Mohammed Yunus, who has been Indian Consul in Djokjakarta for 15 months is leaving tomorrow for the Asian Conference at Delhi. He has kindly offered to take with him any papers I may wish to send to you, so I take advantage of this opportunity to bring you up to date with the situation here. Yunus, who is a close friend to Nehru, has an excellent background to the Indonesian problem and I am sure you will find him as useful a contact at Delhi as we have found him at Djokjakarta.
At the suggestion of the Indian Consul-General I am also including a duplicate of this letter in the Indian safe-hand bag to Delhi, in case Yunus is delayed on the way.
Military Situation With my letter of the 14th January  I enclosed a report from the military team in Sourabaya area. The Committee has since used this as the basis of a report to the Security Council (attachment 1).  The Dutch, who have been anxious to create an impression of negligible resistance to their forces were infuriated with our report and their long official communique (attachment 2)  speaks for itself. I need only point out that the local pressmen, including an important member of the Dutch Information Service, regarded the communique as beneath the dignity of a responsible Government and that there has been no contradiction of the facts as reported by the Committee.
In general the military situation in Central Java may be summarized as follows:-
(1) The Dutch are too thin on the ground.
(2) They are therefore confining themselves to the big towns, and to limited patrolling.
(3) They are using artillery to break up concentrations of Indonesians observed from the air and this is known to have resulted in numerous casualties among unarmed villagers.
(4) Roads are dangerous and are used only by convoys.
(5) Bridges are burned daily and there are other frequent acts of sabotage.
(6) According to the Dutch the TNI are terrorising the local civilian populations to prevent their co-operation with the Netherlands.
In view of the difficulties which the Dutch are experiencing it may be expected that more brutal measures will be employed particularly against villages suspected of harbouring guerilla troops.
Colonel McDonald gives it as his opinion that the Netherlands military action has been mismanaged and that the Dutch forces have based their strategy on the mistaken notion that the capture of the Republican Government and the main centres in the Republic would result in a quick capitulation of the TNI. He claims that already the disposition of forces shows the tendency on the part of the Netherlands to concentrate in the big towns. He believes that if the TNI are at all capable they could force a withdrawal of Dutch forces more surely than an order of the Security Council.
Reports that Dutch reinforcements are now being sent from Holland and the tendency of the Netherlands to seek international assistance for a cease-fire support these views.
Visit to Republican Leaders The Committee visited Hatta and five other Republican leaders at Bangka on Sat-urday. The results were reported to the Security Council by telegram (attachment 3).  Dr. Roem gave the Committee a written report (attachment 4)  on the experiences of the internees since the 19th December, which has been airmailed to the Security Council. Assaat, Chairman of the KNIP (Provisional People's Representative Body of the Republic) also gave me a private report (attachment 5)  of his experiences. I pointed out that the document would have little value unless it were included in the Committee's records, but Assaat insisted it was for my own information.
In addition to the points included in the reports, the Republican leaders:-
(a) authenticated the final speeches of Sukarno, Hatta and Natsir issued on the 19th December. (See my letter of 14 January.) (b) reported that Radio Australia and the Hilverson radio are their main source of up-to-date news.
(c) agreed on the importance of the United Nations retaining a special body in Indonesia.
(d) expressed their desire for increased representation abroad.
(e) denied that the Republican Government or the Republican Army Command had ever been responsible for planning or sponsoring the infiltration of armed units into Netherlands territory, save as a counter measure in the event of a Netherlands military attack on the Republic. (Hatta added emphatically that the Dutch allegations regarding documents found at Djokjakarta were not correct. His policy had been to reduce the number of the TNI by expelling the irregular units so as to have a smaller but better disciplined army which could be included at a later stage in the Federal army.
He claimed that he had had full control at the time of the [military] action save that he would not have had the power to abolish entirely an army which had been fighting for the independence of its country. Demobilised soldiers trying to return to their homes were given as the main explanation of the so-called infiltrations.) (f) explained that no powers had been delegated by the Government to Tan Malakka.
(g) were critical of the BIO decree.  (Hatta stressed the importance of a Cabinet system on the British model and of greater powers for an interim Government which would look towards a free Indonesia rather than a return to colonialism.) (h) considered that the Dutch talk now of elections throughout Indonesia indicated that the earlier Netherlands objections to elections had been the existence of the Republic and not the need to obtain law and order as the Dutch had claimed.
Hatta denied the allegations of Van Royen in the Security Council that the Republican Government had been supported by communists.
He believed that the Dutch military action had created a chaos of which the communists might take advantage. He doubted whether the Dutch authorities would be able to cope with the situation and maintain security and order.
Hatta believes that the Netherlands want to break up the Republic into a number of controlled areas; for example, he thinks they are working towards a puppet state in Central Java under Abdul Kadir.
He stressed that the creation of puppet states would leave the situation in South East Asia weak and uncertain.
Hatta also commented without commitment on the political situation. He reiterated the importance of Netherlands recognition of the Republic followed by general and free elections to a representative body which could take all decisions regarding the future of Indonesia. However, he did not believe in free elections under Dutch control.
Speaking to me privately, Hatta admitted his doubt as to whether the fighting could be stopped in view of the distrust of the Dutch created by the military action. He recognized the difficulty of finding a formula which would provide for internal security, restoration of Republican authority over the areas previously held, and withdrawal of Dutch troops. He had little faith in Dutch goodwill and in their readiness to develop a free Indonesia.
The Republicans on Bangka intend to prepare a written statement for the Security Council. To facilitate this the Committee is endeavouring to see that appropriate documents are forwarded to them without delay. Our own report on the interview with Hatta and the other internees excluded political issues. Apart from the disadvantage at which the Republicans were placed, it was clearly desirable to avoid any possibility of embarrassing the efforts of Palar and others at Lake Success.
Terms of Settlement It is apparent that if peace, order and stability are to be obtained in Indonesia, two things are necessary. Firstly a change of attitude on the part of the Netherlands and secondly the establishment of a programme which will permit the co-operation of the nationalist groups in Indonesia.
Since the Netherlands will not establish a satisfactory programme themselves this task should be carried out by the Security Council. I believe the essential points of such a programme should be- (1) the restoration of the Republican administration, (2) free elections throughout Indonesia by a fixed date, (3) a guaranteed transfer of sovereignty and complete withdrawal of Netherlands troops within a strictly limited period, (4) international supervision throughout the interim period, particularly with regard to the elections.
Serious obstacles are the Netherlands' objections to the re- establishment of Republican administration and withdrawal of their forces from Republican areas. Yet without such withdrawals it is difficult to see how fighting can be stopped. I like the tentative suggestion of the United States that a new Commission, comprised of Australia, Belgium and the United States should be established with expanded powers and with jurisdiction to be extended to the whole of Indonesia. As I understand its functions would include:-
(a) the determination of whether any Netherlands forces should be retained temporarily in any area to assist in the maintenance of law and order, and (b) the determination of the extent of areas in Java and Sumatra which would be progressively returned to the administration of the Republic of Indonesia.
To give these functions to an international tribunal would at least answer the Netherlands charges that withdrawal of forces and the establishment of a Republican regime are impossible.
Unsatisfactory attitude of the Netherlands We can be certain, however, that any programme which provides safeguards for the early establishment of a free Indonesia will be rejected by the Netherlands. I have yet to meet the Dutchman who, when it comes to the point, agrees that a decision must be made now for the independence of Indonesia.
Attachment 6 is a copy of the statement made by Van Royen to the Security Council on Friday, January 14th , of the programme for Indonesia which is the 'unalterable aim of the Netherlands Government'. This programme is certain to form a basis for Netherlands propaganda but is so hedged with conditions as to constitute a complete fraud. The principal catches are:-
(a) the Federal Interim Government which will be installed within one month will be the Government contemplated in the BIO decree, which will be under the domination of the High Representative of the Crown.
(b) Elections to a representative body are promised but without a firm date. The Netherlands will merely 'exert all possible efforts in order that elections may take place in the third quarter of this year'. (As the only reasons given for the inability to fix a date are the 'administrative technical preparations', it should be possible for the Netherlands to undertake that elections will not be postponed beyond a fixed date unless the Security Council or its representative organ in Indonesia certifies that it is administratively impossible to hold them on that date.) (c) It is difficult to see how there can be free elections without recognition of the Republic and withdrawal of Dutch forces.
(d) No guaranteed date is given for the transfer of sovereignty, the only undertaking being that the Netherlands Government will 'do all within its power to achieve the transfer of sovereignty in the course of the year 1950'.
(e) The provision for a 'round table conference' to decide the terms of the Union Statute gives the Netherlands a further opportunity to hedge on a complete transfer of sovereignty.
Without specific guarantees, the Netherlands statement is, of course, worthless as a basis for settlement since the Indonesians are now unable to believe in Dutch integrity. Indeed, experience has shown that Netherlands intentions with regard to the future of Indonesia are as unreliable as the wording of Van Royen's statement.
I understand Jessup has issued a working paper  in Lake Success, setting out the United States views on the future of Indonesia. This envisages a guarantee of elections in October of this year and a guaranteed transfer of sovereignty by April, 1950.
Need for financial pressures The solution of the Indonesian problem, therefore, boils down to pressures; to the exertion of sufficient financial pressure to force the Dutch to change their policy and make major concessions to nationalism in Indonesia.
Basically this requires withdrawal of Marshall aid to Holland. The South East Asian countries could make a valuable contribution by supporting a progressive progamme for Indonesia, but they should prepare for Netherlands refusal to accept it by making plans for pressure on the United States to withdraw Marshall aid and plans for the imposition of all possible sanctions against the Netherlands and Indonesia.
Sanctions will certainly embitter the Dutch, but it is difficult to see how they could be more embittered than they are now. And they need not severely hit the local population, providing satisfactory arrangements are made for food imports.
There is some doubt as to how long the Netherlands could resist the strong financial pressures of a co-ordinated South East Asian policy and the withdrawal of Marshall aid to Holland. I should hope that a threat in the form of a specific ultimatum would be sufficient to obtain Netherlands acceptance of a reasonable programme. But in the event of the Dutch remaining stubborn, it would be necessary to envisage a continuation of pressures over many months. There are some Dutch who speak of the possibility of continuing without Marshall help for a year. That may be so, but the Netherlands financial position in Indonesia is undeniably shaky and the Dutch must be as vulnerable to sanctions as any country is ever likely to be. I attach a statement of the local Government finances (attachment 7)  based on the best information (unfortunately unofficial) I can obtain. More important than Government finances is the question of balance of payments. There are no reliable figures available but Van Hoogstraten told me some months ago that Indonesia could hold its own providing the prices of major exports, copra, palm oil and rubber, remain high. If (as seems doubtful) the Dutch are succeeding in balancing their payments in Indonesia, it can only be the result of a most rigid restriction on imports.
The Federalists The Federalists are playing for time. They are divided. Many are puppets but there is a strong body of opinion concentrated in the Pasundan and East Indonesian states which is seeking to increase the pressure on the Dutch and to join forces with the Republicans.
Primarily the policy of Gde Agung, Prime Minister of East Indonesia, and others of this body is to delay the formation of a 'national federal government' until the Security Council and the Asian conference have reached decisions on the Indonesian issue.
They hope these decisions will assist them in taking a stronger line against the Dutch.
The resolution obtained in the Federal Conference ('Assembly for Federal Consultation') held in Batavia over the past week and reported to you in my last letter is most indefinite in its wording. Clause 3, requiring consultation with prominent persons from the territories not yet organized, has, however, the two-fold purpose of seeking contact with Republicans and of stalling for time.
For the implementation of Clause 3 the Assembly for Federal Consultation has formed a Committee which will, at short notice, contact the following prominent persons:-Raden Abdulkadir Widjojoatmodjo, Dr. Assaat, Dr. Darmasetiawan, the Sultan of Djogjakarta, Dr. Moh. Hatta, Dr. Urip Kartodirdjo, Hadji Agus Salim, Sutan Shahrir, Ir. Sukarno and Prof. Dr. R. Supomo. It will be seen that of these ten, eight are prominent Republicans. Abdul Kadir and Dr. Urip Kartodirdjo are both Federalists who have worked with the Netherlands Delegation in the discussions with the Republic.
The BIO Decree which the Netherlands expect the Indonesians to accept gratefully and which the Federalists are likely to be weak enough to take, provides for a triumvirate with no real powers. It is a vague document in which the Indonesian national government would be crushed between the all powerful High Representative of the Crown from above and the Netherlands administrators from below. The High Representative of the Crown would have full legislative and executive powers.
The final attachment (8)  is a report from Supomo (Adviser to the Republican Delegation) on his interview with Drees. He is the only Republican, as far as I know, to have been consulted by the Netherlands Prime Minister.
It is of interest to note that the U.K. Consul-General  is reported to have expressed concern at the report from the Sourabaya area (see Attachment 1) where the team is under the control of a Britisher, Major Pullen. If true, this is to say the least unfortunate. Other reports such as Pope's confirm the Team's observations. It might have been more tactful to have said very many bridges, rather than hundreds, but I should be surprised if Pullen's description were inaccurate.