Agreement has now been reached on the Union Statute [1] with the
proviso by the Dutch that the citizenship sub-committee must find
an acceptable solution for the problems of the citizenship. The
major difficulty the question of whether the Head of the Union
should be allowed to take decisions has been overcome by the
following compromise:

'As regards decisions taken by the Conference, (other than those
for the enactment of joint regulations), the Head of the Union at
the request of the Conference may likewise state that agreement
exists between the two partners'.

The Dutch Parliamentary Committee of nine have approved the draft
Statute while Samsuddin [2], Chairman of the Masjumi Party, has
assured me that his party will also support the agreement.

Discussions in the Political Committee are continuing on the
Charter for the transfer of sovereignty.

2. The Cultural Committee has achieved agreement and has drafted
an accord [3] providing for a Council of fourteen (seven Dutch and
seven Indonesians) to implement free and mutual cultural co-
operation between the Netherlands and the Indonesians. The Council
would report annually to both Governments.

3. There are at least four major sets of problems still to be
solved:-

(A) Economic and Financial (especially the debts.)
(B) The Status of New Guinea.

(C) Military Problems. In particular
(1) The period for withdrawal of Netherlands Forces.

(2) The question of a naval base and the force of the Netherlands
Navy.

(3) The future of the KNIL.

(D) Self Determination. (The Netherlands are demanding special
arrangements for Minahassa and the T.B.A. Territories in Sumatra.)
4. Although progress is being made particularly with the Military
Problems, the slowness of the Conference creates a grave danger as
reports from Indonesia reveal an increasingly tense situation. I
have presented a working paper [4] to the Commission suggesting
that it should take the initiative of submitting a working paper
to the Steering Committee recommending a solution for three of the
most immediate problems before the Conference.

(A) The Status of New Guinea
(B) The Indonesian Debts
(C) National and most-favoured-nation treatment.

5. On New Guinea, I have suggested that a postponement of the
issue would be the most practical way of avoiding a long and
fruitless dispute and that it would have the advantage of
permitting discussions over the status of New Guinea in an
atmosphere in which political problems might not be so important
and in which the real problem of administration and development
could be given special consideration.

6. On the Indonesian debt, I have suggested that a compromise
figure of Indonesia's external debt might be proposed at either
900 million guilders (my telegram C.20 [5]) but that a more
logical alternative would be a debt commission to negotiate the
figure of the debt and arrangements for servicing after the
transfer of sovereignty and with the assistance of an independent
tribunal such as might be sponsored by the International Bank.

7. I have suggested that national treatment in the economic fields
should be made reciprocal between Indonesia and the Netherlands
for a period of 15 years. A general exception is made for such
measures as are necessary for economic development and security in
the national interest.

8. As expected, the proposals were unacceptable to the other
members of the Commission. Herremans had as good as told me that
his instructions prevented him from supporting any action by the
Commission without the agreement of the Netherlands while Cochran
is tending to pursue an independent policy.

9. In part, the Working Paper was an attempt to tackle the
problems created by the independence of Cochran who is encouraged
by the Netherlands to act as United States Representative rather
than as a member of the Commission. The Dutch strategy is clearly
to work for an agreement through the Americans. The Indonesians
favour mediation by the Commission but are afraid of offending
Cochran and grateful for the pressure that his tactics of seeking
a middle course impose on the Dutch.

10. Latest arrangements for dealing with the debt question
indicate the general difficulties. The Indonesians accepted a
Dutch proposal for a select committee of three, one Dutchman, one
Indonesian and an independent member to attempt to work out a
formula. The Netherlands originally proposed a third member
outside the Commission, but finally agreed to a B.F.O. suggestion
of Cochran. The Republicans according to Roem did not explicitly
agree but did not offer objections and they have now been placed
before the fait accompli of Cochran's acceptance. The realisation
that a new mediation sub-committee would mean a by-passing of the
Commission and of the United Nations only slowly dawned on the
Indonesians. They are now endeavouring to correct the situation by
insisting:-

(A) That a fourth member be added representing the B.F.O.

(B) That Cochran participate on behalf of the Commission.

(C) That the Committee be appointed by the Steering Committee and
that its functions be limited to making recommendations to that
Committee.

11. Cochran is optimistic about the prospect of the Debt Committee
overcoming the persistent differences in the viewpoints of the
Dutch and of the Indonesians. Failure by the Dutch to transfer
sovereignty by the end of this year would have most serious
repercussions in Indonesia, and all parties are aware of the
necessity to reach some overall agreement by the end of this
month. Van Maarseveen told the Indonesians yesterday that he will
approach the Cabinet and Parliamentary Leaders to obtain agreement
to an official Netherlands Statement that the Conference will
finish by the end of October and that sovereignty will be
transferred by the end of the year.

12. This statement will help to improve the atmosphere at a
difficult time. It will also be important as a guarantee that any
agreement will be ratified quickly by the Netherlands Parliament.

It comes rather too late, however, to induce much response from
the Indonesians. Some suspect it as a move to obtain concessions
in the next fortnight. Their view is:

'We shall continue to be reasonable, irrespective of any
Netherlands Statement.'