21 May, 2015
Speaking in Jakarta after a government meeting on the topic, coordinating economic minister Sofyan Djalil told local press that many of the bilateral investment treaties (BITs) between Indonesia and other countries were out of date. The revisions would allow the state to ensure that foreign investors were sufficiently protected, he said.
"We need to create a set of guidelines to protect foreign investment effectively, including through reviewing Indonesia's existing BITs, of which most were signed in the 1960s and 1970s," he said, in comments carried by the Jakarta Post.
The government would seek to renegotiate treaties that were not "fair and balanced", to ensure that the state could successfully attract foreign direct investment and reduce the number of investment disputes referred to international arbitration courts by foreign companies, he said.
Indonesia intends to attract inbound investment worth 519.5 trillion rupiah (USD 39.5bn) this year. It attracted 124.6trn rupiah (USD 9.5bn) of investment in the first three months of the year – a 16.9% increase when compared to the same period in 2014, according to figures from the Indonesia Investment Coordinating Board (Badan Koordinasi Penanaman Modal or BKPM). The bulk of this investment came from Singapore and Japan, with South Korea, the UK and US also contributing substantially, according to the figures.
"The cautious view must be that Indonesia sees an opportunity to negotiate more favourable investment treaties as it sees its attractiveness as a source for foreign investment improve," said David Platt, an expert in projects law and project finance at Pinsent Masons.
"However, when this is combined with the economic nationalism of parts of the new government and large parts of the bureaucracy and business establishment, potential investors will need to consider the new treaties quite carefully once negotiated," he said.
BITs are trade agreements between different countries. They set out the terms and conditions for private investment by individuals and companies from one of the signatory states in the other signatory state. Most BITs grant investors of one of the contracting states a number of guarantees when investing in the other, such as the right to be treated fairly and equitably and the right to resolve disputes through international arbitration, rather than pursuing the foreign government in its own courts.
Indonesia has signed BITs with more than 60 countries, although some have since expired, according to the United Nations Conference on Trade and Development (UNCTAD). The majority of these were signed between the 1960s and 1990s.
For further information, please contact:
David Platt, Partner, Pinsent Masons
david.platt@pinsentmasons.com
