Indonesia Defence and Security Report 2015
BMI View: Indonesia's domestic defence sector is large but needs the current modernization andreorganization efforts underway to realize its potential. The defence industry is largely state-owned, stiflinginnovation and preventing independent expansion. Current President Jokowi is not likely to prioritize thedefence industry as much as previous President Yudhoyono, but as the government is already taking steps toimprove procurement procedures and boost local industry by modernizing and re-structuring, the industryis nevertheless likely to slowly improve over the next few years. Efforts are especially being made in theNavy and Air force, and with foreign partnerships coming into place, the industry will likely have a boostregardless of the realization of the ambitious budget increase to 1.5% of GDP before 2020.
The economy is still under pressure, with a slower growth than President Jokowi had been expecting at 7%.
The currency is still weak, and will hinder Indonesia's ability to procure foreign weaponry. Defencespending at 0.8% of GDP is still far below the target of 1.5% in addition to a weakened rupiah driving upthe cost of imports. The domestic defence industry is still too immature to fulfil its demand, but thereorganization and the increasing transparency of the Department of Defence's processes will encourageboth private sector interest and foreign investors to invest in Indonesia's local defence industries.
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