BATAVIA, 6 March 1948

CONFIDENTIAL

I am forwarding by Kirby [1] a short factual report on the latest
political developments. I also feel it desirable to let you know
my own impressions of the way things are going. Since they are
largely speculative, they can best be conveyed in a personal
letter. I shall, of course, discuss these impressions with Kirby,
who will be able to elaborate and discuss them critically with
you.

Dutch policy:

As you will have gathered, the Dutch are in no mood to compromise
with the Republic. Their strong hostility, which seems to be
conditioned by an unrealistic preoccupation with reports of
atrocities and dissension within Republican areas makes it
impossible for them to consider the Republic as an equal party to
the dispute. They regard with anger and contempt any expression of
opinion which is contrary to their own and this, I learn, has been
typical of the Dutch attitude throughout the dispute.

If my conception is correct, the Dutch will continue to delay
substantive political and economic talks. In the meantime they
will exercise considerable pressure on the Republic by:

(a) propaganda;

(b) economic blockade;

(c) political warfare;

(d) intimidation.

These aspects may be considered in turn:

(a) Propaganda:

You will be aware that the Dutch have been concentrating on
improving their publicity service, particularly in the United
States. in contrast, the Republic is backward, but there is
evidence that Hatta appreciates the need for more vigorous
publicity and that he will seek to obtain better facilities and to
put more drive into the Republic's campaign.

(b) Economic blockade:

Dutch economic policy in relation to the Republic is an extremely
vital matter.

There can be no better indication of this than the Dutch
reluctance to begin economic discussions. it is now nearly two
months since the truce. Despite frequent requests from the
Republic, there has been no attempt whatever on the part of the
Dutch to consider the implementation of the clause requiring the
opening up of trade and communications. [2] Moreover, the Dutch
have intensified their blockade by sea and the Republicans are now
complaining that even their local fishing industry is affected.

The issue here is whether the Dutch have the right, in terms of
the truce agreement, to interfere with sea transport between
Republican areas or between Republican and Dutch controlled areas.

Even more important is the question whether the Republicans have
any rights over the sea within three miles of the coast they
control. The uncompromising Dutch attitude is that Netherlands
sovereignty gives them absolute control of the seas around
Indonesia. We are seeking to have this matter discussed in the
Committee and a report is being prepared by our military
representative on the Security Committee.

While the economic blockade is being intensified, and while there
is a delay in starting economic talks, the Dutch are seeking to
make their position impregnable by a trade agreement with
Singapore and Malaya. Singapore and Malaya are of course vital to
the trade of the Republic. If, as seems likely, the Dutch succeed
in reaching an agreement, which will impose stringent exchange and
barter conditions on trade between Indonesia and Malaya, the
future of Republican overseas trade is poor indeed. Presumably the
Dutch are able to stimulate British interest in such an agreement
by offering substantial trade in dollar earning commodities. I
understand that in the last year British trade with the Indonesian
area has declined and this might be causing concern to the
Colonial Office and the Board of Trade. If the Dutch obtain the
trade agreement they seek, they will no doubt be quite happy to
open economic discussions, secure in the knowledge that their
economic supremacy and their control of Republican foreign trade
would be unassailable.

Another fundamental economic disadvantage of the Republic lies in
the importance of foreign capital in the Indonesian economy. Dutch
policy will no doubt continue to work on foreign capital interests
to advance their position and restrict the Republic. Prohibition
by the Dutch of the export of estate produce by the Republic is an
outstanding example.

All in all, the Netherlands are determined, by economic blockade,
to seal off the Republic and create poverty areas which will
contrast unfavourably with prosperity in the regions controlled by
the Netherlands. As in Madura, the Dutch hope to bribe the
inhabitants of Republican territories with gifts of food and
clothing. Already there are indications of this policy in West
Java.

(c) Political warfare:

Dutch policy is to continue the fragmentation of Indonesia into
small states-a
political weapon against the Republic from many points of view.

Firstly, it presents a political fait accompli which even with
plebiscites the Republic will find difficult to reverse in the
conditions existing here. Secondly, it provides the Dutch with a
ready bribe to win over Indonesian opportunists. Thirdly, by
proclaiming high-sounding ideals, it enables the Dutch to steal
some of the Republican thunder. Whether this political warfare is
successful or not, the Dutch are committed to continuing their
policy. They would find it extremely difficult to withdraw their
pledge to set up a United States of Indonesia. By breaking up the
islands into small states and by promoting Indonesians whom they
hope they can trust, they are seeking to diffuse sovereignty so
that a weak federation will be created which they can continue to
control. The fragmentation will be concentrated in but not limited
to the islands of Java Sumatra and Madura. Even the State of East
Indonesia which is a going concern will be broken up if the Dutch
have their way. Although set up under careful Dutch sponsorship
East Indonesia has been showing too much independence. There is
talk of the importance of giving greater recognition to the
sultans. Overall the Dutch are probably thinking of a weak
Federation with as many as nineteen states.

The best illustration of how the Dutch hope to manage the states
and the weak federation is revealed by the composition of their
delegation in the present talks. Abdulkadir is chairman, Van
Vredenburch only vice-chairman. Van Riphagen, (Vredenburch's
assistant), is not even a member-merely an adviser. Yet in
Vredenburch's absence, nothing can be done, and the job of
controlling the delegation and seeing that nothing is done is
given to Riphagen. With Vredenburch's return next week, Abdulkadir
has been [advised] [3] by his doctor to take a long rest. As he
appears perfectly well the immediate future may be regarded as an
important period for the Dutch.

(d) Intimidation:

In Netherlands controlled territory, Republican sympathisers are
being thrown into gaol. Intimidation of the people in Republican
territory can be exercised by a threat of a breakdown of the
truce. The Dutch army appears to be increasing. This expensive
gesture of the Netherlands could be explained in terms of
(i) a proposed march on Jogjakarta or
(ii) threats of a breakdown of the truce.

Since the former would bring the Security Council directly into
the picture, and since it appears that the Dutch can carry out
their objectives without recourse to military action, the latter
seems the more likely.

All the foregoing pressures are intended to bring the Republic to
the stage where it will be forced to make further concessions. It
is clear from talks I and other members of the Committee have had
with Van Mook and Neher that the Dutch plan is to have Hatta agree
informally to come in to a provisional government, the powers of
which would be ill-defined or defined solely to meet Dutch
interests.

If a provisional government could be established on the Dutch
pattern and with Republican participation, the Dutch would be able
to:

(i) go ahead with the formation of a United States of Indonesia on
their own terms;

(ii) clinch a U.S. loan for Indonesia on the grounds that a
political settlement with the Republic has been achieved;

(iii) have the Committee of Good Offices dissolved.

Independently of whether the Republic joins on Dutch terms, the
Dutch will certainly go ahead with the formation of the
provisional government. Moreover, whatever their success, they
will almost certainly seek, with little delay, to obtain a loan as
part of the 'Marshall Plan' aid to the Netherlands. It is
significant that the Economic Department of the N.E.I. Government
[is] working hard on detailed estimates of dollar requirements of
the area.

Republican policy:

On the basis of the foregoing analysis, my conception of the best
course for the Republic is as follows:

(a) Hatta should participate in informal talks with Van Mook and
Neher, and agree to participation in a provisional federal
government providing the terms are reasonable. The conditions set
out in para 4 of my K. 80 are relevant .4 Without making or
offering concessions, the Republic could publicise their
willingness to participate and also their understanding of the
powers which should be given to such a government. It seems
certain that the Netherlands would reject the terms required by
the Republic. The latter could then bring the discussions into the
open, seek to freeze the best Dutch offer and to improve on this
offer through discussions under the auspices of the Committee of
Good Offices on the basis of the Renville principles. If
discussions follow this course, they would provide an opportunity
for the Committee to make proposals designed to break the deadlock
between the parties. It would be at this stage that we would need
to use our best influence to see the Committee made proposals and
that they were fair and reasonable. The greatest difficulty would
be to obtain compromises from the Dutch, who by this time would
probably have set up a provisional government of their own
choosing and design.

(b) The Republic should press for permission to continue with
their plebiscite movement in all areas and to present their case
peacefully and without restraint. This campaign should include
demands for the release of political prisoners and for cessation
of the Dutch practice of arresting individuals without citing a
charge.

(c) On the economic front the Republic should seek a breakdown of
the blockade. There are three approaches:

(i) by propaganda;

(ii) by pressure in the economic committee and other committees
working with the Committee of Good Offices;

(iii) by stressing the importance of this matter in reports which
will be submitted in conformity with the Security Council's latest
resolution. [5]

(d) The Republic should also seek to ensure that any financial
assistance to Indonesia would be distributed fairly so that the
Republic would receive a share proportionate to its population.

The Republic could make such a request at an early stage and
publicise it, but it would be up to other quarters to support the
request.

(e) As far as a trade agreement between the Dutch and the Malayan
Government is concerned, I shall speak at length to Kirby so that
he can pass on suggestions.

Future of the Committee:

For the Committee the future does not seem particularly happy.

With the Dutch determined not to compromise with the Republic the
restricted powers of the Good Offices Committee will be a most
serious disadvantage. Any positive move by the Committee will meet
with the strongest opposition from the Dutch, who will express
their anger and distress with considerable vehemence.

This is already clear from the Kaliurang incident [6] and from the
response to the Committee's suggestion that questions regarding
West Java should be submitted to the West Java Conference. [7]
Whether other members of the Committee will be prepared to stand
up to the onslaught and bear with Netherlands sensitivity is open
to question, but it is to be hoped that regular reports to the
Security Council will provide opportunities to maintain pressure
on the Dutch and worldwide interest on the problem.

American policy:

I am afraid the policy of the United States will be difficult to
cope with. It will be influenced by interest in foreign
investments in Indonesia, anxiety to get on with the Marshall plan
in cooperation with the Netherlands, and anxiety to reach a
solution, no matter how bad or temporary. Dubois has already
expressed his opinion that the Republic should accept
participation in a provisional government and discuss its powers
and functions afterwards. Such an attitude would be disastrous for
the Republic unless their economic security could be quickly
assured.

Conclusion:

To sum up, the Dutch for economic reasons are after a quick short-
term solution of the Indonesian problem on terms which either
ignore or pay little regard to the position of the Republic. They
will pursue it ruthlessly with the full support of the Dutch
people both at home and in the Indies who appear to have a most
distorted view of the situation. This policy seems to override the
Dutch long-term interests on which the Netherlands are obviously
prepared to gamble. Nevertheless I believe they are over-
estimating their capacity to keep in subjection a people who,
although basically docile, cooperative and easily cowed, are at
heart antagonistic to the Dutch and who will have the advantage of
the resurgence of nationalism now taking place in other parts of
Asia.

P.S.

I have just learned that much to the joy of the Dutch Raden
Wiranatakoesoema, a Republican, has been appointed Head of the
West Java State by the Bandoeng Conference.

Wiranatakoesoema, who for an Indonesian is a very old man, was
highly respected as Regent of Bandoeng before the war. He is now
at Djokjakarta with the office of Chairman of the High Advisory
Council of the Republic.

Whether planned or not the move is a good one for the Dutch.

Dubois' comment was 'this does our job for us'. My own view is
that it was well planned. Could it be a coincidence that the West
Java conference also decided against a 'presidential system' of
Government?