499 Critchley to Department of External Affairs

Cablegram C17 THE HAGUE, 1 October 1949

Discussions in the Sub-Committees of the Financial and Economic Committee have made some progress but the parties are still firmly opposed on a number of important points. In general the Indonesian Delegations are prepared to- (a) Grant natural [1] treatment to Netherlanders and Netherlands enterprises in Indonesia;

(b) Guarantee Dutch investments and to pay for indemnification in the event of nationalisation;

(c) Take over all liabilities contracted in Indonesia up to 1942 but only those debts contracted since 1942 which have been used completely in the interest of Indonesia and which have not served to finance military actions in Indonesia;

(d) Enter into prior consultations with the Netherlands before taking decisions on Monetary, Budgetary and trade matters.

2. The major difficulties are Netherlands insistence that- (a) All liabilities should be taken over by Indonesia as at the time of transfer of sovereignty;

(b) So long as Indonesia is indebted to the Netherlands agreement must exist between the two parties on questions of monetary policy including the policy of the Circulation Bank. Intensive high level talks will continue this weekend in an endeavour to find a basis for agreement.

3. The technical experts have not yet completed the draft statute of the Union and are meeting with some hitches. The Netherlands are still urging that the head of the Union should have powers to take decisions on the recommendation of the Conference of Ministers and are proposing a joint citizenship which is unsatisfactory to the Indonesians. No further publicity will be given to the agreements already reached on the Union Statute until the complete Statute has been agreed in a Plenary Session. The Republicans are anxious that the Statute for the transfer of sovereignty should be formalised at the same time as the Statute of the Union so as to make the latter more acceptable in Indonesia.

4. The difficulties with regard to the Statute of transfer will mainly centre on whether New Guinea is to be included. There have been no detailed discussions on New Guinea the Republicans leaving it to the Federalists to take the initiative. Hatta admitted that he was alone in the Indonesian Delegation in regarding New Guinea as unimportant.

1 The word 'natural' should presumably read 'national'.

[AA : A1838, 854/10/4/3, vi]