Projection of Indonesia-United States Defence Trade
Indonesia-United States defence trade has regressed since the era of President Joko Widodo after experiencing a high tide during the presidency of Susilo Bambang Yudhoyono. The parameter used to assess the ebb and flow of this activity is the purchase of major defence equipment, which includes platforms and their supporting subsystems.
The acquisition of weapons systems such as the AH-64E, F-16C/D Block 25 and a number of missiles for the Indonesian Air Force and Army during the first phase of the Minimum Essential Force (MEF) marked the revival of trade activity between the two countries following the lifting of the US embargo on Indonesia in 2005. In the second MEF phase, Indonesia’s only significant procurement of US defence products was five C-130J aircraft funded by a syndicate of a state-owned bank and a French bank.
When the third MEF phase was executed, no programme to purchase major defence equipment made in the United States was carried out by Indonesia. A programme to acquire several missiles for the F-16 was struck from the Blue Book, while the plan to import F-15EX aircraft also disappeared from the 2020-2024 Medium-Term Foreign Loan Plan.
In addition, a contract to purchase a US-made weapons system could not be executed because of a change in thinking at the Ministry of Defence. Yet in the third MEF phase, the Ministry of Finance provided a foreign loan allocation for the Ministry of Defence nearly five times larger than in the second MEF phase.
As Indonesia enters the Optimum Essential Force (OEF) 2025-2029, it is difficult to expect any large-value contract purchases from the United States. If common sense still colours decision-making, Indonesia should at least procure munitions for the F-16 and AH-64E, including missiles and smart bomb kits, so that the fighter jet and attack helicopter fleets are combat-ready and not merely ready for ceremonial events.
It is certainly worth asking why Jakarta is not enthusiastic about shopping for war equipment from Washington, even though several years ago Defence Minister Prabowo Subianto stated that Indonesia’s priority for defence equipment spending was on the permanent member states of the UN Security Council.
Several factors are thought to contribute to the ebb in Indonesia-United States defence trade. First, acquisition planning. It is common knowledge that planning for weapons system purchases is not carried out thoroughly; some parties even assess that there is no planning at all. If planning were carried out properly, factors such as geopolitics, economics and the condition of currently operated defence equipment would most likely influence defence acquisition decisions. For example, sound planning would not allow a platform to operate nearly short of munitions and spare parts because there are no new purchases.
Second, defence trade rules. The United States’ strict defence trade rules, under which arms manufacturers can be fined by the Department of Justice for violations, make trade activity with the United States unattractive for Indonesia. Although a Direct Commercial Sales (DCS) scheme exists for a number of weapons systems, the scheme is fairly strict, though not as strict as the Foreign Military Sales (FMS) scheme. For example, DCS cannot accommodate the role of brokers in US arms exports to other countries, and the fee for local partners of US defence firms is regulated.
Third, price competitiveness. Sales of US weapons systems abroad are always packaged with an Integrated Logistics System (ILS), also known as initial spare parts for at least two years, so that buyers can use them optimally for a certain period. Procurement costs become even more expensive if Indonesia requests an offset package as implementation of applicable regulations. Both factors can make the price offered by the United States more expensive than that offered by competitors, since competitors can reduce the ILS package to submit a cheaper price. Indonesia has so far paid little special attention to ILS packages in weapons system acquisitions, as reflected in the purchase of the Rafale F4i.
Departing from the current situation, what is the projection for Indonesia-United States defence trade until the end of this decade? Will Indonesia set aside a small portion of its defence modernisation budget to spend in the United States? This question does not include routine purchases of spare parts for a number of US defence products currently operated by Indonesia.
Looking carefully at the dynamics of current defence cooperation, especially after both sides agreed to a Major Defence Cooperation Partnership that includes military modernisation and capacity building, the projection for Indonesia-United States defence trade is as follows.
First, the possibility of purchasing C-130J-30 aircraft. Referring to the Indonesian Air Force’s requirements plan, the service still needs additional C-130J-30 aircraft to replace a number of retired C-130B aircraft as well as C-130H and L-100-300 aircraft that suffered total loss due to accidents. Moreover, the Indonesian Air Force currently has three air squadrons for Lockheed Martin transport aircraft, with a standard number of C-130 aircraft that must be met in each squadron. Procurement of the C-130J-30 could use the DCS scheme, but the United States cannot accommodate the role of brokers in exporting the turboprop aircraft to Indonesia.