INDONESIAN DEFFENSE AND SECURITY PROCUREMENT

Indonesia is the 4th most populous country in the world after China, India and the USA and total number of population in 2002 is nearing the 210 million mark; it is by far the largest country in South East Asia in terms of population and area. The total land area of 1.92 million sq. km (five times that of Japan and about one-quarter that of the Australian continent) is in form of more than 17.000 islands, the largest archipelago in the world, strategically located between the Indian and the Pacific oceans, which link East Asia to the Indian subcontinent, Africa, Europe and the oil-rich Middle East. Indonesia is also located in a region where burgeoning economic growth, political transformation and realignments of power place stability and security in potentially dangerous flux.

The Indonesian defence and security concept is the consolidation of the nation consisting of different ethnic groups living scattered within an archipelagic geography. It was for this reason that the Archipelagic Outlook concept was incorporated into the Armed Forces’ doctrine first in 1969 and later reaffirmed as national doctrine in 1973, which is indeed in line with the national motto of Indonesia, known as “unity in diversity”. The Archipelagic Outlook obliges the Armed Forces to defend and secure the entire archipelago; in the practice, the approach is implemented in form of territorial defence and command structure, army units are deployed across the archipelago, the Air Force has begun basing units outside the main island of Java and new naval bases to provide supports have been developed.

Within the governmental structure, the Indonesian President is the supreme commander of the Armed Forces and is assisted by the National Defence and Security Council (an advisory body and national policy think tank), the Coordinating Minister for Defence and Security (responsible not only for the Defence and Security department, but also for routine coordination between the departments of Information, Home Affairs and Justice), the Minister for Defence and Security (executive role) and lastly the Commander-in-Chief of the Armed Forces (ex-officio member of cabinet, directly responsible to the President for the employment of the Armed Forces in support of the national strategic objectives).

The annual state budget allocates budgets for each and every department, including the defence and security department. No matter what policy or plans have been laid down, the realisation of such plans depends on allocation within the annual state budget. Historically, the official defence and security budget since 1980 has been less than 3% of GNP and less than 10% of the total government expenditures. For the current state budget of 2002, the defence and security budget is allocated at totally some Rp. 3.4 trillion ( 7.2%) out of total state budget of Rp. 47.1 trillion. This trend seems to further be continued for some time, unless there are dramatic changes in the defence and security outlook.

The present government puts clear priorities for the economic development rather than any other intention and the question remains to answer is whether or not the allocations are sufficient to achieve the plans and goals set without substantial increases in capital outlays and economic growth in the years to come. The Armed Forces actual defence and security spending is in fact difficult to determine and measure, simply because it does not include special allocations to some large capital projects or services provided, profits from Armed Forces-owned business enterprises or contributions from companies and business communities. Examples and cases in the past have shown that the official defence budget is only a starting point for assessing actual defence expenditure.

In the current national plan (1994-2019), objectives and plans are laid down in order to consolidate and improve the quality and effectiveness of the Armed Forces. Among others are development within the Army of a three-division strategic strike force (so-called KOSTRAD), establishment of one combat brigade of three infantry battalions and supporting arms in several military area commands as well as augmentation of military reserves. The Navy plans a small increase in the number of combat vessels but emphasis will be more on the replacement und upgrading of the current fleet. The Air Force will consolidate its existing 20 operational squadrons and air defence system. The police force, now fully separated from the Armed Forces, will attain a better police to population ratio, which currently stands at 1 to 1.750 as compared to for instance 1 to 400 in Japan. In details, the future military defence requirements would include the following list of equipments and instruments:

• communications and intelligence networks (including early radar warning systems)
• air and maritime defence and surveillance systems
• coastal defence
• support systems and logistics
• medium-lift helicopters
• flight training simulators
• air defence missile systems
• advance fighter aircrafts
• replacement and upgrading of ageing air/sea transport fleets.

The domestic defence and security industry has so far supplied defence requirements, either by private manufacturers or by state-owned “strategic industries”. The private sectors provides pretty much the Armed Forces’ daily needs, ranging from uniforms, boots and other outfits to building materials, infra structures and vehicles. The strategic industries are more a central for development of skills and expertise, which are necessary for Indonesia to compete in advanced industrial manufacturing. Some of these industries provide defence requirements or have the potential to provide them in the future; the manufacturing of a range of defence products is arranged either under licence, joint production or assembly agreements.

PT PINDAD, a former Army factory, supplies mostly small arms and ammunition, PT PAL, a former naval shipyard, supplies patrol boats up to a certain length only and the aircraft manufacturer PT DIRGANTARA INDONESIA (formerly known as IPTN) assembles helicopters and small passenger aircrafts under licence from Spain. The Armed Forces have however expressed dissatisfaction with the cost-competitiveness and appropriateness of some of the products supplied by the strategic industries, who are heavily subsidized and protected by the former government. Only the time will tell and reveal whether or not the investments made so far have been worth-while in building advanced industrial manufacturing base. The present government has already taken the necessary steps to evaluate and restructure these strategic industries, most of which will eventually be privatised.

Armed Forces’ acquisitions and purchases are first of all to be approved by the National Development Planning Board (BAPPENAS) and the Ministry of Finance before being further processed by the respective units within the Armed Forces (e.g. Army, Navy and Air Force). Furthermore, the Board of Study and Implementation of Technology may give advise on major military purchases and is generally interested in offset possibilities and transfer of technology. Requirements are then undergoing a bidding process and suppliers are requested to submit business offer and proposal. The guidance for procurements of goods and services is laid out in the Presidential Decree no. 18/2000 entitled “ Guidance for Procurement of Goods and Services by Government Institutions”.

Doing business with the Indonesian defence and security department requires the involvement of a local legal entity as an agent or representative. This legal entity (often owned or run by retired military officials) must be a member of and registered with the Association of the Military and Defence Suppliers (ASPERDIA-HANKAM), who will provide knowledge of local business practices, arrange meetings with project officers within the respective ministry, promote and demonstrate defence equipments and products on behalf of the manufacturers, in addition to access to the military procurement offices of the ministry. Manufacturers and their respective representatives should also be prepared to deal with the possibilities of an offset deal or other industrial benefits and most important, to address and present attractive financial or funding schemes to finance the procurement, especially in view of the current, very tight financial resources of the Indonesian state budget. The Indonesian government has stated that all financing for procurements by the government institutions must be in the form of “soft loans”, which among others is possible to get by through a combination of attractive financing and pricing or offsets.

The latest significant acquisitions for the defence were back in mid 1990’s with the purchases of the modern F-16 Fighting Falcons from the USA and a navy fleet from the former German Democratic Republic (GDR). Since then, no further significant acquisitions or purchases of the Armed Forces have been registered or taken place, especially since the economic and financial crisis hit Indonesia in mid 1997; in addition to this situation, weapon embargo was imposed on Indonesia by the USA and Great Britain since 1998 and is still effective until today, although negotiations between the governments to lift this embargo have been underway. Badly hit is especially the Air Force due to shortage of crucial spare parts and components for the sophisticated F-16 Fighting Falcons, Hercules C-16 Transporter as well as for the Hawk aircraft fighters from Great Britain.

Suppliers of the various defence equipments and instruments are mostly from the USA, Western European countries, particularly Germany, France, Sweden, Great Britain, whereby explosives and ammunition are being supplied by many countries, including the Far Eastern countries such as Japan and Korea. Brazil has some involvements in the supply of small fire arms such as revolvers or pistols. There are no restrictions with regard to supply possibilities from any country of origin as long as the specific requirements and guidelines to conduct business with the Indonesian Armed Forces are met.