Your telegram 89. [1] Negotiations.

Contact has now been made and preliminary discussions held with
both Dutch and Indonesian Departments. Reception has been cordial
in both quarters. A call was made on Van Mook who was quite
amiable though no controversial issues were raised.

2. Conversation with the Dutch produced general information on the
availability of goods here and an explanation of 28th January
regulations [2] with particular reference to availability of
native produced goods, such as kapok, subject to Dutch inspection
on export. The Dutch statistical service has not yet been fully
restored and only incomplete information on goods available is to
be had. However, it is certain that satisfactory supplies of kapok
and rubber are available, some timber and some sisal. Very poor
transport between the interior and ports is another factor.

3. On the Indonesian side, it was put to Gani that the present
situation was penalizing Australia but no other countries. It was
emphasised that any request for lifting of the boycott should be
made to the Australian Government in the first place and we think
that this registered.

4. Gani said that Indonesians had three main aims: removal of
Dutch interception of imports and exports; allocation to them of a
percentage of the exchange resulting from sale of [3] goods; and
transport of goods in ships owned or chartered by the Republic.

Subsequent conversation clarified that this last point did not
include British or Australian ships calling freely at Republic
ports.

Gani added that Indonesian labour organisations were pressing his
government not to interfere with the boycott.

5. At this stage the problem was fully presented, with all
elements of a deadlock, but we have hopes of a solution.

6. Suggestion first put forward by us is, briefly, to use Dutch
ships to carry Dutch goods from Australia to Dutch ports and
British ships to handle cargo to and from Republic ports. This
appears acceptable to Gani and the Dutch reaction will be sought
tomorrow. Our suggestion for modification of the blockade, so far
as Australian trade is concerned, is for exchange of manifests
covering both inward and outward cargoes and for mutual consent to
carriage without interception of vessels.

7. We have made no promises of specific quantities from Australia
but have given general assurances that goods will flow freely on a
commercial basis when shipping is restored and that the Government
will endeavour to facilitate purchase and export.

8. Further reports will follow after the next discussions with the
Dutch.