Contracts in Indonesia - Update

The Club would like to issue the following update regarding Contracts in Indonesia.

In the UK P&I Club’s article on Contracts in Indonesia[1], it stated that the implementing regulation to Law 24/2009 has not been released.

On 30 September 2019, the President of Indonesia issued the Presidential Regulation No. 63 of 2019 (“PR 63/2019”) on the Use of Bahasa Indonesia as the implementing regulation of Law 24/2009.

We wish to highlight the following provisions in PR 63/2019:

1. Article 26(3)

Under Article 26(3) of PR 63/2019, the English or foreign language version of a contract is used as an equivalent or translation of the Bahasa Indonesia version of such contract to ensure consistent understanding of the contract by the parties.

There is some uncertainty on how to interpret Article 26(3).

One interpretation is that it requires the Bahasa Indonesia version to be signed on or before the signing of the foreign language and/or the English version of the contract. This is due to the word “translation” in the said article, which implies the existence of the Bahasa Indonesia version prior to or at the time of executing the English / foreign language version.  

However, some commentators take the view that executing the Bahasa Indonesia version after the signing of the relevant contract in cases where the foreign language is selected as the prevailing language would still be in line with the requirements of both Law 24/2019 and PR 63/2019.

2. Article 26(4)

While Law 24/2009 is silent on the governing language of a contract, Article 26(4) of PR 63/2019 gives parties the freedom to contractually determine the contract’s governing language if two versions are capable of different interpretations.

Under Article 26(4), in the event of different interpretations between the English or foreign language version and the Bahasa Indonesia version of a contract, the prevailing language should be the agreed governing language of such contract.

Recommendations to Members

While PR 63/2019 provides some guidance on interpreting Law 24/2009, various aspects of the regulation require further clarity. 

In the meantime, our recommendations to Members remain, that is, for Members to make, prepare and execute bilingual versions of all commercial contracts involving an Indonesian party, regardless of the governing law. Parties may also wish to state the governing language of the contract.

If Members are unable to execute bilingual versions of the commercial contracts, Members may wish to obtain legal advice on any possible alternatives.


Staff Author