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Indonesia Defence and Security Report Q4 2012

Indonesia defence market: New market research published

Our Indonesia Defence & Security Report for Q4 2012 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.

Jakartas approach to instability in Papua threatens to undermine this progress: its answer so far has been to dispatch additional troops to the restive province, rather than to try to address local grievances. Foreign governments, though keen to work with Indonesia and encouraged by its progress on many other fronts, are keeping a watchful eye on events in Papua for fear that it might develop into another East Timor.

But for now, a number of countries, including Australia, Germany, the Netherlands, Russia, South Korea, the UK and the US are queuing up to work with Indonesia as it attempts to rebuild its armed forces.

Despite tensions with some of Indonesias Association of Southeast Asian Nations (ASEAN) partners, China has now emerged as the latest contender for a role in Indonesias defence modernisation; it is helping Jakarta to set up a missile production facility and has offered to provide assistance in a number of other areas.

They all perceive Indonesia to be increasingly important for two reasons. First, as Asias third mostpopulous country and the driving force behind ASEAN, many regard Indonesia as a sleeping giant that is gradually beginning to awaken and starting to assume greater strategic significance. Secondly, they see Indonesia as a lucrative emerging market for defence exports; its rapidly growing defence budget is matched by an urgent need for modern equipment. Thus, many countries are providing surplus defence equipment to Indonesia now on favourable terms in the hope of selling more advanced equipment to Jakarta further down the line.

Over the last quarter we have revised the following forecasts/views:

- Jakarta has announced a US$8.1bn defence budget for 2013. On the one hand, this is a significant increase which underlines the governments commitment to boosting its defence outlay. On the other hand, this figure is likely to remain below 1% of GDP, meaning President BambangYudhoyono is now all but certain to fail to meet his target of spending 1.5% of GDP on defence by 2015.

- we also reviews Indonesias most recent procurements. These include: Super Tucano light fighter aircraft from Brazil; a new naval frigate from the Netherlands; infantry fighting vehicles for the countrys Navy Marines from Russia; and the likely purchase of main battle tanks from Germany, after the Dutch parliament balked at selling Jakarta some of its surplus tanks.

- Domestic security issues are also addressed, including the jailing of Bali bomber Umar Patek, the continuing persecution of the Ahmadiya sect and ongoing unrest in Papua.

- The recent diplomatic efforts by a number of countries, notably Australia and China, to improve their strategic relations with Indonesia are also reviewed below.

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