CANBERRA, [15 April 1948]
AUSTRALIAN POLICY ON INDONESIA
The fundamental considerations underlying Australian policy towards the Indonesian dispute are that there should be order and stability throughout Indonesia and that oil and other Indonesian products should as soon as possible become available to relieve current world shortages. This second consideration has particular relevance to the dollar problem.
2. The salient fact is that Dutch colonialism in Indonesia is passing away. Nationalism has taken root too firmly and developed too far to be held in check much longer, let alone eradicated. The Dutch themselves recognise this. It is only on the method and on the speed of the transition from Dutch to Indonesian sovereignty that conflict occurs. The question incidentally arises whether from a hard-headed Australian point of view, it might not be preferable for the Dutch, while giving way to local nationalist movements as they take shape throughout the archipelago, to remain indefinitely in full control in outlying and more backward areas.
While such a course might end in the balkanization of Indonesia, it would at least contemplate a gradual and systematic transfer of power, whereas it is by no means certain that the federal framework proposed by the Dutch offers much of a guarantee of stability and ordered political and economic progress in an archipelago so widely extended and embracing such extremes of living standard and of culture. As it is, the Dutch stand committed to establish a sovereign federation extending throughout Indonesia, and the practical course for Australia is to try to identify and prepare to help the people who will be trying to make it work.
3. The leaders of the Republican movement in Java and Sumatra, while they have not yet had a fair chance to show their capabilities under normal conditions, have given indications that they can conduct government competently and even democratically.
They have apparently not had much administrative experience-they are politicians by inclination rather than administrators-and they lack training in the economic and commercial field. They are also politically divided; the influential Masjoemi party has recently shown signs of breaking away from what had been a united nationalist front. But Republican leaders are at least aware of their difficulties, and recognise frankly that they must continue to rely on technical help from the Dutch and other outside sources.
4. By their acceptance of the 'Renville' principles as the basis for a settlement with the Dutch [the] Republicans have acknowledged in principle that sovereignty throughout Indonesia is vested in the Dutch until it is transferred to the future United States of Indonesia. For the time being at least they have given up any idea of an independent sovereign Republic of Indonesia. It is reasonable to expect that if they follow their present declared intention and join the federation they will dominate the federal government. This prospect alone is enough to justify Australia in maintaining a sympathetic and helpful attitude towards the present Republican leaders. Furthermore, since this group on present appearances offers the best prospect of a stable regime throughout Indonesia it is contrary to Australian interests that the Dutch should be given the opportunity of weakening it before its future position can be assured under a firm agreement.
5. It follows that pressure should be maintained on the Dutch to reach agreement with the Republicans as soon as possible. They have been obstinate and rigid at times when a little flexibility and willingness to compromise might have helped them with Australian and world opinion. But the fact remains that they have declared repeatedly that they are committed to the establishment of a sovereign United States of Indonesia. Whatever reservations they may have, and however reluctant they may be to hasten the process, their assurance is unequivocal.
6. The position of the Dutch in Indonesia cannot be considered separately from that of the Netherlands in Europe and in the United Nations. At the present time reports from The Hague suggest that the Netherlands Government is under strong pressure from hostile public opinion because of its failure to settle the Indonesian situation. Apart from its possible effects within Europe itself, a political crisis in the Netherlands which produced a change of Government would probably be reflected in the adoption of a more intransigent Dutch attitude in Indonesia.
7. The time has arrived when both Dutch and Republicans should be urged to abandon recrimination and bitterness over the past and concentrate on the establishment as soon as feasible of the United States of Indonesia. The difficulty at present is that while both sides are agreed on the ultimate objective they cannot see the wood for the trees. They have lost sight of the common goal in their preoccupation with matters of immediate gain or loss.
8. The Dutch, for example, are tending to reinforce a natural reluctance to shed political and economic control with an obstinate refusal to be hurried. The danger is that they will interpose obstructions and delays, particularly if the spotlight moves off Indonesia. Australia has a legitimate interest in seeing that they do not try to prolong the prewar status quo in circumstances which make it impracticable and by means which can only make for continued unrest and disorganisation in an area of prime importance to Australia.
9. There are a number of issues which however important they may have been to the Republicans in the past now seem relatively unimportant on a long term view, but which at the same time may hold up a settlement and so delay the transfer of sovereignty unless the Committee of Good Offices can help resolve them.
10. The matter of the Republic's right to conduct its own external trade is one of the most contentious issues. There is no reason why the Dutch should not be urged to adopt a more liberal attitude on matters of trade and commerce, but from a practical point of view it seems more important that internal trade channels in Java and Sumatra should be loosened and that the Republic should receive fair and full return for its products than that the right of the Republicans to conduct trade through their own ports should remain a fundamental point of disagreement.
11. The question of the Republic's representation abroad should not be allowed to cause difficulty. The Republic clearly cannot maintain full diplomatic representation abroad. If, on the other hand, they insist on maintaining unofficial representation outside Indonesia e.g., Dr. Usman in Australia, the Dutch cannot prevent their doing so.
12. The Republicans have also objected strongly to the Dutch practice of sponsoring the establishment of so called provisional governments in areas throughout Java and Sumatra. The impression has been given that this is further weakening the Republic. If it were the case that the political structure of Indonesia were being immutably fixed in this way, there would be valid objections. The 'Renville' principles provide however that the delineation of states and their relationship with the Republic of Indonesia are to be decided by plebiscite. This suggests that the setting up of provisional local governments now is less important than that the Committee of Good Offices should be on hand to supervise the plebiscites. This again reinforces the need for an early political settlement which would prohibit the Dutch from setting up new states within Republican territory and from using propaganda and other pressures to wean local populations from their allegiance to the Republic.
13. The structure, composition and power of the proposed interim federal government of the United States of Indonesia will also play a prominent part in the negotiations for a settlement. While the Committee should do what it can to ensure that the Dutch give the interim government some real power, if only to give the Indonesians experience in the use of responsibility, the matter does not seem sufficiently important to remain in dispute. The Governor-General is certain to retain some power of veto over the decisions of the interim government; and whether the government works satisfactorily or not is likely to depend more on the atmosphere in which it works than on a precise definition of its powers. Meanwhile there seems to be no particular advantage to the Republicans in their hastening to join the new Provincial  Government until they have reached a satisfactory political settlement with the Dutch and can come in on better terms.
14. Australia can use its influence to persuade both parties to concentrate on the larger issues. It can urge the Dutch to reach an early agreement with the Republic on the basis of the 'Renville' principles, and to carry out with the least possible delay their undertaking to set up a sovereign federal Indonesia.
At the same time, regard should be had for the difficulties of the Dutch in Europe, and particularly with their public opinion at home. To the Republicans Australia can continue to point out that the opportunity to dominate the United States of Indonesia is theirs if they are prepared to exercise a little patience and forget about minor questions in dispute with the Dutch.
15. Australia can exercise its influence along these lines both directly with the parties and indirectly through the Committee of Good Offices. The overriding consideration is that the Committee should continue to assist the parties to reach an early settlement and remain on in Indonesia to supervise establishment of federation, if possible right up to the transfer of power.