1. We are disturbed at lack of progress towards settlement of the Indonesian dispute. It is apparent that the negotiations at Batavia under auspices of U.N. Committee of Good Offices are not going well. Some measure of agreement has been reached on secondary matters, but there is deadlock on major political and economic issues in dispute.
2. We had hoped that both parties would be able to reach an early settlement of their dispute and get ahead with main task of creating a United States of Indonesia enjoying sovereignty throughout Indonesia. It has seemed to us that given sincere desire by both sides to observe the spirit of the Renville principles and to concentrate on long term objectives set forth therein, the matters over which they have bickered in the past would become relatively unimportant. We are, however, driven to the conclusion that the Netherlands negotiators at Batavia are fundamentally incapable of setting aside their profound suspicion of the Republican Government's actions and motives, and are obsessed with fear of losing face. This is evident from their harsh and unyielding attitude throughout negotiations, and from their eagerness to magnify small incidents, e.g. the Djokjakarta station affair , for the purpose of laying blame on the Republic.
3. In general, Dutch tactics appear to be to reduce the Republic to a rump State on level with an undefined number of other small States, and to prevent at all costs the coalescence of Republican areas into a single substantial State within the United States of Indonesia. Their latest tactic in the negotiations is to present the Republic with unacceptable demands on a take-it-or-leave-it basis while at the same time stressing the urgency of a settlement, thus trying to throw the onus of delay on the Republicans.
4. At the same time it is clear that they are using every kind of economic pressure available to them to weaken the Republic and to wean individual Indonesians from allegiance to the Republican Government. All areas under Republican control are in great need of equipment and supplies for reconstruction purposes and for immediate health and welfare of inhabitants. Some areas, e.g.
Bantam, are very short of food. The Republic would like to trade with the products of native produce from areas under its control.
They are faced with following position:-
(a) The Dutch are still firmly resisting any general reopening of channels of internal trade as contemplated in Article 6 of the Truce agreement.  (Dutch attitude is obviously based in part on the belief that by restricting contacts between areas they can prevent spread of pro-Republican sentiment.) (b) For such limited trade as they are allowed to conduct Republican exporters are paid by the Dutch only in Rupiahs, which are useless for purchasing supplies outside Republican areas.
(c) The Republicans can neither obtain from the Dutch a fair share of supplies of goods entering Indonesia, nor make their own arrangements direct with exporters abroad to import needed goods through regular channels.
(d) Direct trading between Republican areas and abroad is prevented by tight sea and air blockade. The Dutch claim that this is necessary to prevent smuggling and enforce overseas trade controls, but in fact it extends to inter-island trade and has also had the effect of interfering with normal in-shore activities such as fishing.
(e) Meanwhile, it is clear that the Dutch themselves are not scrupling to use supplies of textiles and other goods which they control to entice Indonesian population away from the Republic and to draw a contrast between conditions in their own and in Republican areas.
It is obvious that the Dutch are making ruthless and unjustified use of their trade regulations to inflict every possible economic hardship upon the Republic.
5. Our vital interest in the future prosperity and orderly progress of Indonesia makes it impossible for us to allow such a situation to continue indefinitely. Prime Minister has appealed personally to the Netherlands Government to assist in relieving the economic plight of the Republic, but without success. We are at present working on plans to make post-U.N.R.R.A. relief supplies available for distribution in Republican areas, and are sending Mission to Djokjakarta in the near future to discuss this.
If the Dutch continue their present tactics we shall be forced to consider other means of opening up Republican areas to commercial intercourse.
6. In our view Dutch policy is mistaken as regards both the future welfare of Indonesia and especially the long-term interests of the Netherlands. The enmity which their tactics and behaviour are building up in Indonesia will inevitably hasten the decline of their influence. If, on the other hand, they could give up thinking in terms of the status quo and observe the spirit of their undertakings with the same breadth of vision and generosity as was displayed by the United Kingdom Government towards Burma, they could entertain good prospects of preserving the friendship of the Indonesians. Republican leaders still insist that they will need Dutch technical and other help in future.
7. We hope that the United Kingdom Government will agree generally with us in this matter which is of such vital concern to us and for which we must take responsibility, and we should be grateful if you would take an early opportunity of urging the Netherlands Government, in its own interest as well as yours and ours, to take a more far-sighted and generous view of the entire Indonesian problem.