Indonesia – Implementing Regulation On The Mandatory Use Of Indonesian Language.

26 October, 2019

 

Overview

 

On 30 September 2019, President Joko Widodo enacted Presidential Regulation No. 63 of 2019 on the Use of Indonesian Language ("PR 63") which is the long-awaited implementing regulation of the language provisions of Law No. 24 of 2009 on the Flag, the Language, the National Emblem, and the National Anthem ("Language Law"). 

 

PR 63 governs a large number of areas in which the use of the Indonesian language is mandatory. In this brief, we focus only on a few issues that are most relevant to:

 

(i) the conduct of cross-border transactions involving foreign parties in Indonesia, and

 

(ii) business activities of foreign entities that have ongoing operations in Indonesia, including through foreign investment companies (PMAs). 

 

PR 631  confirms the position already reflected in the Language Law2 that agreements or MOUs which involve an Indonesian party have to be drawn up in Bahasa Indonesia and that, if the agreement or MOU also involves a foreign party, it must also be drafted in the national language of such party and/or English. Further, PR 63 goes beyond the Language Law in providing that in such circumstances3 

 

(i) the foreign language and/or English version are to be used as equivalent or translation of the Indonesian version4 and

 

(ii) the parties may determine the governing language of the contract5. Despite this latter point, PR 63 does not provide all of the long awaited answers or clarifications to the language requirements which apply to contracts involving an Indonesian party.

 

Identified Issues: 

 

1. Preparation of agreements and timing of execution

 

Article 26 (3) of PR 63 provides that the foreign and/or English language versions are used as "equivalent or translation" of the agreement(s) with the foreign party. While PR 63 does not prohibit drafts of documents to be produced in English, Article 26 (3) suggests that the Indonesian version should be the main language used in the preparation of agreements (which will then be translated to English and/or another foreign language). This is a significant shift from the common approach for transactions involving an Indonesian party and having an international connection which has developed through time since the issuance of the Language Law and which involved the preparation of agreements and negotiations taking place in English and the agreement being eventually translated into Indonesian. The foregoing could have a significant impact on the timing and logistics of transactions as it would involve the preparation of bilingual drafts from day one. As the business and legal communities active in Indonesia may appreciate, this is both impractical and inefficient, especially in the context of complex cross-border transactions and deals involving PMA companies (whose stakeholders include foreign parties). 

 

2. What about PMAs?

 

PR 63 does not differentiate Indonesian subjects that may have foreign stakeholders, such as PMAs (which are considered as Indonesian private entities). While Article 26(2) provides that contracts which are entered into by an Indonesian party and involve a foreign party are (also) to be drafted in the language of such foreign party and/or English and that Article 26(4) allows parties to agree on the governing language (which could therefore be English), it is unclear whether the same provisions and principles also apply in the case where a PMA enters into a contract with another Indonesian legal entity. In this context, would the parties then be required to sign the contract only in Indonesian, despite this not being in line with the desire and interests of the parties (including the foreign stakeholders) involved in such transaction? Unfortunately clear answers to these questions are not to be found in PR 63. 

 

Our current view on the above would be to apply what is sensible for the relevant parties entering into the contract while staying within the corridor of PR 63, despite the lack of clarity. Which means, in case where a PT PMA (particularly where there is a significant foreign involvement) enters into a contract with another PMA or a PMDN (a local ownership company), it would be sensible for the parties to prepare and sign a bi-lingual version of such contract (which includes both the Indonesian version required under Art. 26(1) of PR 63 and an English version based on the parties' desire and convenience) and, to the extent possible, agree on English as the governing language.  

 

3. Transitional provisions?

 

Although PR 63 does not have a retroactive effect, it does not include any transitional provisions to accommodate contracts that have been signed in English only prior to its issuance and are currently in the process of being translated. 

 

4. Sanctions?

 

While neither the Language Law nor PR 63 provide any sanctions for a failure to comply with their requirements, business participants and legal advisors have been erring on the side of caution since the issuance in 2013 and 2017 of court orders in two cases which were lodged before the West Jakarta District Court6. In both cases, the court found that the underlying agreements to certain transactions which were being challenged by the Indonesian party were null and void on grounds of illegality. These decisions were later upheld by the Jakarta High Court as well as the Supreme Court7 and were very much the root cause of the prevailing practice which has since then developed and which involves parties drawing up agreements in bilingual form or simply translating the agreement into Indonesian when in agreed form. Despite the current absence of clear sanctions, this latent risk of being drawn into court proceedings in Indonesia with an unpredictable outcome remains, and parties will therefore be incentivised to minimise such risk by being in compliance (as much as practicable) with the terms of the Language Law and its implementing regulations. 

 

What to do in the meantime?

 

Given the current lack of clarity in relation to certain matters which may or may not be regulated by PR 63, we would strongly recommend that parties take a conservative stance when entering into agreements that involve Indonesian parties, i.e. (i) to use and sign a bi-lingual version of the contracts, or (ii) use and sign separate Indonesian and English versions of the agreement, but to sign them simultaneously (instead of allowing a certain time period to prepare the relevant translation). 

 

For agreements that have been executed in English prior to the enactment of PR 63 and are in the process of being translated into Indonesian, we recommend that the translation be completed and executed as soon as possible.

 

Unfortunately we see no other solutions that can be offered at this point, but: 

 

Stay tuned! Oentoeng Suria & Partners will be organising a seminar on this topic for our clients in November 2019. An invitation (including details of date and venue) will follow shortly. 

 

1. Art. 26(1) and 26(2).

2. Art. 31.

3. i.e. where a contract involves both an Indonesian party and a foreign party.

4. Art. 26(3).

5. Art. 26(4).  

6. PT Bangun Karya Pratam Lestari v Nine AM Ltd (2013) and Blutether v PT Global Mediacom Tbk. (2017).

7. For the 2013 case.