Progress at the conference continues to be slow and it would
appear that it will take another three weeks to crystallize the
issues. Hatta is not satisfied and at the suggestion of the
Republicans the midweek excursions which have occupied the
delegations on most Wednesdays have in principle been abandoned.

2. There is every indication that the conference will succeed in
the sense that there will be an agreement. The Government and the
majority of the people of the Netherlands are facing up to the
inevitability of the transfer of sovereignty to Indonesia. The
important issue now is whether the agreement can be obtained
quickly and in an atmosphere that will facilitate economic and
political stability in Indonesia or whether the settlement will be
delayed and limited in such a way as to create continuing problems
after the settlement.

3. There is no doubt that the Netherlands interests could best be
served by a quick gracious settlement in which they would depend
upon Indonesian goodwill and the establishment of a strong
moderate Indonesian Government preferably under Hatta.

4. It is equally clear, however, that politically and
psychologically the Dutch are incapable of making this approach.

There is no adequate guidance through a Government Public
Relations policy or by the Press and the public is woefully
ignorant of the real issues of the Indonesian question. There is
still a tendency in official circles to disregard the dangers of
political instability and to seek to play off Indonesian factions
and politicians against one another. The 'oral note' [1] of the 14
principles for an economic and financial settlement is also a
clear indication that the Dutch will seek excessive guarantees in
the economic agreement.

5. To sum up-
(A) A settlement at The Hague is most likely.

(B) That issue, however, is primarily whether this settlement will
be good enough to get by in Indonesia and South East Asia.

(C) The Commission cannot take a strong line yet but it will
probably be necessary to exert pressure eventually in order to
achieve a reasonable settlement.