IFIs are governed by charters, or treaties, which are signed and then ratified by its member states. Indonesia is a party to a number of such charters, including for multilateral IFIs such as the World Bank and ADB (among others). The charters set out guiding principles for the operations by the IFIs, including fairness and competition in procurement.

However, the LCR policy, in particular for the power sector, is generally inconsistent with the procurement policies of International Financial Institutions (IFIs). While local preferences are permitted, defining a certain mandatory threshold for the local content in the procurement process, or excluding a bidder on that basis, is not permitted. The implementation of the LCR policy onto a project could preclude the availability of concessional financing from IFIs. 

As Indonesia has signed and ratified these IFI charters, Indonesia has agreed to be bound by the principles. International treaty or agreement prevail over domestic law, as such the domestic law and its associated regulations which are not in alignment with the contents of a treaty that has been ratified will be inapplicable.

Therefore, the GoI could issue a treatment clarification towards IFI financing subject to LCR under Government Regulation No. 29 of 2018. The current Ministry of Industry Regulation No. 54/2012 (as amended by Regulation No. 5/2017 on Local Content Requirements and Regulation No. 23/2023 on Use of Domestic Products for Electricity Infrastructure Development) should align with the Government Regulation.

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