Indonesia.

1. We are disturbed at lack of progress towards settlement of the
Indonesian dispute. It is apparent that the negotiations at
Batavia under auspices of U.N. Committee of Good Offices are not
going well. Some measure of agreement has been reached on
secondary matters, but there is deadlock on major political and
economic issues in dispute.

2. We had hoped that both parties would be able to reach an early
settlement of their dispute and get ahead with main task of
creating a United States of Indonesia enjoying sovereignty
throughout Indonesia. It has seemed to us that given sincere
desire by both sides to observe the spirit of the Renville
principles and to concentrate on long term objectives set forth
therein, the matters over which they have bickered in the past
would become relatively unimportant. We are, however, driven to
the conclusion that the Netherlands negotiators at Batavia are
fundamentally incapable of setting aside their profound suspicion
of the Republican Government's actions and motives, and are
obsessed with fear of losing face. This is evident from their
harsh and unyielding attitude throughout negotiations, and from
their eagerness to magnify small incidents, e.g. the Djokjakarta
station affair [1], for the purpose of laying blame on the
Republic.

3. In general, Dutch tactics appear to be to reduce the Republic
to a rump State on level with an undefined number of other small
States, and to prevent at all costs the coalescence of Republican
areas into a single substantial State within the United States of
Indonesia. Their latest tactic in the negotiations is to present
the Republic with unacceptable demands on a take-it-or-leave-it
basis while at the same time stressing the urgency of a
settlement, thus trying to throw the onus of delay on the
Republicans.

4. At the same time it is clear that they are using every kind of
economic pressure available to them to weaken the Republic and to
wean individual Indonesians from allegiance to the Republican
Government. All areas under Republican control are in great need
of equipment and supplies for reconstruction purposes and for
immediate health and welfare of inhabitants. Some areas, e.g.

Bantam, are very short of food. The Republic would like to trade
with the products of native produce from areas under its control.

They are faced with following position:-

(a) The Dutch are still firmly resisting any general reopening of
channels of internal trade as contemplated in Article 6 of the
Truce agreement. [2] (Dutch attitude is obviously based in part on
the belief that by restricting contacts between areas they can
prevent spread of pro-Republican sentiment.)
(b) For such limited trade as they are allowed to conduct
Republican exporters are paid by the Dutch only in Rupiahs, which
are useless for purchasing supplies outside Republican areas.

(c) The Republicans can neither obtain from the Dutch a fair share
of supplies of goods entering Indonesia, nor make their own
arrangements direct with exporters abroad to import needed goods
through regular channels.

(d) Direct trading between Republican areas and abroad is
prevented by tight sea and air blockade. The Dutch claim that this
is necessary to prevent smuggling and enforce overseas trade
controls, but in fact it extends to inter-island trade and has
also had the effect of interfering with normal in-shore activities
such as fishing.

(e) Meanwhile, it is clear that the Dutch themselves are not
scrupling to use supplies of textiles and other goods which they
control to entice Indonesian population away from the Republic and
to draw a contrast between conditions in their own and in
Republican areas.

It is obvious that the Dutch are making ruthless and unjustified
use of their trade regulations to inflict every possible economic
hardship upon the Republic.

5. Our vital interest in the future prosperity and orderly
progress of Indonesia makes it impossible for us to allow such a
situation to continue indefinitely. Prime Minister has appealed
personally to the Netherlands Government to assist in relieving
the economic plight of the Republic, but without success. We are
at present working on plans to make post-U.N.R.R.A. relief
supplies available for distribution in Republican areas, and are
sending Mission to Djokjakarta in the near future to discuss this.

If the Dutch continue their present tactics we shall be forced to
consider other means of opening up Republican areas to commercial
intercourse.

6. In our view Dutch policy is mistaken as regards both the future
welfare of Indonesia and especially the long-term interests of the
Netherlands. The enmity which their tactics and behaviour are
building up in Indonesia will inevitably hasten the decline of
their influence. If, on the other hand, they could give up
thinking in terms of the status quo and observe the spirit of
their undertakings with the same breadth of vision and generosity
as was displayed by the United Kingdom Government towards Burma,
they could entertain good prospects of preserving the friendship
of the Indonesians. Republican leaders still insist that they will
need Dutch technical and other help in future.

7. We hope that the United Kingdom Government will agree generally
with us in this matter which is of such vital concern to us and
for which we must take responsibility, and we should be grateful
if you would take an early opportunity of urging the Netherlands
Government, in its own interest as well as yours and ours, to take
a more far-sighted and generous view of the entire Indonesian
problem.