Indonesia - Part O - Arbitration in Asia - 2nd Edition

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Arbitration in Asia - 2nd Edition

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Indonesia

Karen Mills

[1] INTRODUCTION

The world’s largest archipelago, Indonesia, consists of over 17,000 islands of which about 6,000 are inhabited, the largest being Sumatra, Java, Kalimantan (Borneo), Sulawesi (Celebes) and Papua (western
Papua/New Guinea). The archipelago encompasses an area as wide as the United States, with a total surface area equal to four times the territory of France. The population of approximately 240 million at time
of writing makes her the world’s fourth most populous country and the population is expected to surpass that of the United States not long into
the 21st century.

In the two decades leading up to the onset of Asia’s economic and currency crisis of the late 1990s, Indonesia had become one of the most rapidly developing countries in the world. Rich in natural resources,
including manpower, oil, gold and coal, the archipelago also enjoys a climate particularly conducive to staple and cash crops such as palm oil, rice, sugar, tobacco, coffee, timber and many others. In the 1970’s and
1980’s, revenues from the booming oil industry were sufficient to carry the costs of government and growing infrastructure. However, with the sharp decrease in oil revenues, Indonesia began to look to other sectors
and beyond its own borders for funding in order to maintain its rate of development and allow import of new technology and improvement of management skills. New tax laws were enacted, effective in 1984 and
have been revised and amended several times, with the intention of increasing the tax base and giving some certainty to what was previously a rather arbitrary system of tax collection. At the same time, the
government commenced an ongoing program aimed at encouraging increased foreign investment in the private sector, and has since continued in its efforts to improve the investment and trade climate and
encourage economic growth generally. Today there are relatively few restrictions on foreign investment, with foreign interests permitted to own up to 100% of local companies engaged in most activities, at least for the first 15 years, and up to 95% in almost all activities indefinitely.