On its arrival at Djokjakarta, the Good Offices Committee met with an endless and boisterous demonstration by Indonesian youths who presented a resolution that the Republican Government should not carry on Dutch-Republic negotiations except on a basis of complete sovereignty of the Republic and complete withdrawal of foreign troops from Indonesian soil. The terms of this resolution are consistent with a growing body of Republican opinion (including Islamic elements such as the Islamic youth organisation) which is stressing the objective of free sovereign Republic rather than a United States of Indonesia.
2. The Left Wing opposition [to] Government capitalised on this trend of opinion, on the failure to date of negotiations with the Dutch, on series of incidents in Batavia (see my telegram No. K 152 repeated to London ) and on Russian offer of exchange of Consuls and Commercial help.  Leaders demand a stronger policy against the Dutch including the rejection of the Renville agreement. At the same time, the fusion of Sjarifoeddin's People's Democratic Front with the Communist Party under Moeso, who has just returned from a long refuge in Russia, and the decision of the Republican Socialist Youth League to give full support to the Communist Party, have strongly consolidated this opposition.
Now, for the first time in Indonesia, the Communist Party emerges as a powerful force while the leadership of Moeso is likely to give its policy a much sharper Russian slant than was the case under Alimin.
3. [Hatta]  has met increased opposition with strong two-hours' speech to K.N.I.P. on September 2nd, in which he called for National solidarity with the prime object of Indonesian freedom as soon as possible rather than acceptance of the Communist view supporting Russian policy. He concluded his speech by stressing the importance of democratic procedures and warning that if these procedures gave rise to excesses such as threats of intimidation or anarchy so that national security were jeopardised the Government would take decisive measures 'with an iron hand if necessary'.
4. [Hatta] also reiterated the Government's acceptance of Australian-American compromise proposals  as a basis for negotiations and again referred to conditions first mentioned by Soekarno on 17th August, on which the Republic would participate in an Interim Government. The[se] are, (a) The Interim Government must be of a National character and its authority and power clearly defined.
(b) Members of the Government should be capable men with a sense of responsibility who are well known to the whole Indonesian society.
(c) The Interim Government must be awake, democratic and able to appreciate the growth of democracy.
(d) The Interim Government should be responsible to a Constituent Assembly, democratically elected by the whole Indonesian population to draft constitution, determine component States of United States of Indonesia and ratify the statute of the Netherlands-Indonesian Union.
5. The internal situation in the Republic is clearly critical.
Middle of the road Socialists like Sjahrir and Budiardjo are concerned at development of struggle between Masjumi religionists and the new Communist party, and are stressing the necessity of maintaining a central Government under Hatta. Budiardjo believes that the recent Dutch policy may have been intended to weaken the Hatta Government in expectation that the advent of a Communist Government would lead to a defection of large sections of the Masjumi to the Dutch. The possibility of such a conception is denied by the present Masjumi leaders. Budiardjo is secretly working to organise socialists who were previously in the F.D.R.
and who are not keen on fus[ion] with the Communists.
6. Hatta has found the creation of Nationalist coalition Government impossible since Left Wing demand of half the seats is 'too high'. Both he and [Su]karno believe that the present Government can remain in power for some months but stress that the present situation cannot last. Although the Masjumi appear to [enjoy] by far the greatest support numerically, the Communists are now most dynamic politically, in view of the reinstatement of some of the best leaders in the Republic. They are gaining strength rapidly and can only be checked if a satisfactory agreement is speedily reached with the Dutch. The Communist party is unlikely to find any settlement with the Dutch satisfactory, but the recent coalition might not remain stable with the achievement of a reasonable settlement by Hatta. For example, Sjarifoeddin's revival and his devout Christianity are difficult to reconcile with his relatively minor position in the Communist party.
7. In the belief that some [initiative] by the Committee at this stage would strengthen the position of the Republicans who still support the policy of negotiations with the Dutch, I have continued without success to urge the Committee to report to the Security Council the recent deterioration in relations with the parties. It may, however, be possible to obtain the Committee's agreement to a firm public statement that the Committee hopes that the Netherlands will shortly put forward reasonable proposals for a settlement.
8. Recent statements from The Hague make it appear unlikely that the Netherlands proposals will, in fact, be satisfactory. They suggest, for example, that the Dutch proposals for a Union will compromise Indonesian sovereignty. If the Republic rejects the Dutch proposals, there would then be a final opportunity for the Committee to take the initiative and make proposals for a settlement. I believe th[at] the Americans would come with us at that stage in making a last attempt to foster an agreeable basis.