Discussions in the Sub-Committees of the Financial and Economic
Committee have made some progress but the parties are still firmly
opposed on a number of important points. In general the Indonesian
Delegations are prepared to-
(a) Grant natural [1] treatment to Netherlanders and Netherlands
enterprises in Indonesia;

(b) Guarantee Dutch investments and to pay for indemnification in
the event of nationalisation;

(c) Take over all liabilities contracted in Indonesia up to 1942
but only those debts contracted since 1942 which have been used
completely in the interest of Indonesia and which have not served
to finance military actions in Indonesia;

(d) Enter into prior consultations with the Netherlands before
taking decisions on Monetary, Budgetary and trade matters.

2. The major difficulties are Netherlands insistence that-
(a) All liabilities should be taken over by Indonesia as at the
time of transfer of sovereignty;

(b) So long as Indonesia is indebted to the Netherlands agreement
must exist between the two parties on questions of monetary policy
including the policy of the Circulation Bank. Intensive high level
talks will continue this weekend in an endeavour to find a basis
for agreement.

3. The technical experts have not yet completed the draft statute
of the Union and are meeting with some hitches. The Netherlands
are still urging that the head of the Union should have powers to
take decisions on the recommendation of the Conference of
Ministers and are proposing a joint citizenship which is
unsatisfactory to the Indonesians. No further publicity will be
given to the agreements already reached on the Union Statute until
the complete Statute has been agreed in a Plenary Session. The
Republicans are anxious that the Statute for the transfer of
sovereignty should be formalised at the same time as the Statute
of the Union so as to make the latter more acceptable in
Indonesia.

4. The difficulties with regard to the Statute of transfer will
mainly centre on whether New Guinea is to be included. There have
been no detailed discussions on New Guinea the Republicans leaving
it to the Federalists to take the initiative. Hatta admitted that
he was alone in the Indonesian Delegation in regarding New Guinea
as unimportant.