Since my letter of the 18th November, 1948 , the most important developments in Indonesia have been the arrival of the high ranking Netherlands Delegation together with observers representing the important parties in the States General and the discussions of this delegation with the Republic at Kaliurang. 
The despatch of the two Ministers and Neher to Indonesia is a noticeable turn in the course of Netherlands policy towards the Republic. Clearly this turn is due to American pressure which Cochran has as good as admitted and to the Aide Memoire  which Minister Stikker earlier elicited from Hatta. At the same time the comments in my earlier letter on the situation here and on Netherlands policy still hold good.
You will have gathered from reports over the past months and in particular from Hatta's Aide Memoire that the Republican Prime Minister has, to use your words, 'taken a risk in his own and in Indonesia's interests'. There is every reason to wonder, however, whether he may not in taking this risk have gone too far. His Aide Memoire, at least by implication, gave the Netherlands complete power over the Army in the interim period. Hatta in making this concession felt, I believe, that Dutch troops could not be used against Indonesians in the face of strong opposition from the Interim Federal Government, but there are many observers who have been following Dutch policy in Indonesia since the Japanese capitulation who see in Dutch insistence on this power a desire to take military action against the nationalists after a settlement with the Republic and therefore without international opposition.
It is therefore generally considered that security and army powers in the interim period are vital issues and that the control of an army and of arms is the Republic's main sanction against the Dutch in the Indonesian dispute. These points are, of course, well known to the Republican political parties and there has been such opposition to Hatta's policy that his personal backing is now in doubt. Some indication of the political situation in the Republic is conveyed in two letters which I am attaching as Appendices A and B.  Reference is made in these letters to a policy statement by the Masjumi which is also attached as Appendix C.  This statement is important because the Masjumi party is the main backing of Hatta and the present Republican Government. In the light of the statement of the Masjumi Political Council it is extremely difficult to see how informal negotiations can be resumed outside of the GOC.
In all these circumstances it might have been expected that the Dutch would open informal negotiations in a way calculated to strengthen Hatta's position. By assisting him to maintain popular support at the outset the way could be made easier for eventual concessions by the Republic which would be balanced by an overall political agreement, offering advantages to the people of the Republic. Unfortunately the Dutch have done exactly the opposite;
they have opened the informal talks by demanding unilateral Republican measures in relation to the observation of the truce.
If the Dutch persist with their present tactics they will push Hatta too far. I am sure that if he accepts Dutch terms which are unacceptable to the political parties within the Republic the future might prove worse for everyone than if there were no immediate settlement at all.
The results of the Dutch talks at Kaliurang have already been outlined in my telegram No. K. 198.  In this letter I shall merely fill in the details and enclose some of the more important documents. Firstly, with regard to the truce discussions, which took up most of the time at Kaliurang, I am enclosing an initial Netherlands memorandum (Appendix D ), the Republican reply (Appendix E ) and Hatta's suggested joint communique (Appendix F ). From these documents you will be able to judge both the tone and the extent of the Dutch demands. As far as I can gather, the Dutch are unlikely to be satisfied with Hatta's proposal for a joint communique. Politically, truce violations are important both in the Netherlands and to the Dutch in Indonesia and set a problem which complicates negotiations to an exceptional degree.
Unfortunately the problem has been deliberately built up by a Dutch press campaign. As I have mentioned earlier the Army Public Relations Service has pursued an energetic campaign which confuses truce violations with practically all incidents and crimes occurring in Netherlands occupied territory. This campaign instead of abating is continuing as powerful as ever today.
Much more important than the truce violations is the question of army control in the interim period. Hatta had told Sassen that in the light of the reaction of the Army and the political parties he could not agree to provisions in the settlement permitting the use of Dutch troops against the Indonesians in opposition to the wishes of the Interim Federal Government. Sassen not unnaturally claims that this is a withdrawal from the position Hatta took in the Aide Memoire he gave to Stikker and there is already much talk of Republican bad faith among the Netherlands and Netherlands Indies negotiators. Hence we have an extremely serious issue which could completely wreck all prospects of a settlement. On the one hand I find it difficult to see how Hatta could sell capitulation on such an important point to the people in the Republic. On the other hand I can appreciate that following Hatta's Aide Memoire, Stikker or any other Netherlands Minister would have the utmost difficulty in selling anything but such a capitulation.
Stikker has submitted a memorandum (Appendix G ) on the more general subject of the absorption in the Federal Armed Forces of the T.N.I., which appears reasonable in many respects, but which is likely to be unacceptable because of its lack of clarity on important issues and because control of the Indonesian armed forces would be subject to agreement with the Netherlands. In particular the Republic is unlikely to favour a joint staff unless it is purely an advisory body. It is also unlikely that the Republic would agree to control of the Indonesian Armed Forces being subject to directives established with the concurrence of the Netherlands or at a Union level.