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4. Rational Dispute Resolution
4.1 Rule of Law
4.2 Enforcement of Contracts
4.3 Commercial Dispute Resolution

4. Rational Dispute Resolution

Goal – An efficient institutional framework that balances the rights of the public, owners, lenders and borrowers in the event of a dispute or loan default

4.1 Rule of Law (Weak)

Core Question: Do all market participants abide by the rule of law and have confidence in the courts and the ability of police to control crime?

Rule of law in Indonesia is one of the country’s biggest weaknesses. Many high-level civil service officials are accused of bribery and money laundering while on the other hand, judges’ are accused of making biased decisions. This results in poor capacity to help the public resolve disputes and implement contract enforcement.

Impartiality (Weak)

4.1.1   What is the confidence level of the strength and impartiality of the police, courts and contract enforcement?

Percentile Ranking: 34.1, Trend 

Judiciary (Strong)

4.1.2   Can members of the judiciary be held accountable for their actions?  

Yes. Score: 86 out of 100.

Source: Global Integrity Report  2009 – http://report.globalintegrity.org

Costs of Crime (Weak)

4.1.3   What are the business costs of crime and violence?

Partially excessive costs. Ranked 86 out of 148; Score 4.3 out of 7; Trend ↑

Source: The Global Competitiveness Report 2013-2014, World Economic Forum – http://www.weforum.org/issues/global-competitiveness

 

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4.2 Enforcement of Contracts

Core Question: Are systems in place for timely and efficient enforcement of contracts?

Indonesia’s corruption problem reflects on the long process it takes to resolve a dispute with unrealistic costs as a percentage of the claim. Summary Proceedings are not available and the power-of-sale is replaced by the power-of-attorney for the creditor’s benefit.

4.2.1  Judicial Enforcement (Very Weak)

Ranked 147 out of 189; Trend ↓

4.2.1.1 What is the number of procedures involved in resolving a commercial dispute?

40

4.2.1.2 What is the time between the filing of a lawsuit and resolution in judicial enforcements?

498 days

4.2.1.3  What is the cost of judicial enforcements as a percentage of debt value?

139.4%

Source:   Doing Business 2014

4.2.2  Summary Proceedings (Very Weak)

SQ 10  Summary proceedings are alternative dispute resolution processes where creditors can apply for a direct court order in property disputes.  What is the time between notice of intent to foreclose and loan collection in summary proceedings if available to lenders?

Not Available

SQ 11  What is the cost of summary proceeding if available to lenders as a percentage of property value?

Not Available

4.2.3  Power-of-Sale (Strong)

SQ 12  Power-of-sale agreements give creditors to power to sell properties after notice to the borrower without court intervention. What is the time between notice of intent to sell and loan collection for power-of-sale agreements if available to lenders?

Power-of-attorney is used to sell specified property in Indonesia so as to provide a creditor with rights in the debtor’s property. The Indonesian Civil Code (the “Civil Code”) only recognizes two forms of security interests: mortgages and pledges. Mortgages may be created to cover either shipping vessels or land and other immoveable property (i.e. fixtures) located thereupon. Mortgages are the only publicly registered security interest available in Indonesia. Pledges may be created to cover a variety of tangible and intangible property. An Indonesian court will generally treat an assignment, fiduciary assignment, or fiduciary transfer as a pledge, although these instruments are not specifically contemplated in the Civil Code.

SQ 13  What is the cost of power-of-sale agreements if available to lenders as a percentage of property value?

Not available

Source – The Enforcement of Indonesian Security Interests – FindLaw Indonesia
http://corporate.findlaw.com/human-resources/the-enforcement-of-indonesian-security-interests.html
Source – Indonesia Bankruptcy Law, Fifth Forum for Asian Insolvency Reform (FAIR) – OECD http://www.oecd.org/indonesia/38184160.pdf

 

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4.3 Commercial Dispute Resolution (Strong)

Core Question: Can commercial disputes be resolved fairly and efficiently without exorbitant expense and delay?

Commercial Courts have power in Indonesia to decide over property right disputes and foreclosures, however high costs and extended duration are probable without bribery of the civil service. Alternative Dispute Resolution in Indonesia is at its early stages in the country but actively growing.

Survey Questions

Commercial Courts

SQ 14  Do specialized commercial courts exist for the handling of property disputes and foreclosures?

In Indonesia, Commercial Courts have the authority to examine and decide bankruptcy petitions and the postponement of debt payment obligations as well as other commercial dispute matters, as determined by law. To date, the only additional disputes handled by the Commercial Courts are intellectual property right disputes and foreclosures.

Source: Indonesian Legal System, – NYU Law Global
http://www.nyulawglobal.org/globalex/indonesia1.htm

Alternative Dispute Resolution (Strong)

SQ 15  Are alternative dispute resolution mechanisms in place including commercial arbitration, private mediation and community based processes?

Indonesia is a member of New York Convention and arbitration is well-accepted in contracts as a commercially attractive means of resolving disputes outside the courts. It can be said that the use of arbitration is rising with the internationalization of the Indonesian economy. The Arbitration Law specifically recognizes five ADR methods, they are: mediation, consultation, negotiation, conciliation, and expert opinion. These ADR practices are currently on the rise in Indonesia.

Source: Dispute Resolution in Indonesia, – International Financial Law Review
http://www.iflr.com/Article/3121386/Dispute-resolution-in-Indonesia.html

Commercial Treaties (Weak)

SQ 16  What bilateral, regional and international commercial treaties exist concerning business between countries?

Indonesia is a member of the WTO (Jan ’95) and ASEAN Free Trade Agreements (FTAs) exist with China, India, Australia, New Zealand and Korea. Also signed major FTA with Japan in 2007 and a preferential trade agreement with Pakistan in 2012. However, there have been increasing reports of late that Indonesia is planning to end bilateral investment treaties in search for new ones. The Dutch Embassy reports that Indonesia has decided to terminate the bilateral investment treaty with Holland and that it intends to terminate approximately 67 bilateral investment treaties (BIT). Many of these BITs were signed in the 1970’s and 1990’s, before Asia became a major economic factor and Indonesia became a G20 member. Indonesia will have to decide whether they opt for a standardized BIT or if they negotiate and sign individually and without consistency.

Source: World Trade Organization http://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm
Source: Bilateral Trade Agreements http://www.bilaterals.org/?-Indonesia-
Source: Indonesia to terminate more than 60 bilateral investment treaties – Financial Times: Asia-Pacific. March 26, 2014.
http://www.ft.com/intl/cms/s/0/3755c1b2-b4e2-11e3-af92-00144feabdc0.html#axzz38ySr4chz

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