Memorandum from Rear Admiral R. H. Hillenkoetter to President Harry S. Truman

SECRET CENTRAL INTELLIGENCE GROUP 2430 E STREET NW. WASHINGTON 25, D.C. No Change In Class. Declassified Class. Changed to: TS S C Next Review Date: Auth.: HR 70-2 23 May 1947 Date: 26APR'82 By: 103430 MEMORANDUM FOR THE PRESIDENT The rapid deterioration of Dutch-Indonesian Republic relations in the Netherlands East Indies and the widening area of disagreement which has developed in the two months since the signing of the Linggadjati Agreement have greatly increased the possibility that the Dutch will soon use force to break the dead- lock in negotiations. Although Dutch military operations against the Republic might be successful in their initial phases, hos- tilities would degenerate into bitter, protracted guerrilla war- fare, which would eliminate the possibility of achieving a peace- ful solution for many years. This state of affairs would give further encouragement to the growth of anti-Western sentiment throughout the Far East and might result in the dispute being brought before the Security Council of the UN. The present situation arises basically from the divergence of Dutch and Indonesian views on the degree of autonomy which the Republic will enjoy during the interim period before the establish- ment of the United States of Indonesia. The Dutch hold that Netherlands sovereignty shall apply over all the Indies in the in- terim period, while the Republic rejects Dutch sovereignty as in- applicable to itself in view of Dutch recognition in the Linggadjati Agreement of the de facto authority of the Republic in Java, Madura, and Sumatra. The work of the key Joint Dutch-Indonesian Economic Com- mittee, concerned with the implementation of the economic provi- sions in the Linggadjati Agreement, has been handicapped by this disagreement. Dutch attempts to formulate, jointly with the Indonesians, necessary regulations governing exports, imports, fi- nancial matters, and the restoration to their former owners of foreign properties located in Republican territory have been frus- trated by the Indonesian contention that these are questions fall- ing under the Republic's recognized de facto authority and are there- fore not subject to consideration by the Dutch. Dutch business interests urgently require an active trade in commodities produced by Dutch firms in Java and Sumatra in order TRONAN to obtain the foreign exchange necessary for the rehabilitation of 3. AND SERVICE" is SECRET