Between 1946 and 1974\nthe Philippines had special reciprocal economic arrangements with the\nUnited States. The US-Philippine Mutual Security Agreement initially\nconcluded in 1952 is still in force. Politically, until September 1972\nwhen martial law was declared, the Philippines was America's \"showcase\nof democracy in Asia.\" An open political process functioned with a\ntwo-party system, regularly-scheduled elections, an extremely free press,\nand a military subordinate to civilian authority. Despite the short-\ncomings of the process, the Philippine political system was relatively\nstable. By the late 1960s, however, it became increasingly apparent that\nthe American democratic system would not work in a social system dominated\nby oligarchs and politicians who increasingly alienated the populace.\nGovernment inefficiency, corruption, and economic shortcomings brought\nabout by inadequate management could not generate the national support\nneeded to capitalize on the Philippines rich natural and human resources.\nDissident elements were bringing the political process to a standstill.\nInternal political and economic chaos, increased insurgent operations\nin central Luzon and political unrest in Manila, the personal desires\nof Ferdinand Marcos to perpetuate his rule, and, very possibly, the\nrealization that the Nixon Doctrine required the Philippines to get its\nown house in order--all contributed to an end to the democratic\nFORD LIBRAFT\n1030\nexperiment and the \"temporary\" adoption of an authoritarian system for\ngoverning the Philippines. In a very brief period of time, the previous\n\"showcase\" had become a focus of concern by those who questioned an\nAmerican \"special relationship\" with yet another system of one-man rule.\nMartial law helped stimulate substantial growth in the faltering Philip-\npine economy. Despite the devastating floods of July-August 1972, the subse-\nquent draught and initial concerns over economic prospects under the more\ncentral management of the martial law regime, the real growth rate in 1973\nreached 10% and the Philippines weathered the international economic up-\nheaval of 1974-75 with growth rates in the 5% to 6% range.\nWhile proclaiming a national revolution, Philippine economic policy did\nnot diverge greatly from the pre-1972 period except as the government was\nfreed of haphazard Congressional obstructiveness. While civil authorities\nand civil managerial personnel remained in most of the key position, martial\nlaw introduced the political stability required for development. A re-\nstructured and enforced tax system provided much of the revenue to support\nnew and needed development projects.\nThere was no nationalization of private industry. The American-type\nfree enterprise system began to work better, but within a political system\nunder authoritarian supervision from the highest level of national leadership.\nHowever, the government's role in key economic areas, especially in certain\nmajor exports, increased.\nTo affect changes in Philippine society, President Marcos diverged from\nthe American mold by employing the military as the action arm of the new\nOSC:\nregime. Civilian authority employed the military's organization, mission-\noriented philosophy and material to supervise and execute many of the\ngovernment's proclamations and directives.\nThese domestic changes did little to provide an Asian identity for the\nPhilippines. Americans are aware that their client in the Pacific has\ndiverged from the ideal, but few Asians consider events since 1972 as very\nmeaningful to their own acceptance of the Philippines. US-Philippine\neconomic and security links have not been altered substantially. The Philip-\npines remains the only Catholic country in Asia, the only English-speaking\npeople in the region, the only country whose young men can join the US\nmilitary, and a country that still retains special preference for private\nUS investment and and a degree of special consideration on economic and\nmilitary assistance as a result of its historic links with the US.\nII. US INTERESTS IN THE PHILIPPINES\nA. Security\nThe three basic agreements which govern US-Philippine defense and\nsecurity relations are: the Mutual Defense Treaty of 1951, the Military\nBases Agreement of 1947, as amended, and the Military Assistance Agreement\nof 1953.\nThe mutual Defense Treaty contains the basic US commitment to the\ndefense of the Philippines. The first paragraph of Article IV of that\ntreaty states:\n\"Each party recognizes that an armed attack on the Pacific\narea on either of the parties would be dangerous to its own\npeace and safety and declares that it would act to meet the\ncommon dangers in accordance with its constitutional process\nGERALD\n1030\nArticle V of the treaty specifies that an armed attack includes:\n\"An armed attack on the metropolitan territory of either\nof the parties, or on the island. territories under its\njurisdiction in the Pacific or on its armed forces,\npublic vessels or aircraft in the Pacific.\"\nThe presence of U.S. forces on Philippine soil helps guarantee that an\nattack on the Philippines would invoke the operative clause of the treaty.\nPhilippine foreign policy elites have for some time, however,\nquestioned the \"automaticity\" of a U.S. response to external aggression.\nWhile recognizing that its earlier efforts to get a renegotiated treaty\nmore closely paralleling its perception of the U.S. commitment to NATO\nis not possible under present circumstances, the Philippines has sought\nfor some time to reassure itself that the terms of the treaty and the\nU.S. shield remain viable. Recent events in Indochina, in particular the\nattitude of the U.S. Congress in March 1975 towards the continued defense\nof South Vietnam, as well as the War Powers Act, have prompted serious\nconcern among Filipinos about the utility of the continued U.S. presence\nin the Philippines.\nThe Military Bases Agreement of 1947 is the basic instrument which\ngrants the U.S. extensive rights of access, control, utilization and\noperation of its bases in the Philippines. While there have been a series\nof renegotiated settlements over U.S. facilities, the Philippines has\nsought for some time to exercise greater sovereignty over U.S. bases. To\ndate the two governments have agreed: to relinquish large portions of\nland previously reserved for bases but no longer needed for military\noperations; to effect prior consultations before the U.S. uses the\nGERILO P. FOR\n1030\nbases for military combat operations outside the scope of the treaties;\nand to shorten the duration of the Military Bases Agreement from 99 to\n25 years. Additional agreements relating to customs and criminal juris-\ndiction have also been negotiated.\nFor the U.S., the air and naval facilities of Clark Air Force Base\nand Subic Naval Base remain of foremost strategic value. A key U.S.\nforeign policy objective vis-a-vis the Philippines is to insure the\ncontinuous, unobstructed use of these facilities. The US seeks\nto maintain access to these facilities on the basis of the Mutual Defense\nTreaty, with the U.S. providing for the defense of the Philippines in\nexchange for rent-free use of the facilities.\nPresident Marcos şet the tone for renegotiating the basing agree-\nments in July 1975:\n\"Without compromising our territorial integrity and self-\nrespect, there should be a conscious effort to support\nAmerica's effort to maintain herself as a. Pacific power.\nBy mutual agreement, we're now ready to enter into negotia-\ntions with the United States on our Mutual Defense Pact,\nthe Military Assistance Pact and the Military Bases Agree-\nment we want to put an end to the practice of extra-\nterritoriality in our country. We want to assume control\nof all these bases and put them to a productive, economic\nas well as military use there is no reason why we should\ndeny those facilities which our historical ally might, or\nmust, need in fulfilling its assigned role for the maintenance\nof peace in the region.\"\nSeveral points are significant in this statement. First, President\nMarcos welcomes and acknowledges the US role as an Asian power, and he places\nconsiderable credence in US willingness to fulfill its role in maintaining\nregional stability. Second, Philippine bases are important for the US\nto fulfill this role. Finally, the\nGIRALD F. FORD\ntwo points which bear directly upon future base negotiations; concern with\naspects of control and the Philippine intention to put the bases to a\nproductive, economic use. If the control aspect can be satisfied by\nhoisting the Philippine flage over the bases and Бу transferring the adminis-\ntrative supervision of the bases to a Filipino commander, the Philippines\nwill obtain \"maneuvering space. If, however, the Philippines seeks a degree\nof control which compromises operational flexibility in the use of the\nfacilities, the US may find the Marcos position unacceptable. Further, as\nour on-going negotiations over US facilities in Turkey reveal, the US is\nnot prepared to beg for the opportunity to share the defense of an ally.\nB. Economic\nAmerican investors have long favored the Philippines' natural\nresources base and the capability of the government in Manila to maintain\nfavorable conditions for economic development. Agriculturally, the Philippines,\nalthough today a food importer, has the potential of being self-sufficient\nin many food crops. Minerals, while at present untapped to any great extent\nexcept copper and timber, abound.\nThe Bulk of American investment in the Philippines occurred during\nthe tenure of the Laurel-Langley Agreement (1955-1974). This agreement\nexempted American investors in the Philippines from various restrictions on\nforeign business activity. American investment in the Philippines currently\nstands at $1 billion or more in market value.\nPhilippine nationalists have long charged that the \"parity\" provision\nof the Philippine Constitution and the related Laurel-Langley Agreement\nactually created a \"disparity\" favoring the American investor whose superior\ntechnology and financial backing gave him an advantage over his Philippine\ncompetitors. These parity provisions were resented by many Filipinos and\nbecame the focus of extensive nationalist policy in the 1960s and early\n1970s. This resentment was a major factor in the US decision against re-\nnegotiating the Laurel-Langley Agrement and in favor of efforts to evolve a\nless preferential economic relationship.\nAs with US-Philippine security relations, economic relations will in\nthe final analysis depend upon the Philippine domestic climate. Growing\nuncertainty over the Muslim or NPA (communist) insurgency or continued\nuncertainty over the succession to the Marcos martial law regime will ad-\nversely affect the Philippines' competition for capital and technological\ninvestment. The Philippine economy with its heavy dependence on foreign\ntrade and financing is highly sensitive to international economic develop-\nments as well.\nAssuming that internal political stability can be maintained, the economy\nof the Philippines is likely to grow and present additional opportunities\nfor foreign trade and investment. Official US economic assistance, which\naverages $50 million annually is part of the extensive foreign aid provided\nthrough the consultative group chaired by the World Bank. (Totaling over\n$400 million in 1975.) Foreign private financing has provided larger sums\non normal commercial terms. The Philippines will continue to require outside\nGERALA FORD THE\nfinancing in similar or greater magnitude for some years to come if it is\nto achieve its development goals. Awarness of this need is an important\nfactor in determining GOP economic policies. US willingness in providing\nassistance can therefore serve both our economic and security interests\nin the Philippines.\nIII. PHILIPPINE OBJECTIVES, NEEDS AND OPTIONS\nA. Objectives and Needs\nThe developments, initiated by the US, which have most seriously\ncaused a reassessment of the US-Philippine alignment are: the Guam Doctrine\nof 1969 in which former President Nixon made it clear that Washington sought\nto share more of the security burden with its allies; the US opening with\nChina in 1972 which indicated that Washington was less concerned about\nthe Chinese threat than seeking to build a global balance of power; and\nthe 1973 Paris Agreement to withdraw forces from Indochina. For the\nGovernment of the Philippines, the pressing need to reassess its relations\nwith the US came with the 1975 fall of the governments of South Vietnam and\nCambodia. The Filipinos see the Indochina debacle as a result of the US\nCongress constraining the Chief Executive with the 1973 War Powers Act\nand the refusal of Congress to continue to support with military aid the\nstruggle against Hanoi and its allies in Peking and Moscow. To adjust to\nthe realities of the new Asia, the Philippines wanted to become more\nself-reliant in its defense capability, more accommodating to Chinese and\nSoviet influence in the region, and more accommodating to its other Asian\nneighbors. This meant a \"loosened\" US relationship.\nGERALS\nNot only was the U.S. security blanket no longer seen as a guarantee\nin the Philippines' effort to provide for its own internal and external\nsecurity, but as Secretary of Foreign Affairs Carlos Romulo suggested in\nJuly 1975, the U.S. relationship was a hindrance to more cordial relations\nwith Asian countries.\nThe reassessment of US-Philippine ties was not precipitous. In\n1965, as President Marcos was beginning his first term in office, he made\nthe following observations to the Philippine Congress about Philippine-US\nrelations:\n\"Our relations with the United States shall be maintained\non a basis of common ideas and interests, of mutual\nrespect and consideration. We are convinced that this\ngreat nation would want nothing better than to see our\nnation prosper in dignity and freedom.\"\nBy May 1975 the reassessment was becoming more operational. After\nstressing that \"national interest, not ideology\" must dictate the Govern-\nment of the Philippines' relations with other states, President Marcos\nlisted the following foreign policy guidelines:\n1. Enhance relations with ASEAN;\n2. Normalize relations with communist countries;\n3. Enhance closer identification with the Third World;\n4. Continue beneficial relations with Japan;\n5. Support the Arab cause in the Middle East and Palestine;\n6. Continue efforts to find a new basis for maintaining the\nhealthy relationship with the U.S. in light of emerging\nrealities in Asia.\nGERALD\n1. ASEAN\nGreater regional cooperation through ASEAN is inhibited not only\nby the inability of the members to contributé significantly to regional\nefforts but also by the unwillingness of the Philippines' neighbors\n(particularly Malaysia) to put present suspicions and conflicts aside.\nThe ASEAN states view Philippine efforts toward regional cooperation as\nselfishly motivated means for obtaining ASEAN assistance in the resolution of\nproblems stemming from the disputed claims to Sabah and the Muslim insurgency\nin, the Southern Philippines.\nThe needs of the Filipinos for economic and military assistance\nand external security guarantees will be met, if at all, by the US, not by\nneighbors. Finally, with close links to the US, the Philippines will likely\nbe suspected of serving as the \"front man\" for Washington to influence\nSoutheast Asian designs. Filipino achievement of an \"Asian identity\"\nthrough ASEAN appears highly unlikely at this time.\n2. Communist Countries\nThe Marcos scheme to normalize relations with the communist states\nis nearly complete. While formal relations with the Soviet Union are not\nyet established active: negotiations are reportedly continuing to this end.\nFormal ties are already established with Peking. When Manila will recognize\nHanoi and/or Saigon remains an open question. The Philippines has publicly\nsuggested that Hanoi be invited to join ASEAN (although the invitation is\nunlikely to be accepted, to the great relief of Manila).\nPhilippine relations with the Soviet Union and the PRC are designed\nprimarily to enhance the îndependence of the Philippines and in part to\n1030\nGERALD\n12\nobtain whatever economic assistance either communist state might be\nwilling and able to exchange for Philippine exports. These relations\nare also designed to balance off the two communist powers and to lessen\nUS influence. Marcos apparently is prepared to face the prospects\nof enhanced \"party to party contacts\" between Moscow and PKP (Moscow-\noriented Philippine Communist Party) and between Peking and the CPP(M/L).\nWhile desiring to maintain commercial ties with Taiwan, Manila\nwould like to diversify its oil resources by importing from China as\nwell as the Arab world as is now the case. In return, the Philippines can\nprovide timber, agricultural products and copper to meet some of Chinese\ndomestic needs. Of some concern, however, is the prospect. for the\ncontrol of Taiwan which lies a mere 400 miles from the northern Philippines.\nCommunist control of Taiwan could eventually represent a security threat\nto Manila.\nThe Philippines may hope to diversify its exports of sugar to the\nSoviet union in exchange for Philippine imports of cotton. While not\nencouraging greater Soviet involvement in the region, the Philippines\nrecognizes the realities of Soviet capabilities vis-a-vis both China and\nthe US. Should the strategic Balance between the US and the Soviet Union\nchange in Moscow's favor or were the Soviet Union to gain access to Vietnam\nport facilities, Manila would then perceive a threat not presently\napparent and would have to reassess relations with the Soviet Union.\n3. Third World\nManila's efforts to identify with the Third World, with whom it\nhas both shared and conflicting interests, is part of an effort to realize\nits own identity. However, the OPEC oil price increases have hurt the\nis\nFURD\nPhilippines significantly, and it could be threatened further by an Arab,\nGERALD\n73\noil embargo if the Muslim problem in the Southern Philippines is not\nsettled \"correctly.\" Manila is, nevertheless, intrigued by the apparent\nsuccesses of some Third World countries in using the oil weapon.\nPhilippine desires to identify with the Third World are\ninhibited by the historic relationship with the US and awareness of the\nbenefits of a close link to US security and economic assistance. Manila\nalso must be conscious of the fact that visions of grandeur through a\nsugar or copper cartel have at best limited prospects for success.\n4. Japan\nThe memory of Japanese occupation during World War II inhibits\nPhilippine relations with Japan. Japan's political and economic\nactivities are suspect through much of Southeast Asia. Barring any\nmajor shift in US or Japanese policy, Manila-Tokyo relations will improve\nslowly. Japan has the necessary capital and technology to aid the\nPhilippines, and it serves today as Manila's principal trading partner.\nHowever, bilateral economic arrangements are concluded under lingering\nPhilippine suspicions. As Marcos noted in 1966, \"there will come a time\nwhen Japan has to rearm.\" Before that time comes, the Philippines hopes\nto have realized significant economic benefits through its relations with\nJapan, although it is wary of an economic association which eventually\nmight be reinforced with military and political power.\nGERALD FORE\n5. Arab World\nThe Marcos pledge to support the Arab cause in the Middle East is\nclearly an effort to obtain Arab sympathy for Manila's view of its Muslim\ninsurgency in Hindanao. Ironically, the same Arab formula for the parti-\ntioning of Israel is one which has been advanced as a solution to the\nPhilippine problem between Christians and Muslims. The formula is to create\na separate Muslim state, which might eventually merge with the disputed and\nrebellious Malaysian state of Sabah.\n6. United States\nMarcos' efforts to develop more healthy or \"correct and proper\"\nrelations with the United States, while last in priority in the May address,\nis of utmost concern to his administration. In this regard the Philippines\nseeks: greater sovereignty over present US bases in the Philippines; a greater\neconomic advantage, possibly through rental levies on the bases; a more\ndecisive US security guarantee; a continuation of some special trade preferences\npreviously realized under the Laurel-Langley Agreement; continued economic and\nmilitary assistance; and a greater appreciation Бу the US of the Philippines'\ndomestic and international needs.\nB. Philippine Options\nThe Philippines has three basic policy options:\n1. It could attempt to persuade the US to recommit itself to the\nindependence, viability, and security of the Philippines through a strengthened\nmutual security agreement;\n1030\nGERALD\n2. Conversely, the Philippines could sever all \"special arrange-\nments\" with the US, including economic and military arrangements, and\nadopt a neutralist posture; and\n3. The Philippines could seek an adjustment to \"correct and\nproper\" links with Washington in which it could assume a more independent\nforeign policy, yet continue to advance their mutual interests.\nThe first two options appear as \"straw men,\" Neither Philippine\nnor American politics would permit a return to an era of Washington sovereignty\nover the foreign policy of the Philippines. Nationalism in Asia has become\ntoo much a part of the landscape to permit the reîmposition of a neo-colonial\nrelationship. Further, affairs in the Philippines have become so linked on\na bilateral basis with other states that it would be impossible for the US\nto try to overturn the present pattern of economic and political relations\nso as to return to a previous mode of US-Philippine relations.\nFinally, the first option is unrealistic because the American Congress\nis unlikely to seek closer identification with a state into which the US\nmight be drawn as part of a domestic insurgency, and which has diverged from\nthe democratic model which heretofore justified America's contribution.\nThe second option, that of severing all \"special arrangements\" and\nadopting a policy of armed or relatively armed neutrality, is even less\nlikely. Manila cannot meet its security needs without US economic and military\nsupport and the US commitment to the defense of the Philippines. Without some\nUS presence the Philippines would become more susceptible to Soviet and/or\nChinese influence.\n1030\nTHALD a FORD LIBERST\nFor the foreseeable future the Philippines needs the US and,\ndespite their \"pinpricks\" at American installations, most Filipinos realize\nthat the \"special relationship\" continues to provide Benefits.\nThe US military bases of Subic and Clark are significant in\nPhilippine domestic considerations. These bases employ 40,000 Filipinos.\nIfithe US were to pull out, the economic dislocation to a large segment\nof the Central Luzon population would be considerable. Unless Manila is\nable to utilize the base facilities in its own regional development, the\neconomic and social impact on the nation would be adverse. Estimated\nannual dollar expenditures by Americans assigned to these facilities range\nfrom $150 million. to $200 million. It is unlikely that the government would\nbe able to obtain these significant foreign earnings through other uses of\nthe land, especially within the next ten days.\nAccordingly, it is along the middle range of the spectrum, between\nsevered and enhanced relations with the US, that the Philippines must seek\nits Asian identity.\nIV. PHILIPPINE CAPABILITIES\nThe factors most directly relevant to the capacity of the Philippines\nto \"survive\" are: the current internal security problems; the nature of\nand future prospects for the Marcos martial law regime; and the economic\nfactors which have become of increasing concern to Manila as US economic\nguarantees have lapsed.\nGERALD FORD\n-\n17\nA. Internal Security Problems\nCurrent internal security problems in the Philippines are represented\nby \"Maoist\" new Peoples' Army (NPA) and the significant Muslim insurgency\nin the southern provinces. The NPA is the military arm of the Communist\nParty of the Philippines, Marxist-Leninist branch. A modern version of\nthe Huks, communist insurgents- in the 1950s, the NPA has conducted\ninsurgent activities throughout much of Luzon and to a limited extent\nin the Visayan Islands. The NPA is at present not a major threat to\noverall political stability, and if present armed forces are freed\nfrom the south, Manila could even more readily cope with the NPA.\nThe \"southern problem,\" as it is often referred to by Filipinos,\nis the strife between Muslims and Christians in Mindanao, and it is of\nconsiderable concern to the government. Descendants of the Moros, who\nremained ungovernable under both the Spanish and American colonial\nadministrators, are presently embroiled in a conflict centering on disputes\nover land titles, maldistribution of resources and Muslim belief that the\nPhilippine Christian nation is attempting to absorb both their territory\nand culture.\nMartial law, which was designed in part to establish law and order\nthroughout the Philippines, provoked the present level of conflict to war-\nlike conditions. Specifically, the martial law program, which included à\ndecree to collect firearms, was perceived by the Muslims as a further\neffort to restrict their way of life and to subordinate them to Manila.\nThe armed forces of the Philippines, sent to enforce the martial law\ndecrees and to provide for the security of all inhabitants in the southern\n1030\nLIVERSA GERALD ? FORD\n98-\nislands, has nearly 75% of its combat elements committed in the south.\nManila is constrained by the Muslim-Arab oil producers who have\nthreatened an oil embargo on the Philippines if the AFP initiates genocide-\nlike operations against the Muslims. Further, it is limited by its own\nresources to both meet the political (autonomy) and economic (development)\ndemands of the Muslims. The US can do nothing to help the Manila govern-\nment solve this problem.\nB. Martial Law\nJean Grassholtz noted in her 1974 Asia Survey article that the\nPhilippines entered a stage of \"post-independent politics\" in 1972 when\nit began a restructuring of society away from its colonial pattern. Un-\nlike other developing states, the Philippines never went through a period\nof instability; of trying out different constitutional faces; searching\nfor its own. When Philippine nationalism emerged earlier, it was coopted\nby a native elite bent on collaboration with the Americans. When\nindependence came, the mode of politics was set and a truly Philippine\nmodel was slow to develop within the American-imposed political structure.\nSince 1972, however, the. Philippines, under Ferdinnand Marcos,\nGENILD R. FORD\nstructured a new political process; a \"new society\" within the context of\nThe shattering of the \"democratic tradition\" in the Philippines,\ndespite certain economic and stability advantages, has and will continue\nto inhibit Washington's close identification with the Marcos regime.\nFraser Committee hearings in July 1975 on the issue of human rights\nin South Korea and the Philippines reflected the growing impact. of U.S.\ndomestic politics on its foreign policy. Unless there is movement towards\nimplementing the Philippines' 1973 constitution or reinstating the 1935\nconstitution, both of which provide a framework for democracy, Washington\nwill become increasingly identified with the current suspension of\ncertain democratic processes and human rights, despite U.S. public\nannouncements designed to encourage Marcos to reinstate a more open\npolitical process.\nThe suspension of a constitutionally-based political process also\nthreatens future stabililty in the Philippines if Marcos is suddenly\nremoved from power. Further, the longer the political opposition remains\nmuted, the more uncertain are the prospects for a gradual return to\ndemocratic practices. For American policymakers to project US-Philippine\nrelations beyond the immediate operational environment, it is necessary\nthat the \"succession problem\" in the Philippines be solved at the\nearliest possible time. As with other issues, however, any solution\nmust come from within, and it must have mass support.\n171 GELITO f. FORD LIBRANT\nC. Economics\nSince martial law there has been a sharp increase in the level of\neconomic and development activity in the Philippines. Increased domestic\noutput and an improvement in the external terms of trade resulted in a\n10% plus increase in gross national income in 1973, compared to about 4% in\n1972. The rate of unemployment remains quite high. Inflation neared 40%\nin 1974 but in 19.75 is expected to be less than 10%. Despite uncertainties\nand fluctuations in the international economy, growth momentum was maintained\nin 1974 and 1975. Possible balance of payments difficulties, however, have\ncreated some anxieties for 1976.\nThe government's record in introducing a number of needed social\nand economic reforms has been impressive, particularly with respect to taxa-\ntion, infrastructure development, customs administration, tariff revision\nand the restructuring of banking and government organization. There have\nbeen substantial efforts to improve agricultural productivity and improve\nrural income, although resettlement programs, community development and land\nreform have had only limited success.\nThe Philippines obtains 95% of its oil from the Middle East, notably\nSaudi Arabia and Kuwait, and thus desires to diversify this dependency.\nManila spends $700 million per year in foreign exchange reserves to\nmeet energy needs. Unless the Philippines discovers oil deposits off\nthe southern islands, or until nuclear energy is available, Manila will\ncontinue to pursue a foreign policy which maintains access to vital\nforeign energy sources.\nFORD is LIBRARY\nLong term prospects for export growth are good for the Philippines.\nThey are well endowed with raw materials for export. Copper, nickel, timber,\ncoconuts, sugar, pineapples and bananas are a few of the important products.\nThe economy is diversified and has better prospects for expansion than the\none-or-two-crop economies of many \"less developed\" states. Prospects for\ndevelopment of industrial exports are also good if investment needs can\nbe met.\nIt is this long term expectation, coupled with an enhanced law and\norder situation, that underlies the basic confidence of international\ncreditors in the Philippine economy. Manila as a regional financial center\nis also gaining increasing prominence.\nD. External Security\nThe Armed Forces of the Philippines (AFP) are neither organized nor\nequipped to provide for the Philippines' own external defense. Even prior\nto the Japanese attack in 1941 it was recognized that the US would have to\nprovide for the defense of the Philippines. The symbolic representation of\nthe Philippines in the UN Force in Korea, however heroic, and Filipino pacifi-\ncation efforts in Vietnam, tend to mask the fact that Philippine security\nforces are only сараб1е of a limited internal security orientation.\nPeace in Asia is the basis for Philippine security. Peace depends\nboth upon the intentions and capabilities of the actors in the region\nand on the US ability to deter threats to the Philippines. Manila is\nlimited to maintaining its own political stability, containing its\ninsurgency, avoiding offensive moves (such as a reassertion of its claim\nFORD & LIBRARY\n22.\nto Sabah which would provoke Malaysia) and soft-pedal its weak claim to\nthe Spratly Islands which, if pursued vigorously, might provoke China\nor Hanoi.\nV. FUTURE US-PHILIPPINE RELATIONS\nA. General\nThe Philippines is likely to assess the utility of American\neconomic and military assistance as a \"correct and proper\" implicit\nquid pro quo for continued US use of the bases. If, subsequently, a\nless explicit set of agreements for the US defense commitment to the Philippines\npermits the Filipinos to realize their potential through an Asian identity,\nit is unlikely that US-Philippine relations will undergo more than a\nchange in form. Several factors will probably ensure that the transition\nin US-Philippine relations over the course of the next few years may be\nmore form than substance:\n1.. The US continues to value its access to base facilities in\nthe Philippînes. These bases enhance American capacity to maintain treaty\ncommitments to the Philippines, South Korea, Taiwan and Japan, to provide\na balance to Soviet and Chinese great power influence in the region and\nto maintain flexibility in US presence within the entire Asian setting.\n2.\nThe naval facilities at Subic Bay, for example, enable the\nUS to sustain its naval operations in the South China Sea and into the\nIndian Ocean. The continuous surveillance of the vital sea lanes adjacent\nto the Philippines and the forward deployment of US forces is enhanced\nby these facilities. Finally, US civil and military communications\ncenters in the Philippines are important links in the American global\ncommunication network.\nGERALJ V.. FOHD LIBRAST\n3.\nIt is possible for the Philippines to achieve an Asian\nidentity within a US security framework. Arrangements can be made which\nwill permit the US to continue its commitments to the Philippines and its\naccess to Philippine facilities without requiring the Philippines to abrogate\npast agreements.\n4.\nFuture mutually beneficial US-Philippine relations are\nlargely contingent upon the ability of the Philippine Government to resolve\nits pressing Muslim insurgency, to meet its stated goals of social and\neconomic reform, and to institutionalize a political process which will per-\nmit the future transfer of power in a constitutional manner.\n5.\nThe close relationship of the two states has resulted\nin a valuable reservoir of goodwill and understanding between the two\npeoples. A Western tradition in domestic education and religion, a\nWestern-educated elite, the English language, all, however, lead to the\npossibility for misperceptions, especially by Americans. Sensitive to\ntheir personal relations, the US needs to recognize that Filipinos cannot\nbe taken for granted, nor should they be permitted to imagine that the\nUS is treating them other than as equals. Filipinos are well aware of\nthe differences in economic prosperity and political power between Manila\nand Washington, but they may not be willing to have the relative dis-\nparity between partners reflected in the US Government and American\napproach to the Philippine Government and Filipino people. Day-to-day\ncontacts, especially between the sizeable American community in the\nPhilippines and their Filipino associates, will in the final analysis be\nas much of a determinant of future US-Philippine relations as a willingness\nof the two governments to cooperate with each other.\nLIBRARY\nDECLASSIFIE\nB. Through the Remainder of the Century\nIt is reasonable to assume that present US interests in the\nPhilippines will remain for the next twenty-five years. Provided the\nUS is willing to maintain its Asian power status, American entry to the\nregion through the Philippines in exchange for a US guarantee to\nPhilippine security is a reasonable quid pro quo. The present military\nprofile of the Americans may be significantly reduced to a point at which\nthe US maintains only a permanent naval presence in Subic Bay. The Clark\nAir Field complex may revert to complete Philippine utilization both as\na military and commercial facility, although access to the US for opera-\ntions directly in support of Philippine security will more than likely be\naccepted by Manila. Undoubtedly, a change in base utilization can be\nexpected between now and the expiration of the present base agreement in 1991.\nThe overall pattern of future US-Philippine relations will depend\nupon the state of Philippine domestic affairs and the US public reaction\nthereto. Continued growth of the insurgent cancer, coupled with economic\nstagnation and political frustration, could lead the Filipinos to question\nthe benefits of association with the US. The American people on the other\nhand, could also conclude that the junior partner has lost its attractive-\nness, thus nullifying the utility of the Washinton-Manila connection.\nShould the US be called upon to spend an inordinate amount of scarce resources\nto shore-up this former colony, the US Government may well decide to\ndevelop more expeditiously secure basing facilities within the Pacific\nCommonwealth of the Marianas.\nGERAID ? FORD\nD30\nVI. POLICY RECOMMENDATIONS\nA. Security\n1. Base Negotiations. The US should be willing to make\nconcessions on non-essential aspects of the base arrangements which will\nmake the UStennants on Filipino bases. Such a move could preempt those\nmore nationalistic pressures against US use of base facilities. Opposition\nelements to Marcos may eventually seek an alignment with the more liberal,\nleftist groupings which were the most vocal against US occupancy of the\nbases prior to martial law. If and when the opposition becomes less con-\nstrained, continued adherence to the form and structure of existing basing\narrangements may be perceived as American support of the martial law adminis-\ntration.\n2. MAP. The US should continue to support the modernization\nof the Philippine Armed Forces with a MAP and FMS program for at least\nthe next three years and through FMS thereafter.\nB. Economic\nThe US should support economic and social development within\nCongressional imposed AID limits while encouraging the Philippines to\nutilize multilateral forums (IMF, IBRD, GATT) to promote its own economic.\nwell-being. Such an approach may in turn enable the Philippines to be\naccepted more as a developing Asian country instead of an American\nprotege, an image which has hindered its regional acceptance as well as its\nself-identity. A free and open trade policy, with \"Most Favored Nation\"\nBERAID FORD\n26\nCONFIDENTIAL\nstatus with the US, should also encourage a more independent posture\nwhich could redound to the development of a more diversified, yet\nresilient export industry.\nC. Cultural\nThe Filipinos obtained a unique American cultural and political\nheritage, the Marcos Government martial law regime notwithstanding.\nAmericans and Filipinos should together seek to delineate the contributions\nto and obstacles to the Philippine development process that have issued\nfrom this heritage.\nFilipinos worry about their Asian identity. Perhaps their best\ninterests and those of other Southeast Asian nations would be better\nserved if they all clearly understood the uniqueness of \"the Filipino\"\nin Asia--not as an American \"little Brown Brother\" but as a Malayo-\nPolynesian colonized first for 500 years by the Spanish and then for 48\nyears by the Americans. There is much that Americans and Filipinos can\ndo together and with other Asians to study Filipino culture in Asia--and\nthe fact that the first people in Southeast Asia to fight for freedom and\nequality with Europeans were the Filipinos. The US and Philippine govern-\nments should explore the feasibility of support for such study either by\nthe governments, or more preferably, through encouragement of interests\nand effort from private foundations or educational institutions.\nFORD i LIBRARY\n4. Thailand Faces the Future\n(Ann. 7)\nCONFIDENTAL\nOctober 31, 1975\nTHAILAND FACES THE FUTURE*\nI. INTRODUCTION: THE ENDING OF A SPECIAL RELATIONSHIP\nThe close alliance between the United States and Thailand lasted\nfrom the early fifties until the collapse of American efforts in Indochina.\nHowever reasonable in terms of the acute problems of the period, it\nrepresented a deviation from the traditional policies of both countries.\nThere is now occurring a fundamental and far-reaching psychological change\nin US-Thai relations. The process of change is incomplete and in the\nspring of 1975 was highlighted by abrasive official exchanges and increasing\nvocal anti-Americanism among student and political activists throughout\nthe land.\nThe causes of these changes are basically four in number. The first\nand most immediate is the nature and scope of the collapse of American will\nto sustain its Vietnamese and Cambodian allies and the overall failure of\nAmerican policies in Indochina. The second cause is internal political change\nin Thailand itself which surfaced strongly in October 1973 when Thai students\nsparked the overthrow of the military oligarchy and set in motion the latest\nin a series of attempts to build a constitutional, responsive political\nsystem of government in Thailand. A third cause is the American opening\nwith China which helped vitiate its policy of confrontation with communism\nin Southeast Asia. The final cause of change in Thai-American relations is\nrelated to the third and also to the fact that the overly-close relationship\n*Annex 7.\nFORD is LIBRARY GERALD\nCONFIDENTIAL\n1030\nof the previous 25 years did not rest on an equivalent set of mutual\ninterests--identified and accepted by elements in Thai society outside of\nthe main group of clique leaders themselves. : Since the initial forces which\nprompted this relationship have evaporated, the two states are groping for\npolicies which correspond with their present interests and which larger\nnumbers of their opinion and policymaking elite can and will support. An\nironic facet of this adjustment process is that the \"special\" relationship\nbetween Thailand and the United States was always more perceivable in Bangkok\nthan in Washington.\nThe pressing problem of Thailand, however, is that the new adjustments\nin its foreign policy and posture have to be made under highly unfavorable\nconditions and may involve considerable concessions to communist powers\nwhich will remain, in an ultimate sense, a threat to the entire present\nstructure and character of Thai society. This threat is particularly acute\nfor Thailand because of the insurgencies in North, Northeast and South\nThailand to which both communist China and North Vietnam provide considerable\nsupport.\nIn addition, Thailand has long been unhappy with its Japanese and US\ntrade imbalances, and optimistically (perhaps naively[ sees in China a giant\nnew market close at hand. Thailand, however , may well Бе overestimating\nChina's potential as a trading partner.\nFinally, whatever foreign policy course Thailand chooses will have\nconsiderable impact on the structure of international politics in Southeast\nAsia--particularly the future of ASEAN and its role in Asian regionalism.\nADVERIT GERALD F. FORD\n1030\nCONFIDENTING\nNew Realities Affecting Thai Foreign Policy\nThe Thais view the collapse of the twenty-year American effort to\nprevent a communist takeover of Indochina as a major debacle. The United\nStates was unable to preserve the right of the peoples of Indochina to\nchoose their own future. What will or can it do to preserve Thailand's\noptions? The new realities the Thai face in the aftermath of communist\nvîctory in Indochina can hardly be reassuring.\nA. The Indochina Debacle\nThe North Vietnamese/Soviet/PRO political and psychological vic-\ntory over American power and policy in Indochina shattered the 5edrock of\nThai foreign policy: the Thai-American \"alliance.\" Thailand, in joining\nSEATO with a special US commitment reinforced by the Rusk-Thanat Communique\nof 1962, had tied its future to the will and intent of a foreign power in a\nway unprecedented in Thai history. It is true that the Thai themselves\nchose to enter this alliance.\nI\nThai assistance was indispensable to US efforts against communist\naggression in Southeast Asia.\nThe Thai made their choice believing that the United States would\nachieve its goals in Southeast Asia. America was the most powerful nation\non earth. Had not President Kennedy declared that \"the enemy\" should make\nno mistake: America \"would bear any burden, pay any price...?\"\nCONFIDENTIAL\nFORD & LIBEARY GERALD\nHo Chi Minh's picture now hangs in the Presidential Palace in\nSaigon. Tough Khmer communists rule Cambodia; the Hanoi-backed Pathet Lao\ndominate Laos. The North Vietnamese, with massive, unfaltering Soviet aid\nand considerable PRC assistance, demonstrated more staying power than the\nmost powerful nation on earth. They needed to win and did. Today, the\ncommunist forces that dominate Thailand's Laotian and Cambodian borders\nremember well from whence came the American planes opposing them in the past.\nB. Vietnamese Power\nThe Vietnamese, directly or indirectly, will dominate Indochina.\nTheirs is the strongest state in Southeast Asia:\n1. The Vietnamese army, including former South Vietnamese\nsoldiers, the best of whom will be absorbed into it, is the largest most\nbattle-tested and Best-equipped force in Southeast Asia--in fact, one of\nthe best in the world.\n2. The Vietnamese navy and air force are without peer in South-\neast Asia. The navy in particular will enable the Vietnamese to play a\ndominating role vis-a-vis other Southeast Asia states in the South China Sea\nand the Gulf of Thailand. With its navy Vietnam will be able to extend\nand protect its claim to fishing and oil resources in the South China Sea.\nConflict with Thailand and Cambodia over some of these resources seems\ninevitable. Indeed, the Thais and Cambodians will also be competing for\nthese resources.\nMEKALO R. FORD\nDECLASSIFIED\n3. The Vietnamese successes throughout Indochina against the\nleader of the capitalist world has vindicated Vietnamese military and\npolitical/psychological tactics and strategy. of revolutionary warfare.\n4. Vietnam will have political stability and national discipline\nunparalleled by any other Southeast Asian states. The current difficulties\nwith remnant ARVN military units in a few rural areas of South Vietnam cannot\nlast without outside support. The Lao Dong Party under North Vietnamese\ncontrol will eventually hold sway through the South just as it does in the\nNorth.\n5. Vietnam has a fairly strong resource base, and with the\nMekong Delta under Hanoi's control, can even become a major rice exporting\ncountry--and economic competitor to Thailand in this field. The long war\nforced Vietnamese of both the North and South to handle and maintain a vast\narray of technologically-advanced equipment. The skilled labor force thus\ncreated may have prepared Vietnam for a rapid industrial take-off if capital\nis available and more rapid exploration of resources other than coal occurs.\nThese elements of strength do not, however, guarantee success. Communist.\nstates have nowhere shown great skill in mobilizing economic resources to\ntheir fullest advantage. Failure to do so in Vietnam would, of course,\naffect our current estimate of Vietnamese power--both within and outside\nVietnam.\n6. Finally, the Vietnamese can continue to draw upon substantial\nSoviet (and perhaps Chinese) assistance. Indeed, they even have considerable\npolitical and moral support throughout the Third World. The long term con-\nsequences of North Vietnam's victory have yet to be fully witnessed.\nFORD\n6-\nC. American \"Withdrawal\"\nFor the Thai, American actions following the January signing of\nthe Paris accords in 1973 were for the most part enigmatic but were finally\nseen in the spring of 1975 to be an abdication of responsibility and effec-\ntive power in Southeast Asia. America appears as an uncertain, unreliable\nnation, lacking a sense of purpose for which it will develop and sustain\nalliances and other forms of cooperation with a small nation.\nThe Thai wish the truth were otherwise. They fear having to play\na power balance game with only the PRC, USSR and Hanoi, supported only by\ntheir much weaker ASEAN associates. They need a strong non-communist leg\nto pivot on as well.\nWhat of the Thai-American \"alliance?\" American leaders have\nspoken about continuing to honor commitments and remaining true to \"allies\nin Asia.\" But hardly any public notice and no discussion has taken place\nconcerning the nature and scope of American interests in and commitment to\nThailand or how those commitments might best be honored. US Congressional\nand to a lesser extent State Department disenchantment with Southeast Asia\nis obvious. Suddenly Thailand seems to stand alone, without reliable non-\ncommunist moral, political and economic support in a period of fearful un-\ncertainty.\nIt is little wonder that the Thai at first seemed to have panicked\nin their search for a new source of security. Much of the current vocal\nanti-Americanism arises with leftist-oriented activists who resent past US\nassociation with the previous military government. For other Thais 3 however,\nLEALO FORD\nDECL\nthere is a feeling of disappointment; with the end of their usefulness as\nan American ally against communist expansion in Southeast Asia, they find\nthemselves seemingly discarded--written off along with Indochina.\ngir\nSome rationality has since returned. Thai-Chinese relations seem\nto be off to a good start. The Thai Government in August 1975 announced that\nan undisclosed number of American military advisors. would be permitted to\nremain in Thailand after US forces are withdrawn. Though the Thai joined\nthe Filipinos in calling for a phase-out of SEATO, they have not renounced\nthe Manila Pact which is their only formal security link to the US.\nThe Thai do not want to join an anti-American crusade in South-\neast Asia, but they have still not had much of an indication that the United\nStates wants to retain an active and close relationship with Thailand.\nApparent American insensitivity to the Thai plight and pique at Thai criti-\nGisms of the American presence in and policy toward Thailand will not make\nit any easier for the Thai to deal with the PRC; the USSR or the Vietnamese.\nSuch pique and insensitivity will, however, eventually compromise the still\nreasonable possibility for some continued US presence in Thailand and\nthereby the prospects for maintaining a balance with rising communist\ninfluence in Southeast Asia in the future.\nFORD\nD. Adjustments with Communists\nThailand must accept high risk no matter which way it turns be-\ntween the Russians, Chinese or even the Vietnamese. Moreover, all three\nof these states practice and seek to propagate and impose a political pro-\ncess that threatens to destroy, directly or indirectly, the Thai social-\ncultural-political system. The threat is not territorial rather it aims\nright at the heart of the Thai way of life and national identity. The\nThai fame for diplomatic dexterity is derived from 19th Century balancing\nof British imperialism expanding through Laos and Cambodia. The Thais\nmaintained their independence through a variety of concessions, including\nsome territory.\nThe central issue today is not necessarily the preservation of\nThai territory (although Hanoi may wish to include certain Northeastern Thai\nprovinces into an expanded Laos) but the preservation of the Thai social-\npolitical system centering around the institution of the monarchy. This is\nthe nub of the Thai problem. The civilian and military elite who now run\nThailand may be signing their eventual death warrant if they belive that\ncompetition between the DRV, the PRC and the USSR will reduce support from\nthese states to any communist efforts to destroy the present system. Thai\naccept somewhat less risk in trying to develop a \"working\" relationship\nwith the PRC and could play them off; against the North Vietnamese. Success,\nhowever, depends on (1) how sincere China is in its claims that it does not\nseek \"hegemony\" in Southeast Asia; and (2) how intensely Hanoi decides to\npush the northeast insurgency, thereby forcing competition with the Chinese.\nCONFIDENTIA!\nE. Insurgency\nThe Chinese are in a favorable position to exploit Chinese\nminorities in Thailand\nI\nand also\n(ats)\nsupport insurgents in their efforts to compete with the Russians and\nVietnamese in Southeast Asia. The Vietnamese, too, can and do play a\nmajor role in the Northeast Thai insurgency.\nThe Thai have active communist guerrillas in various areas on\nvirtually all borders.\n50\nAt the very least, the\nPRC and DRV can keep the insurgents active enough to continuously \"bleed\"\nThai efforts to achieve effective momentum in their economic, social and\npolitical development programs.\nThe Thai elite are now trying to preserve the special character\nand cohesiveness of the Thai institutions and values that enabled Thailand\nto survive previous threats to its existence. This elite must now institute\nand successfully manage a regenerative revolution that will bring greater\nsocial and economic justice to the great majority of the Thai people.\nThe Thai leadership recognizes that strong domestic institutions provide\nthe best protection against subversion, as well as provide the sinews\nagainst external aggression.\n(\n1,3\n(a)(s)\nFORD\n-10-\nCONFIRENTIAL\nI\nHowever much the Thai smile at the communist neighbors,\n1.3\nit is highly unlikely that any of them (except possibly the PRC) want\n(ats-)\nThailand to become a truly successful, non-communist democracy in stark\ncontrast to communist Indochina. Certainly, the Communist Party of Thai-\nland does not want to see a successful Thai democracy, and it will do all\nit can to get outside support to keep up the insurgency--most especially\nif the government begins to develop successful momentum toward partici-\npatory government.\nF. Internal Political Restructions\nOne of the most frustrating of all the new realities the Thai\nmust deal with is the fact that they are trying to restructure their\nentire political process. The Thai are engaged in creating a viable\nconstitutional and responsible political system to replace the military-\ndominated, clique-oriented political process the students overthrew in\nOctober 1973. The \"institutionalization\" of their new processes and\nsystems, however, has hardly begun.\nThai foreign policy is no longer the personal preserve of a\nfew army and air force marshals.\nI\n1.3\n(ats)\nThai academics, students, political activitst, parliamentarians, political\nparties and other government agencies all aspire to some voice in defining\nThai foreign policy. Currently, the more leftist-oriented elements in all\nGELANO FORD\nU\nthese groups make the most noise, but Prime Minister Khukrit Pramot\nappears capable of coping with them. Nevertheless, the sense of abandon-\nment created by the US debacle in Indochina, the new realities issuing\ntherefrom and the myriad of disparate pressure groups seeking a voice\nin foreign policy does not give Thailand a stable domestic platform on\nwhich to develop its options in Southeast Asia.\nIII. THAI FOREIGN POLICY OPTIONS AND OBJECTIVES\nThe primary Thai foreign policy problem is how to adjust to these\nnew realities in a way that will preserve the Thai Monarchy, their\nBuddhist faith and basic Thai \"way of life\" under non-communist government.\nA. Options\nThai foreign policy options are at least six in number with\nsome overlap in a few of the options.\n1. Active Neutrality. Withdraw from SEATO, end active mili-\ntary cooperation with the US. Remain active in ASEAN. Establish a\n\"cooperative\" relationship with the PRC. Establish at least correct,\nnon-antagonistic relations with Hanoi. Accept limited expansion of Soviet\npolitical presence. Continue to accept Japanese economic assistance as\nwell as increasingly limited US aid, but look more and more to multi-\nlateral organizations.\n2. Adopt an Active Pro-Peking Foreign Policy. While attempting\nto retain a non-communist political system, seek Peking's support for\ncurbing any Vietnamese or Soviet interference in Thai foreign and domestic\nFORD\nTHALD\n1030\n-12-\nDECLASSIFIE\npolicy and reduction or cessation of all outside material support for\nThai insurgents. Cool relations with the US to the extent Peking thinks\nis desirable.\n3. Acquiesce to All Vietnamese Terms for Establishment of\nDiplomatic Relations. Cut all ties to SEATO and the Manila Pact and\ncease military cooperation with the US in any form. Follow Hanoi's lead\nin foreign policy whenever necessary. Definitely avoid opposing Viet-\nnamese interests and activities in Southeast Asia. Lobby on Hanoi's\nbehalf in ASEAN and perhaps the UN. Accept on faith that the Vietnamese\nwill cease support for the Thai insurgents.\n4. Seek An \"Adjusted\" But Continued Close Relationship\nwith the United States. Reduce if not eliminate US military presence,\nbut consider granting \"reentry rights,\" Seek \"correct\" relations,\ngenerally anti-Soviet in character, with Peking. Be prepared to establish\nrelations with Vietnam, but not on a capitulation basis. Make ASEAN a\nmajor focus of attention and actively work to make it a politically effec-\ntive force in Southeast Asia--with or without Hanoi, but certainly not\nsubservient to Hanoi.\n5. Adopt a Pro-Soviet Posture but Not Actively Anti-Peking.\nKeep Chinese and Vietnamese at arm's length and rely on Soviets to en-\ncourage cessation of Vietnamese support to the Thai insurgency. With-\ndraw from SEATO and the Manila Pact and end close relations with the US.\nRemain in ASEAN, but generally inactive except where Soviet interests are\ninvolved.\nFORD\n1030\n6. Low Profile, Burmese-Style Neutralism. Retrench.\nAntagonize no one, most especially the communists. Have only formal\nrelations with major powers; accept only limited assistance, if any.\nWithdraw from SEATO and Manila Pact; become inactive in or withdraw from\nASEAN.\nB. Thai Foreign Policy Objectives\n1. Detente--Peaceful Coexistence with Communist States. A\ncommon theme in all of these options is the clear rejection of any active\nanti-communist effort in Thai foreign policy. The Thai will, within\nreasonable limits, avoid antagonizing communist states in Asia--most\nespecially the North Vietnamese. They will try a policy of peaceful co-\nexistence. Thai relations with Laos and Cambodia will be tense, although\nnot intentionally antagonistic from the Thai side. Thailand may have an\neasier time trying to normalize relations with Cambodia than Laos--\npartly because Cambodia seems to be trying to tend to its own house first\nand ultimately may be able to express its anti-Vietnamese feeling more\nsuccessfully than the Pathet Lao. Continued Pathet Lao and NVA support\nto the northeast insurgency will remain a constant source of anxiety.\nBurmese-style neutralism, however, is definitely not a\nviable objective for Thailand. It has not helped Burma make much progress\non its economic and social development problems; it certainly seems out\nof character for the Thai in any case. (What could be done with Bangkok's\nluxury tourist hotels?)\nFORD i 076839 LIBRARY\n-14-\nThe best Thai option, therefore, seems to be a combina-\ntion of options--A.1 and A.4 above--which might best be described as\nactive, selective neutralism. The Thai will attempt to reach \"detente\"\nwith communist states, but will try to \"hedge their hopes\" by retaining\na viable political and economic relationship with the United States\nand working toward making ASEAN an active political fact of life. The\nThai will continue to expand relations with as many non-communist states\nas possible, but seek a qualitative balance with them. They will try\nto develop a cooperative relationship with the PRC, achieve \"correct\"\nrelations with the communist states in Indochina, but avoid a pro-Soviet\nor Vietnamese policy that would risk raising the ire of the Chinese who\nare in a better position than the Soviets to make life difficult for the\nThai through the insurgency or Chinese minorities. The Thai hope that\nthe Chinese will limit their material support to the Thai insurgency,\nand encourage the Vietnamese to do the same. The Thai seem to recognize\nthat such expectations may not be realistic, but they have no choice.\nThe Chinese and Vietnamese will always retain the option to do whatever\nthey want with the \"National Liberation\" movement within Thailand.\n3. ASEAN: Source of Political, Psychological and Economic\nSecurity. Thai Ambassador to the United States, Anan Panyarachum,\nspeaking before the American Association for Asian Studies in April 1974,\nstated that ASEAN must become a political fact of life in Asia. The\nGELANIA R. FORD\nJ5\nASEAN states need to move more purposefully toward close political and\neconomic cooperation both within Southeast Asia and in larger world\nbodies such as the UN. Thailand may now seek much closer working arrange-\nments with the ASEAN states, particularly within the ASEAN framework.\nThailand could seek strength in numbers and hope that her fellow ASEAN\nstates would all recognize that their best interests demand far closer\ncooperation and interdependence than has been the case in the past.\nDevelopment of ASEAN into a political fact of life would greatly enhance\nthe prospects for retaining political integrity and long term security.\nASEAN's future and Thailand's participation therein, as well as its\n\"active neutrality,\" however, will be very much affected by the intentions\nand actions of the major powers in Southeast Asia.\nIV. THE INTENTIONS OF OTHERS: HANOI-PRC-USSR and JAPAN\nA. Vietnam\nThe intentions of the Lao Dong Party and its Politburo in\nHanoi remain at this writing the major unknown in the future of inter-\nstate relations in Southeast Asia. As outlined above, Vietnamese political\nand military strength is without parallel among the states of the region.\nIf Hanoi decides that ASEAN must not become a political fact of life that\ncompromises in any way Hanoi's potential preeminence, ASEAN's future\ndevelopment will be difficult, if not impossible. The Vietnamese are not\nlikely to accept gracefully the prospect that ASEAN could become a more\nviable political and economic entity than Indochina under the Lao Dong\nParty.\ni\nFORD\nCALD\n-10-\nThe ASEAN states currently have no intention of an ASEAN\n\"confrontation\" with Hanoi. They are toying with the idea that ASEAN\nshould include Vietnam, Laos and Cambodia. Once in Vietnam would, how-\never, tend to try to dominate the organization. The Vietnamese might\ntry to move ASEAN toward the radical left in the Third World \"campaign\"\nagainst the great powers. The Indonesians, the Filipinos and Lee Kuan Yew\nin Singapore would not likely accept such Vietnamese politicking for\nlong and ASEAN would soon disintegrate.\nEven from outside, however, Vietnam could try to seriously\nimpair ASEAN's future. Vietnam could attempt to play on Thailand's\nfear of antagonizing her and try to pressure Thailand into a pro-Vietnam\nposture that would at least inhibit full Thai participation in ASEAN.\nWithout Thai participation ASEAN would be measurably weaker than a\nVietnam-dominated Indochina.\nIn light of Khukrit's recent trip to Peking, however, and the\napparent successful establishment of friendly relations between Thailand\nand China, the prospects for Vietnames meddling in Thai foreign affairs\nseem less bright than they were wieh Saigon collapsed. In addition, the\nother ASEAN members could also decide to challenge Vietnam and provide\nfull support to Thailand in order that Thailand might acquire sufficient\ninternal resiliency to stand and resist any Vietnamese political harrass-\nment. The prospects for some increased polarization of Southeast Asia,\nnevertheless, seem high no matter what the PRC and the USSR intend to do\nin the area.\nFORD i LICAL\nB. PRC\nThe PRC is primarily concerned with the possible expansion of\nSoviet political if not military \"presence\" in Southeast Asia, and believes\nsuch expansion will be inevitable if the US moves out entirely. However,\nChina is not likely to tolerate a higher level of influence for Vietnam\nin Southeast Asia than China itself can obtain. Chinese-Vietnamese\nhostility is likely to increase in the future, thus providing opportunities\nfor increased Soviet \"activity.\" The PRC could, therefore, as its state-\nments during Khukrit's visit to Peking indicate, become a strong \"neutral\"\nsupporter of ASEAN and thereby help limit the regional influence of either\nHanoi or Moscow. The Thai expectations that the Chinese will not be too\ndemanding in dealing with Thailand and could support some Thai interests\nin Southeast Asia are not entirely naive. Indeed, the Chinese themselves\nseemed to go out of their way during Khukrit's visit to caution the Thai\nabout the dangers of being so concerned about wolves (the Americans) at\nthe front door that bears and tigers come in the back door (the Russians\nand Vietnamese).\nC. USSR\nHow deeply do the Soviets worry about the Chinese? How intent\nare they on \"containing China?\" Is a potential military threat on China's\nsouthern flank necessary and worth the risk of higher tension between\nthe PRC and the USSR should Soviet warships call at Cam Ranh Bay? Can\nthe Russions, by improving their political presence and relations with\nFORD\nito\nThailand and other Southeast Asian states, limit Peking's influence in\nthe area without military risk? Currently, the Soviets are increasing\ntheir activities in Laos and trying to expand their mission and activities\nin Thailand. If they ever do intend to gain a toehold in Southeast Asia\nthe Soviet may wait until their political relations are stronger and\nmore \"accepted.\" In the final analysis, the Chinese, through Chinese\nminorities, insurgency and physical presence, are in a better position\nto harm or help the ASEAN states. The PRC will not look kindly on any\nattempts by Thailand to \"cozy up to\" the USSR. The Thai are aware of\nthis fact and are unlikely therefore to go beyond \"correct\" relations\nwith the Soviets. Nevertheless, PRC concern over the Soviets will affect\nthe nature of Peking's influence in Southeast Asia by requiring that\nPeking treat its neighbors, such as Thailand, perhaps a bit more circum-\nspectly.\nD. Japan\nThe Japanese will remain primarily motivated by their economic\ninterests in Southeast Asia. They will, however, attempt to improve their\nbusiness image in each country. The Japanese remain a major source of non-\ncommunist capital, and assistance and over the long run will still be more\nwelcome as a \"neutral\" source of economic assistance and investment than\nany of the major communist states. Japanese trade relations and transit\nroutes through the region are vital to Japan's economic well-being. The\nJapanese will sustain their economic activity in Southeast Asia, although.\nTHE\nFORD\n1030\nthey will \"package\" it more attractively and will cooperate more with\nregional institutions such as ASEAN and the Asian Development Bank. In\nThailand, for example, the Japanese apparently intend to help the Thai\nincrease their exports into Japan. Japan has recently converted its\nTrade Center (JETRO) into a \"reverse trade\" center.\nVI. THAILAND AND THE UNITED STATES\nThe President and Secretary of State continue to reaffirm American\ncommitments in Asia. The United States has no intention of withdrawing\nits support to its Asian allies. Curiously, public declaratory state-\nments rarely mention Thailand. There have been a number of low key actions\nby the US that demonstrate the sincerity of American interests in and\nsupport for Thailand. The Thai, however, know that most members of the\nAmerican Congress are indifferent to Thailand and seem to lump it with\nthe \"it shouldn't have happened disaster\" in Indochina. Since Indochina,\nthe President's words reach Asia's skeptical leaders only when they have\nstrongly-expressed Congressional support.\nFinally, there is lacking a clear definition of a creative, long term\nAmerican purpose in or toward Asia. The need to reassess American\ninterests and options after Vietnam explains the current uncertainly in\nAmerican policy. Even if the US spells out its interests and commitments\nin Southeast Asia and gains firm US Congressional support for them, the\nThai have no choice but to try to make the best deal they can with those\nwho currently pose the major external threats to Thailand's national\nintegrity.\ni\nFORD\ngilo\n20\nCONFIDENTIAL\nAn American Opportunity\nBecause of the nature of its relationship with Thailand since the\nend of World War II, the US has acquired some responsibility concerning\nThailand's future. The responsibility continues regardless of the out-\ncome of America's Indochina involvement. The responsibility is a subtle\none, bordering on a debt of honor for Thai willingness to permit the\nUnited States to bases so many of its Indochina-oriented operations on\nThai soil. An honorable great power should not forget such an obli-\ngation.\nBut beyond whatever \"obligation\" the US might have toward the Thai\npeople for the easements that their erstwhile\ngive\nleaders made with us, there are other US relationships with Thailand\nwhich should place US ties with Thailand in a special category. These\nrelate to the preponderant role which the US has played in the moderni-\nzation of Thailand in the past quarter of a century. In many ways the\ninteraction the United States has experienced with Thailand approximates\nthat which the country has had with the Philippines and South Korea.\nThe past quarter of a century of intimate and many-sided mutual\ncooperation between Thailand and the United States has helped bring about\nconsiderable transformation in Thailand's economic structure and has\nintroduced a variety of social and political changes, particularly in\nurban areas. Much of Thailand's hydroelectric power, major port\nfacilities, airports and its major road networks throughout the Kingdom\nCONFIDENTIAL\nFURL & CITYZO LIEBERY\n1930\nare a direct result of American assistance. In the field of institutional\ndevelopment, American assistance played a major role in establishment\nof the Thai Bureau of the Budget, the National Institute of Development\nAdministration and the District Officer's Academy. The American economic\nassistance program has provided training in the US and third countries\nfor over 10,000 Thai. The military aid program has trained another\n14,000 Thai military officers. Private American foundations (Ford, Asian\nand Rockefeller) and private business have also added considerably to\nThailand's pool of skilled manpower--which numbers in the hundreds of\nthousands if one included those Thai who have worked for and been trained\nby American military forces, government agencies and private industry in\nThailand.\nMany of the Thai academics and student leaders who played leading\nroles in the October 1973 uprising and the organization of new political\nactivist, labor groups and political parties since then had come to the\nUnited States to study during the 1960s and early 1970s. As a final\nexample, all four of the new members of the Board of Governors of the\nBank of Thailand received their PhDs in the United States.\nThe United States has, in effect, played the leading role in training\nthe rising generation of Thai leaders, who are about to run the country\nif they are not swept aside by communist revolutionaries. They should be\ngiven the chance to reform the old Thai bureaucratic political system\nHERALD\n1030\nand bring about a more performance-oriented, constitutionally based,\nresponsive social and political order with the overall support of an\nenlightened Thai Monarchy.\nIn recent years, the tempo of the Thai internal evolution has never\nbeen faster. In part this can be traced to the considerable infusion of\nAmerican and other Western ideals into the Thai social-political structure.\nIt was not accidental that the motto of the October 1973 revolution was\nLincoln's \"of the people, by the people, for the people.\" The US\ncannot gracefully abandon a people whose coming leadership has so acknow-\nledged the potential relevance of some of our ideals to their development\nneeds.\ni\nFORL\nGERALD\n030\n23\nCONFIDENTIAL\nPOLICY RECOMMENDATIONS\nThe United States should reaffirm its devotion to its ideals by helping\nto assure their survival in a beleaguered country which in its own way is\ntrying to put them into practice.\nSpecifically, the US should:\nA. Continue to withdraw its combat forces from Thailand, but not\nfaster than the Thai themselves desire.\nB. Continue to maintain some American military advisors and a\nmodest MAP and FMS program to help reorient and enhance the Royal Thai Army\nand police forces' capacity to combat insurgency.\nC.\nD. Remain flexible on termination date for US agriculture and popu-\nlation programs in Thailand. The US should explore with the Thai the feasi-\nbility of closer cooperation in these areas with additional assistance pro-\ngrams from Australia, the Republic of China (despite termination of diplo-\nmatic relations) and Japan. It is entirely possible that opportunities\nexist for new efforts (or even resurrection of some past efforts) in rural\ndevelopment programs that did not exist under the political-social con-\nditions prior to October 1973. US and Thai economic and social development\nplanners have since October 1973 engaged in little sustained two-way\n1030\nGERALD FORD\n24\ndialogue on the relationship between political and economic development\nand how the political and social changes now underway in Thailand either\nopen new opportunities or frustrate more rapid and equitable economic\nprogress for all the people of Thailand.\nThe US Government should reconsider with the Thai Government the\noverall development needs of Thailand and how international consortia\nmight best assist the Thai to meet these needs. (See Economic Appendix.)\nThe US could take the lead in trying to obtain funds through these con-\nsortia for Thailand.\nE. Try to find a way to develop an informal dialogue between US\nCongressmen and Thai Parliamentarians that could perhaps lay the founda-\ntion for a new Thai-American relationship that does not rely on a US\nmilitary presence in Thailand or even extensive economic assistance pro-\ngrams. The US Executive Branch would not involve itself directly in a\nUS Congress-Thai Parliament dialogue. The purpose of such a dialogue,\nhowever, would be to:\n1. Explore Thai perceptions of the precise role the United\nStates can usefully play in Southeast Asia, how Thailand fits into the\npolitical/security balance in Southeast Asia and what the Thai on their\nown are prepared to do to help the US play the role they belive it should.\n2. Understand the current status and direction of political,\nsocial and economic change in Thailand and the nature of US interest\ntherein; and\nGENALO H. FORD\n1030\n25\nDECL\nCONFIDENTIAL\n3. Define precisely the nature and scope of social, economic\nand military assistance the US might render Thailand over the next 3-5\nyears.\nThe benefits of this approach go beyond the development of a\nbasis for a more clearly thought out assistance program that really helps the\nThai Government reach the common man in Thailand. A Thai Parliament-US\nCongress dialogue would also:\n1. Encourage the Thai to continue their \"peaceful political\nrevolution\" and thereby help increase the Thai military's tolerance for\nthe newly emerging political process.\n2. Assure the Thai that even though American forces will not\nbe used in Thailand, the United States does consider Thailand's political\nand territorial integrity important and worth assistance by other means.\nThailand will not be left standing alone against the potential and sub-\nversive threat of North Vietnam.\n3. Establish the basis for a continuing but more creative\npolitical and psychological \"presence\" in Southeast Asia that does not\nnecessarily depend on a military presence or military bases.\nFORD it LIBRARY\nCONFIDENTIAL\n5. Indonesia: Great Expecta-\ntions (Ann. 8)\nCONTHIENTAL\nOctober: 31, 1.475\nINDONESIA: GREAT EXPECTATIONS*\nA. Indonesia's Role in Southeast Asia\nMuch has been said and written about Indonesia's potential as a\nregional leader, and many contend that it is the natural counter to an\nincreasingly powerful and potentially aggressive Hanoi. In view of the\nsignificance attached to Indonesia, this paper seeks to examine the\nfactors which create such expectations, as well as those which may hinder\ntheir realization.\nIndonesia is the largest and most populous country in Southeast Asia,\nencompassing about half of the region's population and ranking as the fifth\nmost populated çountry in the world. It is an archipelago nation composed\nof more than 13,000 islands, stretching over 3,000 miles along the Equator\nfrom mainland Southeast Asia to Australia and Papua New Guinea. In\naddition, the archipelago sits astride the vital air and sea routes between\nthe Pacific and Indian Oceans. Along with its strategic location and\npopulation, Indonesia has a wealth of natural resources, not the least of\nwhich is oil.\nFor these and many other reasons, it is natural to look upon Indonesia\nas the future leader of non-communist Southeast Asia. Indonesia has played\na prominent role in the development of regional consciousness, and it\ncontinues to have significant though not dominant influence among the non-\ncommunist nations of the area. Jakarta undoubtedly aspires to a more clear-\ncut position of leadership, but is fully conscious that this is a sensitive\n*Annex 8.\nFCRD\n07.13.\nCONFIDENTIAL\nLIBIAST\n-2-\nissue with its neighbors, dating back to Sukarno days.\nNevertheless, Indonesia is exceedingly active in seeking to achieve\nregional stability, for it views such stability as having a direct effect\non Indonesia's development. It has, moreover, worked out a fairly specific\nidea of how it wishes the area to develop.\nJakarta proclaims a position of non-alignment and sees this as the\neventual goal for most of the region. This version of non-alignment is\nnot, however, doctrinaire in the usual Third World sense, but has instead\nprovided a cloak of Third World respectability which allows Indonesia to\npursue independent policies which often have been in line with US interests.\nThe communist victories in Indochina have significantly heightened\nthe urgency which Indonesia places upon the development of regional cohesion\nin Southeast Asia and the growth of political, economic and (largely behind\nthe scenes) military cooperation among the non-communist states of the area.\nThe speed with which the communist victories took place upset the Suharto\nGovernment's calculations that they still had some years to develop their\ninternal strength before confronting, if they must, a successful Hanoi.\nWorking particularly through ASEAN, the five-member Association of South-\neast Asian Nations, Indonesia seeks the emergence of a group of states\nwhich eventually will be strong enough militarily, economically and\npolitically both to prevent outside interference in the affairs of the\nregion and to allow Southeast Asia, particularly Indonesia, to pursue an\nindependent, self-reliant future.\nThe Indonesians know that this goal is not yet at hand. For the\npresent Jakarta hopes to see the maintenance of a balance of the major\nforces in the area--the US, Japan, USSR and China-- which would preclude\nthe dominance of any one (particularly the PRC) and would allow the regional\nFCED\nnations time to adjust to the changes in Indochina and to strengthen their\nown positions. For the present Jakarta sees China as the primary external\nthreat, with the USSR and Japan as potential meddlers in the region.\nB. Communist Powers in Southeast Asia\nOf particular significance are Indonesia's perceptions of the current\nplay of forces in Southeast Asia. While Indonesia does not at this time\nanticipate a direct overt threat from any of the communist powers, including\nHanoi, it is concerned about possible increased subversion and support to\nexisting or potential insurgency movements in various ASEAN countries,\nparticularly in Malaysia and Thailand. The main thrust of policy adjustment\nfor Indonesia is not so much to placate the communist countries, as is the\ncase with its more exposed neighbors, than it is to place even greater\nstress than in the past on the concept of \"national resilience\" (the mobili-\nzation and utilization of the nations' own resources in the defense of\nits interests), and to take precautions against possible flow of arms and\nagents from Indochina to Indonesia.\nIndonesia has relations with Hanoi which, as in the case of Pyongyang,\nhave continued uninterrupted since the Sukarno era. In contrast to\nThailand and the Philippines, it is not pressing to reestablish relations\nwith Peking, although there appears to be a split in the Indonesian leader-\nship on this issue that dates back several years. Foreign Minister Malik\nbelieves that Indonesia should proceed to reestablish relations with\nChina, while a number of key Indonesian military leaders reportedly\nremain firmly opposed. Indochina developments may be a factor in Malik's\nrenewing the question at this time, but his position is believed to be\nbased more on the changed Chinese posture of the last few years, PRC entry\ninto the UN and Chinese detente with the United States. Longstanding,\nFORD\nxenophobic feelings toward the Chinese are likely to prevail for the\nforeseeable future.\nAs for the USSR, Indonesia, and Malik in particular, has sought in\nthe last year to improve relations with the Soviet Union and Eastern\nEurope, partly as a means of eliciting an alternative source of aid and\npartly reflecting multi-power diplomacy. In this Indonesia has had some\nsuccess, as the Soviets have promised to restore certain of their long-\ndisbanded aid projects. However, the Soviets continue to have no real\nentree to Indonesia and will be allowed a limited role only to the degree\nthat it suits Indonesian convenience, and that will be within severe\nlimitations and with great suspicion.\nIn short, Indonesia will hold both major communist powers at arms\nlength and will view Hanoi with suspicion and reservation whatever its\ndeclaratory policies may be. It will seek to play off the communist\npowers against each other and will provide little room to any of them to\nexert significant influence. The two major communist powers will include\nIndonesia in their state-to-state courting activities, but less strongly\nthan in more favorable terrain, and will maintain a cool or correct friend-\nship with Indonesia as a balance against the other. The major power\nequation as it involves the communist countries is hence of secondary\nconsideration, although the Indonesians may attempt to raise its importance\nin conversations with the US officials for obvious reasons of national\nself-interest.\nC.\nThe Role of ASEAN\nThe current primary vehicle for Jakarta's regional aspirations is\nembodied in the Association of Southeast Asian Nations (ASEAN). Following\nFORD\nF330\nthe Indochina War, Indonesia has been a leading spokesman in favor of\nstrengthening ASEAN's \"regional resilience\" and has attempted to promote,\nthrough the organization, a Southeast Asian bloc with sufficient internal\ncohesion to discourage outside interference fostered by the potential\nthreat of Hanoi and by the clash of great power interests.\nThere is considerable debate among Indonesia watchers as to the impor-\ntance the Indonesian leadership attaches to ASEAN. Some argue that\nIndonesia's interest in ASEAN goes only as far as its usefulness to\nJakarta, but in reality this statement could be made about all ASEAN\nmembers whose national interests are of primary concern. The argument is\nput forward that the military leaders in Indonesia, with whom decision-\nmaking power rests, do not support ASEAN as enthusiastically as officials\nwithin the civilian government and would drop out of the organization\nshould it entangle their interests to the point that their choices become\nlimited. Here again, however, this same attitude applies to the other\nmember nations.\nWhat is most significant regarding ASEAN is that, since the spring of\n1975, its solidarity is looked upon by all the member nations as a necessity\nfor stability in the region. Indonesia is no exception in this instance,\nand its leadership comprehends perhaps more than most the urgency with\nwhich the ASEAN nations must create a sense of unity and collaboration\nwhich, combined with a balance of the great powers, appears to Jakarta to\nbe the best possibility for at least short-term regional stability.\nThere is disagreement as to whether or not Jakarta desires the\neventual membership of Indochina and Burma into ASEAN. If, as some claim,\nIndonesia perceives no territorial threat from Hanoi and believes that\nrund\nHanoi would peacefully join the Southeast Asia community, this view is\nacceptable. However, some argue that the Army leaders perceive a threat\nfrom Hanoi and envision Southeast Asia divided into two core groups,\nwith Indonesia leading one and Hanoi the other. Still others insist that\nIndonesia looks upon ASEAN as a potential military force in the region.\nThe varied viewpoints with regard to decision-making in Indonesia reflect\nthe complexities of its power structure, and perceptions of the goals and\npriorities set by Jakarta are subject to much debate. However, it seems\napparent that ASEAN's potential, for whatever purpose they choose for\nit, will remain a primary target of Indonesian foreign policymakers in\nthe foreseeable future.\nD. Indonesian Non-Alignment\nAs a charter member of the non-aligned group, Indonesia has made\nindependence in international affairs a mainstay of its foreign policy.\nNevertheless, since Suharto took power in 1966 Indonesia has been more\nsympathetic to the western point of view while maintaining correct but\nrather formal relations with the USSR and ending all diplomatic contact\nwith the PRC. It has been helpful to the US in a number of international\nmatters; its membership in the Vietnam ICCS, its troop contribution to\nthe Middle East UNEF, its attempt to preserve the seat of the former\nLon Nol government at the 1974 UN General Assembly, and various other\nactions.\nWithin the Third World, the Government of Indonesia has adopted\nmoderate, non-confrontational positions. Indonesia continues to set great\nstore by its non-aligned status, which occasionally leads it to adopt\npositions opposed by the US. Indonesia's stand on North-South economic\nFUND\nASSIFIED\nrelations and the proposal for a New International Economic Order (NIEO)\nis moderate; it does not wish to alienate the US, Japan and Western\nEurope, but it remains skeptical about how far the US is willing to go\nin meeting what the Indonesians construe to be the legitimate demands\nof the Third World. It perceives positive advantages to be gained from\ncommodity agreements or other mechanisms to transfer capital to the LDCs,\nbut is cautious to avoid a negative reaction among its aid donors.\nIn the face of the spring 1975 Indochina events, Indonesia sees the\nneed and importance of a continued, though not necessarily permanent, US\npresence in the area. This presence may be a modified one in comparison\nto the past role, as for example in terms of the number and extent of US\nbases in the area. Jakarta undoubtedly looks to the US as the most\nacceptable and least threatening of the major powers in Southeast Asia.\nE. The Recent Past\nFollowing a pattern familiar in newly independent countries, Indonesia's\npost-independence experiment with parliamentary democracy in the 1950s\ngave way late in the decade to Sukarno's authoritarian rule. Under Sukarno\nthe pursuit of Indonesian objectives became progressively more belligerent\nand anti-West. The strident campaign to take over West Irian was followed\nby the even more disruptive confrontation against Malaysia which culminated\nin Indonesian withdrawal from the UN. Dutch, British and finally American\nholdings were nationalized. Meanwhile Sukarno's aspirations to Third\nWorld leadership contributed still further to anti-western postures and\nto increasingly close identification with Moscow and Peking, particularly\nthe latter.\nThe Army displaced Sukarno following the unsuccessful left-wing coup\nattempt of 1965, and the Indonesian Communist Party (PKI) was shattered\nin the late 1965, early 1966 upheavals when hundreds of thousands were\nkilled or imprisoned.\nGeneral Suharto took over from the discredited Sukarno with the\nsupport of most major elements of Indonesian society, as well as with the\n(essential) backing of the Army. Sukarno's foray into Third World leader-\nship took a tremendous toll on all aspects of Indonesia, particularly its\neconomic condition, which he had virtually ignored. President Suharto\nimmediately set about to correct matters. His government reversed the\ndirection of foreign policy, dropped confrontation and posturing on the\ninternational stage, rejoined the UN, repaired its relations with the\nUS and the West, and turned to the West for relief from the burden of\nmassive foreign indebtedness and for economic aid to restore Indonesia's\nshaken economy. Domestically, it gave first priority to development and\nto restructuring the Indonesian political system.\nThe Suharto government's economic policies were strikingly success-\nful during the early years. The economy was stabilized, rampant inflation\nbrought under control, massive foreign aid attracted, and a sizeable\nincrease in the GNP achieved through well-conceived development plans.\nDespite its domination by the military, the regime exercised a marked\nrestraint in military expenditures. The regime's achievements, plus its\nmoderate and cooperative foreign policy, created an impression abroad of\nIndonesia as pretty much a model developing country. As with other\ndeveloping countries, however, the problems of management have duplicated\nat a rapid pace, and a reordering of priorities has become a necessity.\nT. FURC\nF. Prospects for Internal Stability\nWhile Indonesia has a multitude of strengths that distinguish it from\nthe defeated Indochina regimes, a complex of severe socio-economic and\npolitical problems threaten in the longer run to erode the country's\npresent stability. Population pressure is the most intractable of these\nthreats, with Java's 80 million people already as densely crowded as\nalmost any on earth. Administrative inadequacies and a severe shortage\nof skills hamper attempts to overcome the resulting unemployment and\ndislocation. Corruption, endemic in Indonesia at all levels, has been\nincreasing alarmingly and is progressively alienating former supporters\nof the Suharto government. Reacting to its dwindling popularity, the\nGovernment of Indonesia has adopted authoritarian practices that have further\nnarrowed its base. At present the Suharto Government remains firmly in\ncontrol; however, the future picture could be more ominous unless the\nGovernment is able to carry out major reforms which significantly improve\nthe lot of its people.\nAlthough Suharto's regime accomplished a great deal in improving\nIndonesia's economic and political status following Sukarno's disastrous\nreign, the policies pursued have not, as noted above, served to raise the\nstandard of living, particularly among the increasingly indigent population.\nFor example, planned projects for the next five years include such new\nindustries as a $1 billion copper mining complex that will employ about\n600 workers, a $1 billion steel mill which may employ a few thousand, and\nan Alcoa aluminum project costing approximately $1.25 billion which will\nemploy 2,000. Such planning is hardly responsive to the needs of a country\nwhose unemployment rate is approaching 40%. Priority has been given to\nindustrialization in a country which consists of an 80% rural population\nand agriculture-related jobs are rapidly being taken over by machinery.\nIn fact, largely due to modernization within the agriculture and fishing\nindustries, the population trend is moving more toward the already over-\ncrowded Java cities, thereby adding to their population and unemploy-\nment woes. This situation is likely to increase prospects for restlessness\nand lawlessness, which in turn may spur the Government toward stronger\nauthoritarian rule.\nThe most dramatic sign that all is not well with the Suharto regime\ncame in January 1974 with the Jakarta riots, triggered by the visit of\nthe Japanese Prime Minister. Paradoxically, Chinese merchants were a\nmajor target of these riots. Shocked by this unexpected manifestation of\ndiscontent, the regime reacted by jailing opponents and imposing further\nrestrictions on political expression.\nUnless the Suharto Government is able to deal more effectively with\nthe immediate concerns of its population, it would not be illogical to\npredict additional such protests of considerable magnitude, with a\npotential for severe internal upheaval.\nG. The Economy\nSince 1968 the Indonesian economy has grown at about seven percent\nannually. An inflation rate which had reached 640% in 1966 was stabilized\nby 1968, although in recent years rice shortage and the effects of overseas\ninflation have revived inflationary tendencies somewhat. Impressive\nadvances were realized during Indonesia's first Five-Year Plan (1968-1973):\nthe mining sector, led by petroleum, grew by 180%, the manufacturing sector\nby 67%, construction by 180%, transportation by 80%, and trade by 77%.\nWhile these sectors constitute 48% of the GNP, they employ only 21%\nof the work force. The agricultural sector, comprising 40% of the GNP\n1930\nASSIPIED\nand 60% of the labor force, grew only 14%. Taking into account population\ngrowth of 11-13% during the Plan period, this constituted essentially no\ngrowth.\nThe Suharto regime has taken a positive approach to population\nplanning, and (along with foreign aid donors) has vigorously supported\nprograms in family planning that give promise of favorable results in\nseveral areas. When the magnitude of the problem is considered, however,\nit is obvious that the surface has barely been scratched. Demographers\nstill foresee the possible doubling of the populations of already grossly\novercrowded Java, Madura and Bali by the year 2000, to 150-160 million\npeople out of a total of 225-230 million.\nAlthough agricultural output has increased with government-subsidized\ninputs, Indonesia must still import a substantial quantity of its staple\nfood, rice, 240,000 tons of which are scheduled to be imported in FY 1975-76\nto help meet a projected consumption of about 17 million tons. Estate\nagriculture, especially many of the former Dutch rubber and sugar estates,\nis still being rehabilitated. The Indonesian Government has a good\nagricultural development plan, but it will be necessary to place even\ngreater emphasis on food production in an effort to become self-sufficient.\nThe role of outside investors in Indonesian rice plantations is signifi-\ncant to this effort.\nA commendable start has been made by the Suharto regime in restor-\ning and improving infrastructure, in determining the extent of Indonesia's\nmineral resources, and in exploring and developing them. These projects\nare capital intensive, however, and many of them are situated in the\nouter islands. While they will ultimately and indirectly benefit the\nFURU\nwhole Indonesian people, their immediate impact on the under-employment\n1930\n-72\nproblem and on the daily lives of the majority on Java, Madura and\nBali is slight.\nUnlike other countries suffering from monumental problems of\ndevelopment in an environment of mass poverty and population pressure,\nIndonesia does have a major asset; oil. The increase in crude oil\nprices in January 1, 1974 opened the prospects for major new financial\nresources which the Government could apply to an accelerated attack\non its domestic problems. Subsequent events, however, have somewhat\nreduced the magnitude of the anticipated windfall. Doubt is beginning\nto emerge that the Government will reach its 1979 production target\nof 2 million barrels per day, let alone the 3.0 million optimistically\nforecast by government officials last year. Meanwhile, new oil dis-\ncoveries are counter-balanced by declining output from the Central\nSumatra fields which still account for most of Indonesia's production.\nGreatly complicating Indonesia's developmental efforts is the\ncontinuing lack of managerial talent. Despite numerous training\nprograms intended to foster the growth of indigenous enterpreneurs and\nmanagers, much-needed skills are still lost because trained personnel\nare more often placed in high status, paper-shuffling jobs than in\njobs dealing with practical needs. Most educated Indonesians see\neducation as the pathway to the government bureaucracy, traditionally\nregarded as infinitely preferable to a job even vaguely associated\nwith blue collar or agricultural labor. These cultural biases rein-\nforce a more fundamental problem that Indonesian education has been\nunable to overcome; the lack of sense of civic responsibility among\nFCh\nIndonesians at all levels of society. This expresses itself in\nnive\ninnumerable ways--from petty to grand corruption, from job irresponsi-\nbility to prodigal waste of natural resources. from a cavalier attitude\nby the elita trward the miseries wt the: Podr, to: the shortsightedness\nof the poor with regard to their common plight. These attitudes\nconstitute major obstacles to successful economic and political\ndevelopment.\nH. The Pertamina Problem\nUntil March of this year, the Suharto Government generally\npermitted Indonesia's economic development to be planned and executed\nfrom two centers--from Pertamina, the state oil enterprise for the\noil sector, and from the Ministry of Planning for all other sectors.\nThis natural but uncoordinated division of economic planning and\nimplementation resulted largely because of President Suharto's high\nconfidence in the exceptional business talents of Pertamina's president-\ndirector, Lt. Gen. Ibnu Sutowo.\nIn 1972 and increasingly in 1973, General Sutowo believed that\nthe time had come to use Pertamina's higher revenues to develop some\nof the many new investment opportunities opening up in the oil sector.\nMoreover, President Suharto and other. senior government officials,\nchafing under their own budgetary constraints, started nudging\nPertamina into major responsibilities outside the oil sector, such\nas the resuscitation of the abandoned Soviet steel mill project.\nTo seize the opportunities it believed were opening up and to\ndischarge the peripheral tasks thrust upon it, Pertamina evaded the\nprovisions of the IMF Stand-by Agreement which limited its medium-term\nforeign borrowing (1-15 years). Unwisely, Pertamina obtained large amounts\nof short-term credit to finance projects which would not yield their\nprojected revenues for many years, apparently with the unwritten\nunderstanding of the foreign bank lenders that these credits could be\njohn\n1030\n34\nrolled over anmily fct tine sinde \"fucure When some of the foreign\nbanks refused in late 1974 to renew their one-year loans, Pertamina\nsuddenly found itself in a liquidity crisis.\nIn February, Pertamina defaulted on at least two foreign bank syndi-\ncations totalling $100 million. This news quickly threatened the Indonesian\nGovernment's own ability to borrow from these banks. In addition, by\nMarch 1975 Pertamina had failed to pass along to the Indonesian treasury\nabout $800 million in foreign oil company revenues; perhaps 20% of the\nanticipated budget revenues for 1974/75.\nThese danger signals finally caused President Suharto to take\ncorrective action. The Central Bank of Indonesia informed foreign bankers\nprivately and publicly that while it was not assuming or guaranteeing\nPertamina's debts, it would insure that Pertamina had the funds to meet\nits remaining obligations on schedule. (Those falling due in the 1975/76\nfiscal year total well over $1 billion.) The bank added that Pertamina\nwould be enjoined indefinitely from contracting foreign debts independently.\nA special committee was set up to evaluate all the development projects\nin Pertamina's $4 billion 1975/76 budget (two-thirds of the national\nbudget) with a view to eliminating all the marginal ones. The steel mill\nproject was removed from Pertamina's responsibility. The Bank of Indonesia\nengaged three foreign investment banking houses (British, French and\nAmerican) to advise it.\nIn June 1974 a syndicate led by Morgan Guaranty raised $425 million\nin five-year funds to help the Government of Indonesia meet Pertamina's\ndebts without drawing down its reserves. At the same time some Japanese\nbanks raised $150 million for the Indonesian Government for the\nidentical purpose.\nSTRALD FORD LIBHAST\nECONFIENTIAL\nNevertheless, the damage had been done. Incredibly, the country's\nforeign exchange windfall in 1974 from doubled oil prices could not\nprevent Indonesia's reserves from actually declining by $9 million\nbetween March 31, 1974 and March 31, 1975. Most of this disappointing\nperformance is due to the need to repay Pertamina's debts. The $1\nbillion-plus carry-over burden will likewise severely dampen Indonesia's\nbalance of payments performance in the current fiscal year.\nHowever, Pertamina's liquidity problem has produced two affirmative\nresults. In the first instance, the Government of Indonesia has shown\nthat it can take prompt corrective action when necessary. Secondly,\nand more importantly, economic planning and implementation in\nIndonesia are likely to be coordinated more effectively in the future.\nI. U.S. Military and Economic Assistance to Indonesia\nIt was to seek assurance of a continued active US role in Southeast\nAsia that Suharto made an official visit to the United States in\nJuly 1975. Another important purpose of his trip:was to convince the\nUS officials that Indonesia merits continued economic assistance\ndespite its oil revenues, as well as military assistance to shore up\nits neglected armed forces.\nThe Indonesian military has a limited defense capability, although\nthe Army's fighting capability is rated as excellent. The Government\nof Indonesia does not want a large US military presence in their country,\nas they are confident of their abilities to defend themselves internally.\nIn fact, Indonesia's \"Territorial Defense Concept\" has and continues\nto serve them well. This plan involves stationing military men through-\nout the country to enhance resoluteness against insurgent activities.\nBERALD FURD LIBRARY\nDEC\n26\n1.3\n7\nThe Indonesian-\nMalaysia relationship is \"special\", and Indonesian officials watch\nwith particular concern developments within its closest neighbor.\nIndonesian military concerns are focused on their lack of coastal\nsurveillance capabilities, and thus the Government is interested in\nreceiving, through the FMS program, such items as helicopters, ships,\njeeps and radar and communications equipment on a concessional basis.\nSuch a request is likely to be received favorably in Washington, as\nthe Indonesian 'Government is wisely lobbying the US Congress for this\nsupport.\nContinued US economic assistance is desired in the critical areas\nof agriculture, education and birth control. Suharto is well aware of\nthe world-wide cutbacks in US aid, and thus he was particularly anxious\nto come to the US to present his case. Again, effective lobbying efforts\nmay make the difference.\nJ. US Interests and Objectives\nThe principal US interest in Indonesia is that it not become a\nthreat to the stability of Southeast Asia or to the US position in\nthe region, either through a return to militant foreign policies or\nthrough domestic unrest on a scale that would involve Indonesia's\nneighbors or attract outside meddling. Related to this interest is\nthe US desire that Indonesia realize its leadership potential as a\n(\nstabilizing factor in the region.\nAnother important interest the US maintains in Indonesia is its\nFORD is 076870 LIBRARY\nCONFIDENTIAL\n-17-\nvery strategic location ide international and shipping lanes.\nThere is currently disagreement between the US and Indonesia with\nregard to transit rights. Indonesia's formulation of the archipelago\nconcept has included insistence on the right to subject the transit of\nmilitary vessels to a requirement of prior notification. The US, as\na courtesy, gives prior notification of vessel transits, but is unwilling\nto accept this as a treaty obligation in view of the overall implications\nof control of the Straits. Bilateral discussions are on-going between\nthe US and Indonesia on this matter, and it is probable that a mutually-\nacceptable archipelago concept can be negotiated for inclusion in\na comprehensive global Law of the Seas treaty.\nLesser US interests include access to Indonesia's energy and\nnatural resources (as well as access for US allies, especially Japan),\naccess to Indonesian markets for US agricultural and industrial exports\nand continued access for private investment. Of still lesser importance\nbut nonetheless noteworthy is Indonesia's tremendous size and population.\nUS objectives in Indonesia include: the development and maintenance\nof Indonesia's capability for internal defense and limited participation\nin efforts to maintain regional security; assurance of Indonesian\nacceptance of the right of free transit through and over international\n-straits; and continued encouragement of Indonesian bilateral and regional\nsecurity relationships with other Southeast Asian nations and South\nAsia. Beyond this, the US wants Indonesia to lend effective support to\nUS policies, both in the Southeast Asian environment and in the world\nat large, although not at the expense of Indonesia's Third World status.\nThis support can be particularly helpful in two areas where Jakarta has\nat least some weight: in negotiations between OPEC and the consumers\nand in the overall relationships between the non-aligned nations and\nFORD i GERALD LIBRARY\n1030\nT8\nthe West. The US equally is interested in limiting the influence of\nthe Soviet Union in Jakarta, as well as that of any other third country\nwhose interests could conflict with ours.\nAdditionally, the US wants the Government of Indonesia to extend\nto its people those rights specified in the Universal Declaration of\nHuman Rights and to support their extension in other parts of the\nworld. In particular, it would be beneficial to see a satisfactory\nsolution to the problem of the estimated 35,000 political prisoners\ndetained in connection with the 1965 coup attempt, the continued de-\ntention of whom has created concern in the US and elsewhere in the\nworld. The human rights issue has become increasingly important in\nlight of the focus Congress has placed on it and thus will have a\nsignificant influence on US aid to Indonesia. Recognizing this con-\ncern, the Indonesian Government has been systematically releasing\nprisoners, with plans to continue this at a rate of 2,500 a year.\nAnother unsettling situation is the internal instability in\nPortugese Timor. Indonesia would prefer to absorb this section of\nTimor rather than permitting it to become a weak, independent state\nopen to possibly detrimental outside influences. However, to do so\nmilitarily without the expressed encouragement of the Portugese\nGovernment would be detrimental to Indonesia's image in Southeast\nAsia, the UN and throughout the Third World. Incorporation of this\nterritory into Indonesia would be acceptable to the US and Australia,\nwhich retains a vital interest in Timor developments, but only with\nthe acquiescence of the Portugese Government.\nIn summary, the US desires a \"nationally resilient\" Indonesia,\ncapable of providing leadership and encouraging unity in non-communist\nis\nFOHD\n1030\nGERALD\nLIUNARY\nSoutheast Asia as a psychological counter to Hanoi.\nK. Policy Recommendations\nDespite the many problems facing Indonesia, its solid potential\nand importance in Southeast Asia cannot be disregarded. Lead by an\nanti-communist, leaning-to-the-West regime, Indonesia's struggle for\n\"national resilience\" deserves continued US support. Specific policy\nrecommendations include:\n1. Continue and possibly increase US economic assistance to\nIndonesia, particularly in the fields of agricultural production,\neducation and family planning;\n2. Continue and possibly increase US military assistance to\nIndonesia. Such assistance should be responsive to the needs and\ndesires of the Indonesian Government and dispersed in as low profile\na manner as possible;\n3. Express, where appropriate, encouragement of Indonesian active\nparticipation in ASEAN affairs. The US should not, however, take an\nactive role in ASEAN affairs unless specifically requested to do so;\n4. Encourage continued cooperation between the non-communist\nnations of South, Southeast and Northeast Asia;\n5. Encourage increased Japanese and Australian economic assistance\nto Indonesia;\n6. Continue to push for enactment of legislation in the US Congress\nto amend Section 502(b)2 of the Trade Act to permit the President to\nextend GSP to OPEC countries such as Indonesia which did not participate\nin the oil embargo of 1973/74;\n7. Maintain a low profile in Indonesia, holding down the number\nof US officials in the country, and be prepared to accept inevitable\nFORD it GERALD LIBRARY\n20\nchanges in Indonesian domestic style;\n8. Continue fruitful negotiations with Indonesia regarding\ntransit rights through the archipelago, bearing in mind not only its\nimportance to the US but also to US allies, especially Japan. This\nissue is significant also in other areas of the world, and it is\nimportant that the Law of the Seas Treaty reflects the right of\ntransit world-wide;\n9. Encourage US, Australian and Japanese correlation and\nconsultation with regard to Indonesia;\n10. Continue and increase US business investment in Indonesia.\nThe Soviet Union would be more than willing to step in and\n(a)(s)\n)\ntake over economic assistance should the US abandon this role. A\nstrong, independent Indonesia represents a definite plus for the\noverall goal in maintaining a power equilibrium in Asia.\nFORD is LIBRARY\nCONFIDENTIAL"
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