In our telegram No. 28 of 10th January , we pointed out that, as seen from Singapore, the recent development of the Indonesian crisis appeared definitely unfavourable to Australia. I meant to amplify this telegram with a despatch, but I was taken ill just then and I only got back to the office again to-day, after a fortnight in bed with dengue and jaundice. You must have much fuller information direct from Java than we have here in Singapore, and our assessment isn't perhaps very important;
nevertheless I feel pessimistic, and as your telegram No. 30  suggests we are unduly alarmist, it might be as well for you to know why we see the situation as we do.
2. What the Dutch want is to regain their economic power in Indonesia. Up to the time of the 'police action' the Dutch economic position was weak; the 'police action' enlarged the area under Dutch control and, by constricting the Republic into a smaller area with virtually no access to the sea, enabled the Dutch to turn the tables on the Indonesians from the economic point of view. It is now the Dutch who can afford to wait, while the Indonesians are starved into submission.
3. These basic economic issues, it seems to us, explain Dutch procrastination in the political negotiations. It is quite clear that the Dutch policy of working for the disintegration of the Republic, while encouraging separatist Indonesian movements under Dutch tutelage, is proving successful. The rump Republic must come into the 'United States of Indonesia' now on Dutch terms. its only hope will be to white-ant the Dutch-dominated structure from within; but the Dutch are past-masters at white-anting themselves, and completely ruthless in their methods. I myself expect to see a gradual disappearance of all the leading Indonesian figures whom we have come to work with; those who remain will probably develop a general anti-Western bitterness which will include us as well as the Dutch and the British. This is, of course, the aspect which concerns me most personally. I feel that our only hope for the future is to avoid the development of anti-Western sentiment in South-East Asia, and to encourage a South-East Asian solidarity which will include Australia. There is, however, as little gratitude in international as in domestic politics; disappointed Indonesian republicans will almost inevitably forget what we have done for them, and the next thing will be a line-up with India.
4. This was the point of our drawing your attention to Sjahrir's statement on his Australian visit.  Please don't think he is merely seeking to avoid embarrassment for you. unfortunately he has done a lot of talking since his return, and he has made it clear that he thinks more should have been made of him in Australia. He has made this known not only to Massey and myself (to our embarrassment) but to others here: it has come back to us through press representatives like Roy Macartney and through the Killearn people. You might like to know that he spoke with real liking of yourself personally; but it didn't go for the Government. You see, then, if even Sjahrir can behave like this, it doesn't auger very well for his colleagues.
5. When the Dutch-dominated United States of Indonesia is in being, it promises to have close economic ties with the United Kingdom and Malaya. The Secretary of Economic Affairs, Singapore, has recently concluded a draft commercial agreement with the Netherlands Indies Government, which will govern trade between Indonesia and Singapore 'if and when'. The agreement is part of a wider United Kingdom -Netherlands commercial treaty at present under negotiation, and the sub-treaty I'm speaking of has been approved in advance by the United Kingdom and Netherlands Governments. The draft is still confidential and we don't know its details: the Governor of Singapore tells Massey, however, that it will ignore the Republic and direct all trading between Indonesia and Singapore into Dutch channels. The main interest of this is of course the proof it offers that in future the Republic will have itself no say in commercial matters, which will all be controlled by the Dutch-dominated United States administration. Is it too cynical to expect that, with the tight line-up in Europe between the U.K. and the Netherlands, and in view of Bevin's latest suggestions  that these powers should carry their solidarity into the colonial field, there will not be trade discrimination against Australia, and in favour of the U.K?.