ECONOMIC REVIEW, JANUARY - SEPTEMBER 1954

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• Document Number (FOIA) /ESDN (CREST): CIA-RDP78-01634R000100070004-0
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• Document Creation Date: November 17, 2016
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r-7
Forei: , ;`rade
Bilateral Trade Agreements
Import and } xport Regulations
Balance of Trade
III. Finance
1954 Budget
Foreign ''xchange Position
Money apply
Cost of Living
Banking
IV :agriculture
Mining
VI 11 Industry
VII. Transportation
Aviation
Shipping
Viii Labor
Appendices
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REIGN SERVICE DESPATCH
M'{ MBA, ",:?Y , .)JAKAivTA
CERP Fehruax7 25, 19548 C-2
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CONTENTS
I. Introduction and Summary
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REPORTER
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1. Introduction and 5ummary
(t??.; This review covers the first nine months of 1954. It was
prepared to a large extent by officers who were not in Indonesia during the
period. That will explain the reason for many of the gaps and should be
read with that in mind.)
During the `first part 1954 Indonesia's fimnces continued to deteriorate.
Corrective measures were being instituted, however, so that the outlook by the
end of the third quarter of 1'54 was somewhat br ghter than had been anticipated.,
The Government continued its policy of deficit financing, while the foreign
exchange and gold r~ -erves were further depleted. There was also an increase
in Bark 'Indonesia notes in circulation,
To halt the excessive dtpletion of its foreign exchange reserves and to
compensate for the decreased value of its exports the Goverment took measures,
with a certain degree of success, to control and direct the country's importso
Compared to 1953 impo&.s have decreased, although not enough as yet to give
Indonesia an export i:ba.iance in its general commodity trade. It is expected.,
however, that by the end of 1954 Indonesia will have a favorable balance of
trade.
in the agricultural sector conditions appear to be more favorable than
those existir-. c'-tiring the corresponding period in 19530 `'xports of rubber
increased dur the :irst six months o: i91, as compared to 1953, although
the total value was less. '.'rcpt{action of rice is up approximately 11% over
19530 `,he need for rice imports decreased, with imports limited to 100.9000
metric ton3 for price stabilization and reserve purposes. There has been a
sizeable increase in exports of smallholders production of sugar and coffee.,
copra and team
Petroleum and manganese production expanded over the corresponding period
in 1953. Production of coal and bauxite declined, while that of tin remained
more or less the same. ~ `xports of manganese declined while those of tin and
bauxite increased.
On the labor front there were no drastic changes during the period under
review. There were no major strike actions during the first eight months.
In the field of transportation, the Government has acquired full owner-
ship of the Garuda Indonesian Airways. New routes have been opened to some
of the outlying islands. the national shipping companies, on the other hand.,
continue to face difficulties.
There has been a gradual expansion of industry., with emphasis being
placed on small and handicraft industries. he Government has also been
moving, ahead with its policy for the Indonesianization of industry.
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II. For~Trade
On the basis of statistics for the first eight months of the year.,
Indonesia's foeign trade picture for 1954 shows some improvement over that
of the preceding year. Through Auguste exports (excluding petroleum) totalled
Pp. 4,446,900,(0O (Rpm 11.40 a ``1.00) and imports Rp. 49823,7009000. The
average month]. exports of Rp. 555,300,000 are some 10 percent below the
average for the 12 months of i.53. Imports, averaging 603 million rupiahs
a month, have also decreased compared with the previous year,, but not yet
enough to give Indonesia c..I, export balance in its general commodity trade.
However, if the special category of petroleum and products is not deducted
from the trade statistics., the country's import balance of 376 million rupiahs
(through ,u{ust) becomes an export balance of 969 million, the most favorable
situation since 1951. The projected 1954 commodity export balance of well over
a billion rupiahs will cover the larger part of the country's net payments on
account of "invisibles", which will leave Indonesia with only a slight deficit
in its balance of payments this year.
The figures in the preceding paragraph indicate that the Indonesian
Goverrnnert is meeting with some success in its efforts to control and direct
the coun ;ry's i_:_ort trade in order to compensate for the decreased value of
its exports are: --.o halt the excessive depletion of its foreign exchange
reserves which occurred in the earlier months of this`yearo The local press
recently quoted an unnamed official of the Ministry of i';conomic Affairs as
saying: "?very import must be :.overed by exports." There is some basis for
believing; that this policy is being implemented by (1) the curtailment of
imports, (2' the increased interest in bilateral trade agreements and (3) the
more frequent use of parallel, compensation and barter transactions.
Bilateral Trade r_ ;reements
Continuing and intensifying a previously established policy, Indonesia
signed new or renewed bilateral trade agreements with nine countries (five in
the boviet bloc) during the first nine months of the year. These agreements
were:
Cauazt
k
1954
26
Januar
December 31
1954
Not available
Denmar
N
,
y
1954
March 24
,
March 31, 1955
NKr. 808O)Oa000
orway
France
,
June 22, 1954
i-'ebruary 21, 1955
1,r. 10,800,000,000
r
H
June 22
1954
June 30, 1955
}1p. 130,500,000
y
unga
Poland
9
July 1, 1954
April 30, 1955
Not available
ki
8
l
1954
J
July 14
1955
Not available
a
Czechoslova
Sweden
,
y
u
July 29, 1954
,
May 30, 1955
SwKr. 94,100,000
Rumania
August 69 1954
Julio, 30,, 1955
Pounds 3,400,000
China
September 1, 1954
July 31, 1955
Pounds 69000,000
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Also., a private contract between the Indonesian and East erman Chambers
of Commerce has been negotiated but not yet implemented., reportedly because
of 'ftechn3.cal=administrative" difficulties. An official of the Ministry of
Economics has expressed the hope that annual trade between Indonesia and
East Germany will amount to the equivalent of $295x0,00 each way.
An informal compensation arrangement with Hong Kong was withdrawn in
-Xwi3ruary, after some five or, six months duration, because it "gave rise to
all sorts of undesirable manipulations." However, this barter system was
reinstated, on a more limited scale, in mid=Aprils
The main purposes and provisions of Indonesia's bilateral trade agree-
ments may be summarized as followss.
1. To assure the country of export markets, especially for commodities
which have weakened in price or are losing traditional markets.
2. To have trade direct with buyers and suppliers, thus lessening the
country's dependence on the transit traders of the Netherlands, Hong Kong and
Singapore.
3. To place a larger share of the country's imports and exports in the
hands of national importers. This is specifically provided for in the agree-
ments with ;soviet bloc countries.
4. To have direct bilateral financial clearances, thus avoiding use of
the Netherlands as the country's international bankers.
imo t and Export Regulations
The regulatory actions of Indonesia's financial and trade officials
were directed during the period under review towards the curtailment of
imports in order to halt hlndonesianization foreign
A second major policy' the
subject of governmental regulation and administrative action. The Government
also continued its efforts to conduct Indonesia's trade direct with its
overseas markets and suppliers in order to avoid what it considered excessive
charges by transit traders in the A etherlands, Hong Yong and singapore, Lastly.,
the Indonesian authorities have given priority to the importation of ca;_dital
goods (including industrial raw materials) over consumer goods.
The first action of 19519 on New Year's Day., was the discontinuance of
the two-year old dollar export certificates (B.i O.) system, because, according
romoting trade to ,
f
p
to the Bank Indonesia, it has outlived its purpose o
dollar countries and limiting imports from these countries. It may be con-,
nd the decrease
i
on a
jectured that there is some connection between this act
in American=Indonesian trade this year.
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A regulation of somewhat minor importance,, but illustrative of the
general trend during the period under review is a Ministerial i)ecree of
February 19, 1954 prohibiting the inclusion of buying commissions in the
calculation of the prices of goods purchased abroad. The practical effect
of this measure is believed to be st;iall, inasmuch as the great majority of
import transactions are on the basis of discounts from list prices. Presumably,
transactions previously showing purchasing commissions have been recalculated
on the basis of list prices ,,with discounts unrevealed to the Indonesian
authorities. However, American buying representatives and export commission
houses, which normally include a commission in their invoices,, have been
adversely affected by the measure,
One of the Government's basic policies was implemented by a regulation
dated March 19 which again emphasized, and attempted to enforce the prohibition
against 11accomnodatiori'Y the practice of the sale of import licenses by national
to non=national importers (see Iespatch No. 6]i , March 309 195%% "New !Legu.la-
tions on Indonesianization o.: Import Trade). This subject was one of continuing
action during; the reporting period, lastly on September 30, when it was reiter-
ated in an Instruction from the Foreign "xchange Institute to the banks.
Briefly,, the " Aoverrment prohibited any transfer of foreign exchange licenses
except in the case of retailers purchasing through an agent or companies which
purchase raw materials on an "indent" basis. The xnbassy has no objective
data available to determine the success or failure of this phase of the
Indonesianization. policy,, but it is inclined to believe, on the basis of trade
source infor ation, that the traffic in foreign exchange licenses has far
from ceased,!
In May., the rapid decrease in the country's foreign exchange reserves
motivated a drastic reduction in the rate of issuance of import licenses. Two
months later,, in order to make importation more difficult., the authorities
increased the percentage of prepayment in local currency required for the
issuance of an import license. This deposit was set at 75 percent (formerly
50 percent) for capital goods and industrial raw materials, and 100 percent
(formerly 75 percent) for other commodities. The banks require the importer
to deposit an additional 10 percent of the rupiah countervalue to cover
interest and other charges connected with the transaction. As pointed out
in the e'mbassy' a despatch 21, July 159 1954,, "Import Controls", the substantial
prepayment has the tendency of encouraging national Indonesian importers,, who
are generally short of capital,, to sell their licenses to the financially
stronger Chinese or Dutch firms. The Despatch mentioned above also tormented
on the inflationary effect of the prepayment regulation,, in spite of its
declared deflationary purpose of absorbing the so-called "hot money{ presumed
to be in the hands of non=national traders.
in order to (1) direct import trade to countries with which Indonesia has
trade agreements and (2) prevent the sale of foreign exchange licenses,, a
Small Businessmen's Foreign Exchange Regulation was introduced in 3eptembero
A significant provision of this regulation is one reserving for national
importers or retailers the right to purchase from Czechoslovakia, Hungary,,
Poland,, Rumania and Fast Germany, -
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In the field of export regulation,, the Inducement Certificate System
(Bukti Indusemen o .I,) introduced in Octobet 1953 was continued. This
system may be entitled to some of the credit 4or the fairly favorable expert
activity of Indonesia this year, but it also appears to have much of the
responsibility for the increased prices of thg3orted goods on the Indonesia.,,
market n
Balance of Trade
Although the 195 overall trade picture of Indonesia varies only. slightly
from that of 19539 rath`r significant changes in. its geographical orientation
and commodity composition have takeii.place, Tables 1-and 2 below show the
origin and destination of Indonesiae s imports and exports by continents during
the first six months of 1954 compared with the same period of 1953
Table to kgorts _of Indonesia by Continents January - Junes 1951 a 3
h
f
Off, n
i,urope
America
Africa
Asia
Oceania
Others
Totals
Table 2.
rupia s
~~uant;ity in metric tons; value in thousands o
1954 1953
Jan June Jan.=June
c;uan ity
V ue
321,598
122388210
101,215
5339008
219106
698522
10 319 0O
l,~ 987 (,11.75
61,364
899575
119728
59209
198429311
39922.9999
tv~uan
a ue
3359893
1,3529735
1559140
8009336
l3,424
32,905
194oo,h56
188280
1
t
3I9053
60,
6
99.825
5,9703
1994887>1
119079,567
its of Indonesia by Continents January o June9 1954 and 1953
Quantity in metric tons; Value in thousands of rupiahs
1954
1953
Jan. June
Jan. June
y
~~,
Sze.
V ue
a
7638694
19175$640
7308312
194729585
1,91159818
7749856
183069234
191609850
42
9243
389485
659341
51.9578
.
3,088,255
187618417
2,7488190
19li148947
434
9064
1749197
3038589
130$1.35
,
35
1168844
40080.2
1418810
59728, 575
183418439
5,95539709
14,371?906
Europe
Americo.
Africa
Asia
Oceania
Others
Totals
Central Bureau of Statistics.
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The most striking feature in the two tables is the considerable r.:~ crease
in Indonesia's trade with the Americas (meaning primarily the United 1tates).
During the first six months of the year., the United ~.tates definitely lost to
Japan the position of being Is Indonesia's leading supplier, accounting for only
Fp. 525 million of the country's imports compared to Japan's 997 million,
Table 3 sumnnarizes trade by principal nations during the first half of
1954. Figures for ho entire year 1253 are added for comparison on an annual
rate basis.
`Fable 3. Indonesia: i i sorts to and xports from Principal i'rading .'artners
ear' 539 arc. Jait.-jurle 195. } -file in thousands rupiahs
Imtorts E?x orts
Count Year 1953 far,. June 195 Year 19A3 4!anm June l9
United States
125399367
5211,970
1,929a947
7385590
Netherlands
l ,- %;69 (90
7[02,370
2,103,867
9499860
Malaya-,'ingapore
125,890
3390L0
22375313
1,n60,260
Japan
l,h i 7,012
99751130
1,230612
1311,71.0
Source- Central Tureau o :tatistics9 onthly urvey, eptember 1951i..
The Import figures for t'ho. `etherlands and ingapore indicate that the
Indonesian Glovernment. is having some success in its efforts to lessen its
dependence on the (..ntrepot trade of these two countries. his trend is much
less marked in the case of Indonesia's exports. On October 7 an official of
the Ministry of conomics announced that since mid-February purchases outside
the Netherlands haul ;.1een_ paid in the currency of the countries concerned and
no longer in Dutch guilders, He also claimed that transit trade via the
Netherlands had been no longer allowed for some time. Although t iese two
statements are not entirely supported by the foreign trade statistics and are
not entirely in co Iforrrfity with rid.onesia's associate membership (via the
Netherlands) in the :1uropean Payments Pinion, they do illustrate one goal of
Indonesia's commercial policy.
The shift in the coimuodity export pattern is shown in the following list
of Indonesia's principal export products during the first half of 1953 and
19511.
Value is given in thousands of rupiahs.
Gem mods
9-53 __,
Tea
13354a11
201,200
Palm Oil
196g61a
269,585
., Estate
Rubber
857
9551
521,058
,
Rubber
, Smallholder
,
8
659,9732
,
Copra
252,
,4139
31,9,9870
coffee
78,706
235,725
Petroleum
1,,o36,.716
1,196,984
'tin
405,173
300F565
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This table indicates :hat as Indonesia's largest export crop, rubber,
falls in value because of lower prices,, other products,, recently of seconu: &.ry
importance,, are tending to stabilize the country's export situation,, or at
least to prevent it from becoming dangerously weak. This development is
expecially notable in the case of coffee,, palm oil and tea. The contribution
of the petroleum industry to Indonesia's export: trade has been pointed out in
the first portion of the Foreign Trade Section of this Review.
The fairly satisfactory trade balance of Indonesia during the first three
quarters of 1954 is due mot-e to the curtailment of imports than to the stabili-
zation of its exports. he following list shows the country's imports by
principal comr"odiLies during the first half of 1954 compared i;rith the same
period of 1953. vialue is given in thousands of rupiahs.
Ja.nuary-June
y
oT13111
~
1953
'
a
Rice
6279241
330,537
Wheat flour
728939
919848
Cotton Piece Goods:
.Bleached Unbleached
2578237
285.ld6
, printed, etc.
Dyed
343823?
5619716
.
petroleum products
267,,482
2269012
Machinery., Indus Lrial
2
8
a:.d Commercial
1479609
,50
14
Motor vehicles
818181
508736
Source: Central Bureau of statistics, Monthly >yurvey9 ;-ej.-tember 1954.
Inasmuch as the sharp cutback in import licensing; started only in Iay.,
the above list does not reflect the full extent of Indonesia's program. for
reducing imports this year. The country's decreased dependence on rice
imports shows up mot clearly in the table., but the Embassy believes that 1954
imports of practically all comr,odities will be lower than those of 1953 when
the final data are available.
Recent slight rises in the prices of some of Indonesia's export products,
especially rubber, give some hope that terms of trade may have become a little
more favorable for the country, On the basis of 1950 ~tf 1009 the terms of trade
index was at 68 in December 19539 with the expert price index at 81 and the
imports index at 119. Some improvement in the terms of trade,,, maintenance of
the export volume of the past months and a continuation of import restrictions
n
d
i
e
1954
0
tra
f
balance o
"
"favorable
definitel
e
i
n
y
a a
s
don
will give I
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Tinance
III.
The state of Indonesia's financed during the first half of 1954 was one
of continual deterioration. Despite Zack of unity in the Monetary Council.,
ufficient corrective measuras were being instituted to make the
e
h
r., s
owev
outlook by the end of the third quarter of 1954 somewhat less ominous than most
prognosticators had been willing to assume earlier.
A. The 1954 Budget
Whereas the former administration. (in which Sumitro was Minister of
Finance) had achieved something of a record. in submitting to Parliament a
draft budget law (for 1953, as well as 1952). before the beginning of the
calendar-fiscal year, Parliament itself did not get around to approving the
1952 and 1953 budgets until April 195ILo Although the 1953 budget indicating
a deficit of Rp. 1.3 billions was ratified., the deficit arising from the
difference in actual revenue and expenditures amounted to over Rpo 2.3 illions.
Furthermore., a carryover of expenditures from the 1952 budget amounting to
about Rpo 700 millions., led to a gross annual deficit of about three billion
rupiahs for 1953. To legalize the difference between the real and the budget
deficit, the Ministry of Finance has long been considering submitting a second
supplementary budget for 1953 to Parliament, ?he first supplementary budget
increased both the original budgetts revenue and expenditures;by Rp. 1.7 billion
arising from revaluation of the Bank Indonesia gold holdings in early 1953-
A draft budget for 1954 was sent to the Cabinet by the Minister of Finance
at the end of March 1954. At that time the Minister and other officials spoke
of holding the current year's deficit to Rp. 1.2 billion. As the several
ministries could not agree to pare down their own expenditures and as several
revenue items failed to come up to expectations, it became apparent that the
deficit would be much larger. The overdue draft budget., which finally was
submitted to Parliament on July 7, called for a deficit of Rpm 2.6 billion,
being the difference between expenditures of Hpo 13.6 billion` and revenue of
Tip. 11.0 billion. Then., the Notes on the State Finances accompanying the
Indonesian Budget for 1954 (or Financial Notes) submitted to Parliament weeks
afterwards confirmed that a supplementary budget would be necessary to cover
additional expenditures and revenues leading to a further deficit of Rp. 400
million, a ."figure arrived at long before the primary deficit was agreed upon.
Details of the basic budget for 1954 and its explanatory financial notes
may be found in Despatches 203 and 204 of October 13., 1954. The one billion
rupiah additional expenditures which will appear in the supplementary budget
is to be offset primarily by a new revenue itan., the T.P.T0 (surcharge on
transfers abroad). A sanguine estimate of Rp. 700,000,,000 income from this
ne of
d b
d
y o
e
item by the Minister of Finance in April has since been superse
Rps 4OOa000a00?Mir~s~ter of a Fnational
has dwinof RP. dled to nothing. Instead
broached by the
17 Oovermnent Regulation No. 3 of 1954 authorizes the issuance of 4 5-year
on" in value up to half a billion rupiahs;., in addition to the special bonds
.ting from membership in the I.M.F. and I.B.R.D0
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there are expected to materialize Rpa 100.,000.,000 from foreign loans (primarily
Dutch)., and another Rpa 100.90J0,000 from supplementary revenue merely classified
as miscellaneous.
The State deficit in 1953 P.Tas covered as followst
Increase in debt to Batik of Indonesia Rp? 720 million
Revaluation of ;old tr 1,730 million
Increases in other debts 440 million
Increased treasury bonds, currency, coins 1140 million
Ppo 3030 million
In 1954 recourse to another gold revaluation will be impossible unless
the rupiah is further devalued. By ;September 29, 1954$ the debt to the Bank
Indonesia had increased another i5p. 2,,740 million., or ninety percent of the
total year's budetary deficit., before the last quarter of the year. Other
data on the deficit coverage is not yet available., although Ministry of Finance
officials are somewhat hopeful that some loans from abroad might be realized
before the year's end?
The following table shows actual expenditures by ministry, or other
category, for 1953 and figures in the original 1954 budget (in millions of
rupiahs)s
organization 1953 Expenditures
19514 tudget
I.
Supreme Goverrdnent Bodies
11.131
1,197
II.
111in. of Foreign Affairs
2014
109
III.
M,lin. of the Interior
29178
1.,64o
IIIA0
Dina of Agrarian Af Fairs
24
IV.
Min. of Finance
885
1,048
IVA.
Financing :service !"acrd I. ovt. 7 nterprises)
3,156
29309
VA.
Min. of Agriculture
461
531
VB.
Min. of Economic r,ff airs
19143
776
V1.
VII.
Min. of 1efense
Dina of Justice
39876
190
39258
VIIIA.
Min. of Communications
371
421
VIIIB.
(ditto) Department of 1~hipping
156
100
IX.
Mina of Information
153
150
X.
Min. of Education and Culture
858
750
XI.
Min. of Health
225
329
XII a
Min. of Social. Affairs
154
189
XIII.
Min. of Labor
51
68
XIV.
Min. of Religious Affairs
178
163
XV.
Mina of Public Works & Power ?
581
500
Total Gross Expenditures
15,9951
139562
Receipts offsetting Expenditures
nca.
29807
1
Total Net Expenditures
neap
09755
Sources Despatch 7619 June 195 t19514 gets submitted to Parliament.
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As can be seen, the Ministry of Defense still takes the lion's share of
the State Budget, and will continue to do so in the future, especially so long
as insecurity prevails.in parts of North s matra (where the Etjeh revolt is
still far from quashed), est Java (home of the Parul Islam and other subversive
movements., Southeastern :alirnantan9 and Southern Sulawesi (where the terri-
torial commander has resorted to smuggling, allegedly to supplement his meager
receipts from the central .ov?;rnment in his campaigns against the rebels).
Provisional ...ata for the first five months of 1954, and for a comparative
period in 1953, are presented by major revenue grouping in the following table:
Revenue vategory
Jan/May 1953
Jan/a7 19 4
Assessed taxes
981
928
Unassessed taxes
367
420
'
''TTTo
Custom duties and excises
1,9432
1.,362
Iva
Goverment " nterprises receipt
191
4
Miscellaneous
3,9533
18479
Total
6,9503
4,463
Source; Ministry of Finance, Office of Financial }tatistics9 Budget Cash.
The 1954 figures do not co , spare too unfavorably if, for purposes of
extrapolation., it is recalled that to "Miscellaneous" item, and therefore
the total, of the 1953 figures includes the Rp. 18734 million from the gold
revaluation which took place inMarch and May only of 1953,
Major sources of revenue in millions of rupiahs) through May 1954 were:
(1) company tax, 625 (13% off from 1953); (2) import duties,,500 (8% over 1953);
(3) inducements (import surchar es), I.96 (18% off 1953); (4) tobacco excise-7382;
(5) income & wage taxes., 379; (6) Government 'Enterprises receipts, 274; (7) sales
tax,, 257 (9%. over 193)9 ;3) export duties, 247 (down 45% from. 1953); (9) petro-
leum excise, 158; (10) transfer surcharge, 108 (collected during only the
latter half of the period and not yet written into the budget); and (11) i"xim-
bank loans 106 out of 350 budgeted for the year, compared to 49 through May
out of 151 realized in 1953--an amount far below the year's budget figure of
380 for 1953)? iloreover, a major source of revenue in 1953, the Foodstuffs
Foundation which contributed Rpm 200 million through May, did not appear
through May 1954 (only reappearing in June) due to a reported :surfeit of rice
and some difficulti=.. within its administration. Profits from the Foreign
T tcbange Furxi., which amounted to Rpm 159 million through May 1953, had fallen
to only Rpm 52 million t'hrough May 1954. One new important source of revenue
for 19516 which promises to be of more than in:-ldental interest, is the accumu-
lated E.C.A. counterpart funds of approximately half a billion rupiahs.
Budget figures only-
Although excises of liquor and beer brought in only Rp m 15 million through
d i e rats
erg this sure, is far above the 1953 amount because of increase exc s
Emergency Law. No, 1 of 1954
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Whereas Government revenue during the first five months of 1954 was only
slightly below five twelfths.of the basic budget. expenditures (see Appendix 1)
in mart' cases were running far ahead of the basic budget. This phenomenon
created a State deficit by the end of May which was far greater than anticipated
by the budget for the five months.
Goverrznent Fiscal.,l', nsactio s January - May 1951
(in mi.. ons of rupi s
Actual Transaction..
Expenditures 61072.8
Revenue-
W463-2
Deficit 1x609.6
Source: Ministry of Financew
B et
.5,65o,8
b,571d2.
1a079.6
The budget figures in to above table refer only to five twelfths of the
basic budget for 1954; actual transactions include the T.P.T. revenue and also
several expenditure items not included. in the basic budget. If the deficit
rate through the first five onths or 1954 continues, an annual deficit of
Rpa 3.8 billions might be an icipated. However, since June is usually a month
of high receipts from the company tax, and pressure has been increasing to
hold the line by economizing on budgetary expenditures, it is not impossible
that the State deficit for 1$51 may be held to only slightly over the current
target of three billions,
Bo Foreign `:?xchange Position
Losses in foreign exchange are closely related to the increased budgetary
deficit, which in turn is co related to reduced revenues from foreign trade.
The Financial Notes reportedithat the net foreign exchange position at the
begi.nn lad been Rim 3,617 million, and noted that the Rp, 19386
million lost during that year? resulted from a favorable trade balance of only
Rp? 368 million (calculatix on a payments bays exports at RP. 79596 million
and imports at Rp. 7a228 million) as against/unfavorable invisible, balance
of Rp0 1,751 million.
The net foreign e::change position on June 30, 1953, was Rpa 3,106 million,
which indicates that the bulk of the losses, namely Rp. 875 million., took place
during the second half of 1953. The breakdown of the position at the beginning
of 1954 appears in the following table; I
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Net Foreign Exchange Position Janua 1 l951
in millions of rup hs
0o34 in the Bank Indonesia . Rp. 1,,651.3
Gold in the Foreign .",xchange Fund 36.7
Foreign exchange assets., Bank Indonesia 560.2
Net exchange assets, nine other exchange banks 658.1
Net liabilities, Foreign xchange Fund a 822.1
Others (American oil companies, Government
mining companies., High Comrtissionergs Office., etc.) 146.9
Notes, The mid year nadir appears in the following tables
Net Foreign Exchange Position, June 309 1954
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Rp. 2,923101
Ministry of Finance officials acknowledge that their rates and times of
daily foreign exchange calculations differ from those of the Bank Indonesia,,
but this explanation can hardly justify a notation of net FED' liabilities of
about one hundred million less than that calculated by the. Bank Indonesia
(Rp. 923.0 million).
The deterioration of the net foreign exchange position during the first
half of 195Li, Rp. 1,,272 million was serious cover twice the loss of Rp. 600
million anticipated for the entire year by the Government in its Financial
Net foreign exchange
Sources Ministry of Financed
in millions of rupiahs
Gold in the Bank Indonesia
Gold in the Foreign 'xchange Fund
Foreign exchange assets, `3ank Indonesia
Net exchange assets,. nine other exchange banks
Net liabilities, Foreign Exchange Fund
Others
Rp. 19256.2
36.7
388-5
619.5
19307.0
34.9
Rp. 959.0
The Goverment had set a target loss in foreign exchange of Rp. 600 million
during l95i .,, representing the excess of invisibles (Rp. 19800) over the antici-
pated favorable trade balance (exports of Rp. 7 billion minus imports of
R.p. 5.8 billion). As stated in the Financial Notes, this Rp. 600 million was
the maximum loss permissible in view regiments for working capital
for the exchange banks and the necessity of maintaining reserves for the
current liabilities of the Bank Indonesia.
Net foreign exchange
Sources Ministry of Finance, Bank Indonesia
Despite mid year statements by the Minister of Foreign Affairs of Indonesia+
intention to meet all her international monetary obligations, in June and the
-awing months of July and August, Indonesia defaulted on her payments due
fol
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her unfavorable trade b4lance with Japan, which has accumulated over recent
years to $160,,000,,000.1 By defaulting on payments equivalent to about Rp. 190
million over this three-month period., the Indonesian Government was temporarily
able to stem the net outflow of foreign exchange. This action by Indonesia
to use the settlement of current accounts as a lever to stimulate Japan to
reach a reparations agreement,, produced retaliation on the. side of the Japanese
Government,, which ordered drastic restrictions in exports o Indonesia, even to
the point of prohibiting the export of textiles, Indonesians primary, consumers
import.
However., although Indonesia chose to ignore her debts with Japan, she is
meeting the Rp. 230 million in paymlents,due on Government loans from the
Netherlands,, the United States, Canada., and Australia. She also has indicated
her readiness to pay for road, rail, sea,. and air transportation equipment from
abrooad0 A crew sent to Japan to pick up two. sips for the Goverment shipping
subsidiary, N.V. INAC09 was forced. to wait until payment was made, however..
before the Japanese would turn the vessels over to them. Indonesia has also
paid for new Convair 340s, although she hopes the flximbank.wi1.l;eventually
provide her with reimbursement from the balance of the $100 million line of
credit being extended her. In March, the Indonesian Government bought out the
half interest of KU-1-Royal Dutch Airlines in the Garuda Indonesian Airways.
Also by mid year the Government had bought out the private stockholders
(primarily Dutch5 of the Djakarta transportation system,, as authorized by
1P mergency Law No. 10 of 1954.
Vice President Latta, considered to be one of the country's leading
economists, in one of his manor lectures before members of the business comfinunity
warned that what the country needed now was foreign capital, not nationalization
of old already operating enterprises. Although his words went practically
unnoticed, fiscal pressures have begun to force a slow-down on nationalization
plans. A commission had been set up to inspect one of the country's largest
electricity enterprises, N.V. Aniem, and it. decided that the Government should
start buying out its Dutch owners in August of 1954? When August drew near,
however,, the Government announced that buying up of Aniem shares would be.
postponed for a few months. It now looks like it will be next year before the.
Government will be in a position to begin buying into this company or a number
of others in the public utilities field which had once been scheduled for
nationalization. Because of lack .of foreign exchange, the Indonesian Army
around the middle of the year was unable to open letters of credit for about
15,000,000 of military equipment it already had on order.
The rapid loss of foreign exchange forced the Indonesian Monetary Council
to take more stringent measures to safeguard the remnants of their exchange.
The absolute authority of the Minister of Economic Affairs,(through the Central
Office of Imports)to grant import licenses was curtailed in May, when a new
Payments of US l07 millions 10 million,, and 5 million were this on June 139
my 1s and August 14, respectively.
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regulation was issued requiring all such licenses to carry the countersignature
(and approval) of an official of the Foreign .xchange Fund. (which is directly
under the Bank Indonesia,,' whose Governor is also a member of the Monetary
Council) and ultimately the monetary Council itself (which includes the
Minister of Finance as Chairman and third member). A weekly quota of only
B,p. 50 million in import licenses was established., after which further curtail-
ments made the final tranche of the 1953 ? 1954 foreign exchange year (May
August), the most meager since the transfer of sovereignty Furthermore,
countersignatures were also required on export licenses in an effort
to end the scandalous waste of foreign exchange through "special" export licenses:
The belated remedial action halted the negative trend of the foreign
exchange movements by the end of July., when the net exchange status was
Rp. 966 million. ''he apparent large improvement in the following month was
only partially (Rpa 76 millions) due to normal exchange movements; the ~15 mil-
lion purchase1:ron '.-.he International Monetary Fund provided a significant
source of exchange which would not recur in the forseeable future? In estimate
of the improved foreign exchange picture at the end of August appears below:
Net Foreign xchan ;c Position, August 31f,
1954
in millions o rupiahs
Gold in the Bar1,, Indonesia
Pp. 19 088.9
Gold in the Foreign exchange Fund
36,7
, Bank Indonesia
Foreign exchange assets
297:0
.
Net exchange assets, nine other exchange barks
L.38a6?/
Net liabilities, Foreign exchange Fund
7
5,, /
Others
~
L 6.8
Net foreign exchange
Rp. 19213-0
Source-. Ministry of Finance., Bank Indonesia.
The Bank Indonesia charter provides that its gold and convertible foreign
exchange reserves cannot fall below 20;0~ of its issued banknotes and current
liabilities. During the first year of its existence, the ratio plammn ted
steadily downward., stirring up political and economic controversies,./ and soon
thereafter a nadir of 19.:19`1: was reached (at the time the Bank r s balance sheet
for July lu was published). Anticipating this move, the Monetary Council, as
authorized by the Lank charter, established a new minimum cover of 15% for an
emergency period of three months by its Decree No:, 1 of July 12, 1951. The
1/ By Goverment Regulation No. 19 the Foreign h~;xchange Institute(and FEF) was
transferred from the jurisdiction of the Ministry of Finance to the Bank
Indonesia ou March 13, 1954"
Embassy estimates.
For details of the controversies within and outside the Government, see
espatch 514 of February 10, 1954.
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followI-I-C week, however, the ratio rose again above the statutory limit and has
hovered above it over since./ The fluctuations in this ratio since the
establishment of the Bank of Indonesia are indicated in the following table;
Ratio of Convertible Reserves to Current Liabilities
(in millions o rupiah
Date Gold Gold & US/ Total Banknotes Other Total
. DT Can. (k'~.}~' Reserves in circ, cur. Zia. cur* ia. Ratio
1 July ~3
30 D
2,297
21
2,318
4}960
1,198
6,158
37.64
ec. 53
1 m
r
1,657.
135
1,786
4,920
1,389
6,310
.
28.31
3
w
54
0
4358
224
1,582
5,105
1,559
62664
23.7~
June 54
3
1
1,256
288
1,544
5,938
1,542
7,480
20.614
4 July 54.
S
?
t 54
1,256
298
1,554
6,o4o
1 756
7,795
19.94
ep
9
1,055
775
1,830
6,321
2,230
6,551
21.140
The major shift in the reserves during 1954 took place in August when
Fp. 171 million of the Bank Indonesia's "Claim on the Government on Account of
Gold Deposited on its Behalf with the I.M.F. (and I.B.R.D.)u, which was canes
si:dered part of the B?I.'s gold holdings, was transferred to a Special Account
(convertible foreign exchange) of the F.E.F. at the time the $15 million purchase
from the. 14'1,F. was made.
As imports into Indonesia fell off in the third quanter while exports were
being maintained, the convertible foreign exchange in the F.E.F.'s Foreign
Fxehar4;o Account rose steadily (while the foreign liabilities of the F.E,F,
levelled off on a high plane). On the current liabilities side, however, the
rise in deposits of others with the Bank Indonesia continued, although tem?tpor-
ariiy? slowed down in mid-year as many Government foundations operating in the
economic field (primarily the Copra Foundation) carried out instructions to
transfer their accounts from the Bank of Indonesia to the Treasury.
a
0 able in Bank Indonesia Bulletin No. 3 (see Despatch 142 954 are avail
, September 21, 1954).
.A steady rise in Bank Indonesia notes in c'reulata
R
1
4
1
on--
p.
?
0
mi1]ion
took place during the first three quarters of 1954. Whereas this rise could
easily be followed from the weekly balance sheet.-, a much greater time lag
occurred before data on Government notes was made available, following the
ending of the practice of indicating these.amounts at the bottom of the Bank
of Indonesia balance sheets. After June 30, note of the old Netherlands Indies
regime were no longer recognized as legal tender._ / By the end of July
Rp. 224 id, Ilion out of Fpe 230 million Rp. 5 and Rp. 10 notes of the R.I.S.
(United States of Indonesia) bearing the picture of President Sukarno and issued
Emergency Law No. 2 of 1954?
For recent details. on the current liabilities coverage, see Despatch 182
ctober 5, 1954. ,
C. The Money Suppler
Details on monetary developments durinc: the: first h
af
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in 1950 were still in circulation. And, out of AP, 375 million worth of Fpo I
and Rp. 2.50 notc:e printed in and dated "1951" and "1953" authorised by
Goverment Regulations No., 20 of 1953 and No,, 36 of 195119 Rp0 173 sd.Uion were
in circulation. Despite the dates, these notes were first sled in 1953 and
1954, respectively.,
Coin circulation also contitaued on the + p a~ rising to ttpe 1h3 by the
beginning of June,
}o Capon of Liyim
Ever sins the tr akster of sovereignty, Indonesia hates been faced by a
creeping inflation. No*, however,, with greatly it reased amounts of money in
circulation wtd-le impor s tare being shame mrt4dled, the inflation appears to
be rising faster than ppe4iotasly0 t3ot only is the cost of living of the persons
who utilize miry consumer gcoods from abroad, rising., g., but, even persons in the
lower wage scales are bei.x~g .t?
A cost of living index for an upper middy-a1ass Dutch Epsom 9 also c npar?
able for professional Indonesians and those in business wid the i.gher branches
of the civil astir ice, basid on costs in D arts. on Jana pry 1950 (the first _.
full month of Indonesian sovereignty) which stood. at 198 in I:ber 1952 and
238 in December 1953, had risen to 214 i,n June 1954 and 255 by Sept ber?e
(Appendix 11d)
The cost of living index for lower cif servants,, based onDjatkar?ta
expenses in November 19b9, had stood at 170 in December 1952 ? Face a level of
198 in December 1953.0 it slowly rose to 203 in June 1954 anad 204 in September.
(Appendix IiI )
The bulk of the Indonesian population consumes such items as the 19 food-
stuffs the prices 'which are polled each month throughout the country. From
an index deri d from prices of these foodstuffs in Djsks.' in December 19 9,
it is apparent that within the first three years of Indoneataa$s sovereign
existence, food prices had dou)bled0 The ;index z ber, which averaged 198 in
1952 and 211 in 1953$ rase to 220 in June 1951$ and 223 in September.
(ApperuUx IV. )
Despite price control both on domestic marnfaes and on imported goods
whenever there is a short supply of an important consumer goad: a i:-.dustrial
material,, speculation frequently driver priosae up far above their legal c- lings,
forcing stricter government control measures (for example,, on textiles and
flour). At the time of writing, as a direct rep It of contracted importations,
many commodities are being sold at two, three,, or more times their normal pricee
Consequently,, the rises indicated in the above index sesr.ea q should increase at
even sharper rates before the year's erdo
While c ity prices were creeping a the gold and dollar markets
underwent maned variations, reaching pea" during the end of the third q ster?
men rumors of devaluation were rampant. The price of a gram of #1 gold
RWIFF-359 o Marc _ ~ an the Indonesian gold marketa
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fluctuating around Rp0 X0600 during the first half of the year,, took off in
July and reached Rp. 50.50 by the third week of September, only after economic
police cracked down hard on speculators in gold did the price begin dropping
a bit at the month's end. Dollars, on the black market, rose from a R,p. 27.00
quotation at the end of 1953, and hovered at Rp. 29,00 until June when they
dropped to Rp. 26.00 (and in some markets, to Rpe 23650), By Auguste however,
they were following the gold rise, and were being quoted at Rpa 3lmso by the
end of the third quarter. (Appendix v0)
E. Banki!s
There were only a -ew noteworthy developments in the field of banking
during the first three quarters of 1953. The Bank Indonesia's commercial
department was the subject of Parliamentary d6, a although the Bank
charter required that this department be removed from the country's central
bank,,, no agreement has been reached on where the business should be transferred.
The Bank Negara Indonesia,, which grants credits to Indonesian importers and
expo ers, state; its willingness to take over the business,, but many quarters
doubted its ability. Others suggested that the Bank Indonesia commercial
business be distributed among private Indonesian banks, the Bank Umum Nasional
(the bank of the P.N.S., the leading governmental party), coming 'up` 'or frequent
mention by its own supporters. Debates also arose over the disposition of the
Bank Indonesia's Amsterdam branch,, which according to Dutch lax had to be
incorporated.
The country's industrial development bank,, the Bank industri a9
continued its efforts at financing projects around toury? -TWe- so-called
"frozen RUR. ?I" holders were granted a measure of relief after February, 19%.
when their funds were made available for purchase of B.I.N? 3% 15=year bonds
up to a total of Rp. 50,000$000. (Despatch No. 5L 8, r'ebrr ?y 26,, 1954.) These
funds were to be used in financing government housing projects. Of incidental
interest is the fact that the B.I.N. is acquiring now housing for itself with
a pretentious new office building in mid-Djakarta. The interest and portions
of the principal of the new bonds may be transferred abroad annually. By
Auguste the Monetary Council had agreed to the issuance of a second tranche of
RURNI funds up to Rp. 50$,OOO,OOO for the purchase of B.T.N. bonds.
The Postal Savings Bank keeps slowly but steadily expanding,, as net deposits
have risen from Rpm 123 million at the beginning of the year to Rp. 136 million
by mid-year.
The Government'a credit bank for middle-class entrepreneurs, the Bank Rak 't
Indonesia, entered 1954 under the shadow of an imbroglio ,between its cei
management and members of its branches in est Java, arising from political and
policy disagreements. (L'.,espatch ;o. 539,. . (,bruirs 24.1 i9! h, } ,ts old president,
was removed under pressure from below and put in charge of the Netherlands-
Indonesian Union. 'pppith the liquidation of this organization, however, it is
rumored that he will return to the B.R.I. management.
LMeanwhile., the Bank thrum Nasional, which had been founded by the present
Ministers of Finance- ,corm- c A airs, among others continued to grow fat
Government business. By mid-year it was reported chat its stock was being
offered at up to sixty time pa..r. -
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 IV. Agriculture
Rubber. Estate Rubber, production totaled 137,752 metric tons,., a decline
of 15.,147-metric tons when compared with the corresponding period of 1953- No
figures are available on ,smallholder production. Exports, on the other hand,
increased during the first six months of 1954 as compared with those for the
same period in 1953, although the total value was much less than in 19$3.
Exports of estate rubber totaled 128,b70 metric tons., as compared to 153,288
in 19539 while that of smallholders increased from 176043 metric tons in 1953
to 217,636 metric tons in 19541. The total value of exports was 4103,5?6,1140
(Rp. 11.140/u.:_,~.;;) as compared to $145,017,54 4 for the corresponding period in
1953.
Although the total value of exports showed a decrease the prices of Sheet 1
and Crepe 1 "first costs".showed average increases over the period of Rp. 1.70
and Rp. 1.146, respectively. Several factors contributed to the rise in prices,
among which were decrease in exports of estate rubber, rumors of shipments of
rubber from Indonesia to Cori m=rdst China,, the Geneva negotiations for a settle-
ment of the war in Indo-China, purchases by Spain and Latin American countries,,
and increased demand for Indonesian rubber in New York. Unfortunately, too
great a proportion of Indonesian rubber production is in the lower priced
grades,, and although efforts are being made to remedy this defect the average
Indonesian smallholder is still. content to produce low-grade rubber with its
resultant lower foreign exchange earnings.
Rice. During 195149 Indonesia took a big step forward in her efforts to
reach se f-sufficiency in rice. Production for the year is now estimated at
7.6 million etric tons of milled rice equivalent., an increase of approximately
11% over 1953, and a new record for rice production. With this increase., the
need for rice imports declined accordingly, and the Food Foundationgs imports
of rice were limited to 100,000 metric tons.,, mainly for price stabilization
and reserve purposes. The adequacy of rice supplies was shorn by the fact that
prices in the local markets did not change appreciably during the period under
review.
Sugar and (:toffee. 1?'state production of sugar and coffee during the first
six months of 1937 declined 31% and 61% respectively when compared with the
comparable period in 1953. Exports, on the other hands rose considerably,
reflecting a large increase in smallholders' production of these two items.
Sugar production is expected to increase even furthers and Indonesia has
contracted to supply Japan with 125,000 tons this year. Total coffee produc-
tion in 1954, however, is expected to be less than that for 1953, mainly because
of poor growing weather.
Cora, Palm oil and Palm kernels. Production and exports of copra., palm
oil a ernes wing the 1 half of 1951 compared relatively favor-
ably with those for the corresponding period in 1953? Copra production for
the six months period 'totaled 217,102 metric tons., a decrease of 3.5% from the
first half of 1953. `xports, on the other hands totaled 1117,932 metric tons.,
or 31% above those for 1953. Value of copra exports during the first six
hs of 1953 was Rp. 319.,878,127 an increase of 27%.
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Production of palm oil andaalm kernels totaled 78,141 and 20,269 metric
tons respectively., while 54,623 metric tons of palm oil and 17,663 metric tons
of palm kernels were exported.
Combined exports of palm oil and palm kernels were valued at Rpo 1143,6639755,
89.5% of the comparable 1953 figure.
With increasing world supplies of vegetable oils, the future does not look
too promising for the Indonesian producer.
Tea. :ith both production and exports up considerably, the tea industry
continued to show improvement over 1953. Production of 45,369,467-Ralf-kilos
during the months of January-June, 1954, reflected an increase of 10,095,1468
over the corresponding period in 1953. The export market also showed consider-
able improvement, with exports of 21,606,517 half-kilos, valued at Rpm 202,379,14014
up 27>= and 50% respectively from the comparable 1953 figures,
Reports of recent flood damage. in In is with resultant high prices on the
London market give promise of increased foreign exchange earnings from tea during
the rest of 19514, provided., as one of the major Djakarta tea brokers points out,
consumer resistance to higher prices does not set ins
V. Mining
With the exception of petroleum and manganese, the pace in the mineral
field in Indonesia slowed down somewhat from the high levels prevailing during
1953? Crude petroleum and manganese production expanded 3% and 23% respectively
over the corresponding period in 1953. on the other handy production of coal
and bauxite declined 8% and 149% respectively. Tin production was maintained
at just about the same rated
In general., export totals followed production trends,, but this was not
always true. Exports of manganese declined ap roximately one-third., while
exports of tin and bauxite increased 10% and. 58% respectively.
Early in the period under review., falling world prices and the expiration
of the Indonesia-flFC tin purchase contract decreased the amount of foreign
exchange received by Indonesia for her mineral exports. Towards the end of
the period, however., there was a tendency for prices., particularly tin prices,
to stop dropping, and even begin a slight increased The the new
RFD contract assisted in this price firming,
The shock of lessened foreign exchange receipts?, however, caused Indonesia
to look for new customers., and it was noted that in her trade agreements signed
with satellite countries., Indonesia agreed to make available a combined total
of 12,500 tons of tin to Rumania, Poland and Czechoslov ald.a, and Rpo 10,500,000
worth of tin to Hungary.
During the first half of the year, the Indonesian Goverment formed the
P.T. Pembangunan Pertambangan, Mining Development 0ampar ra This Comparor is to
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assist in the exploitation of mineral deposits in Indonesia. It is financed
by the Bank Industri Negara, State ustrial Bank, and has already hired one
German ec ?c an in connection with the development of Indonesian sulphur
VIm I- us-
The Government has continued to encourage the establishment of new
industries and to press for the Indonesianization of industry as rapidly as
possible-. There has also !been a trend toward investments in industries and
away from trade as aresult of the.Governnentss import restrictions, lack of
foreign exchange., etc. rttlenecks.still exist, however, among the most serious
being the lack of. security in certain areas., insufficiency of electric power,
lack of credits, and the fact that prices of national products in mart cases are
higher than those of imported goodsa
Most of the emphasis-has been on small and handicraft industries,, with
priority given to the establishment of industries capable of using materials
available in Indonesia and therefore. not.requiring foreign exchange. The
Government has also attempted to set up parent plants for the various branches
of small industries, viz.,, ceramics., iron and copper foundries, sawmills,
umbrella factory, cardboard factory, ramie mills,, roof-tiles factory,, slate
factory, etc., and to encourage mechanization and standardization.
New industries have been..establi$hed in the following sectors-. glass,,
plastic, toothbrushes, buttons.,._bicycles, and tires. As in the case of tires,
the Goverment-Is import restr3,ctjons hsve forced increased domestic production,
. new cement factory is also being built at Gresik,, a paper mill and automobile
tire factory at Palembang.,." an automobile assembly plant at Surabaja0
vllo Transportation
` v au :cr?? On March 214,, 1954, the Indonesian Government and KIM signed an
agreemen or the nationalization of Garuda International Airlines, The agree-
aent, effective April 30, provided for complete ownership of GIA by the
Indonesian Government, Indonesian management to be appointed by the Goverment,
and for technical assistance by KLM until 19600 In addition to the price of
the shares owned by KW., valued at Rpm 15 million, the Indonesian Goverment
agreed to pay KI14 reasonable profits for the period during which its capital
had 'been invested in the company. The new management was officially installed
on July 12.
At the time of. nationalization. . t1 a airline employed 106 pilots., 47 flight
engineers, and 49 radio operators, none of whom were Indonesians. The impart
now has 28 Indonesian pilots,, and. expects to have a total of 44,by the end of
1954. of these, 8 are former A rForce .pilots., 20 are graduates of the Air
Training Service at Haunble, Englandp 2 will complete their studies in the
Netherlands this year, and 14 will graduate from the Indonesian Aviation
Academy. All of these men will serve as copilots fora period of two years*
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The Government has determined that no more men will be sent abroad for
training as pilots, but that all .training will be done at the Indonesian
Aviation Academy located at.Tjurugs near Djakartao The Government has also
established the Technical Aviation Middle School for training other persormelo
The first class consists of some 100 students,. half of, whom come from outside
Java.
C$IA at present has a total of 54 airplanes,, ioe., 20 Dakotas, 4 Catalinas,
:u Herons, 8 Convairs 2,40 and 8,_Corivairs 340o It is also continually expanding
its operations to include.. new..routese .During the last few months it has extended
its services to Bengkulu (Sumatra),, Kupang (Timor),, Tandjung Karang (Sumatra),,
Rengat (, rnnatra ), and Pontiaraak (Borne,,) . A new airfield was completed at
Sungai Durian$ near Pontianekg last, Julys and on September 1 STANVAC turned
over to the Indonesian Government .the Djapura airfield near Rengato
The operations of the Pioneer Aviation Corporation have been curtailed by
the Goverrnuent o GIA took over Iiors erq s D jakartaTandjung Karang route,, and
the Goverment ordered it to cease its.services on that run since it was
competing with the national airlineq In a letter to Parliament., the Pioneer
Aviation Corporation proposed that. it be given the right to concentrate on all
aircargo and airfreight routes in Cndonssias while GIA would handle all the
passenger traffic m
KLM and BOAC have increased the frequency of their flights into i akarta9
and KIN has instituted tourist services using Super Constellat n or he
purpose,
Shi i The Royal Packet Navigation Cowparq, KQPOI.9 continued to
hold he ones share of the interinsular shipping service, although it withdrew
sic freighters, or about 8% of its services during 1954. The company also
managed to increase its rates reportedly because of increased operation costs.
In the meantime, there have been continued demat i; for nationalization of the
compar ro In vLw of the company's predominant position in the trade, the
absence of any adequate Indonesian alternative methods of transportation,, and
plans made by the Dutch to prevent the ships from falling into the hands of
the Indonesians,, it is not likely that the Government will atteript to nationalize
the company in the foreseeable future.
The Gover?rment's efforts to enter the shipping field have not been out-
standingly successful,, PELNI (Pelts gran Nasional Indonesia a y ,a Indonesian
National Shipping Co m) and INAC Paa ?usahaan Psi aran `I onesia
Indonesian Navigation Gcxnparayp Ltd. are reported to be in serious financial
condition as a result of corruptions bad management,, inexperienced personnels
lack of control and politics. New ships have been purchased from Japan,
Belgium and Italy,, while wall vessels have been built in Indonesia.
Security in the harbors has improved, although there is still considerable
ilferageo In the principal ports the police have been taking effective
measures to overcome this problem., although there is still great room for
further improvement o
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AA new harbor was inaugurated on July 16 at Bitung (Iinahasa). The docks
which are to measure 430 meters, only 145 of which have been completed, will
be used primarily for shipping coprae There has also been some agitation for
greater Indonesian control of warehousing space at Tandjong Priok, the harbor
of Djakarta. It is reported that only 17% of the space is in Indonesian hands,
while the balance of 83% is in the hands of foreign enterprises under contracts
running 10 to 25 years.
In the field of international shipping, ":'est Germany and yugo$lavia have
established direct shipping service to Indonesia The H nburgm.urnerica -hipping
Line which joined the Java 4hip1pix , Conference and was reacimi`ted to the
Indonesia=Europe Conference, resumed its service to Indonesia., 1.1*o, the
Jugoslavenska Linijska x'rovidta has inaugurated a service to Indonesia.
A salvage agreement signed with Japan last Jai ary has not as yet been
ratified by the Izxlonesian,Parliament. he agreement provides for. Lhc salvaging
of some 60 vessels--sunk during `-orld "ar II, with the costs to be borne by
Japan as part of reparations payments.
On July 10 a ;hipping Directorate was established in the Ministry of
Communications. its functions are to improve navigation, to formulate necessary
regulations, and to consider the problem of a maritime council.
VIII. Labor
Labor. The first three quarters of the year brought no drastic changes
to thea~or scene in indornesia. 60B,51, the communist-dominated labor federa-
tion,, which is by far the strongest, seems to have reached a plateau, having
made no substantial ;gins during the first three quarters of the years This
is believed t.o be due not so much to the fact that it could n~ t, bu: that its
parent organization, Partai :ommunis Indonesia, had decreed that emphasis and
organizers should be shifted to the political arena, with particular attention
being paid to the peasant scene, where Barisan Tani Indonesia, the communist
peasant organization showed increased activity.
KI34i , the non-communist federation headed by husna, made some small gains,
but because of the dearth of tunes ;which always seem to be available to ;-GB` I)
wasnot able to capitalize on '.~ ?;.:1 t s relative inaction.
There were no major strike actions during the first eight months, no doubt
due to the fact that ' Ii'TU ordered a It soft" policy for its members at the
Congress held in Vienna in October, 1953-
mploymentfl -;inue there are no employment statistics of any kind avail-
able for the whole of Indonesia, it is most difficult to attempt to arrive at
an overall estimate of employment levels in the country. the only figures
available come from the 1;:.entra:L Labor xchange uhich reported that Ghe number
of registered unemployed totaled 233,549 in 1953. of these, 22,273 had been
providd employment. Registrations make up only a very small percentage of ,he
total unemployed and are only a very tenuous measure at best.
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Wages. "age statistics are also unavailablee the only measure of wage
oven?eeing the decisions of the P4.F9 the Central Arbitration Board., which
passes on almost 100% of all wage demands. Genera y,, the upward trend in the
wage structure was slowed down during the first eight months,, with the
Arbitration Board seeking to check the inflationary pressure of wage increases.
bynindustr?y,
For the most party, any wage increases granted were on an industry,
qqr even factory-by-factory basis, and most of them were limited to about 10%.
he last large wage increase, both as to the number of workers and the percent-
age was that granted SARBTIPRI, the coimnuni.stmdwninated estate workers union.
It came in `'eptember of last year, when the Cabinet overruled the P4P to raise
its award from 12;x, to 19% for some 7505,000 estate workers.
The Department is requested to send copies of this despatch to Medan,
8urabaja, , ingaporea Hong Kong, and The Hague?
For the Charge dQAffaires, aoio a
Government Txpenditures and Budget
Amounts for First Five Months of 1954o
Cost of Living Index Numbers, Dutch
i?amily in Djakarta..
Cost of Living Index Numbers, Govcrrment
official in Djakarta.
Retail Price Index Numbers. 19 Food Its
on the Free Market, Indonesian Family
in Djakarta.
Free ]arket Gold Prices and Black Market
Dollar Pates e
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