BATAVIA, 6 March 1948
I am forwarding by Kirby  a short factual report on the latest political developments. I also feel it desirable to let you know my own impressions of the way things are going. Since they are largely speculative, they can best be conveyed in a personal letter. I shall, of course, discuss these impressions with Kirby, who will be able to elaborate and discuss them critically with you.
As you will have gathered, the Dutch are in no mood to compromise with the Republic. Their strong hostility, which seems to be conditioned by an unrealistic preoccupation with reports of atrocities and dissension within Republican areas makes it impossible for them to consider the Republic as an equal party to the dispute. They regard with anger and contempt any expression of opinion which is contrary to their own and this, I learn, has been typical of the Dutch attitude throughout the dispute.
If my conception is correct, the Dutch will continue to delay substantive political and economic talks. In the meantime they will exercise considerable pressure on the Republic by:
(b) economic blockade;
(c) political warfare;
These aspects may be considered in turn:
You will be aware that the Dutch have been concentrating on improving their publicity service, particularly in the United States. in contrast, the Republic is backward, but there is evidence that Hatta appreciates the need for more vigorous publicity and that he will seek to obtain better facilities and to put more drive into the Republic's campaign.
(b) Economic blockade:
Dutch economic policy in relation to the Republic is an extremely vital matter.
There can be no better indication of this than the Dutch reluctance to begin economic discussions. it is now nearly two months since the truce. Despite frequent requests from the Republic, there has been no attempt whatever on the part of the Dutch to consider the implementation of the clause requiring the opening up of trade and communications.  Moreover, the Dutch have intensified their blockade by sea and the Republicans are now complaining that even their local fishing industry is affected.
The issue here is whether the Dutch have the right, in terms of the truce agreement, to interfere with sea transport between Republican areas or between Republican and Dutch controlled areas.
Even more important is the question whether the Republicans have any rights over the sea within three miles of the coast they control. The uncompromising Dutch attitude is that Netherlands sovereignty gives them absolute control of the seas around Indonesia. We are seeking to have this matter discussed in the Committee and a report is being prepared by our military representative on the Security Committee.
While the economic blockade is being intensified, and while there is a delay in starting economic talks, the Dutch are seeking to make their position impregnable by a trade agreement with Singapore and Malaya. Singapore and Malaya are of course vital to the trade of the Republic. If, as seems likely, the Dutch succeed in reaching an agreement, which will impose stringent exchange and barter conditions on trade between Indonesia and Malaya, the future of Republican overseas trade is poor indeed. Presumably the Dutch are able to stimulate British interest in such an agreement by offering substantial trade in dollar earning commodities. I understand that in the last year British trade with the Indonesian area has declined and this might be causing concern to the Colonial Office and the Board of Trade. If the Dutch obtain the trade agreement they seek, they will no doubt be quite happy to open economic discussions, secure in the knowledge that their economic supremacy and their control of Republican foreign trade would be unassailable.
Another fundamental economic disadvantage of the Republic lies in the importance of foreign capital in the Indonesian economy. Dutch policy will no doubt continue to work on foreign capital interests to advance their position and restrict the Republic. Prohibition by the Dutch of the export of estate produce by the Republic is an outstanding example.
All in all, the Netherlands are determined, by economic blockade, to seal off the Republic and create poverty areas which will contrast unfavourably with prosperity in the regions controlled by the Netherlands. As in Madura, the Dutch hope to bribe the inhabitants of Republican territories with gifts of food and clothing. Already there are indications of this policy in West Java.
(c) Political warfare:
Dutch policy is to continue the fragmentation of Indonesia into small states-a political weapon against the Republic from many points of view.
Firstly, it presents a political fait accompli which even with plebiscites the Republic will find difficult to reverse in the conditions existing here. Secondly, it provides the Dutch with a ready bribe to win over Indonesian opportunists. Thirdly, by proclaiming high-sounding ideals, it enables the Dutch to steal some of the Republican thunder. Whether this political warfare is successful or not, the Dutch are committed to continuing their policy. They would find it extremely difficult to withdraw their pledge to set up a United States of Indonesia. By breaking up the islands into small states and by promoting Indonesians whom they hope they can trust, they are seeking to diffuse sovereignty so that a weak federation will be created which they can continue to control. The fragmentation will be concentrated in but not limited to the islands of Java Sumatra and Madura. Even the State of East Indonesia which is a going concern will be broken up if the Dutch have their way. Although set up under careful Dutch sponsorship East Indonesia has been showing too much independence. There is talk of the importance of giving greater recognition to the sultans. Overall the Dutch are probably thinking of a weak Federation with as many as nineteen states.
The best illustration of how the Dutch hope to manage the states and the weak federation is revealed by the composition of their delegation in the present talks. Abdulkadir is chairman, Van Vredenburch only vice-chairman. Van Riphagen, (Vredenburch's assistant), is not even a member-merely an adviser. Yet in Vredenburch's absence, nothing can be done, and the job of controlling the delegation and seeing that nothing is done is given to Riphagen. With Vredenburch's return next week, Abdulkadir has been [advised]  by his doctor to take a long rest. As he appears perfectly well the immediate future may be regarded as an important period for the Dutch.
In Netherlands controlled territory, Republican sympathisers are being thrown into gaol. Intimidation of the people in Republican territory can be exercised by a threat of a breakdown of the truce. The Dutch army appears to be increasing. This expensive gesture of the Netherlands could be explained in terms of (i) a proposed march on Jogjakarta or (ii) threats of a breakdown of the truce.
Since the former would bring the Security Council directly into the picture, and since it appears that the Dutch can carry out their objectives without recourse to military action, the latter seems the more likely.
All the foregoing pressures are intended to bring the Republic to the stage where it will be forced to make further concessions. It is clear from talks I and other members of the Committee have had with Van Mook and Neher that the Dutch plan is to have Hatta agree informally to come in to a provisional government, the powers of which would be ill-defined or defined solely to meet Dutch interests.
If a provisional government could be established on the Dutch pattern and with Republican participation, the Dutch would be able to:
(i) go ahead with the formation of a United States of Indonesia on their own terms;
(ii) clinch a U.S. loan for Indonesia on the grounds that a political settlement with the Republic has been achieved;
(iii) have the Committee of Good Offices dissolved.
Independently of whether the Republic joins on Dutch terms, the Dutch will certainly go ahead with the formation of the provisional government. Moreover, whatever their success, they will almost certainly seek, with little delay, to obtain a loan as part of the 'Marshall Plan' aid to the Netherlands. It is significant that the Economic Department of the N.E.I. Government [is] working hard on detailed estimates of dollar requirements of the area.
On the basis of the foregoing analysis, my conception of the best course for the Republic is as follows:
(a) Hatta should participate in informal talks with Van Mook and Neher, and agree to participation in a provisional federal government providing the terms are reasonable. The conditions set out in para 4 of my K. 80 are relevant .4 Without making or offering concessions, the Republic could publicise their willingness to participate and also their understanding of the powers which should be given to such a government. It seems certain that the Netherlands would reject the terms required by the Republic. The latter could then bring the discussions into the open, seek to freeze the best Dutch offer and to improve on this offer through discussions under the auspices of the Committee of Good Offices on the basis of the Renville principles. If discussions follow this course, they would provide an opportunity for the Committee to make proposals designed to break the deadlock between the parties. It would be at this stage that we would need to use our best influence to see the Committee made proposals and that they were fair and reasonable. The greatest difficulty would be to obtain compromises from the Dutch, who by this time would probably have set up a provisional government of their own choosing and design.
(b) The Republic should press for permission to continue with their plebiscite movement in all areas and to present their case peacefully and without restraint. This campaign should include demands for the release of political prisoners and for cessation of the Dutch practice of arresting individuals without citing a charge.
(c) On the economic front the Republic should seek a breakdown of the blockade. There are three approaches:
(i) by propaganda;
(ii) by pressure in the economic committee and other committees working with the Committee of Good Offices;
(iii) by stressing the importance of this matter in reports which will be submitted in conformity with the Security Council's latest resolution. 
(d) The Republic should also seek to ensure that any financial assistance to Indonesia would be distributed fairly so that the Republic would receive a share proportionate to its population.
The Republic could make such a request at an early stage and publicise it, but it would be up to other quarters to support the request.
(e) As far as a trade agreement between the Dutch and the Malayan Government is concerned, I shall speak at length to Kirby so that he can pass on suggestions.
Future of the Committee:
For the Committee the future does not seem particularly happy.
With the Dutch determined not to compromise with the Republic the restricted powers of the Good Offices Committee will be a most serious disadvantage. Any positive move by the Committee will meet with the strongest opposition from the Dutch, who will express their anger and distress with considerable vehemence.
This is already clear from the Kaliurang incident  and from the response to the Committee's suggestion that questions regarding West Java should be submitted to the West Java Conference.  Whether other members of the Committee will be prepared to stand up to the onslaught and bear with Netherlands sensitivity is open to question, but it is to be hoped that regular reports to the Security Council will provide opportunities to maintain pressure on the Dutch and worldwide interest on the problem.
I am afraid the policy of the United States will be difficult to cope with. It will be influenced by interest in foreign investments in Indonesia, anxiety to get on with the Marshall plan in cooperation with the Netherlands, and anxiety to reach a solution, no matter how bad or temporary. Dubois has already expressed his opinion that the Republic should accept participation in a provisional government and discuss its powers and functions afterwards. Such an attitude would be disastrous for the Republic unless their economic security could be quickly assured.
To sum up, the Dutch for economic reasons are after a quick short- term solution of the Indonesian problem on terms which either ignore or pay little regard to the position of the Republic. They will pursue it ruthlessly with the full support of the Dutch people both at home and in the Indies who appear to have a most distorted view of the situation. This policy seems to override the Dutch long-term interests on which the Netherlands are obviously prepared to gamble. Nevertheless I believe they are over- estimating their capacity to keep in subjection a people who, although basically docile, cooperative and easily cowed, are at heart antagonistic to the Dutch and who will have the advantage of the resurgence of nationalism now taking place in other parts of Asia.
I have just learned that much to the joy of the Dutch Raden Wiranatakoesoema, a Republican, has been appointed Head of the West Java State by the Bandoeng Conference.
Wiranatakoesoema, who for an Indonesian is a very old man, was highly respected as Regent of Bandoeng before the war. He is now at Djokjakarta with the office of Chairman of the High Advisory Council of the Republic.
Whether planned or not the move is a good one for the Dutch.
Dubois' comment was 'this does our job for us'. My own view is that it was well planned. Could it be a coincidence that the West Java conference also decided against a 'presidential system' of Government?