The breakdown of the negotiations between the Dutch and the
Republicans in Indonesia is causing us very serious concern, as no
doubt it is to you; and the more so because developments in China
are likely before very long to have their repercussions throughout
South East Asia. We shall hope to consult you very shortly about
the China situation, but in the meantime the Indonesian question
has become very urgent and I feel you would wish to know our
views.

2. It appears that the negotiations have broken down over two
related questions:-

(a) Disposal of the Republican Army, and
(b) The question of unified command.

3. As to the first of these, we feel that it is not unreasonable
of the Dutch to insist that the Republican Army should not remain
in being in the shape of identifiable units in a federal force.

Experience in Burma showed that the existence of a private army at
the time of the grant of independence eventually proved an
embarrassment to the Government, and there seems to be no doubt
that the creation of a Federal Indonesian Army into which the
Republicans would be absorbed as individuals but not as units is
the course most likely to lead to ultimate stability.

4. On the second point it appears that while the Republicans
accept the position that the Crown Representative will
constitutionally have overall command of both the Dutch and the
Federal Indonesian forces, they want the Dutch to agree to limit
the sovereignty of the Crown Representative by an undertaking in
some form or another not to exercise his authority over the
Indonesian Army against the wishes of the provisional Federal
Government. The Dutch are unable to agree to this.

5. I must say frankly that we should find it very difficult to
urge the Dutch to give way on this latter point, the more so as
the overriding powers of our own representatives in India and
Burma during the interim period were limited by an unwritten
convention and not any formal undertaking. The Republicans agreed
to the first of the six additional principles of the Renville
Agreement [1], which states clearly that sovereignty rests with
the Netherlands during the interim period, and it seems to us that
they are therefore committed to acceptance of the Dutch proposals.

At present they do not accept them and it is difficult for us to
see how the Dutch can be expected to meet them. Apart from
anything else, to limit the sovereignty of the Crown
Representatives would involve further legislation in Holland,
which would, according to our information, not gain sufficient
support in the legislature to go through. The Dutch Foreign
Minister has been doing his best in the face of considerable
opposition and even he feels that the limit of concession has now
been reached.

6. The Dutch have now announced their intention to set up the
Provisional Federal Government without the Republic, leaving
provision for them to enter subsequently if they are willing. It
would have been much better in our view if the Dutch had refrained
from making an announcement at this stage, but internal political
pressure seems to have compelled them to take this step and we
have to consider the position as it is. If the Federal Provisional
Government is set up without the Republic, it seems likely that
disorders will break out in Indonesia and that the Dutch may then
be compelled to resort to force to restore order. Such a
development could only be to the disadvantage of all concerned and
would lead to a long period of instability in South East Asia
which would adversely affect all our interests.

7. We consider that in reality the Republic position will not be
seriously jeopardized by conceding the two points mentioned above.

Much will of course depend upon the good sense and judgment of the
Crown Representative but were he to order the Federal Indonesian
Army to take action during a state of emergency against the advice
and in defiance of the wishes of the Provisional Federal
Government (which is to control that army except in a state of
emergency), then it is very probable that the Federal Forces would
not obey. The Republicans appear to appreciate this point but
their distrust of the Dutch, nevertheless makes them press for
some limitation of the sovereignty of the Crown Representative.

8. In our view the essential thing is to get the Provisional
Federal Government set up and to include the Republic in it. All
Indonesians, whether Federal or Republican, want Indonesian
independence and the best way to get it is to work together in the
Provisional Federal Government and in the Federal Indonesian
Forces. If the Dutch thereafter abuse their position it will only
result in their ultimately losing all influence in Indonesia and
it is difficult to believe that they will not recognise this and
suit their actions accordingly. We feel sure that the setting up
of the Federal Government including the Republic will do a great
deal to relieve the present tension and it is that which seems to
us of paramount importance. The question is whether the Republican
Government can be persuaded to see the position in this light, now
that the Dutch have made it clear that they feel unable to make
any concession on the point at issue.