Agreement has now been reached on the Union Statute  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 , 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  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  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 ) 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.'