This week my letter will consist of the notes I have given Burton at Singapore. Unfortunately I have not a spare copy of the analysis  of the military situation which I attached to the notes but you will be able to get this from Burton when he returns to Canberra. This analysis was prepared as a first draft for the report to the Security Council from the Commission. Discussions on this draft have already shown that it will be considerably modified by the other members. We believe, however, it is an accurate representation of the position here as far as we can ascertain it from the military observers and you may find it interesting to compare the draft with any final report agreed to by the Commission.
NOTES ON THE SITUATION IN INDONESIA
The Military Position In assessing any report of the military situation in Indonesia it is essential to bear in mind that the Dutch make it extremely difficult for United Nations military observers to see what they want to see when and where they want to see it, and that they intimidate persons capable of giving useful information. Although economic conditions are improving and there are less disturbances in some areas, in many others the situation is deteriorating. In general guerilla activity is not decreasing. There appears to be a potentiality for a major armed flare-up if negotiations break down.
The guerillas are particularly strong in the areas around Djokjakarta and in West Java. Information about other areas and especially about Sumatra is extremely scanty but it appears that some members of the Republican emergency government have reached Atjeh. Reports from Djokjakarta and West Java are that guerilla leadership is good, morale high and that the TNI are confident they cannot be crushed by the Dutch. Recently on the eve of his departure for consultation with Republican leaders at Bangka, Duanda, Republican Minister for Communications, was visited at his home in Djokjakarta by a group of guerilla boys with the message:
'You must have more confidence in us, Uncle, than at the time of Renville'.
The Dutch suffer from insufficient troops and are relying on mechanised attacks. The main victims of the Netherlands mopping-up operations are the local populations. As one lad who walked from Djokjakarta to Batavia said 'We are killed for doing nothing, why not do something'. Without doubt the common people of Indonesia are suffering acutely but are conscious of the national struggle.
There is evidence of terror in many areas and reports of atrocities too numerous to be ignored.
One of the most unfortunate results of the second military action of the Netherlands was its effect on the TNI and the Republican police force. Hatta had practically eliminated irregular units and had created a well disciplined army under the control of the government. This provided an opportunity for a negotiated political settlement without widespread disorders. After 19 December, however, irregular bands were reformed and many Indonesians believe that if there is not an early solution of the Indonesian dispute, irregular groups under the influence of Tan Malaka and Darul Islam and irregular bandit gangs will grow in importance so that Indonesia will become another Burma. At present Darul Islam groups are creating trouble in East Pasundan (West Java) and Republican leaders are afraid of the influence of Tan Malaka in East Java. Otherwise the TNI army is well organized, communications are good and there is still a national army prepared to take instructions from an authoritative Republican Government. At the same time the longer a settlement is delayed the greater the likelihood that the TNI organization will be broken up and that there will be a real problem of restoration of law and order irrespective of a political settlement.
To sum up it seems the Dutch are incapable of imposing a decision by force and their efforts to enforce 'law and order' are completely disrupting law and order.
Netherlands Policy The Netherlands attitude is grievously influenced by colonial- thinking civilians and soldiers. Military authorities such as Spoor are a serious obstacle to the development of a satisfactory policy in Indonesia and they are supported by die-hards in the civilian administration. By and large the Dutch people do not understand the situation in Indonesia. They have been confused by inaccurate propaganda emanating from authorities with a colonial mentality. At the present time the policy makers are being misled by reports from the field.
It is too early to assess Van Royen's attitude or to estimate the extent to which he will be influenced by the 'old gang' at the Palace. But apart from his opening speech in the preliminary discussions, which must be taken with caution, there is no indication that the Dutch have made the fundamental change in their approach that must be made if peace and stability are to come to Indonesia. It is true that, whereas in October 1947 there were few who favoured independence for Indonesia, now most Dutch will verbally claim it as their only wish. But further enquiry makes it clear they will insist on granting such independence in their own way whatever the cost. The Dutch cannot escape from their philosophy of paternalism. This paternalism is, however, a rationalization of the basic idea, 'how much can we hold of Indonesia and how long can we hold it'. The continuation of the old Dutch policy is evident in the puppet states they have created. The Pasundan Government, for example, although strongly nationalistic in sympathy, has no authority. Military and economic pressures continue to force it to carry out directions of the military commander and the resident. The Dutch colonial law permits arrests of Indonesians on any pretext, indeed no charge is needed for interminable imprisonment, Newspapers are suspended for publishing items from the foreign press of India, the United States and Australia. Dutch administration is that of a police state.
Nationalist Feeling in Indonesia Nationalist feeling is deep and wide-spread, although it has been suppressed to an extent that is not always noticeable in the big cities. Fear generated by a fierce repressive policy of the Netherlands, and natural submissiveness generated by centuries of colonialism, prevent the average Indonesian from showing his real feelings. Underneath the surface, however, there is a current that cannot be blocked. Even in Batavia, for example, there are 14,000 students in underground Republican schools and an underground medical university. Indonesian youths leaving for execution because of their subversive activities are reported to have prayed for Sukarno and Hatta and that their leaders should not make concessions to the Netherlands.
Preliminary Discussions Dutch policy since 1945 culminating in the second military action has destroyed the confidence of the Indonesians in the Netherlands, and it will be difficult to have the Republican leaders accept anything on trust. This lack of confidence naturally hinders political negotiations but the real factor in the present situation is the Netherlands approach. A progressive Netherlands policy could still solve the Indonesian dispute overnight. Van Royen's opening speech  in the preliminary discussions has already created a favourable impression among the Republican delegation. On the other hand if the Netherlands policy degenerates into the old channels of delay and hard bargaining it can only lead to disaster.
Both parties are beginning the preliminary discussions from opposite points of view. The Netherlands are determined to obtain commitments from Republican leaders to attend The Hague conference before the Republican Government is established at Djokjakarta.
Van Royen says public opinion in the Netherlands demands this. The Republican leaders are equally determined they can make no commitments until they are restored as a Government to Djokjakarta. Palar supports this policy, as do the guerillas and Republican administrations operations outside the Dutch-held towns.
There may be opportunities for a compromise but it is necessary to bear in mind that a policy which puts too much pressure on the Republican leaders may defeat its ends if it forces the leaders to concessions unacceptable to large sections of the guerillas.
United States Policy The United States appears to be pressing for concessions from both sides. At the moment Cochran is endeavouring to ensure that the Republicans will not be adamant in refusing discussions on other matters before they have returned to Djokjakarta. In order to secure a pliant Republican policy, and in order to exert pressure on Republican leaders where it is felt most, Cochran has urged that Hatta should lead the Republican delegation in the preliminary talks. The Republicans realize, however, the dangers in such a move, and Hatta is aware of the personal political risk he would run. He is therefore unlikely to assume leadership at this stage.
American policy appears to be undecided as a result of the conflict between European and Asiatic policies-(a conflict which appears to me to be more apparent than real. The Administration also seems to be lagging behind American public opinion on the Indonesian question and to be embarrassed by the demands of the Senate and Congress for strong financial pressure on the Dutch.
Certainly the American correspondents to whom I have spoken support my view of the situation here.
Prospects It seems clear that the United States is not prepared at this stage to consider economic sanctions against Holland. On the other hand it seems likely that a befuddled public opinion in the Netherlands will prevent an adequately progressive Indonesian policy at The Hague unless the strongest pressure is maintained.
The Netherlands will therefore take advantage of every weakness or indication of weakness on the part of the United Nations or of the United States. Although some progress may be possible in the preliminary discussions, at some stage the big stick will most probably be required. The only stick in sight which is big enough is the threat by the United States of a complete withdrawal of Marshall aid.
The objective should be an overall political settlement within three months.