235 Burton to Evatt
Cablegram E44 CANBERRA, 7 September 1948, 5 p.m.
Following is outline of present position in Indonesian dispute.
2. Negotiations through Committee of Good Offices have been at standstill since before Netherlands election. Neither side had attempted to resume negotiations, Dutch on grounds that they have been awaiting further proposals from New Netherlands Government, Republicans because they have insisted that Critchley - Du Bois proposals  are the only satisfactory basis for negotiations.
3. Under these proposals free elections would be held throughout Indonesia to set up a constituent assembly whose functions would be to:
A. delineate boundaries of states, on the advice of a commission of experts;
B. elect a President of United States of Indonesia;
C. act as a provisional parliament and form a provisional federal government responsible to it;
D. gradually take over all administrative functions;
E. draft and ratify a constitution for United States of Indonesia;
F. ratify statute for Netherlands-Indonesian Union, and simultaneously take full sovereignty.
Sovereignty would remain with Netherlands in interim period but Governor-General's veto would have limited application.
4. Meanwhile, atmosphere in Indonesia has deteriorated-see Critchley's telegram No. K. 154 repeated to Hague.  Netherlands attitude has hardened following allegation of opium smuggling by Republicans, and Dutch have recently taken over Republican hospital and other buildings at Batavia and evicted members of Republican delegation at Batavia and their families from Batavia.
 Netherlands economic blockade of Republican areas shows no signs of relaxation. On Republican side, delay in reaching settlement has resulted in greatly increased pressure against Government from left wing elements. Communist agitation has grown following return of Republican representatives from Moscow and Prague. Socialist Party has split into sections led by Sjahrir and Sjarifuddin, the latter has joined with Communists. There are serious doubts whether Hatta Government will be able to hold out against left wing demands for closer association with Soviet and all-out resistance to the Dutch. Dutch would probably prevent Hatta's overthrow by offering settlement which would meet minimum Republican conditions, but it is possible that their object may be to let situation develop so that they can intervene with force in the name of restoring order and suppressing Communism.
5. The Dutch have not yet presented any new proposals to the Committee of Good Offices and the Republic. They have, however, been considering a set of proposals prepared by a conference of non-Republican Indonesian states sitting at Bandoeng. According to press, they may, in the next few days be reconsidering them at The Hague in the light of Bandoeng Conference comments. The Bandoeng government of Indonesia run by 4 organs (a small directorate, a 'cabinet' of head of departments, a federal council and an elected assembly) with Netherlands Government represented by a High Commissioner, are not favoured by Republican Government, which insists that they do not meet its two main conditions, viz., a guaranteed date for achievement of full sovereignty and exercise of real power by the provisional government pending attainment of sovereignty.
6. Netherlands plan appears to be to reach agreement with non- Republican states on basis of Bandoeng proposals , and then to present agreed plan to Republic and Committee of Good Offices. If Republic refuses to accept, the Dutch will presumably try to go ahead with establishment of provisional United States of Indonesia without Republican representation.
7. Only hopeful feature is apparent Dutch acceptance of principle of elective assembly, which was provided for in Critchley - Du Bois plan but which Dutch have so far resisted.
8. Dutch have been making overtures for return of Kirby to Batavia. On present appearances there is nothing he could usefully do that would warrant his return.