On its arrival at Djokjakarta, the Good Offices Committee met with
an endless and boisterous demonstration by Indonesian youths who
presented a resolution that the Republican Government should not
carry on Dutch-Republic negotiations except on a basis of complete
sovereignty of the Republic and complete withdrawal of foreign
troops from Indonesian soil. The terms of this resolution are
consistent with a growing body of Republican opinion (including
Islamic elements such as the Islamic youth organisation) which is
stressing the objective of free sovereign Republic rather than a
United States of Indonesia.

2. The Left Wing opposition [to] Government capitalised on this
trend of opinion, on the failure to date of negotiations with the
Dutch, on series of incidents in Batavia (see my telegram No. K
152 repeated to London [1]) and on Russian offer of exchange of
Consuls and Commercial help. [2] Leaders demand a stronger policy
against the Dutch including the rejection of the Renville
agreement. At the same time, the fusion of Sjarifoeddin's People's
Democratic Front with the Communist Party under Moeso, who has
just returned from a long refuge in Russia, and the decision of
the Republican Socialist Youth League to give full support to the
Communist Party, have strongly consolidated this opposition.

Now, for the first time in Indonesia, the Communist Party emerges
as a powerful force while the leadership of Moeso is likely to
give its policy a much sharper Russian slant than was the case
under Alimin.

3. [Hatta] [3] has met increased opposition with strong two-hours'
speech to K.N.I.P. on September 2nd, in which he called for
National solidarity with the prime object of Indonesian freedom as
soon as possible rather than acceptance of the Communist view
supporting Russian policy. He concluded his speech by stressing
the importance of democratic procedures and warning that if these
procedures gave rise to excesses such as threats of intimidation
or anarchy so that national security were jeopardised the
Government would take decisive measures 'with an iron hand if
necessary'.

4. [Hatta] also reiterated the Government's acceptance of
Australian-American compromise proposals [4] as a basis for
negotiations and again referred to conditions first mentioned by
Soekarno on 17th August, on which the Republic would participate
in an Interim Government. The[se] are,
(a) The Interim Government must be of a National character and its
authority and power clearly defined.

(b) Members of the Government should be capable men with a sense
of responsibility who are well known to the whole Indonesian
society.

(c) The Interim Government must be awake, democratic and able to
appreciate the growth of democracy.

(d) The Interim Government should be responsible to a Constituent
Assembly, democratically elected by the whole Indonesian
population to draft constitution, determine component States of
United States of Indonesia and ratify the statute of the
Netherlands-Indonesian Union.

5. The internal situation in the Republic is clearly critical.

Middle of the road Socialists like Sjahrir and Budiardjo are
concerned at development of struggle between Masjumi religionists
and the new Communist party, and are stressing the necessity of
maintaining a central Government under Hatta. Budiardjo believes
that the recent Dutch policy may have been intended to weaken the
Hatta Government in expectation that the advent of a Communist
Government would lead to a defection of large sections of the
Masjumi to the Dutch. The possibility of such a conception is
denied by the present Masjumi leaders. Budiardjo is secretly
working to organise socialists who were previously in the F.D.R.

and who are not keen on fus[ion] with the Communists.

6. Hatta has found the creation of Nationalist coalition
Government impossible since Left Wing demand of half the seats is
'too high'. Both he and [Su]karno believe that the present
Government can remain in power for some months but stress that the
present situation cannot last. Although the Masjumi appear to
[enjoy] by far the greatest support numerically, the Communists
are now most dynamic politically, in view of the reinstatement of
some of the best leaders in the Republic. They are gaining
strength rapidly and can only be checked if a satisfactory
agreement is speedily reached with the Dutch. The Communist party
is unlikely to find any settlement with the Dutch satisfactory,
but the recent coalition might not remain stable with the
achievement of a reasonable settlement by Hatta. For example,
Sjarifoeddin's revival and his devout Christianity are difficult
to reconcile with his relatively minor position in the Communist
party.

7. In the belief that some [initiative] by the Committee at this
stage would strengthen the position of the Republicans who still
support the policy of negotiations with the Dutch, I have
continued without success to urge the Committee to report to the
Security Council the recent deterioration in relations with the
parties. It may, however, be possible to obtain the Committee's
agreement to a firm public statement that the Committee hopes that
the Netherlands will shortly put forward reasonable proposals for
a settlement.

8. Recent statements from The Hague make it appear unlikely that
the Netherlands proposals will, in fact, be satisfactory. They
suggest, for example, that the Dutch proposals for a Union will
compromise Indonesian sovereignty. If the Republic rejects the
Dutch proposals, there would then be a final opportunity for the
Committee to take the initiative and make proposals for a
settlement. I believe th[at] the Americans would come with us at
that stage in making a last attempt to foster an agreeable basis.