Government Turns to Domestic Industry to Modernize Defense Sector

Rhan 122B Pindad ★

The government has high hopes that local arms manufacturers can step up their production capacity to facilitate its efforts to modernize Indonesia’s primary weapons defense system amid delayed plans to acquire foreign arms as a result of the COVID-19 outbreak.

Entering the third and final phase of its long-term modernization program this year, the Defense Ministry has moved to leverage the role of domestic players in developing the national defense industry, amid the continued shortfall in overseas defense spending.

“Procurement for our weapons defense system will focus on developing the local industry by way of transfers of technology with principal [manufacturers],” Deputy Defense Minister Wahyu Sakti Trenggono told The Jakarta Post recently.

As part of the ministry’s key programs this year, Wahyu said that state-owned companies in the defense sector would focus on pioneering products as set out in the ministry’s defense roadmap.

In presentations to the House of Representatives' defense commission last year, the ministry unveiled plans for a multi-billion-dollar investment in assets including fighter and transport aircraft, tanks, air defense systems and surface combatants to support the last phase of the Indonesian Military’s (TNI) Minimum Essential Forces (MEF) program.

Wahyu said PT PAL Indonesia would be developing naval vessels, while PT Dirgantara Indonesia (DI) made propeller aircraft and helicopters and artillery specialist PT Pindad manufactured land combat vehicles.

The ministry is the only government agency to hold on to more than Rp 100 trillion in funds from the 2020 state budget, following the reallocation of state expenditure for the COVID-19 response.

According to Presidential Regulation No. 54/2020, the ministry still has the lion’s share of its budget with Rp 122.44 trillion (US$ 7.97 billion), despite incurring a cut of almost Rp 10 trillion.

But in spite of the focus on defense spending, the ministry has yet to acquire any foreign military hardware since Prabowo Subianto took the helm last year.

Minister Prabowo, a one-time rival to President Joko “Jokowi” Widodo, had set out on an extensive trip overseas not long after assuming his post at the start of Jokowi’s second term, presumably to survey the global market for arms.

Among his destinations were the United Arab Emirates, China, Russia, Turkey, South Korea and France.

But the onset of the COVID-19 pandemic has further dampened the prospects of arms acquisitions, with experts saying that the country will require substantial foreign loans to support the rest of its modernization drive.

PT DI, which specializes in aircraft manufacturing, is in the process of developing a missile to complement its 70-millimeter folding fin aerial rocket launcher, which has been fitted onto the Air Force’s F-16 jets, said president director Elfien Goentoro.

The missile is being developed by a consortium led by the company and includes other SOEs such as PT Len Industri, PT Pindad, PT TRESS and explosives maker PT Dahana.

“This program is only in its second year [...] the aim is to design several systems such as flight control systems, warheads and jet engines, among others,” Elfien told the Post.

The firm is also developing a medium-altitude long-endurance unmanned aerial vehicle dubbed the Elang Hitam through another consortium involving the Defense Ministry and the Agency for the Assessment and Application of Technology (BPPT).

The combat UAV is expected to enter production in 2024, even though Jokowi requested in February the fast-tracking of the development to 2022, which would raise the investment cost to Rp 1.1 trillion.

But Elfien said it was unlikely to meet the target, considering that many of the existing budget items, including PT DI’s own programs, were reallocated for the COVID-19 response.

Meanwhile, PT Pindad will be modernizing its production line to ramp up its ammunition-manufacturing capacity to 1 billion rounds per year, up from the current 250 million rounds per year, said president director Abraham Mose.

The company was also instructed to modernize its production line for combat vehicles and small arms production.

The Defense Ministry had already agreed to act as an off-taker for PT Pindad’s ammunition and combat vehicle products, Abraham said, which helped the company in seeking loans to upgrade its manufacturing capacity.

“Going forward, we expect vendors to be willing to build a factory in Indonesia to manufacture the [vehicle] engines,” he said.

In nominal terms, Indonesia spent $ 7.66 billion on military expenditure last year, according to data compiled by the Stockholm International Peace Research Institute (SIPRI), making it the second-largest military spender in Southeast Asia.

However, the figure only represents 0.7 percent of Indonesia’s gross domestic product (GDP), slightly behind its neighbors Malaysia, Philippines and Timor Leste, all of which have allocated spending equal to 1 percent of their GDPs.

Experts have said that the country is likely to seek to finance its acquisitions through a “guns and butter” approach – trading arms for commodities such as palm oil or coffee – as it has done in previous phases of the modernization program. But the current viral outbreak has weighed heavily on the available options.

The big players cater mostly to local clients but have also sold equipment to other countries. However, they have yet to meet the local demand as their products are not equipped with the most advanced technology.

Indonesian Institute of Sciences (LIPI) defense researcher Diandra Mengko underscored the importance of investing in military research and development, urging the Defense Industry Policy Committee (KKIP) to take a leading role in coordinating stakeholders to develop the domestic defense industry.

“The key to its development is technology. The problem with that is it isn’t cheap to conduct research,” she said.

“Such things should be considered by the KKIP when charting an industry strategy.”

Military expert Khairul Fahmi from the Institute of Security and Strategic Studies (ISESS) expressed similar views, as he called on the Defense Ministry to increase spending on research and education to bolster the domestic industry. “The first thing we need is a blueprint to keep upstream and downstream [sectors] in sync,” he said.

  ➶ Jakarta Post