MILESTONES: INDONESIA

Author: Valentina Pasquali
Indonesia flicks the off switch on investment treaties.

Only two weeks ahead of the April 9 parliamentary elections and under pressure from a billion-dollar lawsuit, the Indonesian government announced it would terminate some 67 bilateral investment treaties—which regulate investment in the country by foreigners—as they come up for renewal. This move follows a similar one by South Africa last year and reflects growing uneasiness across the world, and particularly in emerging markets, with the so-called investor-state arbitration process, which many governments view as too favorable to foreign investors.

“The immediate factor at play is that Indonesia and South Africa have been subject to high-profile cases,” says Andrew Newcombe, professor in the faculty of law at the University of Victoria in Canada. In both instances, foreign mining companies brought licensing claims to the International Centre for Settlement of Investment Disputes in Washington, DC, the body normally tasked with adjudicating such matters.

The Netherlands was the first country to receive notification by Jakarta that the bilateral investment treaty between the two countries would come to an end in July 2015.

The Indonesian government has said that this move is necessary to bring old and outdated treaties in line with current laws.“The decision does allow for a holistic review of foreign investment policy and protection, since the proliferation of bilateral treaties entered into over time can lead to a lack of coherence and consistency,” says Newcombe.

It looks as if Indonesia’s and South Africa’s announcements might forebode a global shift. “States are continuing to enter into investment treaties, but there is a trend to more-nuanced obligations,” says Newcombe. “I think what we will see, rather than a wholesale retreat from investment treaties, is that the treaties of the future will be different from those of the past.”