Many thanks for your letter of October 13th. While I am not in a position to give assurances regarding the conduct of the Military Observers, I know of nothing to justify complaints about McCormack and MacDonald.  On the other hand I do know the Dutch have sought to discredit the Committee and its Military Observers [and have initiated whispering campaigns against the Military Observers].  The Military Executive Board is at present completing a report based on a Court of Inquiry into Dutch allegations regarding the conduct of Military Observers in Sumatra. This report will show clearly the many difficulties with which our Military Observers are contending.
At this stage it would be rash to make predictions as to the likely political developments in Indonesia. The situation here is so tangled that it would be easy to make an analysis one day and wish to contradict it the next. Having emphasised the difficulties I shall, however, pass on the following comments:-
(1) Following Stikker's return to The Hague, there has not yet been any clear indication of whether or how the Dutch will resume political negotiations. Obviously a stiff fight has been in progress at The Hague with the Catholics siding with the Rig[ht] Wing parties against Stikker. It is reported that new instructions will be issued by The Hague and it is strongly hinted that the Netherlands will maintain their policy of insisting on the cessation of the truce violations and ask Hatta to clarify the points he has brought up. It may be expected, therefore, that the Dutch will continue the approach of informal negotiations with the Republic designed to obtain far-reaching concessions and, in particular, a clear statement on the position of the T.N.I.
(2) The present Netherlands policy of avoiding resumption of negotiations within the G.O.C. and of pursuing informal talks with Hatta has the following advantages for the Dutch:-
(a) At best, a continuation of pressure may bring about capitulation by Hatta.
(b) If Hatta does not capitulate, or if there is no settlement possible which would be satisfactory to the Dutch, the latter could break off negotiations, charging the Republic with failure to be reasonable on any one of a number of important points. For example, they could charge that Republican insistence on maintaining the T.N.I. during the interim period is impossible and cannot be tolerated by the other States.
(c) The position is kept obscure, and prevents decisive action by the Security Council or the Americans.
(d) At worst the Dutch are successful in achieving a series of delays. Time is on the Dutch side. Economic and political conditions are deteriorating in the Republic, while the Netherlands are pressing ahead with their own political plans for Indonesia. A continued stalemate in the present circumstances would lead inevitably to disruption in the Republic.
(3) Stikker's visit has brought no improvement in the Dutch attitude which appears to be hardening towards the Republic, the Americans and the Committee. The main tenor of Dutch policy still seems to be directed towards military action against 'the extreme nationalists'. I am inclined to believe that Stikker will be able to obtain support at The Hague only on the basis of putting off Dutch military action until after an agreement with the Republic.
His [supporters]  would, therefore, demand Republican acceptance of a Dutch-dominated interim government, which would permit the Dutch to take 'security' action against 'extreme' elements throughout Indonesia.
(4) General Spoor and the Army are obviously set for military action and are unwilling to consider anything else. A general background of propaganda from the Army Information Service and in the local press is establishing an atmosphere in which police action could be taken with full popular support.
Today the Army Information Service, for example, announced, 'In the week from the 10th up to and including the 16th November, a greater number of incidents has occurred than in any preceding week since the Renville Agreement.' These incidents, of course, have all occurred in Dutch-controlled territory and do not constitute, in themselves, breaches by the Republic of the Truce Agreement, but they are used as anti-Republic[an] propaganda.
(5) Last week provided a glaring illustration of Dutch efforts to cloud the atmosphere and hinder efforts toward a settlement.
Stikker, on his return to Holland, said at a press conference 'that this week definitely a sharp fall in the curve of incidents could be noticed, the reason of which he could not explain'.
Immediately the Army Public Relations issued an official press release contradicting Stikker. This contradiction of a Minister, which has been reported by 'Aneta' as unprecedented, had the full approval of the High Representative of the Crown, Dr. Beel.
(6) In these circumstances Hatta is walking a political tightrope.
He is anxious to explore all possibilities for a peaceful settlement but he must realise the extent of Dutch demands and he must realise the lack of political support in the Republic for acceding to those demands.
(7) I understand that Nehru's advice to the Republic is to adopt a reasonable course without giving way on any essential point.
(8) Nevertheless, the Republican Aide Memoire, see my telegram K.189 , has made a large number of unilateral concessions and in the case of the Army and of security measures seem[s] to have given way on essential points. The explanation of these concessions could be based on any of the following:-
(a) a last effort to have the negotiations resumed with the G.O.C.
in the face of threatened military action by the Dutch, (b) the urgency of some settlement in view of increasing economic difficulties within the Republic, (c) a fear that increasing internal difficulties may increase opposition to the Government and support for the radical parties in the Republic, (d) the expectation that the Dutch would refuse to accept further points required by the Republic and that the Aide Memoire would therefore strengthen the Republic's moral position in the event of a breakdown, (e) clumsy negotiations by the Republic and a failure by their representatives to see the full implications of the concessions made. The Aide Memoire is obviously based on a Dutch draft and Sjahrir has told me privately that he considers the people chosen by the Republic for the discussions were not the best available and were not experienced enough to deal with the Dutch.
Hatta is certainly proving co-operative and making a real positive effort. This is borne out by his speech last night to the Republic. I quote in full 'Aneta's' report:-
'Dr. Mohammed Hatta told the nation this evening to remain firm in face of mounting difficulties. A firm attitude will help us achieve our goal, while a weak attitude will play us into the hands of foreign countries, he said.
The Republican premier described the Stikker talks as helpful, but the atmosphere has been impaired by "Batavia". He singled out especially the reports of the Dutch Army Public Relations.
"We shall defend ourselves if we are attacked", the premier went on. "But if we are left alone we must carry out our promises."
Dr. Hatta then appealed to the army and police units to carry out their duties and threatened the heaviest punishment against truce violations.
Reaffirming his desire to co-operate with the federalists, Dr.
Hatta said it is silly to speak about the "marionette governments"
because "we Indonesians have an end to attain, namely freedom for all Indonesia."
"There should be no antithesis between us and the federalists", he said. "We must join forces with them to achieve our goal on 1st January, 1949."
Going in detail into the Madiun coup which he described as a national tragedy, Dr. Hatta said the ideological struggle has cracked national unity while dissension has been caused by the political tug of war.
Dr. Hatta said the difficulties which are being encountered by the people were caused by the Dutch blockade, the Madiun affair and the prolonged drought which has resulted in crop failures.
"But if we remain firm and united, we shall overcome these difficulties", he said.'
The speech has been received with caution by the Dutch. 'Not unfavourable' is a typical luke-warm comment. But there are indications that some at least of the federalists are extremely pleased.
Hatta will leave tomorrow for Sumatra, reportedly for some weeks.
There are very likely political reasons involved, but it is also clear that the Prime Minister of the Republic is greatly concerned with the need of strengthening his Government by tightening the army and civil administration and by dealing with the economic difficulties. The latter are considerable, as is evident from the summary of his speech set out above. On receiving news of Hatta's intended departure, the Dutch made overtures directly and through the Committee to have the Republican Prime Minister stay for negotiations which it was suggested would be resumed shortly.
Hatta replied that his trip was urgent but that if required he would return from Boekittinggi immediately negotiations were resumed. It may confidently be presumed that his return would be required, since I am sure Sukarno would not make decisions in his absence.
To sum up, it appears that Cochran and the Americans have so far failed to cope with the Dutch tactics. As long ago as early September, Cochran presented his plan  for urgent consideration. Now November is drawing to a close with no clear prospects of a resumption of negotiations on the basis of his proposals. Cochran seems to be in two minds as to what to tell his Government. On the one hand he realises the situation is deteriorating and that it may become impossible. He realises too that complete submission by Hatta could be as unsatisfactory as no settlement at all. On the other hand, he is anxious to give Stikker full opportunity to bring about a settlement and as he admits the Americans, with this in mind, have been avoiding over the last two weeks any pressures on the Dutch. I believe that unless there are favourable developments in the next few days it is essential for the Americans or the Committee to take a firm initiative and I believe I can convince Cochran of this.
To pass to a lighter subject, I should be glad if you could arrange to have sporting news about Australia, such as copies of Australian sporting papers, sent to the Consulate for circulation to Indonesian sporting commentators. A number of them have approached me, saying they would like to include more news about Australia in their articles in the local press, but that they have been unable to obtain material.