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Market Report, "Indonesia Defence & Security Report Q1 2014", Published

New Defense market report from Business Monitor International: "Indonesia Defence & Security Report Q1 2014"


Boston, MA -- (SBWIRE) -- 01/27/2014 -- Indonesia's region has been more stable in 2013, as the various parties to the territorial disputes in the South China Sea have focused more seriously on diplomacy. The one exception is the relationship between China and the Philippines, which is in a very poor state. However, China has included Indonesia in a recent round of intensive diplomacy and is eager to repair its regional reputation after appearing to overstep the mark in pressing its territorial claims. For its part, Jakarta has good relations with Beijing. However, the Indonesian side has expressed concern over some Chinese activities in the South China Sea, and Beijing must tread carefully in order to remain on good terms with South East Asia's key state. Indeed, Indonesian pressure will be critical in ensuring that China follows through on its promise to come to the table to negotiate a new Code of Conduct for the South China Sea.

Indonesia's regional importance as the driving force of the Association of Southeast Asian Nations (ASEAN) group has been reinforced in a number of respects. Australia's new prime minister Tony Abbott visited Indonesia in September 2013 and declared that the bilateral relationship with Jakarta's was Australia's 'single most important [one]' we have. US President Barack Obama cancelled a trip to Indonesia in October 2013 due to political problems back home, and was severely criticised by Asia watchers for passing up an important opportunity to boost relations with key regional allies.

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Domestically, however, Indonesia has some security concerns. The economy remains under pressure, and this has potential implications for social stability and for Indonesia's ability to procure foreign weaponry. In August, Jakarta announced an 8.3% defence budget increase for 2014, but in US dollar terms the defence budget will fall as a result of the weakness of the rupiah.

As a result, military procurement will continue to be based on credit arrangements and on second-hand purchases wherever possible. But there will be exceptions: for example, the US confirmed in September that it will sell eight of its most advanced attack helicopters, AH-64E Apache Guardians, to Indonesia for US $500mn.

Secondly, President Susilo Bambang Yudhoyono is due to leave office in 2014 and the political transition will be a key moment for the Indonesian state. Yudhoyono has achieved some notable successes, helping Indonesia's young democracy become further entrenched. However, the military and other vested interests remain overly powerful and there is always the risk that the upcoming election may be a trigger for the kind of communal violence that has afflicted the country in the past.

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