2 June 2014

The possible consequences of the termination of Indonesia’s Bilateral Investment Treaties

The Government of Indonesia recently indicated to the Dutch embassy in Jakarta that it intends on terminating all of its existing bilateral investment treaties starting with its treaty with the Netherlands. Indonesia has entered into bilateral investment treaties with over sixty counties including Australia, China, Singapore and the United Kingdom.

The outright removal of any future treaty protection for investments in Indonesia is of considerable concern to existing and prospective investors. In the absence of this treaty protection, the only remaining recourse for many investors are the Indonesian courts or diplomatic channels.

Some commentators have suggested that Indonesia instead intends to use the termination as a means of renegotiating the terms of all the bilateral investment treaties. However this appears unlikely as it would involve separate discussions with over sixty nations regarding investment protections.

If Indonesia did terminate all of its bilateral investment treaties without substituting them for alternative arrangements, the consequences for investors would not be immediate. Many of the bilateral investment treaties will still not expire for a number of years and Indonesia is not able to terminate them until their expiry. Further, many bilateral investment treaties have 'sunset periods' during which investors can continue to rely on the protections in the treaty.

Indonesia continues to be a signatory to a number of multilateral investment treaties. These will continue to afford protection to investors through international tribunals. The protections and dispute resolution mechanisms under Indonesian investment law also continue to apply.

Despite there being a number of alternative protections for investors, this recent news changes the investment landscape in Indonesia. Investors are advised to carefully consider how their investments are structured in order to ensure that they remain protected in the future.

The full article, written by Haydn Dare is available here.

For further information, please contact Haydn Dare, Senior International Counsel, Jakarta or your usual Herbert Smith Freehills and Hiswara Bunjamin & Tandjung contact.

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