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Indonesia Defence and Security Report Q1 2013

Indonesia defence market: New market research published

Our Indonesia Defence & Security Report for Q1 2013 examines the countrys strategic position in the South East Asian region and the wider world. It provides an overview of the contemporary geopolitical challenges facing the country, and the challenges it may face in the future.

The report examines the trends occurring in the countrys current and future defence procurement, and the order of battle across its armed forces. The reports general conclusion is that after many years of strategic isolation, Indonesia is emerging as an important player in the Asia Pacific region. In keeping with this development, the Indonesian military, after years of underinvestment and foreign vilification over its activities in East Timor, is starting to reap the rewards of an increasing defence budget and also of the countrys improving international reputation.

First, this means that the Indonesian armed forces are beginning to procure advanced new equipment to replace an inventory that is generally nearing obsolescence. New materiel on order includes Apache Longbow attack helicopters from the United States, Sukhoi fighters from Russian, light combat aircraft from Brazil, tactical transport planes from Spain, and advanced trainer aircraft and diesel-electric submarines from South Korea. A fast-growing defence budget has, of course, enabled these acquisitions.

Secondly, thanks to its much-improved international reputation, Jakarta is now in a position to obtain used military equipment on relatively favourable terms. Among the second-hand items that Indonesia has acquired relatively cheaply are armoured vehicles, including main battle tanks, from Germany, F-16 fighters from the US, and C-130 transport aircraft from Australia.

Thirdly, Indonesia is beginning to revamp its underperforming domestic defence industry, with a view to achieving self-reliance in key equipment areas in the future. In Asia, key defence industry partners now include China, India and South Korea, while further afield Australia and the UK have recently signed deals with Jakarta aimed at assisting the development of local industry while boosting market access for British and Australian companies.

The only serious clouds on the horizon for Indonesia are domestic. The government is sticking with its military-led policy in the restless province of Papua, despite clear signs that such a policy cannot succeed.

A new security bill proposed by the government has produced a political backlash in Jakarta on the grounds that it is too heavy-handed and could undo much of the progress made so far by the democratic reform process.

Over the last quarter we have revised the following forecasts/views: - The situation in Papua is updated. While violence there has continued, the Indonesian House of Representatives earned few plaudits internationally by stating its view that the military should be allowed to do what it takes to keep the province under control. This is despite independent evidence of military abuses in the region, and the likelihood that such activities have in fact encouraged the separatist insurgency.

- Indonesias latest military procurements are discussed in detail. Arguably the most significant development in Q3 was the confirmation that Jakarta is to acquire eight Boeing AH-64D Apache Longbow attack helicopters from the US. The Indonesian government had previously been wary of buying new equipment from Washington, wishing to retain its strategic independence.

However, it clearly now regards the US as an acceptable partner. Jakartas success in attracting a wide range of other new partners willing to share world-class technology means that Indonesia can now safely do business with the US, without ever becoming over-reliant on US kit.

- Efforts to revitalise the countrys defence industry gathered pace in early Q4, with the countrys parliament passing a long-awaited Defence Industry Bill. The new law requires that the MoD purchase materiel from domestic companies wherever possible. It also sets out the countrys first formal offset rules, requiring foreign suppliers to partner with local firms when fulfilling defence contracts. The bill is expected to be signed into law by the end of the year.

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