Civil Law Tradition and Gradual Reform
Indonesia’s legal system originated from the laws and practices of the Dutch colonial era, which lasted for approximately 350 years before Indonesia declared independence and rolled on the policy reforms. During the President Soeharto era (the so called “Orde Baru” or “New Order”), the Indonesian government’s attitude towards foreigners underwent a significant change, with a series of policy initiatives and large-scale legal reforms aimed at attracting international investors to improve the country’s economy. These efforts were considered to be successful in many areas.
Following the Asian Financial Crisis (1997/1998), Indonesia’s government devolved significant political and legal authority to the provinces, regencies and cities. It reinitiated widespread legal reform in an effort to improve government institutions, reduce corruption, improve the country’s fiscal and monetary policies and meet other policy goals. The reform period also saw Indonesia successfully transition from an authoritarian state to a democracy, with elections being held in 1999, 2004, 2009, 2014 and 2019 (the latter of which resulted in the re-election of President Jokowi), and the next election is scheduled in 2024.
Despite these series of reforms, many of Indonesia’s laws and regulations are still based on the Dutch colonial codes that were effective as of independence and remain valid until they are revoked and replaced by new laws or regulations. The Indonesian Civil Code (Kitab Undang-Undang Hukum Perdata) remains the foundation of Indonesian law regarding contracts and many general rights and obligations relevant to commercial activities.
Hierarchy of laws and regulations in Indonesia
- 1945 Constitution (Undang-Undang Dasar 1945), which serves as the basic foundation of the state and constitutional arrangements.
- Assembly Decree (Ketetapan MPR) sets forth a determination of the People’s Consultative Assembly.
- Law or Government Regulation in Lieu of Law (Undang-Undang/Peraturan Pemerintah Pengganti Undang-Undang) regulates subjects that are governed by the 1945 Constitution.
- Government Regulation (Peraturan Pemerintah) implements laws.
- Presidential Regulation (Peraturan Presiden) covers subjects mandated by law or the implementation of government regulations.
- Provincial Regional Regulation (Peraturan Daerah Provinsi) implements principles of regional autonomy and laws, government regulations and presidential regulations in respect of the relevant province.
- Regency/Municipality Regional Regulation (Peraturan Daerah Kabupaten/Kota) implements principles of regional autonomy and laws, government regulations and presidential regulations in respect of the relevant regency/city.
The abovementioned hierarchy may be used as a reference to resolve issues regarding which regulations should take precedence in the event of a conflict between laws and regulations.
Indonesian law also recognizes the following additional sources of law which are not specifically mentioned in the hierarchy, namely: treaties, customs (adat), case precedents (civil jurisprudence or jurisprudensi) and opinions of legal experts (doktrin). Case precedents and expert opinions are only referred to as references for the application of law, rather than as a source of binding legal authority.
