Policy on Foreign Investment in Indonesia

By Amien Warsita

Basic Policy on Foreign Investment

Economic development is a process of transferring potential economic resources into real economic strength through capital investment and utilization of technology, the expansion of knowledge and efficiency, and the improvement of organizational and managerial ability. The efforts to develop the economic potential should be based on self reliance.

The Government recognizes that the constraining factor is the scarcity of domestic capital which affects the existence of resource gap. This does not lead to a reluctance to use foreign capital when it benefits the national economy if it does not create a dependence on foreign countries.

Foreign investments should be utilized to maximum advantage to further accelerate development and their activities ought to be directed to economic sectors where domestic capital is still short. With this approach, it is expected that the role foreign investment is to play is a complementary one. Based on these policies the law on foreign investment and domestic investment were issued [law no. 1, 1967 and no. 6, 1968]. Both laws govern the status of foreign and domestic investments and the incentives to be granted. The objectives of these investment laws are to encourage investment activities. So far, these laws do not promote the development of the business world, especially the development of the weak economic group. For these, in every issue and implementation policies the Government keeps considering the negative impact which could hamper the development objectives in general.

To promote investment activities, the Government grants incentives for investment within the framework of foreign and domestic investments. The policy inducing investment activities based on the priority scale has been issued from time to time in such a way as to obtain the promotion of domestic investment and to realize the complementary role of foreign investments. These policies were realized by the issuance of the Investment Priority List. This list is issued annually and is the elaboration and specification of the priorities as set fort in the Repelita II.

The issuance of the Investment Priority List is aimed at keeping the balance among the foreign and domestic investment opportunities. The development of foreign investment activities creates with it the problem of balanced growth. In order to achieve balanced growth the government is promoting the development of domestic investment specifically of weak economic group. This is part of the strategy for the trilogy of development.

The policy taken in this respect is:

(a) To increase the national participation in the ownership of companies

In order to enlarge public participation in the development efforts, the mobilization of funds and forces should be undertaken, so that they have a firm role in the development program. Special stress is paid to raise the role of the weak economic groups to play an adequate role in the national economic order as with that of foreign investment and of other economic groups. The assimilation of capital and of expertise is intended to fill the gap between the weak economic groups and the other groups. This policy is not aimed at discouraging the role of foreign investment. In this way the efforts of promoting the national participation in the economic activities accordingly is to strengthen the weak economic group to take part in the national economic order proportionately.

The development of the weak economic group is also undertaken by the Investment Coordinating Board (BKPM). Investment within the framework of the Domestic Investment Law should be open for participation of small scale enterprise, cooperatives, smallholders and other weak economic groups.

The policy promoting national participation in foreign investment was issued in 1974, which stated that every foreign investment must be in the form of a joint venture and that the share of the local partner at the initial investment should be at least 20% and within 10 years it should be increased to a majority (at least 51%).

The following are the criteria for obtaining national participation by way of majority sharing:

(1) to increase the share of the local partner of the existing joint venture;

(2) to allow other local partners to join in the ownership of companies;

(3) to open the participation of the non-bank financial institutions with the provision that the ownership will not exceed 25% and limited for 5 years, after which, the shares must be transferred to other local partners;

(4) the participation through the capital market;

(5) other participation systems which will be considered by the Government.

(b) Indonesianisation of manpower and the transfer of technology

Indonesia has an abundance of manpower which is potentially required for development purposes. the expertise and the technical know-how is a pre-requisite for development together with the increase of manpower productivity.

In order to maximize the utilization of manpower the Government seeks to ensure that all development efforts including investment should be geared to a policy of labour-intensive production. this is to achieve fuller employment and broader public participation in development. To this end, Government policy in investment stresses technologically labour-intensive investment rather than capital-intensive investment.

Owing to the lack of expertise and technical know-how, the Government imposed its policy on domestic as well as foreign investment to assign expatriates, though with conditions such as that:

(1) certain professions are completely closed to foreign experts when local skills are available;

(2) certain professions are open temporarily for foreign experts, while Indonesian personnel should be trained to make the substitution.

In considering work permits for foreign experts, the Government requires the foreign investor to recruit Indonesian personnel. Every foreign investor is obliged to undertake regular training and educational programs and to set up a schedule for the replacement of foreign personnel.

This policy should be intensified so that the Indonesian personnel will be able to manage the investment and development program. The increasing know-how is not to be limited to management but also to technical matters and to further develop such expertise. Such a policy, requires time and a series of programs.

(c) Fostering investment in regions outside Java

One of the objects of the development policy is to encourage development in regions outside Java. For the concentration of investments in only one or two areas will create economic, social and political distortion. It will hamper the efforts of the Government to maintain national stability. The Government is thus reviewing all applications which have the effect of fostering development in regions outside Java.

The Government realized the difficulties in directing foreign investment due to the fact that every investment has its own orientation. Investment in the field of industries producing consumer products or import substitution will be oriented to the availability of a ready market. It depends on the population as consumers, as well as the availability of high skills, manpower and infrastructure.

The Government tries to encourage private investment in the exploitation of natural resources and to develop the agricultural sector outside Java. Since the infrastructure is still lacking, additional investment is required to develop investment projects. To encourage such investment, the Government provides more incentives.

The development of industrial estates and bonded areas in several regions are among the devices used. Through the provision of better industrial locations and available infrastructure, it is hoped that this policy will effect further regional development. This approach will of course develop to accommodate also the export oriented industries.

The spreading of investment into regions is interrelated with the spreading of population from the densely populated area into the scarcely populated ones. The trans-migration program as part of the Government development priority, however, is to be promoted within the policy of spreading economic activity in the regions. An integrated approach between the trans-migration program, the raising of employment and the spreading of economic activities in the region will multiply the development goals.

(d) Restriction on the foreign and domestic investment activities

As mentioned before, the role of foreign investment is complementary to national investment. The Investment Priority List has elaborated the restriction provisions on foreign investment activities based on the FIL No. 1 of 1967.

The restriction provisions are aimed at giving investment privileges to domestic investment. Foreign investment is of course welcomed but it must be directed to activities that are still highly needed, and to activities which the domestic investor is unable to undertake, owing to the high technical know-how and the amount of capital that is required.

The direction is expressed in the form of the selection of incentives to be granted to foreign investment. These restrictions and selection approaches describe the investment opportunity to foreign investors and the promotion of domestic investors at once. Fields open to foreign investment stated qualitatively are as follows:

(1) Exploitation and processing of natural resources and raw materials into processed and finished products;

(2) Production of machinery, equipment and manufacturing which require intensive technology and capital;

(3) Production of export products especially with guaranteed markets;

(4) Other fields which involve certain risks that the domestic investors are unable to afford.

These policies are elaborated in detail in the IPL issued by the Investment Coordinating Board, which is based on the Second Five Year Development Plan (Repelita II).

Certain Government policies are formulated to encourage business activities in general and capital investment in particular, namely:

(1) increasing exports of certain or all products of investment projects without neglecting domestic requirements;

(2) saving foreign exchange by reducing imports or producing substitutes for imported goods;

(3) utilizing local raw materials and products;

(4) increasing the value added;

(5) augmenting economic and social effects of capital investments so that they can yield more benefits;

(6) absorbing new technology know-how through the transfer of technological and managerial skills to Indonesians;

(7) yielding new or scarce types of products, particularly capital goods or industrial raw materials;

(8) protecting the economically weak groups and assisting them in promoting their activities;

(9) protecting national companies-particularly those receiving no facilities-against competition from investors possessing greater capital and technological capabilities;

(10) protecting investment projects, which have passed the period in which facilities are provided, against possible competition from new ones in the same field of activity who are still enjoying incentives;

(11) measures for environmental conservation are a prerequisite for certain types of activities to avoid the disturbances in the environment and ecological balance;

(12) capital and operation risks: operations requiring huge financing with high risks which national capabilities still lack are a priority for foreign investments;

(13) local equity participation in accordance with the priorities of the Second Five Year Development Plan;

(14) saturated capacity represents a consideration in directing and creating an efficient business climate.

The IPL issued regularly by the BKPM specifies economic activities which are open and restricted to foreign and domestic investments based on the above mentioned considerations. Four categories of investment activities are set forth in the IPL, namely, the priority sectors of the economy, less priority sectors, non-preferred sectors and closed sectors to the investment. The IPL will be reviewed annually, taking into account the development of foreign and domestic investments and the increasing ability of capital and know-how on the domestic sector. In this case the direction and selection of the incoming foreign investment will be based on the more sophisticated projects required in the development process.

The policies to promote local domestic investors have been issued in several fields. For example, the granting of the right to forestry exploitation to the local partner instead of to the joint venture company. With this policy approach the bargaining power of the local partner in a joint venture can be raised. The foreign investor is directed to exploitation and manufacturing the products. A similar policy is also promoted in the field of trade.

As set forth in the Law No. 6 of 1968 concerning domestic capital investment, the foreign role in trade activity in Indonesia should be replaced by the national. The Government eliminated the foreign investment in trade business as of 1 January 1978. Foreign trading companies are obliged to transfer their activities in the sectors of production, based on the prevailing laws and regulations.

Provisions on the aspect of trade still apply to joint enterprises under the Law No. 1 of 1967, stipulating that the enterprises may undertake the import and purchase domestically of capital goods and raw materials or supplies for use in their own production or operation purposes and that they may undertake the export of their own products. As for the distribution of their products in the domestic market, such is still exclusively permitted only through national enterprises.

(e) The problems of possible dependence on foreign investment

There are some feelings that the enactment of FIL has created national dependency on foreign investment. The foreign investment progress in Indonesia during the last 10 years has supported part of this fact. In the investment field, some efforts have been made to avoid the effects of dependency on foreign investment.

(1) To increase the capability of the domestic capital and entrepreneurship. many investment activities can be undertaken by domestic investment and competing with foreign investment. The Government policy to assist and give direction has resulted in strengthening domestic investment;

(2) National participation in the ownership and management of joint enterprise will be encouraged;

(3) Defining the field of activities open to foreign investment more selectively with consideration of the real national capability to undertake business without jeopardizing the continuance of national development;

(4) Speeding up the development of basic industry and industry processing natural resources to industrial raw materials to minimize the dependency of domestic industry on imported capital goods and raw materials;

(5) Foreign investment should, to the maximum extent possible, give preference to the use of services rendered by Indonesian nationals and to the use of capital goods, raw materials and supplies produced in Indonesia;

(6) Transfer of technology as a part of the beneficial package of foreign investment should be directed to enhance national capability to invest technology suitable for national development;

(7) Diversification of foreign investment sources is also considered so that the dependency on limited foreign investment sources can be avoided.

Incentives for foreign investment

The existing investment laws and regulations emphasize a positive policy for the encouragement of investment in Indonesia. These provide a number of incentives, which are mainly based on fiscal policy.

Incentives for investments have the following general functions:

(1) as a subsidy granted to enterprises for initial period of their operation in the field of activity desired by the Government;

(2) directing investment activities to the national development objectives;

(3) as an encouragement to enterprises and investors who participate actively in national development.

Some considerations should be made in defining incentives for investments to meet the above functions:

(1) National development policy, medium as well as long term;

(2) The availability of production factors in national or regional level to support economic development;

(3) The availability of economic, social and political stabilities to secure the continuance of national economic development;

(4) The prevailing tax policy;

(5) The level of development progress in achieving the national development objectives.

Based on the above considerations it is clear that it will be difficult to compare the incentives for investment in different countries to conclude which are more generous and which less generous.

In granting incentives for investments the Government pays attention to the various stages of investment activities. This approach is expected to meet the function of incentives granted to enterprises. Four stages have been selected in the preparation of a company establishment-the period of construction, the period of operation or production and the period of development. Incentives for investments will differ from stage of investment activities.

(1) In the preparation period of the company, the incentives may be granted by:

a. exemption of capital stamp duty payable on equity capital;

b. exemption from previous taxes and investigations for domestic investors participating in a joint enterprise.

(2) In the construction period of the project, the incentives may be granted as a form of exemption or reduction of import duties and sales tax for capital goods.

(3) In the operation or production period:

a. exemption of reduction of import duties and sales tax for raw materials and supplies for first 2 years of the operation;

b. tax holiday or investment allowance, depending on the scale of priority of the investment;

c. provision of accelerated rate of depreciation of fixed assets;

d. provision of carry forward of losses;

e. exemption of dividend taxes.

(4) In the development period of the company for the expansion of production capacity, the incentives may be granted by way of:

a. exemption of capital stamp duty payable on additional equity capital required;

b. exemption from previous taxes and investigations for domestic investors participating in expanding equity capital of joint enterprise;

c. exemption or reduction of import duties and sales tax for additional capital goods;

d. investment allowance;

e. exemption of dividend taxes;

f. provision of accelerated rate of depreciation;

g. provision of carry forward of losses.

The above incentives for investments in the framework of Law No. 1 of 1967 on foreign investment as it has been amended by Law No. 11 of 1970 can be further specified.

Tax holiday:

This incentive is available for new enterprises in priority sectors of the economy. Priority sectors of the economy open for foreign capital investment and domestic capital investment set forth in the category of “Priority” in the IPL(DSP) issued annually by the Government.

The basic tax holiday period is two years, starting from the commercial production of the enterprise. The tax exemption period of 2 years can be extended up to 6 years, provided that certain conditions are met. Such extension will cover an additional 1 year tax exemption for each condition:

– if the investment contributes to a significant increase or saving of foreign exchange;

– if the investment is located outside Java to promote regional distribution of the development;

– if the project requires the investors to make a large investment in infrastructure and/or involves other extraordinary risks;

– if the investment coincides with other special priority objectives of the Government.

Investment Allowance:

This incentive is available for new enterprises in lower priority sectors of economy categorized as “Facility” in IPL and available for existing enterprises expanding their investment in a priority or lower priority sectors of economy. This allowance which is a premium for the investors, aggregates 20% of the sum of capital invested to be spread evenly over 4 years, beginning with the year in which the investment is made.

Accelerated depreciation of fixed assets:

Beside the normal rate of depreciation according to the existing rules, the enterprises are allowed to apply an accelerated rate of depreciation, at the option of the enterprises within a period of 4 years, beginning with the year in which the investment is made.

Carry forward of losses:

Any loss incurred may be carried forward for 4 successive years. If the loss incurred during the first 6 years after the establishment of the enterprise, the loss may be carried forward indefinitely until it can be fully set-off against income.

Dividend tax:

Dividend tax may be exempted for a period equal to the period of corporate tax exemption or for 2 years in the case of investment allowance.

Capital Stamp Duty:

Exemption of capital stamp duty payable on equity capital.

Other tax incentives:

An additional incentive is given to domestic capital investors in the framework of domestic as well as foreign capital investment, in which the capital invested is unquestionable and hence free from previous taxes and investigations by tax office. this incentive is given with regard to the fund originating from illegal income and windfall profits made during the period of inflation.

Import incentives:

For the setting-up and the operation of investment project in priority and lower priority sectors of economy, the importation of capital goods for the requirement of initial operation and raw materials or supplies to be processed for the first 2 years of the operation may be granted exemption or reduction of import duties and sales tax, provided that such goods have not yet been manufactured or produced domestically and are not used, rebuild or re-conditioned goods.

Importation of personal effects, clothes, foodstuffs and other consumer goods up to the value of US$50 (FOB) per person or US$100 (FOB) per family per month for the purpose of foreign experts assigned to foreign enterprises approved by the Government may be exempted from import duties sales tax.

Transfer of foreign exchange:

The enterprises shall be granted the right to transfer abroad in the original currency of the invested capital at the prevailing rage of exchange at such time for:

– net operating profits in proportion to shareholding of the foreign participant;

– proceeds of the sale of shares by the foreign participant to the Indonesian participant or other Indonesian nationals;

– expenses for foreign personnel assigned to the enterprises and for Indonesian personnel training abroad;

– repayment of principal and interests on foreign loans, provided that such foreign loans shall obtain prior approval of the Government as a finance resource for the capital investment;

– allowances for depreciation of capital goods imported in accordance with the foreign investment import scheme;

– Government compensation received by the enterprises in case of nationalisation;

– royalties or technical fees to an amount and period of payment under the prior approval of the Government;

– repatriation of remaining invested capital of the foreign participant at the time of total liquidation of his interest in the enterprise, provided that such repatriation shall not take place prior to the expiry of the period of tax holiday of investment allowance.

International protection agreements:

With the aim to encourage and to protect the investment of foreign nationals, legal persons or companies in Indonesia, the Government concluded Investment Guarantee Agreements with the Governments of foreign countries and ratified Indonesia’s adherence to the Convention on the Settlement of Investment Dispute between States and Nationals of Other States.

To put into effect the implementation of the complementary functions of foreign investment substituting the unavailability of domestic investment, the treatment extended within the scope of Domestic Investment Law will be more favorable than the treatment extended within the scope of the FIL. Different treatment will consist of the selection of fields of activities open for foreign and domestic investments, different incentives granted to similar process and stage of production undertaken by foreign and domestic investments, selective market orientation and project location, minimum requirement of the capital invested and the availability of local bank loan to finance the intended investment approved by the Government. The derogation of equal treatment which shall be principally rendered to foreign investment and domestic investment as set forth in the Investment Guarantee Agreement, is put in a Protocol, as an integrated part of the Agreement.

The Government undertakes not to expropriate or nationalize any enterprise, nor revoke its ownership rights or reduce its right of control in management, except in cases as might be required by public interest, which has to be determined by an Act of Parliament. In the case of expropriation or nationalization, compensation will be provided in accordance with the principles of International Law.

Institution improvement

Simplification of the systems and procedure of capital investment constitute an encouragement for the flow of capital investment required for national development. As a consequence of promoting private capital investments in Indonesia, the Government commits itself to seek for better ways and means of handling all problems arising from the implementation of such investments, which are multiple and growing from day to day. Considerable efforts of the Government in this case appear since 1973, when the BKPM once established in 1973 to replace the Technical Committee on Capital Investment.

To secure the realization of such simplification, greater authority is required by the BKPM to handle all aspects of investment to meet the idea of the centralization of all activities of Government investment administration and of the processing of applications and grant of permits. Two decrees were signed by the President on 3 October 1977 to restructure the existing BKPM and to simplify the systems and procedures of private capital investment under Law No, 1 of 1967 and Law No. 6 of 1968 concerning Foreign and Domestic Capital Investments.

The following new functions carried out by the BKPM under new decrees are:

(1) to issue an investment priority list at regular periods;

(2) to formulate investment policy subject to the approval of the President;

(3) to appraise or evaluate investment applications, either foreign or domestic;

(4) to seek for the approval of the President of foreign investment applications;

(5) to approve on behalf of the Government domestic investment applications;

(6) to issue on behalf of the Minister concerned with the implementation of investment approved by the Government, permits and licenses consisting of:

a. provisional and permanent operating permits;

b. raw material use permits;

c. limited import licenses;

d. limited export licenses;

e. limited domestic purchase permits;

f. limited domestic trade permits for domestic investments;

g. working permits for foreign nationals;

h. right of exploitation of land;

i. decision on granting tax incentives;

j. decision on granting import duty incentives.

(7) to control and execute the guidance on the implementation of capital investment;

(8) to stimulate the activities of capital investment in the regions.

The Provincial Investment Coordinating Board (BKPMD) will assist BKPMP in inter alia, the evaluation of investment projects, the exercise, control and supervision of investment projects.

With this new system and procedures, investors need only communicate BKPM as a single Government authority to file with and finalize investment application and to solve all problems concerning capital investment. Investors are no longer obliged to arrange contacts with different departments and Government agencies, as has been in fact the practice before.

By restructuring the BKPM and delegating authority to appraise the investment application and to issue permits necessary for the implementation of approved investment projects, the Government believes that the investors will find the whole procedure of investment application to be a much more efficient and less time-consuming process, and that the longer it takes for the Government to approve investments, the longer it takes to proceed with Indonesia’s development.

[(1978),20:2 Malayan Law Review 362-377]

Foreign Private Investment in a Developing Nation: An Indonesian Perspectivei

By Dr. Soedjatmoko

Dr. Soedjatmoko, who is presently Indonesia’s Ambassador to the United States, has served his government ever since 1945 – with a brief respite during the last years of Guided Democracy. The recurrent theme of his published writings – mostly short, concentrated essays – is the meaning of Indonesia’s history; a preoccupation to which he brings the critical methods of the social sciences as well as a constant awareness of the spiritual dimensions of man. His writings have had an influence out of all proportion to their slender bulk, both on the younger generation of intellectuals in his own country, and on Western scholars of Indonesia. In Australia, the text of his 1967 Dyason Memorial Lectures of the Institute of International Affairs has had a wide audience.ii

Introduction

The sub-title immediately raises a question. What makes Indonesian perspective on the problem of foreign investment so special? I believe, the fact that Indonesia is one of the few countries in the world that has moved full cycle from rejection of foreign private investment to a new acceptance may have some bearing on the general topic of this seminar. This shift has led to an unusual focus on Indonesia and its economic potentials as the new opening area of investment opportunity.

Starting from 1958, our conflict with the Dutch led the Indonesian Government at that time progressively to seize most of the foreign enterprises on Indonesian soil. Her growing emphasis on an anti imperialist struggle led her to recast the economy into what might best be called a ‘command economy’ that was supposed to operate by government fiat, in support of a radical foreign policy that was far beyond our national strength. It eventually led to Indonesia’s isolation from the rest of the world, a total breakdown of the economy, and in 1965 to the collapse of the governmental power structure. Out of the ensuing turmoil a government has emerged that is characterised by sobriety, a sense of realism and a commitment to the priorities of monetary stabilisation and economic development.

The New Political Orientation

The utopian fervour, the insistence on trying to build an ideal society for Indonesia is hostility to all the rich and powerful countries in the world, and the radical economic nationalism which masked an inflated xenophobia, have now been replaced by a general climate of economic realism and pragmatism, an openness to the outside world, an awareness of the importance of international economic co-operation, and a recognition of the vital role of private enterprise in the improvement of the economy. Hence a much more positive evaluation of the role private foreign capital could and should play in Indonesia’s economic development.

This, of course, does not mean that the basic attitudes that underlie the phenomenon of economic nationalism have all disappeared. The present economic leadership of the country is just as committed to prevent the re-establishment of foreign economic domination, and is no less intent on maintaining control over national resources and economic development and on securing the equality of Indonesia in her economic relations with the outside world. However, this leadership is guided by a realistic understanding of the basic laws of economics and of the dynamic of a modern global economy and fully realises the need for the assistance of foreign private capital, skill and experience for accelerated development. At the same time it has a much greater confidence in the possibilities of accommodating the sometimes conflicting interests of national development and the operations of private foreign enterprise as profit-making organisations. The return of the foreign enterprises taken over by the former regime to their original owners and the Foreign Investment Law promulgated in the beginning of 1967, are manifestations of this new, realistic orientation.

Before we go into a brief discussion of the legal aspects of this Foreign Investment Law, it would seem to me that one prior question should be answered, namely” how stable is Indonesia’s present political and economic course? The question can be answered in a number of ways. One could point to the firmness of the commitment to economic development priorities of the present leadership, or to the political courage that it has shown in putting through the painful stabilisation policies that were called for. One could also point to the organisational as well as ideological weakness of the oppositional forces in the country. But to me the most important factor that should be brought out is the emergence of a new post-independence, post-revolutionary generation into the political arena. It is this generation that has formulated, and is implementing and supporting the policies that emanate from this new economic orientation. Because they have never known the pain and humiliation of colonial subjugation, their outlook on the world is much freer and their self-confidence more natural. And equally important, this generation is fully familiar with modern science and technology and the possibility of their application to our problems.

Because the new economic realism is a very essential part of the new values that motivate this new generation of leadership, we can now look at the course that Indonesia has taken, both in its own economic and political development, and in its relations with the outside world, as a movement of growth – a growth of which the direction is stable.

Let us now have a look at some of the legal aspects of the Foreign Investment Law.

Main Issues of Interest to the Foreign Investor

In deciding whether to initiate investment in a given country after having carefully considered the business prospects, the prospective investor is concerned, in the first instance, with the safety of his capital and with the availability of protection against a variety of risks, including that of expropriation. A second broad category of issues which he must consider deals with the modes of entry, the organisational structure in which to carry on the venture, and the facilities made available to him for effectively managing his business operations. The third major area of interest concerns the facilities for the repatriation of capital profits and dividends.

I shall discuss the main points concerning these three broad categories of issues, but I think we must recognise that even more important than the specific legal provisions concerning these matters is the so-called investment climate, the state of government and public opinion on the role and the rights of the foreign investor in the host country. Many of the problems will not arise, particularly in the area of security of investment, if the investment climate is a hospitable one. Even if they do arise, it will not be difficult to reach a compromise or to find an interpretation of the laws of regulations which will fit the mutual needs of the parties if there is goodwill on both sides.

Nevertheless, it is important that the legal structure be reasonably adequate to permit the foreign investor to enter and carry forward his enterprise with the confidence that he will not likely encounter serious difficulties, as long s he comports himself in a reasonable manner and with full recognition of the fact that investment is a two-way street.

The legal safeguards provided by the host country, of course, do not operate in isolation from the safeguards provided by the capital exporting countries, such as investment guarantees, and those provided by the international community under both customary international law and international institutions or agreements. The international system may also include bilateral treaties between the host country and the capital-exporting country.

In considering the safeguards provided by the Indonesian legal system, I think you will wish to bear in mind that our commercial code is still fundamentally based on the legislation which the Netherlands introduced in Indonesia to deal with the problems of so-called Europeans and those assimilated to the European Group for legal purposes. There has been considerable discussion in Indonesian concerning the philosophy underlying our legal system following the abolition of colonialism. For example, there is a current of opinion which holds that there should now be only one legal system in Indonesia instead of the dualism which characterised our society in the colonial era and that the system should be based on adat (customary) law. However, the fact remains that our laws dealing with commercial and financial problems, particularly in so far as they affect foreigners and large-scale ventures, generally are clearly derived from Western models or at least have a strong Western component.

Thus, the Agrarian Act of 1960 introduced radical changes in land law, including unification of the law and the elimination of the dualism which had differentiated between land rights in the Western sphere and land rights in the customary law sphere. While the new Agrarian Act is purportedly based on customary law, it is in fact thoroughly modernised by the introduction of Western concepts, such as titles in land ownership, the distinction between real and personal rights and a system of compulsory registration which will ultimately be applied to non-/Western as well as Western-held land. The law also restricts the right of absolute ownership of land to Indonesian citizens.

The derivation of our commercial law from Western models is undoubtedly reassuring to potential foreign investors since it is easier for them to understand and to feel comfortable with a legal system which is familiar to them.

Returning to the problem of security of investment, you will find that our system provides for two basic safeguards on which investors tend to rely, namely laws governing the circumstances under which expropriation may be carried out and the right of access to an independent judiciary.

The Foreign Capital Investment Law (Law No. 1 of 1967, dated January 10, 1967) sets out the broad framework of conditions under which foreign investment is welcomed and protected in Indonesia. It governs the issues concerning entry, the establishment of a foreign entity, operation and management, and incentives for investment. It provides ample latitude for foreign investors to enter and operate without great difficulty.

The effect of the new law is to open most fields of business activity to foreign capital. The only fields of investment which are completely closed to foreign capital are those which fulfil a vital function in national defence (Article 6(2)). Other fields to which access is restricted, but may nevertheless be entered provided that the foreign investor does not exercise full control, are referred to in Article 6(1). These are fields of vital importance to the country, such as harbours, public utilities, atomic energy and mass media.

I need not emphasise that the new law has been designed to attract foreign capital to Indonesia for investment in projects which will contribute to the healthy development of the Indonesian economy. Accordingly, it offers a combination of incentives and accommodations which can stand comparison with those offered by other developing nations.

Part of the approach taken to attract new projects is to offer specific incentives, consisting of the following:

  1. Exemption from tax on corporate profits for a period of up to five years, and exemption from the dividend tax on profits during those years;
  2. Full authority to select management and recruit or use foreign technicians and experts for positions which Indonesian manpower is not yet capable of filling;
  3. The offer of land at advantageous terms, carrying with it rights of building and exploitation formerly denied to foreign business enterprises.
  4. Exemption from import duties for equipment, machinery, tools and initial plant supplies; and
  5. Exemption from the capital stamp tax on the introduction of foreign capital for investment.

Profit transfer is guaranteed by law, and no restriction is imposed as to the amount. Also of great importance is the document entitled ‘Executive Directives for the Policy on Foreign Capital Investment in Indonesia’, issued by the Cabinet Presidium on January 27, 1967, which stipulates the order of priority of investments in the framework of the overall economic policy of the Government. Specifically, it provides for three general categories, (1) Foreign capital investment which may increase foreign exchange earnings, such as mining, agricultural export, etc; (2) investment which makes possible import substitutions; and (3) Investment which while not directly affecting the volume of foreign exchange nevertheless is of a quick-yielding character, increases employment opportunities, introduces new technology, or brings in modern equipment.

Current Investments

Although the new investment law has been in effect for a relatively short period (almost two and a half years) the response of foreign investors to Indonesia’s invitation to invest in that country has been encouraging. A large number of Australian, US, European, Japanese, and other companies have accepted the challenge and have started with their operations to assist Indonesia to build up the country. Some 20 foreign oil companies including major oil companies of the United States have concluded exploration and production contracts. It is estimated that by 1970 when these new contracts will have begun to show results, the total oil output should reach about one million barrels a day, as compared with 520,000 barrels a day in 1967. In the field of mining, five large companies are prepared to invest for the exploitation of copper, nickel, tin and bauxite. Twenty-five companies are working in the field of forestry and 55 in the manufacturing sector.

As of the first quarter of this year, 129 proposals from foreign investors had received the approval of the Government, representing a projected capital investment of $570 million including $236 million for mining (petroleum excluded), $99 million for forestry and $86 million for manufacturing. US investment accounts for 45 per cent of total projected investment ($273 million); 11 companies are operating in the field of manufacturing with an investment outlay of $26.7 million; three in the field of mining with an investment of $229.5 million; two companies in forestry with $3.3 million and nine others in various fields with an outlay of $14 million, making a total of 25 companies. This does not include the foreign bank branches and oil companies. Other countries following the US lead are: Canada, South Korea, the Netherlands, Japan and various other countries. It may also be interesting to note that out of the 129 ventures, 83 of those ventures are in the form of joint enterprises, 41 are straight investments and five are operating on the basis of contract-of-work.

We realise that foreign aid, foreign technical assistance and foreign private investment by themselves can never make a country a viable economy, but their role in a period of recovery can be crucial. Foreign investment is therefore expected to play an important role in the implementation of Indonesia’s Five Year Development Plan which was started in April this year. This Five Year Plan gives priority to (1) agriculture, particularly food production; (2) the development of mining and encouragement of industries which produce equipment and inputs for the agricultural products; (3) the strengthening of infrastructures, particularly transport and communication. The main objective of the plan is a simple one, namely to raise the standard of living for a future growth by way of food and clothing, improvement of infrastructure, provision of better housing and an increase of employment opportunities. In this plan emphasis is also given to rural and regional development.

This Five Year Plan will also provide the context within which the government-to-government aid to Indonesia provided by the Inter-Government Group on Indonesia, which includes Australia, the US, Japan, the Netherlands, Germany, France, the UK, Italy and Belgium, will be co-ordinated. The consultations on which Indonesia’s aid requirements are determined within the IGGI are based on assessments by the World Bank and the International Monetary Fund. In addition, the IMF has been most active in advising the Government on monetary and fiscal affairs while the Bank is assisting Indonesia in planning development programmes and preparing capital projects.

Transition and Evolution

Indonesia is a latecomer among developing countries in dealing with foreign investment. We are still in a transitional period and are still in the process of gaining the experience needed to guide us further in the area of codification and regulation. That part of our legal system that concerns modern economic activities of both domestic and foreign origin is, therefore, still in the process of readjustment and evolution. This process of adaptation to developmental goals is not only a theoretical one, but necessarily evolves in response to new problems and new experiences. We will also have to keep under constant review other laws that have a bearing on the general investment and business climate. At present this is the case for instance with Indonesian corporation law. With technical assistance from the International Monetary Fund, we are in the process of reforming our tax laws. Beside this, the agrarian law and the labour law will at some point have to be related more closely to our development goals.

Corporation Lawyers: Role and Style

While generally no American corporation makes a move without consulting its lawyers, the role Indonesian lawyers play in the activities of our business corporation is much less pronounced. The heavy reliance on legal counsel by foreign corporations is related to the importance of litigation and judicial procedures in the resolution of conflict in their country. In Indonesia, such conflict are most of the time resolve through administrative procedures and adjustments. This is, of course, not characteristic for Indonesia alone. It applies also to many European countries.

This difference in role may be one of the reasons why many Indonesian administrators are often somewhat puzzled when in the course of negotiations they are faced with elaborate stipulations raised by legal counsel of foreign corporations in anticipation of contingencies that might arise in the future. In part, this puzzlement stems from their unfamiliarity with the role legal counsel plays in the activities of business corporations in the US. In part, this may be the result of an important difference in societal setting. American business and their legal counsel are used to operate in a society that has been stable for quite some time, and there is therefore a considerable degree of predictability of future responses and implications once a particular course of action is decided upon. Lately, some doubts have arisen about this purported stability and predictability, but that is beside the point.

The attitudes that have been shaped by this condition still persist. Our people, on the other hand, are trying to build towards stability. They are working from a situation in which the horizon of visibility and predictability is still limited, though clearly expanding. And though these officials may be able to see the validity of the points raised, they are quite often not in a position to answer. Why? Not because they are lacking in goodwill or because they are technically incompetent, but often simply because no one can entirely foresee the broader setting that will eventually develop – partially thanks to the operations of foreign enterprises-and in which these problems will have to be answered. Any assurances given at this stage are bound to have only limited validity. Also, no government can afford to prejudice its future policy options by making premature commitments on the basis of hypothetical situations.

But even more important in this connection may be the differences in attitude that centre around the concept of ‘good faith’ in Indonesian commercial law. The central position of this concept in Indonesia has led to a lesser concern with protective clauses spelled out for specific contingencies than is the case in the American tradition.

An understanding of these differences may make it easier for an Australian or American lawyer to communicate while negotiating in Indonesia. Conversely, a greater familiarity on the part of the Indonesian government officials, businessmen and lawyers with Australian or other practices and the special role of legal counsel in business activities would be helpful too.

It should also be realised, however, that in the evolution of the Indonesian commercial legal system, adaptations will have to be made that will enable it to bridge differences with the legal systems and practices of other countries, like Australia, Japan and Western and Eastern Europe, each with their own legal culture. The tendency of some Australian and American lawyers to try to impose on us their own legal concepts with regard to such issues as corporate laws and tax laws, seems to us sometimes rather excessively one-sided. Often we are faced with demands for contractual guarantees as regards taxation, foreign exchange regulations and so forth, for the entire duration of the contract. There have been cases where we have indeed compromised on these points, as for instance in the case of certain mining contracts covering large investments. But it should be realised that the insistence on such waivers undermines the strength of the legal system as a whole, including the protection of foreign investments in general.

This would obviously be against the long run interests of foreign investors. For example, some of the waivers requested involved bypassing the foreign exchange system, which was developed in co-operation with the International Monetary Fund as an integral element of our economic stabilisation programme. It seems to us that the interest of foreign investors would not in the long run be served by weakening that mechanism.

We sometimes even find ourselves in the ironic position of having to explain to prospective American investors the reason why we object to the suspension of the operation of market forces and why we consider it important to keep competition open, when excessive protective measures are insisted upon. In order to meet this kind of problem more adequately we have asked the World Bank to help us in developing optimal criteria for both the investors and for Indonesia, that could be generally applied in this connection. All this, I hope, will explain why we take the position that would be investors should accept both the existing legal framework and the way in which it will develop in the future.

The long-range protection for foreign private capital lies in the stability of a favourable business and investment climate. This is only possible if, as in Indonesia, the incentives and accommodations of foreign investment are also made available on a non-discriminating basis to domestic investors. In fact, the rapid development of national business should be seen as directly in the interest of foreign investment as well.

Foreign Investment and the Political Climate

The stability and continuity of a political climate that is favourable to foreign investment will very much depend on the willingness and the capability of foreign enterprises to develop linkages with the environment in which they operate, with the business community, the universities and other teaching institutions, as well as with the intellectual community in general. By involving local business in some of the spin off activities of these enterprises, through technical assistance, through utilisation of local raw materials, the stimulation of local servicing facilities and of manufacturing of components and spare parts, through making available staff members for teaching purposes in order to accelerate the transfer of technology, organisational and managerial skills at all levels, and by taking an interest I the development of small and medium sized indigenous business firms in their localities, the foreign companies could very well become a catalytic ad accelerating factor in the development of the society in which they operate.

The positive contribution that foreign business could make, not only to economic development, but to a healthy political growth as well, without in any way assuming a political role, should therefore not be underestimated. I think it is quite possible for private foreign business to play this role without endangering its primary role as a profit-making organisation. In this manner, foreign private business will avoid the danger of becoming an alien enclave in a stagnant and increasingly hostile environment. It is in this kind of integration with the patterns of national development that its best protection lies.

If foreign investment comes to be seen by a majority of the political public as insensitive to national aspirations, as an obstacle to national development, or as an alien element pursuing ends that are contrary to the national interest, political pressures against the purely legal safeguards are bound to develop. It is of the greatest importance that private foreign business operating in an underdeveloped country should develop the capacity to identify with the developmental goals of co-operative endeavour with national business that it is regarded as an ally, an accelerator and a catalyst of national development whose continued presence is beyond doubt in the national interest as well.

Ultimately, the protection of foreign private investment lies in the rapid development of an indigenous commercial and entrepreneurial middle class and the development of a community of business interests between them and foreign enterprises in their country. Any contribution private foreign business could make to that end would provide additional long range security for their investment.

Foreign Investment in the Global Setting

There is, however, an even wider setting, almost within the same time span, within which security of private investment in developing countries inevitably will have to be considered as well. The determinants here are the population explosion, the question of international poverty and the need for generalising economic development throughout the world. I hope you will allow me in closing to say a few words about this.

It is, of course, a truism to state that the world is becoming increasingly interdependent. There are few economic or political decisions, taken in the national context, that will not evoke international repercussions and vice versa. The world is also rapidly becoming smaller and more and more crowded. The world population is expected to double in the next 30 years. The increasingly uneven density of population in various parts of the world, on top of widening inequalities in the distribution of wealth, is bound to create important shifts in the balance of forces as well as tremendous tensions in the world during the coming decades. But before everything else, mankind must be able to answer the very elementary questions of how are we going to feed that population; how to produce enough to clothe them and to meet other essential material needs the world over, if civilised life is to be maintained. The rapid population increase, especially in the poor nations, will therefore have to be met by an increased economic production capability and especially by a much more extensive involvement of the poor nations themselves in those productive processes.

If we, that is mankind as a whole, fail to organise ourselves for this purpose, the tensions that inevitably will develop in the poor nations will destroy the possibility of their evolution towards increasingly open societies capable of rational and creative relationship with the outside word. In this way, the international order itself, including the security of the rich nations, will be in danger. Our capacity to organise ourselves for this task will very much determine the shape and the quality of our life by the time we enter the 21st Century, if we ever reach that point. This, however, will require a major redirection of world resources and the striking of a new balance-globally-between expenditure for armaments, and for the combating of domestic and international poverty. For this, a reassertion is needed of the political will to bring about such a redirection of world resources.

In this respect, the search that is now taking place the world over for those forms and methods that would be most advantageous to promote the transfer of private capital, skill and managerial capability from the developed countries to the new nations, is a crucial one. The experience of the first United Nations Development Decade has shown that unless there is such a greater flow of capital throughout the world, especially of private capital to the developing countries, there is little prospect of an adequate response to this problem. One can only hope that private business the world over can develop the capacity, the ingenuity-over and beyond short term considerations of profit-to develop the forms and modalities that will make such an expanded role possible as well as profitable. After all, business corporations are the natural repositories of the technology, the skills, the organisational and managerial capacity for this very task.

It is equally true that an increased application of private capital to generate world-wide development will by itself not be sufficient. Unless the flow of government-to-government development funds in the form of foreign aid is continued at adequate levels for some time, there is no prospect that infrastructure development in a number of new nations can proceed sufficiently so as to enable private capital to play its productive and socially creative role. Much will also depend on our conceptual and operational capability to move in this direction. We need to develop a more adequate and consistent system of rights and responsibilities, of incentives, safeguards and guarantees of various kinds on both the side of the developed as well as of the poor nations. We will have to search for more adequate forms and methods that can facilitate in a substantial way the transfer of capital and other resources. The scope and capabilities of existing multilateral development agencies like the World Bank and regional banks as well will have to be re-examined in this connection. Likewise, the access of underdeveloped countries to international capital and bond markets, and the development of an internationally coherent tax system related to international development needs. Attention should also be given to the role which international corporations are increasingly playing in internationalising development. The extra-national character of the decision centres of these companies poses important problems and, in the words of Philip de Seynes, United Nations Under Secretary General for Economic and Social Affairs, calls for the development of a new system of international law with greater economic content.

It may not be possible for the profit motive alone to bring about the substantially stepped-up role of private capital sufficient to deal with the population explosion and the problems of poverty that may tear the world apart. What may be needed as well as a clearer understanding of the magnitude and the urgency of the problems which the whole of mankind will have to face 20 to 30 years from now, and a clearer vision of the kind of world in which we do want to live. I think it is important for all of us, in discussing problems connected with the security of foreign investment and the legal safeguards for the protection of foreign investment in developing countries, that we do so with a full awareness of the magnitude and the urgency of the role that has to be played by private capital and the urgency for private capital and the governments of the developed as well as the underdeveloped countries together to create the conditions to make this possible. If we are to come to grips with the problems that will determine the total global environment in which all of us, including private capital, will have to live in the relatively near future.

Being myself totally innocent of a training in law, I will not presume to give you a breakdown of the challenges this poses to those in the legal profession who are involved in the activities of business corporations. This challenge certainly goes far beyond the legal aspects of foreign investment problems in the time frame of the present. Still, it is from this perspective that I invite you to look at the problem of investing in a developing nation.

 

 

iThe present article is an abridgement of a lecture delivered in Dallas, Texas, under the auspices of the International and Comparative Law Center of the South-western Legal Foundation. It is to be included in a forthcoming book, Proceedings of the Symposium on Private Investors Abroad. Copyright by Matthew Bender and Co. Inc.

iiSee The Australian Outlook, December, 1967, and January, 1968. Soedjatmoko’s other writings are difficult to come by. See his contribution to Soedjamoko, ed.: An Introduction to Indonesian Historiography, Cornell, 1965; and Robert N. Bellah: Religion and Progress in Modern Asia, New York, 1965.

“Kenapa kamu pincang?” tanya si Kancil kepada si Kambing.
“Dilempar Pak Boim dengan kayu karena aku masuk ke ladangnya,” jawab si Kambing.
“Jangan sedih!” kata si Kancil. “Aku punya akal agar kamu tidak diganggu pada waktu mencari makanan di sana.”
“Betul, Cil? Ah, kamu memang sahabatku yang baik. Bagaimana caranya?”
“Pakailah pakaian kulit harimau!” Karena kamu disangka harimau, Pak Boim akan lari pontang-panting.”
“Wah, sulit! Bagaimana aku dapat mencari kulit harimau?”
“Mari, ikut aku!” ajak si Kancil.
Pak Kadir kemarin menembak harimau. Kulitnya dijemur di belakang rumah. Dengan segera diambilnya kulit harimau yang dijemur itu.
“Nah, sekarang aku mau pulang,” kata si Kancil.
“Nanti malam kamu boleh ke ladang Pak Boim. Makanlah sepuas-puasnya!”
Malam itu Pak Boim pergi ke ladangnya. Hari terang bulan.
“Ha, apa itu?” pikir Pak Boim. Seekor harimau masuk ke ladang dengan perlahan-lahan. Pak Boim sangat takut, dia hendak berlari. Tetapi, ditetapkannya hatinya. Dia memperhatikan harimau itu.
“Heran,” pikir Pak Boim, “seekor harimau makan tanaman muda? Astaga, harimau bertanduk? Berjanggut pula?”
Sekujur badan Pak Boim gemetar. Dia sangat ketakutan.
Tiba-tiba, harimau itu menoleh ke arah Pak Boim.
Apa yang terjadi?
Harimau itu berpaling, lalu lari pontang-panting.
Melihat itu Pak Boim tidak ketakutan lagi.
Dikejarnya harimau itu, lalu dilemparkan tombaknya ke arah harimau palsu.
Harimau palsu jatuh tersungkur, kemudian berlari tunggang-langgang.

Jawablah!
1. Ceritakan sifat-sifat tokoh cerita binatang di atas!
2. Baikkah perbuatan si Kancil? Jelaskan!

Translated by Sony R Simanjuntak SH (LLB) Unpar LLM Monash PhD Melb

The Indonesian Civil Code
Kitab Undang-undang Hukum Perdata (KUHPer)- S 1847-23

Content:

Book One – Persons (Arts 1 – 498)

Chapter I : Enjoyment and Loss of Civil Rights (Arts 1 – 3)
Chapter II : Civil Registry Records (Arts 4 – 16) (Repealed)
Provisions of this Chapter were replaced by several regulations:
1. Amendment of 1849: Regulation on Civil Registration for European Group.
2. Amendment of 1917: Regulation on Civil Registration for Chinese Group.
3. Amendment of 1920: Regulation on Civil Registration for Several Groups of Indonesian Population which are not Included in Members of Regional Government in Java and Madura.
4. Amendment of 1933: Regulation on Civil Registration for Indonesian Christians in Java, Madura, Minahasa etc.
5. Amendment of 1946: Regulation on Civil Registration in regards to Birth and Death.
6. Amendment of 1961: Alteration or Addition of Surname.
7. Amendment of 1983: Management and Development of the Administration of Civil Registration.
8. Amendment of 199: Guidelines for Conducting Registration of Residents.
Chapter III : Residence or Domicile (Arts 17 – 25)
Chapter IV : Marriage (Arts 26 – 102) (Repealed)
Chapter V : Rights and Obligations between Husband and Wife (Arts 103 – 118) (Repealed)
Chapter VI : Legal Marital Common Property and Its Administration (Arts 119 – 138) (Repealed)
Chapter VII : Prenuptial Agreement (Arts 139 – 179) (Repealed)
Chapter VIII : Legal Marital Common Property or Prenuptial Agreement in Second or Subsequent Marriage (Arts 180 – 185) (Repealed)
Chapter IX : Separation of Marital Property (Arts 186 – 198) (Repealed)
Chapter X : Dissolution of Marriage (Arts 199 – 232a) (Repealed)
Chapter XI : Bed and Board Separation (Arts 233 – 249) (Repealed)
Chapter XII : Paternity and Filiation of Children (Arts 250 – 289) (Repealed)
Chapter XIII : Blood Relationship and Relationship by Marriage (Arts 290 – 297) (Repealed)
Chapter XIV : Parental Authority (Arts 298 – 329) (Repealed)
Chapter XIVA : Charge, Reduction and Discharge of Maintenance Payment (Arts 329a – 329b) (Repealed)
Provisions of Chapters IV – XIVA were repealed by several regulations:
1. Law No. 1 of 1974 regarding Marriage.
2. Government Regulation No. 9 of 1975 regarding Implementing Regulation of Law No. 1 of 1974 on Marriage.
3. Guidelines for Government Regulation No. 9 of 1975.
4. Supreme Court Guidance No. MA/Pemb/0807/1975 regarding Implementation of Law No. 1 of 1974 and Government Regulation No. 9 of 1975.
5. Guidance of the Supreme Court Chairman regarding Application of Law No. 1 of 1974 and Government Regulation No. 9 of 1975.
6. Government Regulation No. 10 of 1983 regarding Approval for Marriage and Divorce of Public Civil Servants.
7. Decree of Minister of Defense and Security No. Kep/01/I/1980 regarding Provisions on Marriage, Divorce, and Reconciliation for Members of Indonesian Military.
Chapter XV : Minority and Guardianship (Arts 330 – 418a)
Chapter XVI : Several Moderations to Minority (Arts 419 – 432)
Chapter XVII : Curatorship (Arts 433 – 462)
Chapter XVIII : Absence (Arts 463 – 498)

Book Two – Things (Arts 499 – 1232)

Chapter I : Property and Its Classification (Arts 499 – 528)
Chapter II : Possession and Rights arising from it (Arts 529 – 569)
Chapter III : Right of Ownership (Arts 570 – 624) (Repealed)
Chapter IV : Rights and Obligations among Owners of Neighbouring Plots of Land (Arts 625 – 672) (Repealed)
Chapter V : Compulsory Labour (Arts 673) (Repealed)
Chapter VI : Easements (Arts 674 – 710) (Repealed)
Chapter VII : Right of Building (Arts 711 – 719) (Repealed)
Chapter VIII : Right of Land-Use (Arts 720 – 736) (Repealed)
Chapter IX : Land Rents and One-Tenth of Proceeds (Arts 737 – 755) (Repealed)
Chapter X : Right of Proceeds (Arts 756 – 817) (Repealed)
Chapter XI : Right for Self-Use and Right of Occupancy (Arts 818 – 829) (Repealed)
Provisions of Chapters III – XI and Chapter XX were repealed by:
Law No. 5 of 1960 regarding Basic Provisions on Agrarian.
Chapter XII : Succession due to Death (Arts 830-873)
Chapter XIII : Testament/Will (Arts 874 – 1004)
Chapter XIV : Executor of Testament and Administrator of Estate (Arts 1005 – 1022)
Chapter XV : Right of Deliberation and Special Right for Inventory Filing (Arts 1023 – 1043)
Chapter XVI : Acceptance and Renunciation of Inheritance (Arts 1044 – 1065)
Chapter XVII : Partition/Distribution of Estate (Arts 1066 – 1125)
Chapter XVIII : Ungoverned Inheritances (Arts 1126 – 1130)
Chapter XIX : Debts with Preferential Right (Arts 1131 – 1149)
Chapter XX : Pledge (Arts 1150 – 1161) (Repealed)
Chapter XXI : Hypothec (Arts 1162 – 1232) (Repealed)
Provisions of this Chapter were repealed by:
Law No. 4 of 1999 regarding Land Collateral

Addendum to Book Two on Things are:
1. Law No. 42 of 1999 regarding Fiduciary Transfer.
2. Government Regulation No. 86 of 2000 regarding Procedures of Registration for Fiduciary Transfer and Fees for Deed of Fiduciary Transfer.

Book Three – Transactions (Arts 1233-1864)

Chapter I : Transactions in General (Arts 1233 – 1312)
Chapter II : Transactions arising from Contracts or Agreements (Arts 1313 – 1351)
Chapter III : Transactions by Law (Arts 1352 – 1380)
Chapter IV : Extinguishment of Transactions (Arts 1381 – 1456)
Chapter V : Sale and Purchase (Arts 1457 – 1540)
Chapter VI : Barter (Arts 1541 – 1546)
Chapter VII : Lease (Arts 1547 – 1600)
Chapter VIIA : Work/Service Agreements (Arts 1601 – 1617)
Chapter VIII : Partnerships/Companies (Arts 1618 – 1652)
Chapter IX : Organisation/Society (Arts 1653 – 1665)
Chapter X : Gifts (Arts 1666 – 1693)
Chapter XI : Deposits (Arts 1694 – 1739)
Chapter XII : Loans for Use (Arts 1740 – 1753)
Chapter XIII : Loans for Consumption (Arts 1754 – 1769)
Chapter XIV : Fixed or Perpetual Interests (Arts 1770 – 1773)
Chapter XV : Aleatory Contracts (Arts 1774 – 1791)
Chapter XVI : Agency/Power of Attorney (Arts 1792 – 1819)
Chapter XVII : Suretyship/Guaranty (Arts 1820 – 1850)
Chapter XVIII : Conciliation (Arts 1851 – 1864)

Book Four – Evidence and Prescription (Arts 1865 – 1993)

Chapter I : Proof in General (Arts 1865 – 1866)
Chapter II : Written Proof (Arts 1867 – 1894)
Chapter III : Testimony (Arts 1895 – 1914)
Chapter IV : Presumptions (Arts 1915 – 1922)
Chapter V : Admissions (Arts 1923 – 1928)
Chapter VI : Legal Oath (Arts 1929 – 1945)
Chapter VII : Prescription (Arts 1946 – 1993)

References:
1. Subekti, R. and Tjitrosudibio, R. Kitab Undang-Undang Hukum Perdata [Civil Code]. Jakarta: Pradnya Paramita, 2003.
2. Kansil, C.S.T. and Kansil, Christine S.T. Suplemen Kitab Undang-Undang Hukum Perdata [Civil Code Supplements]. Jakarta: Pradnya Paramita, 2003.

Translated by Sony R Simanjuntak SH (LLB) Unpar LLM Monash PhD Melb
Indonesian Penal code (Indentation)
Kitab Undang-undang Hukum Pidana (KUHP) – Law No. 1 of 1946

Content:

Book One – General Provisions (Arts 1 – 103)

Chapter I : Scope and Application of this Code (Arts 1 – 9)
Articles 3 and 4 of this Chapter were amended by:
Law No. 4 of 1976 regarding Amendment by Adding Several Articles to the Penal Code in relation to the extension of the Scope of the Penal Code, Crimes related to Airlines, and Crimes against Facilities/Infrastructures of Airlines
Chapter II : Punishments (Arts 10 – 43)
Chapter III : Circumstances which Exempt from Punishments and which Mitigate or Aggravate Punishments (Arts 44 – 52)
Chapter IV : Attempts (Arts 53 – 54)
Chapter V : Participation in Criminal Offense (Arts 55 – 62)
Chapter VI : Multiple Criminal Offences (Arts 63 – 71)
Chapter VII : Lodging and Withdrawing Complaints for Felonies that can only be Sued through Complaints (Arts 72 – 75)
Chapter VIII : Extinction of Rights to Sue Offenses and to Serve Sentences (Arts 76 – 85)

Chapter IX : Definitions of Some of Terminologies used in this Code (Arts 86 – 102)
Addendum of three new articles after Article 95 by:
Law No. 4 of 1976 regarding Amendment by Adding Several Articles to the Penal Code in relation to the extension of the Scope of the Penal Code, Crimes related to Airlines, and Crimes against Facilities/Infrastructures of Airlines
Concluding Provision (Article 103)

Book Two – Felonies (Arts 104 – 485)
Chapter I : Crimes against the Sovereignty of the State (Arts 104 – 129)
Addendum of six articles between Articles 107 and 108 by:
Law No. 27 of 1999 regarding Amendment of the Penal Code in regards with Crimes against Sovereignty of the State
Chapter II : Crimes against the Honour and Dignity of President and Vice President (Arts 130 – 139)
Chapter III : Crimes against Foreign States and Foreign Heads of State and Representatives (Arts 139a – 145)
Chapter IV : Crimes against the Realisation of National Rights and Duties (Arts 146 – 153)
Chapter V : Crimes against Public Order (Arts 153bis – 181)
Chapter VI : Dueling (182 – 186)
Chapter VII : Crimes Endangering General Security of Persons or Properties (Arts 187- 206)
Article 188 was amended in 1960 by:
Law No. 1 of 1960 regarding Amendment of the Penal Code
Chapter VIII : Crimes against Public Authorities (Arts 207 – 241)
Chapter IX : False Oath and False Statements (Arts 242 – 243)
Chapter X : Falsification of Bank Notes and Securities (Arts 244 – 252)
Chapter XI : Falsification of Stamps and Trade Marks (Arts 253 – 262)
Chapter XII : Falcification of Documents (Arts 263 – 276)
Chapter XIII : Crimes against Filiality and Marriage (Arts 277 – 280)
Chapter XIV : Crimes against Social Morality (Arts 281 – 303bis)
Chapter XV : Abandonment of Persons whom Require Care (Arts 304 – 309)
Chapter XVI : Assaults (Arts 310 – 321)
Chapter XVII : Revealing Secrets (Arts 322 – 323)
Chapter XVIII : Crimes against Freedom of Humanity (Arts 324 – 337)
Chapter XIX : Crimes against Human Life (Arts 338 – 350)
Chapter XX : Torture (Arts 351 – 358)
Chapter XXI : Negligences resulting in Death or Injuries (Arts 359 – 361)
Articles 359 and 360 were amended in 1960 by:
Law No. 1 of 1960 regarding Amendment of the Penal Code
Chapter XXII : Theft (Arts 362 – 367)
Chapter XXIII : Coercion and Threat (Arts 368 – 371)
Chapter XXIV : Embezzlement (Arts 372 – 377)
Chapter XXV : Swindles (Arts 378 – 395)
Chapter XXVI : Fraud against Creditors (Arts 396 – 405)
Chapter XXVII : Destruction or Damaging Properties (Arts 406 – 412)
Chapter XXVIII : Crimes related to Office (Arts 413 – 437)
Chapter XXIX : Crimes related to Transportation by Water (Arts 438 – 479)
Addendum of Chapter XXIXA by:
Law No. 4 of 1976 regarding Amendment by Adding Several Articles to the Penal Code in relation to the extension of the Scope of the Penal Code, Crimes related to Airlines, and Crimes against Facilities/Infrastructures of Airlines
Chapter XXIXA : Crimes related to Transportation by Air (Arts 479a – 479r)
Chapter XXX : Misappropriations, Printings, and Publishings (Arts 480 – 488)

Book Three – Misdemeanours (Arts 489 – 569)

Chapter I : Misdemeanours against General Security of Persons, Properties, and Health (Arts 489 -502)
Chapter II : Misdemeanours against Public Order (Arts 503 – 520)
Chapter III : Misdemeanours against Public Authorities (Arts 521 – 528)
Chapter IV : Misdemeanours against Filiality and Marriage (Arts 529 – 530)
Chapter V : Misdemeanours against Persons whom Require Care (Art 531)
Chapter VI : Misdemeanours against Social Morality (Arts 532 – 547)
Chapter VII : Misdemeanours related to Lands, Crops, and Yards (Arts 548 – 551)
Chapter VIIA : Misdemeanours related to Office (Arts 552 – 559)
Chapter VIII : Misdemeanours related to Transportation by Water (Arts 560 – 569)