Indonesian
Defense Minister Purnomo Yusgiantoro, center, at Yogykarta Air Force
base on Sept. 20, 2013. Purnomo seeks to develop the nation’s defense
industry, by building more aircraft, boats and drones. (JG Photo/Boy T.
Harjanto)Jakarta ☆ Purnomo Yusgiantoro is the kind of man one would expect to handle strategic issues. He was the minister of energy and mineral resources from 2000 to 2009, before being appointed defense minister.
A seasoned technocrat and a Western-educated economist, he could not choose a better time to test his knowledge and to implement his vision.
It has been two years since lawmakers passed the Defense Industry Law. Seven years in the making, the law is hailed as a game-changer in the future of the defense industry.
The premise behind the law is simple: as Indonesia is on course to achieve economic greatness, bolstering military prowess will become a necessity, and for that reason, the country will stand to gain much more by having an efficient and modern defense industry.
Several years ago, defense was the least of the government’s concerns. The Asian financial crisis in the late 1990s had left the country’s economy in shambles. It brought an end to the expensive National Aircraft Industry (IPTN), the country’s premier defense industry program. The government had to make some hard decisions.
Purnomo remembers that difficult time well, as he was involved in the government’s reconstruction committee.
“We had to choose infrastructure over the IPTN,” he recalled.
Good things began to happen in 2010, when President Susilo Bambang Yudhoyono issued a decree establishing the National Committee on Defense Industry Policy.
The decree resolved one of the most basic but important issues of the industry — the question of “who’s in charge?”
“There were four ministries in the sector, namely the Industry Ministry, the Research and Technology Ministry, the State-Owned Enterprises Ministry and the Defense Ministry. And all of them had things to say — but no money,” Purnomo explained.
Today, it is only the defense minister who presides over the chain of command.
Indonesia’s main defense companies are Dirgantara Indonesia, for air-based equipment, Pindad, for land-based equipment, and PAL, for water-based equipment. The country additionally has several specialized defense companies such as Dahana, which produces explosives and LEN Industri, which produces electronic equipment.
Minimum essential forces
Much of the rise of the domestic defense industry can be attributed to the government’s decision to bolster military might.
“In principle, the defense industry should be tailored to the needs of the armed forces,” the minister said.
The Minimum Essential Forces program, for instance, seeks to improve the Armed Forces (TNI) in response to the security challenges of the 21st century.
“Indonesia wants peace, but we must also prepare for war,” Purnomo said.
The objective of the program is to have modern, competent and professional armed forces by 2024. That can be achieved, among other efforts, by upgrading the TNI’s outdated armaments.
Though the program is a long-term process, its sustained outcome is essential to the goal of greater dependence on the domestic defense industries. Indonesia’s history illustrates how over-reliance on foreign military equipment can have a detrimental effect when things turn sour.
The program was further divided into three- and five-year strategic plans, which are basically procurement plans.
The first phase, which started in 2010 and will end this year, has exceeded the expected target outcome, thanks to the government’s generous allocation towards defense spending.
The Defense Ministry has been among the largest recipients of government funds for the last couple of years. In addition to the annual budget, which amounted to Rp 86 trillion ($7 billion) this year, the government has also allocated around Rp 156 trillion for equipment modernization through 2014.
Indonesia spent 0.8 percent of its gross domestic product on defense in 2012. Though in real terms, that adds up to a substantial amount of money, the spending still pales in comparison with that of Indonesia’s regional peers.
“But in spite of that, we can still achieve a lot,” Purnomo asserted, adding that the first stage of the strategic plans has achieved more than 40 percent of the objectives stated in the MEF program, which was only 30 percent.
Government subsidies
Purnomo estimates that around 40 percent of the government’s projected military spending will go to the domestic industry.
“In addition, the domestic industry will also benefit from our procurement plans through methods such as technology transfers of and joint development.”
Purnomo said the government expects the defense industry development to run a similar course to the industrialization success story.
“In its infant stages, the local defense industry will rely heavily on the government. We need to give them contracts and have more tolerance for, amongst other things, late deliveries.”
The Committee on Defense Industry Policy has identified the domestic defense industry’s weaknesses.
“There are five: insufficient capital, the lack of competition, minimal experience, limitations on research and development capability, and the lack of synergy between different industries,” Purnomo said.
The government seeks to address these weakness with a strong emphasis on research and development. That is why the government is actively pushing armaments development programs in partnership with other countries, such as the medium battle tank with Turkey and the KFX/IFX advanced fighter jet with South Korea.
The next stage for the development of the defense industry is to help the government reduce its number of imports in advance of reorienting itself toward the export market, Purnomo said.
To achieve these objectives, the defense industries will start developing and producing larger amounts of basic products.
“We must engage in mass production, and we have already achieved that with some of our products, such as the SS1 and SS2 [assault rifles], the Anoa [armored personnel carriers], landing platform dock [warships], and CN-235 [aircraft].”
The next phase will see the mass production of CN-295 aircraft, fast missile boats, missile destroyers, unmanned aerial vehicles and medium battle tanks, Purnomo said.
Slowly but surely
The country’s healthy financial position means that the government can afford to pursue other interests. There are, however, many people who think that promoting the domestic defense industry is a luxury Indonesia cannot afford.
“The public must understand that our program is not a financial constraint,” Purnomo said. “Armaments imports only account for around 1 percent of Indonesia’s total imports.”
Much of the program will be financed with money the country already has.
“We only incurred foreign debt of around $5.7 billion for the first strategic plans,” Purnomo said.
Most important for the development of the defense industry is gradual, rather than rapid achievement. The case of IPTN’s downfall provided a valuable lesson in how to effectively support the domestic defense industry.
“The IPTN’s demise was a result of the crisis. But more importantly, it was because IPTN was expanding too fast, with minimum marketing effort. It relied too much on the domestic market,” Purnomo said.
Indeed, companies such as Pindad, DI, and PAL have succeeded in designing and producing better quality armaments, but most of the sales are to the government.
Still, it is clear there has been sustained and conscious effort from the government and defense companies to market their products outside Indonesia.
These efforts have yielded some encouraging results. PAL recently signed a contract to produce two warships for the Philippines, while Pindad’s Anoa has received international recognition.
A long-term plan is a necessary, as it allows the government to keep track of its own development. Judging by what is in the works, defense companies have lots to look forward to.
★ thejakartaglobe
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