Indonesia
and Russia held the latest iteration of their talks on military technical
cooperation. The dialogue, which saw the signing of a protocol agreement, comes
as both sides consider ways to further boost their defense collaboration even
as they manage existing challenges.
As I have
noted before, as Indonesia modernizes its military, Russia, currently Jakarta’s
largest military supplier, has obviously been part of the conversation. But
though both sides have been mulling several deals as well as broader advances
in defense cooperation over the past few years, they have also had to factor in
their priorities, which on the Indonesian side includes a greater insistence on
developing its domestic defense industry.
From
October 10 to October 11, the two countries held the thirteenth iteration of
their talks on military technical cooperation (MTC). During the talks,
officials as well as defense industry representatives from both sides discussed
several issues, including areas of potential cooperation as well as overcoming
challenges.
Unsurprisingly,
one of the areas of focus was how to ensure that ongoing defense collaboration
between the two countries is in line with Indonesia’s existing procurement laws
and its policy objective of developing its domestic defense industry.
Indonesia’s Law 16 specifies that offsets, local content, and countertrade
should be worth no less than 85 percent of the value of the contract, with
local content making up no less than 35 percent of this.
One
outcome from the meeting, the Indonesian defense ministry disclosed in a
statement released thereafter, was the inking of a draft protocol. The
agreement, Indonesian defense officials said, would facilitate not only the
purchase of defense equipment from Russia, but also the strengthening of
broader defense ties including areas like joint development and joint
production as well as maintenance, repair, and overhaul (MRO) through
technology transfers.
The
military-technical agreement comes as both countries continue to make progress
toward the inking of a long-mulled Indonesian purchase of Sukhoi Su-35
multirole combat aircraft. As I have noted repeatedly, the deal has faced
repeated delays since Indonesian defense minister Ryamizard Ryacudu first
announced Indonesia had decided to buy the aircraft in September 2015,
including over procurement regulations (See: “Why is the Indonesia-Russia
Fighter Jet Deal Still On Hold?”).
As of
now, though Indonesia is not expected to build the aircraft or parts of it by
itself, both sides have been working out the structure of the deal to include
MRO, countertrade, and offset opportunities, including Indonesian export of
commodities and defense products. Though specifics are still being negotiated,
Indonesian officials have previously said that, within the $1.14 billion
expected deal for 11 Sukhoi jets, around $570 million will be paid for in
Indonesian commodity exports such as palm oil, tea, and coffee, with around
$400 million sourced through an offset program, and the remaining paid for
through cash.
Thus far,
Russia, which is eager to make further inroads in the defense realm in key
Asian markets, has been willing to factor in Indonesia’s domestic priorities
into the discussion. This pattern continued at the dialogue held last week with
the Sukhoi deal still on the horizon, with the latest date of finalization set
by Indonesian officials as November.
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