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.

2. Military:

(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 [14]. [3]
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 [14] 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] [4]
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. [5]

[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.