MOST IMMEDIATE

(1) I have just returned from Batavia and have had discussions
with senior British Dutch and Indonesian leaders. The situation is
particularly confusing owing to the surprising action of the
States General in appointing a Commission of Enquiry into van
Mook's conduct. [1] As I consider some urgent action on
Australia's part is necessary, I am reporting fully in this
telegram.

(2) In the British Command there is considerable confusion owing
to Christison's disagreement with Dening on the policy to be
followed. Christison believes that some form of international
intervention is necessary whereas Dening was anxious that the
Dutch and Indonesians should settle the question among themselves.

The policy of the Command is also affected by the conflicting
views among Departmental heads varying from extreme conservatism
to extreme pro-Indonesian. This has the effect in many cases of
nullifying Christison's actions.

(3) In the case of the Dutch, there is very strong resentment
against what they describe as the 'British policy of appeasement'
and this is tied up with their refusal to admit Dutch troops and
failure to implement full control in West Java. This resentment is
not limited to reactionary Dutch officers but is general and was
expressed to me by Blom [2], Hoogstraten [3], Dewein. [4] On the
other hand moderate opinion as typified by Dutch political as
distinct from military leaders has complete confidence in van
Mook. The Netherlands East Indies Government officials have been
considerably shaken[ed] by the action of the States General. In
view of erratic information regarding van Mook's future movements,
they are now completely at a loss and are awaiting information
from Holland.

(4) The Indonesian Cabinet is in a state of equal confusion.

Sjahrir and other members of the Cabinet informed me that van Mook
was the only Dutchman who would be acceptable to them as a
negotiator.

Although I could not get Sjahrir to commit himself, the Minister
for Economic Affairs [5] informed me that they were prepared to
negotiate direct with van Mook, but cannot visualise satisfactory
negotiations with any other Dutch representative. As they are as
anxious as the Dutch for an early settlement, it can be seen that
they are now feeling the action of the States General and are
equally bewildered as to the future.

(5) From discussions with the Indonesians and several with neutral
Indonesians and Chinese, I am convinced that there was every
prospect of a settlement and there still is a possibility,
providing van Mook has power to negotiate.

(6) The Indonesian Cabinet believe they are gradually
strengthening their control over Soetomo, the most prominent of
the extremists, but are concerned with the popular front which is
allied with the Communist party, and greatly under the influence
of a man named Tan Malacca. Soekarno is according to Sjahrir in
close contact with Tan Malacca but the main difference between
Cabinet and the popular front is that the popular front are
pursuing a definite policy for sequestration of all European
property supplied to the Netherlands East Indies. I was informed
that Cabinet would never consent to this policy and Sjahrir and
those in the Cabinet at present in Batavia are proceeding to
Djokjakarta to-day and a full Cabinet meeting will be held there
on Thursday, primarily to decide this question. If the popular
front, with whom the extremists may associate themselves, win,
then the Cabinet is very likely to resign.

(7) In view of the factors I have mentioned and the confusion
caused by the action of the States General, I consider it now most
unlikely that any negotiations can be successfully carried on
without mediation. The appointment of Sir Archibald Clark Kerr
will probably have the effect of raising the settlement of this
dispute to a much higher plane and may introduce an international
element. In view of Australia's vital interest in this matter and
the fact that the Dutch and Indonesians at the moment consider
that the Australian Government's policy is expressed by the
waterside workers (an impression which I have endeavoured to
correct) I recommend most strongly that the Commonwealth
Government should take some action which would show to the other
nations concerned in the question its own vital interest in a
stable and fast settlement. [6] I, therefore, suggest for your
consideration that the following action should be taken:-

(1) That the Commonwealth Government should announce that the
Australian Government representative at SACSEA has just returned
from Batavia and has reported fully to Cabinet on the question
[7]; that Cabinet is now studying this report in view of
Australia's vital interest in the matter and will decide what
policy it should adopt.

(2) That Cabinet should consider sending to this area as soon as
possible after the arrival of Sir Archibald Clark Kerr a senior
Cabinet Minister who will himself visit Java and study the
situation first hand.

I consider that these two moves would immediately make it clear
that Australia has a vital interest, and it is intending at least
to watch the situation very closely.

(3) That the Cabinet Minister, if he should proceed should
consider, after discussion with Sir Archibald Clark Kerr, pressing
for Australian representation on any body which may be set up to
mediate in the dispute.

There is certain danger that Australia's representation in
addition to United Kingdom may raise the question of
representation of other powers, particularly China and Russia. It
may be possible, however, to evolve a formula by which Australia,
in view of her vital interests, should mediate on behalf of the
Empire or in conjunction with the United Kingdom.

These recommendations, and particularly two and three are, of
course, on the assumption that, because of the action of the
States General van Mook will either not return to Java or not be
in a position to carry out effective negotiations.

(8) I may say that Dening does not agree with my point of view on
the necessity for a third party mediation. He considers that if
negotiations do not take place or break down, then a concerted
policy for the restoration of law and order in the whole of West
Java should be carried out as quickly as possible; that the Dutch
Government should then negotiate with such Indonesian leaders as
remain in West Java, and are prepared to work with them, and set
up an order based on Dutch terms of settlement. I believe that
such a solution would not have the basis of any permanent
understanding between the Dutch and the Indonesians, no matter how
successful it might be in the early stages.

(9) I will report fully details of conversations in to-morrow's
mail.