Strengthening the Defense Industry Depends on Policy Consistency
Jakarta (ANTARA) — Strengthening the national defense industry depends not only on the size of the budget but on long-term policy consistency and sustained financial support from the government.
House of Representatives Commission I member Amelia Anggraini said in a written statement in Jakarta on Sunday that through Law No. 16 of 2012 on the Defense Industry, the state mandates priority use of domestic products, technology transfer, and offset schemes in every foreign procurement. In addition, the government creates a captive market through military spending, giving national industry assured demand.
The government holds a central role as regulator, facilitator, and primary buyer of national defense products. “This role is crucial in maintaining the continuity of domestic industrial production,” she said.
She argued that the force modernization program through the Minimum Essential Forces (MEF) scheme, which is now transitioning to Optimum Essential Forces (OEF), must serve as a strategic instrument to ensure the sustainability of the domestic defense industry.
Nevertheless, strengthening the national defense industry faces a number of structural challenges, particularly in financing. The industry is often perceived as high-risk due to its capital-intensive nature, long production and payment cycles, and dependence on state budget allocations. Furthermore, the highly specific characteristics of defense industry assets mean they do not always meet bankable criteria as loan collateral.
This has resulted in relatively limited banking support, including from state-owned banks. Several state-owned banks have indeed begun participating through contract-based financing schemes for working capital and specific project financing such as shipyards. However, the scale is not yet considered significant enough to drive comprehensive industry acceleration.
On the other hand, military defense spending creates a captive market that provides demand certainty for national industry. This market certainty is a key element in building long-term investment sustainability.
Amelia stressed that the main challenge facing the national defense industry today is not merely production capacity but rather long-term policy consistency, the courage to invest in technology, and the integration of state-owned and private enterprises into a solid national supply chain.
“If policy consistency, financial support, and industrial ecosystem integration can be maintained, then defense industry self-reliance is not only realistic but also strategic in strengthening Indonesia’s position within the regional security architecture,” she said.
A number of strategic state-owned enterprises such as PT Pindad, PT PAL Indonesia, and PT Dirgantara Indonesia have demonstrated increased production capacity, ranging from tactical vehicles and warships to CN-235 and NC-212 aircraft, with steadily increasing local content levels.
Beyond state-owned enterprises, the role of private domestic defense companies is becoming increasingly prominent. Supply chain analysis shows that a number of private companies are no longer merely component suppliers but have advanced to precision manufacturing and systems integration.
One example is PT Nanggala Kencana Rekatama Indonesia (NKRI), based in Bandung. This purely private entity has obtained an official license from the Ministry of Defense to produce certain defense components. Based on compiled data, NKRI produces bullet casings, projectiles, and precision mechanical components used in weapons systems, tactical vehicle platforms, ships, and certain structural components. The company also possesses precision machining, metal forming, and material processing capabilities that meet defense industry standards.
NKRI is reported to have received a recommendation from the Ministry of Defense for capacity development toward full weapons system production, while remaining within the regulatory and state oversight framework. This positions private companies as an integral part of the import substitution strategy and local content enhancement.
NKRI’s presence is considered significant in reducing dependence on foreign suppliers, particularly for critical components that were previously imported.
As a result, the percentage of defense spending circulating domestically can increase. Other private companies such as PT Republik Defensindo have also shown capacity expansion. The company produces specialized military vehicles, including 4x4 tactical vehicles, personnel transport trucks, and tracked amphibious vehicle prototypes. In 2020, the company collaborated with a state-owned defense enterprise to build an integrated 9x19mm caliber ammunition production facility.
Collaboration between state-owned enterprises as prime contractors and system integrators, and private companies as suppliers of subsystems, composite materials, military electronics, unmanned technology, and cyber capabilities, forms an integrated national defense industrial ecosystem from upstream to downstream.
With increasingly complex geopolitical dynamics, she added, consistent policy direction and adequate financial support are absolute prerequisites for the national defense industry to transform from merely meeting domestic needs to becoming a competitive regional player.