JAKARTA - Strengthening the national defense industry does not only depend on the size of the budget, but on the consistency of long-term policies and sustainable financing support from the government.
Member of Commission I of the Indonesian House of Representatives, Amelia Anggrainidalam written statement in Jakarta, Sunday, said that through Law Number 16 of 2012 concerning the Defense Industry, the state requires priority for the use of domestic products, technology transfer and "offset" schemes in every foreign procurement.
In addition, the government creates a "captive market" through TNI spending so that the national industry has certainty of demand.
"The government plays a central role as a regulator, facilitator, and the main buyer of national defense products. "This role is crucial in maintaining the continuity of domestic industrial production," he said.
He argued that the modernization program of the force through the "Minimum Essential Forces" (MEF) scheme, which is now transitioning to "Optimum Essential Forces" (OEF), must be a strategic instrument to ensure the sustainability of the domestic defense industry.
However, strengthening the national defense industry faces a number of structural challenges, especially in the aspect of financing.
This industry is often perceived as high-risk because it is capital-intensive, has a long production and payment cycle, and depends on the allocation of the state budget.
In addition, the characteristics of defense industry assets that are very specific make it not always meet the "bankable" criteria as collateral for credit. This condition causes banking support, including from state-owned banks, to be relatively limited.
A number of state-owned banks have indeed begun to enter through the contract-based financing scheme and financing of certain projects such as shipyards. However, the scale is considered not significant to encourage the acceleration of the industry as a whole.
On the other hand, the TNI defense spending creates a "captive market" that provides certainty of demand for the national industry. This market certainty is an important element in building long-term investment sustainability.
Amelia emphasized that the main challenge of the national defense industry today is not only on production capacity, but on the consistency of long-term policies, the courage to invest in technology, and the integration of SOEs and BUMS in a solid national supply chain.
"If the consistency of policies, financing support, and integration of the industrial ecosystem can be maintained, then the independence of the defense industry is not only realistic, but also strategic in strengthening Indonesia's position in the regional security architecture," he said.
A number of strategic SOEs such as PT Pindad, PT PAL Indonesia and PT Dirgantara Indonesia have shown an increase in production capacity, ranging from tactical vehicles, warships, to CN-235 and NC-212 aircraft with an increasing local content level.
In addition to SOEs, the role of the domestic private defense industry is increasingly prominent. Investigations into the supply chain show that a number of private companies are no longer just suppliers of components, but have entered the stage of precision manufacturing and system integration.
One example is PT Nanggala Kencana Rekatama Indonesia (NKRI) which is based in Bandung. This company is a pure private entity that has obtained an official license from the Ministry of Defense to produce certain defense components.
Based on the data collected, the Republic of Indonesia produces shell casings, projectiles, and precision mechanical components used in weapon systems, tactical vehicle platforms, ships, and certain structural components.
In addition, the company has precision machining, metal forming, and material processing capabilities that meet defense industry standards.
The Republic of Indonesia is said to have received a recommendation from the Ministry of Defense for capacity development towards the production of complete weapon systems, while remaining within the country's regulatory and oversight corridors.
This step places private companies as an integral part of the import substitution strategy and increasing local content. The presence of the Republic of Indonesia is considered significant in reducing dependence on foreign suppliers, especially for critical components that were previously still imported.
Thus, the percentage of defense spending that rotates within the country can increase.
Other private companies such as PT Republik Defensindo have also shown capacity expansion. This company produces special military vehicles, including 4x4 tactical vehicles (rantis), personnel transport trucks to prototype chain amphibious vehicles.
In 2020, the company collaborated with a defense SOE to build an integrated production facility for 9x19 mm caliber ammunition.
The collaboration between SOEs as "prime contractors" and "system integrators" with BUMS as suppliers of sub-systems, composite materials, military electronics to unmanned and cyber technologies, forms an integrated national defense industry ecosystem from upstream to downstream.
With increasingly complex geopolitical dynamics, he added, a consistent policy direction and adequate financing support are absolute prerequisites for the national defense industry to be able to transform from merely meeting domestic needs to becoming a competitive regional player.
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