80 Ballard to Department of External Affairs
Cablegram 173 BATAVIA, 10 June 1947, 3.35 p.m.
My telegram 172. 
The following is a summary:
The Government of the Republic bases its policy on Linggardjati Agreement and while noting with appreciation the declaration that such is also the policy of the Netherlands Government, it expects the Netherlands Government to undo measures contravening the Agreement such as, maintenance of the blockade and military measures at Modjokerto, Buitenzorg, etc. The Dutch assumption that peace and order does not exist in the Republic is denied and numerous instances given of absence in Dutch controlled areas of guarantee of democratic principle. Exception is taken to unilateral formation of States outside the Republic without co- operation of the Republic.
Consultation sought in defining status of Borneo. During transitional period de facto status of the Republic not to be modified.
The Governor-General's title should be modified (High Commissioner suggested) to reflect his modified function. Interim Government to consist of representatives of the Republic, East Indonesia and Borneo, half of the members to be representatives of the Republic;
the decision by the majority.
The main task of the Interim Government shall be to arrange for Constituent Assembly, cleaning up current matters and transfer of authority of the Netherlands East Indies Government to Federal organs of individual States. Federal Departments to be organised.
Important matters relating to execution of the Agreement to be left to the joint delegation whose decision shall be executed by the Federal and State Governments.
Immediately on establishment of the Interim Government, the Netherlands Government to take steps to propose Indonesia as a member of U.N.O. and separate overseas representation of Indonesia shall be given. The Republic to have the right to appoint a Trade Representative at any overseas Indonesian Mission. Indonesian volunteers will be appointed for training at the Netherlands Missions. The Republic do[es] not object to the appointment of Indonesians in the Netherlands Foreign Service.
(a) Removal of hostile feelings. The Dutch proposal generally accepted, viz, demilitarisation and joint policy of demarcation areas. Status of Modjokerto, etc., at 24th January to be restored.
Armies to retire to garrisons. Co-operation in Dutch occupied areas to be effected until the Dutch Army replaced by the Republican Army. Immediate reduction of forces.
(b) Co-operation. Defence of Indonesia a duty of the nation, therefore, of States; it should be assigned to a National Army without excluding the possibility of a foreign army participating, but only if both are fighting for a common purpose. National Federal Army, therefore, necessary; the basis of formation should be determined forthwith. Formation of the army in non-Republican State of Indonesia should be arranged between the federating States on the one hand and the Netherlands on the other.
Military co-operation pertaining to the United States of Indonesia and the Netherlands. In the transition period the Interim Government can establish a body for carrying out the decisions of both parties. The Republic proposes, as basis, that the Netherlands give aid in the shape of material and advisers.
Reduction of forces is political and psychological problem. Peace and order in the Republic is the task of the Republican police and not of the Netherlands Army.
3. Economic Arrangements:
Economic policy of the Republic of Indonesia as one economic unit;
on the formation of the Interim Government a centralised authority will exist and the Dutch economic proposal can be accepted save for some matters to be discussed. Property of foreigners will be returned (except those to be nationalised against indemnity) and if the operators return freed from colonial mentality and ready to adapt themselves to the new situation there should be no fear for their safety.
(a) Foreign Exchange Fund.
The Republic agrees to the establishment of temporary all- Indonesia exchange fund and the discontinuance of the fund of Constituent States. Management should be responsible to the Interim Government and consist of four representatives of the Republic, one East Indonesia, one Borneo, two Netherlands Government, President of the Java Bank and the President of the Indonesia Bank. Decision to be by majority and deadlock resolved by the interim Government. Management to determine all Indonesian import and export regulations which State organisation will execute.
Until the United States of Indonesia established the Republic shall not demand definite percentage exchange but merely require satisfaction of the principal wants of the people of Indonesia in accordance with priority list to be submitted. After the satisfaction of all-Indonesia vital needs surplus exchange to be divided among States proportional to their contributions. Fund to bear recognised debts owed abroad.
(b) Export of Estate Products.
Republic agreeable to co-operate in the sale even before the establishment of the Commission contemplated by Article .  Agree to the establishment organisation with corporation capacity but want the board to consist of four representatives of the estate owners (including one Chinese and one Indonesian) two Republicans and one Netherlands Government. Proceeds of sale to bear production expense incurred by the Republic and net proceeds to go to the true owner after ascertainment and in a currency to be determined.
(c) Restitution of Goods Belonging to Non-Indonesians.
This requires making inventories and the establishing of good relations with the workers who have maintained the enterprise.
Joint inventory to be taken of such enterprise[s as are to] be nationalised. Ex-enemy estate to be provisionally managed by the Interim Government pending transfer to the States. State enterprises will be managed by the Republican Service; retention of previous personnel to be discussed. Dutch proposals for test area for application of Article  accepted.
(d) Central Foodstuff Fund.
Agreed Indonesia to be regarded as a whole. Central organ necessary to manage the distribution on basis of available surplus in the constituent States. Indonesian delegation recommend the establishment under the Interim Government of a central foodstuff fund (Republic three representatives, East Indonesia two, Borneo one), decision by the majority of Interim Government to resolve the deadlock; fund to determine the minimum of all-Indonesia rations, divide surplus foodstuffs among constituent States and assign foodstuffs for export. Divisional Food Distribution Council States to be maintained.
(e) Joint Customs Regime and Staff.
Immediate steps to be taken to obtain uniform customs legislation for all Indonesia. No objection to adoption of this as far as possible [to existing Netherlands East Indies Legislation]  account being taken of Agreement[s] made by Netherlands during and after war without co-operation of Indonesia.
Agree to regard Indonesia as one customs region. Joint Customs Staff to be appointed by interim Government to control observance of regulations pending establishment of United States of Indonesia, existing customs service to operate in the meantime.
Dutch proposal for customs control by management of Foreign Exchange Fund rejected, but Liaison Officer suggested. Until establishment of United States of Indonesia each State to retain duty levie[d] by itself. Pending conclusion of Agreement on the above economic matters Dutch blockade of Republic 'exercised on basis of state of war' shall be at once removed.
(f) Pending Definite Arrangements.
Provisional arrangements necessary for mutual relations of Republican and Netherlands East Indies currency.
4. Other Matters:
Formation of Interim Government necessitates abolition of various Dutch offices incompatible with de facto right of Republic;
likewise various Republican functionaries (Governor of Borneo, etc.) become superfluous and mutual representation in and of several States becomes necessary.
Formation of Interim Government will have, as natural consequence, immediate restoration to Republic of area occupied by Dutch Army, as well as those where Republican authority has been weakened.
The Indonesian Delegation reject the Dutch view that incorporation of these areas must depend on execution of joint proclamation, 29th March, 1947. It agrees with need for legal security and peace, political development, and considers that necessary immediate formulation of a joint regulation to settle attitude to inter alia actions intended to be derogatory to the Republic authority in Dutch occupied areas. Currents that originate in way indicated in Article 3 and Article 4 should be guided along definite channels. 
[AA:A1838/283, 403/3/1/1, vi]
1 Dispatched on 10 June, it reported that the Republican Government had replied to the Commission-General's note of 27 May and that a summary would follow in cablegram 173. The Indonesian reply signed by Sjahrir was dated 7 June.
2 Amended in accord with a numbered correcting cablegram dispatched on 11 June. On file AA:A1838/283, 403/3/1/1, vi.
3 Corrected from copy on file AA:A4355/2, 7/1/6/1. The cited copy reads 'XXIV'. See Appendix I for Article 14 of the Linggadjati Agreement.
4 Amended in accord with the cablegram cited in note 2.
5 See Appendix I for Articles 3 and 4 of the Linggadjati Agreement.