1. Lacy, Chief of the South-East Asia Division of the State Department, spoke to me today about Indonesia. He said that Graham had put forward certain alternative proposals on the political aspect of the settlement with a view to getting Dutch-Indonesian Agreement.  The United States on 8th January had brought pressure to bear unofficially on the Dutch Embassy, Washington, and that the proposals by Graham seemed to them to be reasonable and the best that could be hoped for, and strongly urged Dutch acquiescence. The Dutch Embassy informed The Hague and the Dutch Cabinet yesterday agreed to accept Graham's proposals. Owing to corruptions in message from Batavia, the State Department is not clear as to position in Indies, and in particular does not know whether Kirby and Van Zeeland endorse Graham's proposals. However, the Dutch Government has informed the State Department that Graham's proposals have the support of all three members of the Committee. Presume you have copies of proposals in Canberra.
2. The State Department believes that supervision of the plebiscite should be Australian, American and Belgian only and that it should not be thrown open to other nations, in particular does not desire U.S.S.R. or Indian participation.