Thank you for your No 309  re Indonesia.
2. We have been following closely developments in Indonesia and share your very great concern at the breakdown of negotiations between the Dutch and the Republicans.
3. We cannot altogether agree with the point of view you express.
The position now reached is in many ways similar that which existed before 'police action' commenced. The Republicans did not and do not now feel disposed to give up what forces they until their position is assured in a suitable Federal system. If their army is disposed of or placed under the command of the Dutch they are in a position exactly similar to that which would have existed if the Security Council had not prevented the advance of the Dutch forces and the ultimate destruction of the Republican Army.
4. We do not feel disposed at this stage to persuade the Republican Government to accept the demands of the Dutch unless these demands are accompanied or even preceded by some convincing demonstration of earnestness on the part of the Dutch to include the Republic in a Federal system in which the Republican authority would be effectively represented and would take an effective part in administration. At the present time in spite of denials a virtual blockade remains and there has been no sign of which we are aware of any real intention or willingness on the part of the Dutch to push ahead with a permanent Federal system giving adequate and effective representation to the Indonesians even though an interim provisional Federal Government were established.
5. You refer to the repercussions throughout South-East Asia of any further deterioration in relations between the Dutch and the Republic. In our view repercussions would be no less serious if at this stage Australia were to press the Indonesians to accept what we must regard as unreasonable demands and thereby throw the Indonesians into the arms of Asian countries only too willing to champion the Indonesian cause and to widen the gulf between Eastern and Western countries in this area which throughout these negotiations we have persistently endeavoured to bridge.
6. The Committee of Good Offices has made its report to the Security Council where the matter will have to be discussed if the Dutch persist in refusing to make any concessions. If there is further fighting or if negotiations which the Security Council ordered cease then in our view the Security Council would have no option but to uphold its previous decision taken under Chapter 7 of the Charter and act accordingly invoking the articles of the Charter which give it power to ensure that its decisions are carried into effect.
7. We feel that you may have overlooked one most important factor in the situation-the question to what lengths Hatta can go in making further concessions to the Dutch while retaining the confidence of the separate groups within the Republic particularly the Masjumi party from which he draws his main support. We should have thought that the Dutch would have recognised that Hatta as a moderate who has shown capable of holding together the majority of genuine nationalists and of suppressing a serious Communist uprising without outside aid would represent their best hope of reaching a satisfactory and stable settlement and that they would have been prepared to go a considerable way to help him in his undoubted difficulties with his own people. It seems obvious that the removal of Hatta at the present stage would destroy any chance of an agreement. Yet it is impossible to discern much effort by the Dutch to meet Hatta half way, they have continued to stick rigidly to their main demands and the fact that the parties have come so far towards agreement is largely a measure of the lengths to which Hatta has been prepared to go.
8. We are convinced therefore that this is no time for bringing persuasion to bear on the Republican Government to accept as they stand the Dutch conditions regarding the future of the Republican Army and the command of all the armed forces. Hatta has made it clear that he has gone as far as he dares, and many of his supporters consider he has already gone too far.
9. We accordingly consider that the Dutch should still be urged to resume negotiations at the point where they broke off and to make a patient and sincere effort to settle the outstanding questions without forcing Hatta into an untenable position. In particular we think they should be persuaded to lift immediately the blockade and to drop their repeated complaints about violations of the truce agreement. Even if these allegations have any substance which is dubious they will surely cease to have any relevance if an agreement can be reached and status quo lines, demilitarised zones, etc., abolished.
10. You will be aware that Hatta has reiterated to Cochran unconditional acceptance of the Renville principles and recognition of Netherlands sovereignty during the interim period.
 It cannot be expected however that the Republic can give up its control of its own forces prior to firm and genuine arrangements governing that interim period and contemplating the early establishment of a permanently democratically based Federal system.