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Indonesia Defense Spending and Defense Industry
Indonesia is unique among developing countries in the
relatively low priority given to defense spending. Having
fully
supported the basic concept of the Suharto regime, namely,
that
national defense and security depended on the country's
economic
development, the armed forces endorsed the principle that
scarce
domestic resources and foreign aid could not be diverted
for
military use without slowing the progress of national
development. The armed forces accepted their low priority
for
development funds from the national budget
(see Government Finance
, ch. 3). Although currency reforms undertaken in
the late
1960s and general accounting practices under both Sukarno
and
Suharto make absolute comparisons impossible, it is
evident that
military expenditure dropped dramatically during the first
two
years of the New Order government (1966-67)--perhaps by as
much
as 75 percent--and that defense spending was held to
fairly low
levels thereafter. This resulted in a rapid decline in
inventories of functioning equipment in all services and
an
overall decrease in armed forces manpower and combat
readiness
that continued into the 1990s.
By the late 1970s, military hardware, particularly
Sovietbloc systems left over from the Sukarno era, was
approaching
decrepitude. National and military authorities became
convinced
that the armed services must be upgraded, although on a
gradual
basis. During the period between 1977 and 1982, national
allocations to Hankam doubled in absolute terms, and
modest
upgrades were made in all three military services. In the
same
period, however, the total budget rose at a higher rate,
so the
military share actually declined each year--from 14
percent of
the total in fiscal year
(FY--see Glossary) 1977 to 12
percent in
FY 1982, and down to 4 percent in FY 1991. This period saw
such
equipment purchases as the F-5 (1978), the A-4 (1981), and
the F16 aircraft (1988), several used frigates and destroyers,
as well
as tanks, armored personnel carriers, and towed howitzers.
The armed forces budget was divided into two categories
of
expenditure: one for routine matters, such as pay and
allowances,
maintenance, and travel, and the other for development of
forces
and infrastructure, including the purchase of new
equipment.
Although a more detailed breakdown of the budget was not
made
public, it can be said that in the early 1990s, routine
expenditures accounted for some 70 percent of the total.
The
balance covered installment payments for several naval
vessels
and for scheduled payments for the F-5, A-4, and F-16
fighter
aircraft.
Historically, the publicly released figures in the
budget
have not reflected actual military expenditures, since
extrabudgetary funds contributed significantly to military
expenditures
(see Participation in the Economy
, this ch.).
However, the degree to which actual spending was
understated was
a matter for conjecture. For example, extrabudgetary funds
were
used to purchase a squadron of A-4 combat aircraft and
four
landing ship-tanks (LSTs) in the late 1970s. Moreover,
most
observers agreed that the portion of the budget devoted to
routine matters was insufficient to maintain the armed
services
at their current subsistence level. The shortfall of funds
between actual expenditures and the official budget plus
foreign
military credits was believed to be made up by the
earnings of
the military business enterprises and diversion of funds
from
other state enterprises.
Parliamentary mandate in 1978 encouraged the
development of a
domestic defense industry to lessen Indonesia's dependence
on
foreign manufacturers and to reduce the use of scarce
foreign
currency reserves on weaponry. In keeping with these
guidelines,
domestic capacity to maintain, repair, and produce
military
equipment was improved. Large naval vessels and fighter
aircraft
still had to be purchased abroad, but the Indonesian
aircraft and
shipbuilding industries, detached from the armed forces in
the
early 1980s, had been upgraded by the early 1990s. They
produced
helicopters, light aircraft, transport aircraft, landing
craft,
patrol boats, small arms, and a variety of spare parts for
these
systems, taking advantage of offset production and other
licensing agreements with foreign firms. Defense
industries
attended to a greater amount of routine as well as
local-level
maintenance, such as installing new engines in helicopters
and
combat vehicles that had been retired from service because
of a
shortage of spare parts. Several electronics firms were
established to support defense matériel production. The
government continued to seek defense-related technology
transfer
from the United States, Japan, and several European
nations. For
example, certification of the P.T. PAL shipyard, starting
in
1992, to perform certain types of en route repairs for
United
States Navy warships on a commercial basis brought a new
level of
sophistication to that facility.
Despite these efforts, Indonesia was far from
self-sufficient
in the production of weapons and defense-related matériel.
Domestic facilities remained inadequate for the repair of
certain
complex weapons systems, and equipment inventories often
represented considerable overstatements of what was in
functioning order. Moreover, although defense guidelines
favored
the standardization of weaponry and defense matériel, the
armed
forces still possessed and continued to procure equipment
from a
number of other countries, presenting serious problems in
obtaining and stocking spare parts and training technical
maintenance personnel. Progress on regional cooperation in
defense maintenance began to show results in the
mid-1980s, with
cooperative agreements for aircraft and maritime repairs
and
maintenance established with both Singapore and Malaysia.
Civilian utilization of defense industry plants has
benefited
the national economic base. The major defense industries
were
transferred from the armed forces in the 1980s and in 1992
were
managed by the minister of state for research and
technology.
Under a new policy these plants also produced matériel for
the
commercial and civilian sectors. The aircraft industry
produced
parts and equipment for commercial aviation, for example,
and the
army's former munitions plants manufactured commercial
explosives
for the mining and petroleum industries. The P.T. PAL
shipyard
also manufactured commercial ships and maritime equipment.
Data as of November 1992
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