Defense Industry in Indonesia

After decades of underinvestment, Indonesian government is recently

demonstrated strong efforts in bolstering national defense.
Indonesias Armed Forces (Tentara Nasional Indonesia, TNI) is making
a set of major capability overhaul in its main weaponry system,
particularly on its navy and air force. MoU in defense sector
development had been agreed with Russia (signed on 2007), China
(2008), and Vietnam (October 2010). Two major powers in Pacific
region, US and China, are increasingly attracting Indonesia for military
engagements.

In early 2010, President Yudhoyono (The 6th President Republic of

Indonesia) had publicly stated that Indonesias strong economic
performances in recent years had made it possible for the country to
allocate more for defense sector. He also stated there is a dire need to
modernize the militarys armaments, and Indonesia has significantly
lagged behind peers in the region in term of defense spending.
President said the development is aim at maintaining national
security, disaster relief, and peace-keeping operations. Statement of
Chief of TNI confirmed Presidents concern, as he stated that readiness
level of Indonesian weaponry system was only 62% (the Army), 31%
(Air Force), and 17% (Navy). According to Military Balance 2010,
Indonesias defence spending is far behind its neighbor. Australias
defense spending is 2.2 % of GDP (2010), Malaysia 1.8 % of GDP
(2009), Singapore 4.8 % of GDP (2009), while Indonesia is only 0.8 % of
GDP (2009).

Following recent border spats with Malaysia, there's a perception

among Indonesian public that the country's military weakness has
been taken advantage of by neighboring countries. In 2011, the
country's defense budget increased to USD 6.3 billion (over USD 1
billion more than previous year), taking spending beyond the 1% of
GDP for the first time in many years. President Yudhoyono targeted
that the ratio should reach 1.5% of the GDP by 2014.
Recent Development of Indonesias Main Weaponry System
Ministry of Defense launched Weaponry Development Plan in late
2010 that consisted of three five-yearly phases until 2024. The first
phase, 2010 2014, will cost IDR 150 Trillion (+/- USD 16.7 billion),
which large part of it will be allocated to revitalize domestic defense
industries. The fund would come from three sources, namely foreign
loan/export credit, domestic loan, and national budget. IDR 100
Trillion is expected to come from foreign/domestic loan, and the rest
is from national budget. It is worthy to note that in the modernization
efforts of TNIs antiquated equipment, government choose to
strengthen the operation of state-owned strategic industry
companies, including airplane manufacturer PT Dirgantara Indonesia
(PT DI), weapons manufacturer PT Pindad, electronic manufacturer PT
LEN, various research & technology agencies, and shipbuilder PT PAL
to boost local production of military equipment, instead of relying on
foreign productions. National Planning Minister said that half of
Indonesias military equipment procurement is expected to be
supplied by the domestic strategic industries. Minister Purnomo
stated that he expects TNI would nearly reach Minimum Essential
Forces level by 2014.

In line with the above grand strategy, Defense Ministry plans to obtain
180 modern Sukhoi fighter aircraft by 2024. This would be in addition
to the 50 next-generation fighters which Indonesia agreed in July 2010
to develop jointly with South Korea, which could also be in service by
the early 2020s. The first squadron of Indonesias Sukhoi was finally
completed by the arrival of three Su-27SKM fighters in Makassars
base on Oct 2010, in addition to three Su-30 MK2s arrived in 2008 and
2009 (all six were worth USD 300 milion), and two Su-27SK and two
Su-30MK fighter jets purchased in 2003. The Ministry is also aiming to
buy F-16 Fighting Falcons to replace its Hawks.

Three Mi-35 military transport helicopters for Indonesian Army had

been delivered on late September 2010, financed by Russian state
credit to the Indonesian government, an agreement which was signed
during [Russian Prime Minister, then President] Vladimir Putin's visit
to Indonesia in September 2007. Indonesia now has 11 modern
military attack helicopters, including six MI-17V-5s previously
purchased from Russia. Furthermore, The Defense Ministry is planning
to buy two submarines (probably from Russia or South Korea) worth
between USD350 and $400 million each. The submarine procurement
would be used to secure an indigenous submarine-building capability;
enabling transfer of technology to PT PAL to build additional boats
domestically (the Ministry is planning to buy additional three
submarines). In August 2010, the defense ministry ordered a destroyer
escort warship to PT. PAL worth USD 220 million in cooperation with
Demen-Schelde Naval Shipyard (Netherlands) that is expected to be
finished in 2014. Previously in 2009, the Navy completed the accession
of new four corvettes in Sigma class (Ship Integrated Geometrical
Modularity Approach) made by the same company; worth 170 million
euro each and financed by credit export scheme. Indonesia currently
has 8 corvettes, while defense ministry stated that the ideal number
should be 52, considering Indonesian huge water territory. Indonesian
army also made significant purchase; among them were 10 new
combat vehicles on May 2010.

Indonesia also eyes the modernization of radar. Lack of radar makes

sea and aerial territory particularly in the countrys eastern part
vulnerable to infiltration by foreign ships or planes. Military officials
said that the southern parts of Papua province, such as Merauke, were
not yet covered by radar facilities. Ideally, Indonesia should be
equipped with radar able to monitor up to a 1,000-kilometer radius.
The presence of radar could help to monitor border security,
especially given the limited number of marines posted in border areas
and on outer islands. TNI had set up 55 outposts, manned by 1,480
personnel along the border with Malaysia, spanning a border covering
2,400 kilometers, while TNI soldiers are only posted to 94 out of the
144 outposts sited along the border between Papua and Papua New
Guinea. There were still at least ten disputed border areas in East and
West Kalimantan, not yet resolved by Indonesia and Malaysia.
Indonesias arm industries development
On June 2010, President issued Presidential Regulation No 42/2010 as
a legal basis for the establishment of Policy Committee for Defense
Industries, chaired by Defense Minister with members: Deputy
Defense Minister, Minister for State-Owned Enterprises, Industry
Minister, Minister for Research and Technology, Chief of TNI, and
Police Chief. The committee serves as a high level coordination
function to formulate and execute governments plan to revitalize
national defense industries. At the moment the Committee is working
on the drafting of Law on Revitalization of National Defense Industries
to be submitted to the parliament.

PT Pindad, the state-owned weapon manufacturer secured IDR 1.3

trillion annually since 2010, mostly come from the Defense Ministry,
which had so far ordered weapons, ammunition and Panser armored
personnel carriers. The value of the orders from the Defense Ministry
rose sharply from IDR 650 billion in 2009. The ministry had also
ordered 80 million bullets, up from 40 million last year. Pindad
produces ammunition, armored personnel carriers, assault rifles,
grenade launchers, pistols, submachine guns and riot control water-
cannon vehicles.

PT Dirgantara Indonesia will cooperate with Korean Aerospace

Industry in constructing a new generation jet fighter (said to be
between 4th and 5th generation) which would have higher technology
than the recently acquired Russian-made Sukhoi jet fighters. The jet
fighter program is code-named KFX for Korean Fighter Experimental
and will need some $6 billion in development costs. Dirgantara
president director Budi Santoso said that 60 percent of the total
capital needed would be financed by the South Korean government
while KAI and the Indonesian Defense Ministry would both disburse 20
percent each. According to the initial plan, South Korea would buy
some 200 of the fighters and Indonesia would purchase another 50.
State Ministry of Research and Technology will develop 1000 rockets
D-230/R-Han-122 from 2010 2015 period, of which 200 had been
delivered to TNI in 2011. PT LEN, Research Agency of the Army, and
the State Ministry of Research and Technology also will develop the
state-of-the-art anti jamming combat communication system for TNI.

Conclusion

The less advanced Indonesian weaponry system

compare to other countries in the region will always be an
influential public highlight. This had been bolstered by fatal
causalities in recent months and high-profile territorial disputes
that occurred several times in recent years. After all, with vast
territory and huge population, the current Indonesian military
power is far from adequate, leaving the room for further
expansion. Nationalist political parties in the parliament, most
notably PDI-P and Gerindra, will always urge for budget increase
in the defense sector. Furthermore, Ministry of Defense is to
further diversifying its military sources other than Russia and
USA that creates cooperation opportunities for other countries
in the defense sector. The future of this industry in Indonesia is
pretty bright.

Opportunities does not always come in the form of

direct buying of military equipment, but also from supplying
materials and technologies as the third party supplier. Indonesia
is developing its domestic military industry very fast, and any
products as well as know-how from developed countries that
are related to this sector (electronics, robotic, physics
engineering, etc) would be highly appreciated.

Doing business with military-related industry in

Indonesia is quite hard at the beginning. Adding transfer of
technology through training & personnel development and
Industrial cooperation in the offering would make the business
more politically feasible and economically sustainable.