Events of the last weeks have unfolded more or less as expected.

Notwithstanding the courageous efforts of Hatta and the Republican
moderates to find a basis for a settlement, the Netherlands have
persisted in unacceptable demands. The moderate nationalists are
now convinced the Republic has gone as far as possible and that
the Dutch are determined to reimpose colonialism in Indonesia.

2. Even if Hatta's concessions had been accepted in the spirit in
which they were made, he and his followers would still have had to
wage a tremendous fight to have them accepted by the Republic as a
whole. All political parties, with the exception of the Masjumi
were strongly opposed to Hatta's Aide Memoire [1], and there were
many Masjumi sections seriously in doubt as to whether or not he
had gone too far. The closed session of the KNIP on December 1
severely criticised Hatta's policy, but it did not ask Hatta to
resign. The Dutch are, therefore, missing a golden opportunity to
settle with the Republicans who would do business with the
Netherlands and who can be relied upon to co-operate in the
reconstruction of Indonesia.

3. The talks broke down on the powers of the High Representative
of the Crown, and particularly on his authority over the army,
during the interim period. The latter has always been a vital
issue. You will remember it proved a stumbling block in the
negotiations prior to the start of the police action last year.

4. In my telegram I have outlined Stikker's report (My K.202 [2])
to the Good offices Committee on the last of the informal
discussions. Now, for the sake of completeness, I am setting out a
more detailed summary:-

(1) Talks with Hatta were continued on Saturday evening on the
subject of the powers of the High Representative of the Crown in
the interim period, particularly in relation to the army.

(2) The points at issue eventually boiled down to the question of
sovereignty in the interim period.

(3) Hatta was prepared to accept Netherlands sovereignty in
principle but in practice said that there should be a protocol or
gentleman's agreement which would deny the Netherlands the
exercise of that sovereignty in certain cases.

(4) In particular the Republican Prime Minister insisted that the
Netherlands should not have the right to use Dutch forces against
the Indonesians against the wishes of the federal interim
government.

(5) Hatta also maintained that the federal forces should be under
the control of the federal interim government.

(6) These Republican claims were unsatisfactory to the Dutch and
could not be accepted within the terms of their instructions.

(7) The Netherlands regard Hatta's attitude as inconsistent with
his Aide Memoire and with Article 1 of the six additional
principles [3] of the Renville Agreement.

(8) Stikker said that the disagreement was a tragedy and that his
mission had failed. He saw no prospect of an early settlement with
the Republic.

(9) The Netherlands Ministers intend to recommend that the
Government proceed immediately to the formation by the middle of
December of an interim federal government without the Republic.

(10) Stikker had insisted that the draft bill for the formation of
the federal interim government should be amended to include an
additional clause which would leave the door open for the Republic
to join.

(11) This clause had already been drafted and would permit the
bill to be modified without reference to the Parliament so as to
meet the terms of any subsequent agreement with the Republic.

(12) Stikker expressed his willingness to continue to seek all
possible means of finding a settlement and to come to Indonesia as
Beel's number two if this might help.

(13) The need for the G.O.C. to report the failure of the direct
talks was acknowledged, but Stikker felt that the Committee should
wait until the Ministers had reported to their Government at The
Hague and the Government had made an official report to the
Committee.

(14) Stikker expressed his appreciation of Hatta as an individual
and for Hatta's efforts to find a settlement.

5. The Republican Delegation has reported to the Committee on the
informal talks between Hatta and the Netherlands Ministers
(Appendix I). [4] The Committee expects to receive a parallel
report from the Netherlands Government today. [5] Much depends on
the substance of the Netherlands report, but in view of the
Republican report and the information already given to the
Committee, we shall most probably report a serious situation to
the Security Council by telegram on Sunday, December 12th.

6. Hatta insists there should have been no misunderstanding of his
stand against the unrestricted use of Dutch troops. In drafting
the Aide Memoire he made his position clear to the Netherlands
advisers who were then in Kaliurang. Hatta draws a distinction
between a state of emergency and a state of insecurity. In a state
of emergency the Netherlands would control all forces in Indonesia
if the interim federal government calls for the assistance of the
Netherlands armed forces. Such an emergency would, for example, be
an external threat of aggression. On the other hand a state of
insecurity does not necessarily imply a state of emergency but
merely a situation in which armed forces would be required to
assist the police. I believe Hatta is sincere, but the drafting,
to say the least, is unfortunate.

7. The Dutch interpretation of the Aide Memoire is unacceptable to
Hatta. In any case it would be politically unacceptable to the
Republic. All political parties are firmly opposed to any
provision which would permit the use of Dutch troops against the
wishes of the interim federal government for maintaining internal
security in Indonesia or which would place the federal army under
Dutch control. When rumours circulated in Djokjakarta that Hatta
had given way on these points large sections of the TNI including
the Siliwangi units (the West Java units which are the best troops
of the Republic) took unanimous decisions to fight on if the
rumours proved true. Since in practice Dutch forces could not be
used against Indonesians in opposition to an interim federal
government without creating a complete breakdown in the Indonesian
situation, I find it difficult to understand why the Dutch, if
sincere, refuse to give way on this point, if only because to do
so would strengthen Hatta and the moderate groups. Clearly a clean
and satisfactory settlement of the Indonesian dispute depends on a
Dutch agreement with the moderates, and the control of the latter
over the people of Indonesia. Any paper concessions that can be
given to Hatta would facilitate the latter.

8. At present Hatta's political position within the Republic
appears to be strong. His popularity has certainly increased since
the breakdown of the informal direct talks. Indeed the failure of
the talks following the rumours of Hatta's capitulation has
brought a wave of relief. Sukarno also expressed himself strongly
on the Republican minimum needs. Although he may strengthen the
Cabinet he insisted that on no account would he replace Hatta as
leader.

9. Hatta has explained the breakdown in the talks to a United
Press correspondent. His report, as published in 'Aneta' provides
a good summary, which I am attaching (Appendix 2). [6] While on
the subject of the press, I also enclose (Appendix 3) a copy of an
attack on the staff of the G.O.C. which appeared in the local
Dutch press over the weekend. [7] I believe the attack is directed
against a member of the Secretariat, but it will be apparent that
the comment of the G.O.C spokesman 'nonsense' is appropriate and
that the atmosphere here is not an easy one.

10. Latest developments to my mind justify the complaint of the
Republic that the Netherlands have never intended to negotiate on
the basis of the Cochran plan. Over the past 3 months they have
cleverly hedged so as to maintain their position internationally
and so as to complete their preparations for the construction of
an interim federal government without the Republic. These
preparations are now completed with the formation of the State of
East Java this week. It remains to be seen how quickly the final
structure can be erected.

11. In the last few days cracks have appeared in the Federal
facade. Some dissatisfaction among the Federalists is reported to
be due to the failure of the Dutch to keep them informed of the
progress of the Ministerial discussions with Hatta. This is a
likely story since even the Acting Chairman of the Netherlands
delegation, Schuurman, knew little about last Saturday's talks. In
any event, the Federalists are hardening against accepting any
responsibility for further police action against the Republic.

Adil Poeradiredja, Prime Minister of Pasundan, is leading the
objections and is flatly opposed to any form of Dutch military
action. Close behind him is Anak Agung Gde Agung, Prime Minister
of East Indonesia, who puts the case rather more cautiously that
the federal interim government must take no responsibility. Both
Adil Poeradiredja and Anak Agung Gde Agung have been in close
contact with Hatta and Hatta's representative in Batavia, Dr.

Darmasetiawan. They have assured Darmasetiawan they will insist
that their joining the federal interim government be conditional
on a firm agreement that that Government will not take any
decision for military action against the Republic. The other
federalists are more inclined to say that a police action is a
Dutch concern and that the Netherlands had better get it over.

12. Adil Poeradiredja appears to be standing out against the
formation of a federal interim government without the Republic.

Pasundan party leaders and the Prime Minister of East Indonesia
have told Darmasetiawan they will insist on the interim government
including the Republic-the Pasundan party leaders claiming they
will make a positive statement. Both Poeradiredja and Anak Agung
Gde Agung are reported by Darmasetiawan to be convinced that Hatta
and the Republic have made every effort to reach a settlement.

13. I have learnt that the more nationalist-minded federalists had
already endeavoured to limit Netherlands control of the army in
Indonesia in the Interim period. This is supported by an article
in 'Het Dagblad' of December 7th, which I am attaching as Appendix
4. [8]

14. The Federalist paper 'Warta Indonesia' (Batavia), which is
considered as giving a fair indication of the views of federalist-
minded Indonesians in Batavia has outlined the various solutions
which could be found in the Indonesian problem. I attach a
translation of the article as Appendix 5. [9]

15. Republicans in Batavia who are in the 'moderate' camp are
gloomy about the failure of the talks. Their feelings seem to be
hardening against the Dutch and at this moment there is a
spiritual readiness to face a police action with all its
consequences.

The Dutch on their part seem to be incapable of appreciating the
force of nationalism.

16. A similar hardening attitude is noticeable in Djokjakarta. I
understand that Hatta on his return on Sunday, December 5,
conferred with army leaders. Such was the feeling that the talks
at Kaliurang were peace or war talks, that all precautions were
immediately taken against Dutch military action. Within a few
hours bombs were placed under all important buildings and bridges
and general preparations were made for scorched earth and
guerrilla activity.

17. The morale of the Republican army following successes against
the Communists is reported as high. The morale of the people also
seems good and in contrast with the period immediately before
Linggadjati and in July this year there were no signs of
excitement in Djokjakarta but a calm determination to meet the new
situation.

18. The Dutch press in Batavia continues, of course, to solicit
military action. This is the typical line of Dutch morning paper,
'Nieuwsgier', which is the best of the poor Dutch press in
Batavia, 'Now that the talks have failed there are only two
courses open to the Netherlands, to leave the Republic alone or to
take military action against it.' Needless to say, 'Nieuwsgier'
believes that because of 'the Republic's responsibility' for the
unrest in Netherlands territory, the latter is the wise decision.

19. There is one aspect of military action which the Dutch might
do well to consider. At present Hatta has many thousands of
members of irregular armed bands in prison camps. Some estimates
place their number as high as 40,000, a good estimate is probably
about 30,000. These prisoners would certainly be released if the
Dutch were to advance and since they are the most competent
guerilla fighters in Indonesia this is a prospect of some concern
for the Netherlands.

20. For all the talk of military action I feel that for the time
being the possibility is remote. The Americans have obviously
taken a very strong stand and are confident there will be no
police action. I have been informed by the British Consul-General
that Beel told the American Ambassador at The Hague that the Queen
had instructed him to find a solution without bloodshed.

21. I know the Dutch (Stikker, for instance) consider that the
formation of an interim government without the Republic will make
things difficult for the Republic. I am not sure, however, whether
they realize the difficulties they themselves will be up against.

We may expect increased disturbances and unrest which will begin
in earnest after January 1st, 1949, and there may be much more
concerted action from Asiatic countries, such as India to assist
the Republic. Some Republicans put it this way. If the Dutch go
ahead we will be able to find out who is right. For our part we
are sure the Dutch efforts to form an interim federal government
without the Republic will fail. Many Republicans believe they can
live alone providing the Dutch do not interfere.

22. I am convinced the Netherlands intend to go ahead and complete
their series of faits accomplis. They will endeavour to use the
interim federal government to bring pressure on the Republic and
endeavour to force it to join the Government on Dutch terms with
the same status as the other States. My own opinion of
probabilities at present is that the formation of an interim
federal government without the Republic will make a negotiated
settlement of the dispute much more difficult, that disturbances
in Indonesia will grow alarmingly next year and that the Dutch
will eventually attempt to use these incidents to justify military
action against the Republic.

23. It was officially announced on December 6 that Sukarno would
accept Nehru's invitation to visit India. I believe that his
departure will not be delayed long. Sukarno seeks to avoid,
however, giving the impression that he is deserting the Republic.

Sukarno's visit may be the beginning of a much stronger Indian
policy towards Indonesia and I shall be most surprised if Sukarno
confines his trip to India.

24. The Committee plans to leave by train for Kaliurang on
December 15th for the regular visit of three weeks which it
postponed to meet Dutch wishes during the ministerial talks.

Certain press correspondents have been advised by their Dutch
colleagues not to make this trip. I hope this will not mean that
you may be looking for a new Australian delegation for Batavia
next week.