BMI's Executive Summary

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Indonesia's chief internal security concerns stem from the pressures of attempting to forge a nation-state from a range of archipelagic islands consisting of distinct ethnic groups. Indonesia faces several security concerns from insurgencies including breakaway provinces, maritime and terrorist security threats. Indonesia's internal security situation is unlikely to improve in the immediate future. The recent low profile of Jemaah Islamiah (JI) in Indonesia has led the Indonesian President, Susilo Bambang Yudhoyono, to claim that the government has successfully cracked down on the organisation. Indeed, the past two years have been free of JI attacks, whether against Indonesians or Indonesia-based overseas interests. However, the victory may be too early to call, as JI are active regionally. In Q407, a number of large-scale armed clashes in the Southern Philippines were linked to the Islamic extremist Abu Sayyaf Group (ASG). ASG reportedly have strong ties to JI, and allegedly provided a safe haven for key leaders of JI. One of the Bali bombers, Dulmatin, was reported to have been injured in a Q407 clash in Maimbung, Jolo Island.

Indonesia's armed forces have a long history of being under-funded, which has compromised the country's ability to purchase affordable defence systems. Further restrictions applied after the US placed Indonesia under arms procurement sanctions following the 1991 violence in East Timor. Indonesia's defence spending traditionally comes in at 1% of GDP, and in 2006 was US$2.8bn. However, the 2007 defence budget is to concentrate on acquiring superior military transport over a 15-year plan.

Indonesia's arms trade composition remained unchanged in the second quarter of 2007. The indigenous defence industry is unable to support the scale of the upgrade programme. Indonesia's defence industry is relatively small, and can only meet 5% of the armament needs of the Indonesian military. However, this has not stopped the industry from enhancing its profile regionally and internationally. 'Indo Defence 2006' was held in November 2006, showcasing products from international and Indonesian defence firms. Companies that showcased defence items included Pindad, Air Launch, Sukhoi PAL, Lurssen Rosoboronexport, Dirgantana Indonesia, Daewoo, Ferrostal and Kazan Helicopter.

In Q407, Indonesia and Russia finalised a significant arms deal. The Russian government agreed to a US$1.1bn loan to assist in Indonesia's arms procurement. It is reported that Indonesia is interested in acquiring kilo-class submarines, as well as boosting its ageing Sukhoi fleet.

Chapter 1 - Executive Summary

Security

Arms Trade

Defence Industry

Military Expenditure

Chapter 2 - SWOT Analysis

Indonesia Security SWOT

Indonesia Defence Industry SWOT

Indonesia Political SWOT

Indonesia Economic SWOT

Indonesia Business Environment SWOT

Chapter 3 - Political Overview

Core Political Scenario

Domestic Political Outlook

Chapter 4 - Security Risk Analysis

BMI’s Security Ratings

Table: Regional Security Ratings

Regional Security: South East Asia and Pacific Q406

Overview

Inter-State Conflicts

Internal Conflicts

Indonesia Terrorism Risk

Indonesia Conflict Risk

Indonesia Physical Safety Risk

Table: State Terrorism Vulnerability Index

Internal Security Situation

Aceh

Maluku

East Timor

Sulawesi

Papua

Terrorism

Table: Indonesia Insurgent Groups

External Security Situation

Piracy

United States-Indonesia Relations

China-Indonesia Relations

Indonesia-Australia Relations

Chapter 5 - Defence Industry

Armed Forces

Table: Regional Armed Forces

International Deployments

Weapons Of Mass Destruction

Chapter 6 - Market Overview

Industry Trends & Developments And Competitive Landscape

Table: Key Players – Indonesia Defence Sector

Arms Trade Overview

Procurement Trends & Developments

Chapter 7 - Industry Forecast Scenario

Government Expenditure On Defence Industry

Key Risks To BMI’s Forecast Scenario

Table: Indonesia Historical Data and Forecasts

Chapter 8 - Macroeconomic Forecast

Table: Indonesia – Economic Activity

Chapter 9 - Company Profiles

PT Dirgantara Indonesia

PT Pindad

PT PAL

Chapter 10 - BMI Forecast Modelling

How we generate our industry forecasts

Defence Industry

Sources

Chapter 11 - Appendix A: Risk Ratings Methodology

Conflict Risk Methodology

Terrorism Risk Methodology

Physical Safety Risk Methodology

Overall Risk Rating

State Vulnerability Index

Competitive Landscape for Asia Defence & Security: Sample of  
Companies Ranked

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Rankings and Competitive Landscapes by production and sales; market share and change on previous year; number of employees, ownership structure and year established. Also includes analysis of company expansion, export and investment strategies.

Network of Defence & Security Sources

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BMI's Asian Defence & Security Reports are based on an extensive network of multilateral organisations, government departments, automotive industry associations, chambers of commerce and company reports. Information sources include: