Indonesian govt seeks up to US$125bil in loans to modernise military

Japanese Defense Minister Kishi Nobuo (right) escorts Indonesian Defense Minister Prabowo Subianto (centre) at the end of a joint news conference following a signing ceremony for the “two-plus-two” meeting between the countries in Tokyo, on March 31, 2021. Prabowo has been making frequent overseas visits in search of potential defence procurement targets. - Reuters

JAKARTA (The Jakarta Post/ANN): The DefenCe Ministry is set to embark on a multibillion dollar shopping spree to moderniSe the country’s aging defense equipment in a new 25-year defence procurement plan, a draft presidential regulation reveals.

But lacking transparency has once again overshadowed the ministry’s plans to bolster Indonesia’s defence system, with military experts flagging possible conflicts of interest.

The move comes amid renewed calls to replace old military vehicles out of safety concerns, following the tragic sinking of 44-year-old submarine KRI Nanggala-402 during a military exercise in April, which claimed the lives of all 53 sailors onboard.

The draft regulation, a copy of which The Jakarta Post obtained, stipulates a new US$125 billion military procurement plan for the 2020–2044 period, which will be almost exclusively financed through foreign loans.

Some $79 billion, or 63 per cent of the projected budget, was earmarked for procuring new defense equipment, while another $32.5 billion was allocated for maintenance and contingency funds.

A further $13.39 billion was set aside for fixed interest payments. The budget is expected to be fully disbursed by the ministry by 2024, according to the draft regulation.

The Post was not able to independently verify this deadline or the possibility that it was a clerical error.

Defence Ministry spokesman Dahnil Anzar Simanjuntak said the draft regulation was still being discussed and that $125 billion was not the “final” figure for the budget.

“The Defence Ministry has delivered several options in spending and financing formulations to modernise [our] primary weapons systems, ” Dahnil told the Post on Tuesday.

“[We] will further discuss it with the Finance Ministry, the National Development Planning Agency [Bappenas] and the State-Owned Enterprises Ministry, because it relates to the development of local defense industries.”

The ministry’s director general for defense strategy, Maj. Gen. Rodon Pedrason, said modernising defence equipment was “a necessity” and that for a country as big as Indonesia, its defence posture needed to ideally be “modern and strong”.

He also defended the price tag by saying that it would primarily be financed by foreign loans, as the nation could not rely solely on state funds to modernize its equipment.

“When we talk about defence, we must also talk about technology, which is expensive but can be used to defend our sovereignty and territorial integrity in the long term, ” he told the Post.

“Considering the limited annual budget [for defence spending], how else could we modernise our primary weapons systems [to meet] our needs?”

While the Defence Ministry boasts the second-largest state budget allocation after the Public Works and Housing Ministry this year, spending still lags behind other nations.

The government’s defence expenditure last year stood at 0.9 per cent of the country’s gross domestic product (GDP), according to 2020 data from the Stockholm International Peace Research Institute (SIPRI).

It was the lowest defence spending as a share of GDP in Southeast Asia apart from Laos, whose data was not available.

The spending plan was met with scrutiny amid questions surrounding a leaked letter signed by Defence Minister Prabowo Subianto late last year, which revealed the establishment of a ministry-controlled company chaired by a member of the minister’s own Gerindra Party.

The revelation prompted speculation that the company, PT Teknologi Militer Indonesia (TMI), would exclusively handle all procurement as outlined in the upcoming plan.

According to a copy of the letter obtained by the Post, ministry-controlled TMI was established in December and is being led by retired army general Glenny Kairupan, a member of Gerindra’s supervisory board.

The company was established to “expedite, implement and accelerate” priority acquisitions in defence technology, including “imports of equipment, transfer of technology and countertrade transactions”, the letter read.

After languishing for years in efforts to modernise defence equipment, which is complicated by rentseekers and lobbyists jostling for procurement projects, Prabowo has sought to centralise defence spending to meet the nation’s needs.

He has, however, faced growing criticism over his lack of transparency, especially in light of the new procurement plan.

Indonesia Institute of Sciences (LIPI) researcher Muhammad Haripin said the potential involvement of TMI has raised questions regarding the plan.

“The potential [involvement] of people close to the Defence Ministry elite has made the procurement plan vulnerable to conflicts of interest, ” Haripin said on Tuesday.

Any such scenario, if realised, would contradict the principles of accountability and transparency in defense procurement, as the 2016 Defence Industry Law mandates.

In a press statement obtained on Tuesday, TMI corporate secretary Wicaksono Aji said the company had never signed any procurement contracts sent by the ministry and said it specialised in transfers of technology from Indonesian defence partners.

“TMI is not assigned to [handle] purchasing or procurement [of defence equipment] by the Defence Ministry, ” said Wicaksono.

“TMI’s presence is to resolve problems related to transfers of technology, which is still not optimised because some principal [partners] have yet to fully [commit to] transferring technology to Indonesia.”

Another defence analyst, Connie Rahakundini Bakrie, said it was not difficult to think that TMI would be tapped to handle future defense procurement, even as both the ministry and the company itself had snubbed the issue.

The leaked letter came out around the same time that the draft presidential regulation began circulating.

“It’s very clear that [the Defence Ministry] established TMI to handle this [plan], considering that the firm was founded only last year, several months before the draft regulation itself, ” Connie told the Post on Wednesday.

Connie said she was recently invited by one of TMI’s directors to their office for talks. During the meeting, the director explained that the firm would handle purchases for submarines and Dassault Rafale jet fighters from France.

Based on her discussion with the director, and informed by the detailed budget allocations from the draft regulation, she concluded that the ministry had already figured out what kinds of defense equipment that it wanted. Connie called on the ministry to be transparent in its dealings.

“Increased defence spending to bolster the Indonesian Military’s defence posture is an inevitability, but it should be done in an accountable and transparent manner, ” she said.

“At the very least, the public should know what kind of equipment the state is planning to get within the next 2.5 years, or why the procurement process is being sped up?”

She also criticised the ministry for setting up the 2024 deadline for spending for a 25-year procurement plan, which is “not making any sense”.

Minister Prabowo met with lawmakers on Wednesday in a closed-door hearing to discuss details of the procurement plan.

As of this writing, there has not been any update on the issues discussed.

Meanwhile, LIPI’s Haripin said the procurement plan also raised questions over the fate of the Minimum Essential Force (MEF) plan, which partially overlaps with the new plan’s time frame.

The MEF plan is a 15-year procurement plan signed by then-president Susilo Bambang Yudhoyono in 2010, with the aim of purchasing defence equipment for the military to meet the nation’s needs for minimum essential forces.

Rather than formulating a new defence procurement plan, Haripin said the government should instead focus on efforts to complete the last part of the MEF plan to ensure consistency and continuity for the medium-term scheme. - The Jakarta Post/Asia News Network

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Indonesia , loans , military , modernise , defence , spending


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