Implementing regulations on the mandatory use of the Indonesian language issued

10 years after the enactment of Law No. 24 of 2009 on the State Flag, Language, Coat of Arms and Anthem (Language Law), the implementing regulations for the Language Law have finally been issued. On 30 September 2019, the President signed Presidential Regulation 63 of 2019 on the Use of the Indonesian Language (Implementing Regulations). The Implementing Regulation revokes former Presidential Regulation 16 of 2010, and puts in place more comprehensive provisions - the previous regulations only regulated the language used in official speeches of state officials.

On a positive note, the Implementing Regulations now clarify that parties can contractually agree on any governing language in a bilingual contract. This is consistent with the "freedom of contract" principle, a fundamental tenet of Indonesian contract law.

However, despite the above, the Implementing Regulations still fall short of addressing various unclear provisions of the Language Law, especially with respect to the preparation of contracts entered into by Indonesian entities. Further analysis of the above matters is below.

Current Practice

In preparing bilingual documents to which foreign entities (including foreign investment companies) are parties, existing market practice in Indonesia is that (i) the document is primarily negotiated in English; and (ii) the Indonesian version of the document is produced a short while after execution of the English version.

Use of Indonesian in contract negotiations

With respect to the language used in contract negotiations, Article 28(1) of the Implementing Regulation specifically states that Indonesian shall be used in "formal communications" within the government and/or the private sector (emphasis added). Paragraph 5 of the same article lists the forms of "formal communications", which includes meetings, correspondence and discussions. It is not clear whether this provision will only apply to contracts involving government bodies, or also apply to private contracts. In any event, the strict implementation and enforcement of this requirement would be difficult, as it would require foreign parties to undertake their negotiations in Indonesian.

Preparation of bilingual contracts

Further, Article 26(3) of the Implementing Regulations stipulates that the native language of the foreign party shall be used (only) as an equivalent or translation of the Indonesian language version in order for the parties to achieve a common understanding of the contract. This in some way would seem to contradict the provisions allowing freedom to choose the prevailing language. Further, on a strict reading of this provision, it could be concluded that in the event the parties would like to have the contract also in a foreign language, the Indonesian version would need to be executed simultaneously with the execution of the foreign language version. This is difficult in practice, as it essentially requires the parties to simultaneously prepare two versions of contract throughout the negotiations.

Implications for non-compliance

Another concern with respect to the Implementing Regulations is that it provides no further clarity on the consequences of non-compliance. Therefore, there remains a risk that a contract executed in foreign language may be held void for lack of an Indonesian translation, as was the case in a 2013 decision of the West Jakarta District Court. The Implementing Regulations could have taken the opportunity to clarify the legal position in this regard.

Conclusion

Given the lack of clarity of various aspects of the Implementing Regulations, it remains to be seen how the Implementing Regulations will be implemented and interpreted by the state authorities, including the courts. At this stage, we would certainly advocate that parties continue to include a standard prevailing language clause in their documents, and if seeking to mitigate the risk highlighted above completely, execute the Indonesian and foreign language versions of contracts simultaneously.


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