U.S.A. Offer I attach for your information a copy of a telegram received from Batavia giving the text of a note presented by the American Consul-General at Batavia to the Indonesian Government.  You will observe that, in the final paragraph, the United States Government suggests that, if there is a decision to set up an interim Government, the United States would be willing to discuss means of assisting in the reconstruction of N.E.I. by financial aid.
You will observe that there is no firm commitment in the United States' offer, nor, as far as we know, has any plan of aid been put forward either to the Republican or the Dutch authorities.
Australian political policy The policy of the Australian Government with respect to the present situation in Indonesia is that, if there is to be mediation, or if the two parties desire the good offices of any third party, Australia should be that third party. The reason for this is that it is believed that only by retaining initiative in this respect can Australian economic and security interests be promoted. For your confidential information, the good offices of the Australian Government have been offered to both Republican and Dutch authorities. At the moment, however, it would seem that a joint request for mediation will not be made to Australia or to any other Government, at least until it is clear that negotiations between the two parties reach a position of complete deadlock.
Present position The present position is therefore that, while it is the policy of the Government to ensure Australia takes a leading part in the future political and economical development of Indonesia in order to protect Australian economic and security interests, the United States Government has made a tentative offer which, in the financial circumstances of both the Dutch and the Republican authorities, would appear to be an attractive one. Already the United States has shown her interest in commencing trade with Dutch and Republican areas, and there is little doubt that the offer of financial aid which has been made has been made with due regard to the return which can be counted on in such a rich area as N.E.I.
Suggested Australian policy We have therefore been giving consideration as to precise ways and means by which Australia can not only follow up the offers of mediation already made, but can also effectively pursue our economic and security interests in that area.
A Loan? One means would be to offer to the Dutch and Indonesian Republic, or to the interim Government when it is established, a loan enabling the interim Government to make purchases inside or outside Australia. To be effective, such a loan would have to be on a large scale and, in fact, we would find ourselves in competition with the United States Government.
Direct assistance by supplying goods and services Our own experiences are that a more effective and in practice less expensive means of achieving our objectives is by more direct assistance than a financial loan permits. For instance, we have been undoubtedly successful in achieving a certain degree of political and economic influence in Portuguese Timor, not by making credit available, but by personal contact with the Administration , and by direct assistance in the procurement of the particular goods which are required day by day by the Administration.
In the case of Indonesia, it is our understanding that the basic problem of rehabilitation is related to the overhaul of machinery, the replacement of parts, technical advice on production methods, and also the supply in not very great quantities of certain essential requirements, for example, medical requirements, transport, educational facilities, and perhaps certain types of foodstuffs. While these latter would involve, at any rate initially, a credit pending the resumption of production and of export from Indonesia, the former would involve an administrative plan rather than financial expenditure.
Proposed approach to Republican and Dutch authorities It is considered that the Government should now be in a position to follow up the initial approach already made to the two parties by a concrete suggestion that, provided the interim Government is established, we would be prepared to assist in the rehabilitation of Indonesia. In more detail, we would be prepared to send to Indonesia technical advisers and supply officers who would ascertain plant and other immediate requirements necessary for the recommencement of production. Every endeavour would be made in Australia then to meet requirements. For these and for consumption goods immediately wanted we would be prepared to arrange credit facilities.
The way in which such a proposal is put forward is, in these present circumstances, as important as the proposal itself and consideration might be given to arranging for Mr. Richardson of the Commonwealth Bank to visit Batavia, taking with him authority to put forward a proposal along these lines. It would not be practicable to suggest an upper limit of commitment, but there seems little doubt that, while there might be an initial outlay of perhaps 3,000,000, even before that sum were expended there would be a flow back which would take care of any further outlays which might be required.
Machinery The supply side of such a programme in Australia would not be within the jurisdiction of this Department, though, in fact, in the case of Portuguese Timor, we have had so far to carry through the initiative we took. N.E.I. would be a far greater job.
Consideration should therefore be given to the appropriate agency for handling such a plan. Perhaps temporary arrangements could be made for a small group of persons to be loosely attached to this or another Department for this purpose. At the end of a period of two to three years, normal trading channels would have been reestablished on the pattern set during this time, and continued executive work would be unnecessary. At the same time, it should be kept in mind that similar action is required in respect of New Caledonia, Malaya, and India. In all cases the initiative will probably have to be taken by this Department. A board of trade representing all interested Departments, with a small executive, and chaired by this Department might be the simplest and most effective machinery to carry out such a programme.
Your early comments would be appreciated, both on the particular question of Indonesia, and also the general question of machinery.