How to Protect Investments in Indonesia Despite the Termination of Its Bilateral Investment Treaties

September 08, 2015

Various nationalistic measures have been taken by states in Asia against foreign investors in recent times. Investment treaties provide investors with protection against such incursions and, if necessary, a means by which compensation can be obtained through international arbitration.

The Government of the Republic of Indonesia (GoI), however, has begun terminating its Bilateral Investment Treaties (BITs). While it has indicated that it intends to negotiate new treaties, it is not clear how long that might take and what protections will be afforded to investors under any such treaties. Based on recent state practice, it can be assumed that the protections in any new treaties will be less than those under Indonesia’s existing BITs. Nevertheless, an investor can continue to be protected under a terminated treaty for a period of time, usually between ten to 20 years, if its investment qualifies for protection before the relevant BIT is terminated. Longer term protection is also available by structuring an investment through a state which is a party to one or more of Indonesia’s multilateral investment treaties (MITs) or free trade agreements which contain an investment chapter (FTAs).

In this briefing, we do three things:
• we briefly describe the substantive and procedural protections that investment treaties provide foreign investors in Indonesia and elsewhere;
• we identify the Indonesian BITs which have already been terminated by the GoI and those which are set to expire soon; and
• we explain how foreign investors continue to have several options for securing protection of their investments against sovereign risk in Indonesia even if Indonesia proceeds to terminate all of its BITs. 

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