International investment law is a recent field of public international law created by the World Bank after it established a permanent international arbitration institute, the International Center for the Settlement of Investment Disputes (ICSID), in 1965. It is a hybrid system in its privatization of public law that is designed to resolve private interest disputes by applying public international law. This is called the Investor-State Dispute Settlement (ISDS) system and can only be invoked by foreign investors against host states, as based on ISDS articles written in bilateral investment treaties (BIT) or international investment agreements (IIA). Indonesia has participated in the ISDS system since 1968 and experienced 12 known ISDS cases, though it has also faced criticism for being an ICSID member. Indeed, scholars, government officials, and attorneys worldwide have continuously critiqued and contributed to backlash against the ISDS system. During the Trump administration, for instance, the ISDS system, which was once one of the U.S. FDI policies’ core principles, suddenly disappeared from a new U.S. BIT after NAFTA renegotiations. Reflecting this recent wave of new international anti-ISDS arguments, this dissertation aims to re-visit the old ISDS argument from the viewpoint of its necessity in Indonesia and Indonesia’s economic development as a host state by implementing the statute and conceptual approach. The dissertation provides straightforward and comprehensive research and analysis of the ISDS system from both a legal aspect in a normative way and an economics aspect by analyzing the ISDS system’s cost under Richard A. Posner’s theory of efficiency developed in Economic Analysis of Law. This study also seeks an alternative to the ISDS system due to its high costs and inefficiency for Indonesia, given its alleged interference with justice as described in the Indonesian constitution. Conclusively, this dissertation recommends that FDI disputes be settled by a domestic court system instead of the ISDS system or similar international arbitration. Keyword: ICSID, Investment law, ISDS, BIT/IIA, Theory of efficiency