Currently viewing Global edition

Court decision creates more financing uncertainty in Indonesia

A recent decision by Indonesia’s Constitutional Court has created a potential new challenge to financing local businesses and projects, including those in the mining industry, according to a lawyer focused on the country’s resources sector.
Court decision creates more financing uncertainty in Indonesia Court decision creates more financing uncertainty in Indonesia Court decision creates more financing uncertainty in Indonesia Court decision creates more financing uncertainty in Indonesia Court decision creates more financing uncertainty in Indonesia

Image: iStock.com/Vladstudioraw

Staff reporter

Bill Sullivan, senior foreign counsel at Jakarta-based law firm Christian Teo & Partners and a senior adviser to Stephenson Harwood LLP, said the new challenge was in the form of increased uncertainty about the practical enforceability of a traditionally favoured security right of lenders, the Fiducia Charge.

He said the Constitutional Court had recently ruled a creditor was not entitled to repossess and sell a car, without first obtaining a court judgement.

"Given its lack of clarity, the CC decision is open to different interpretations of varying concern to lenders," Sullivan said.

"Increased uncertainty about the practical enforceability of the Fiducia Charge is also singularly unhelpful for the government as it seeks to improve the ease of doing business in Indonesia and thereby attract more foreign investment."

He said the ability to readily enforce contracts was "a non-negotiable requirement" if Indonesia was to ever realise its economic potential.

"Obtaining financing for businesses and projects in Indonesia has never been easy given the widely-held perception of Indonesia as a high-risk jurisdiction for lenders, especially foreign lenders," he said.

"This has often been particularly the case in capital intensive industries such as mining.

"Regardless of how it is ultimately interpreted and applied, however, the CC decision will certainly do nothing to improve lenders' risk perceptions of Indonesia."

Indonesia ranked 27th out of 76 jurisdictions in terms of investment attractiveness in the Fraser Institute's latest annual survey of mining companies, which was topped by Western Australia.

However the country was in the bottom 10 in terms of hard risk, perceived risk and investment risk in the more comprehensive Mining Journal World Risk Report 2019 (feat. MineHutte ratings).