Indonesia’s Post-MEF Modernisation Program: Counter Trade, Local Content, and Offsets Potentials

Indonesian Government continues to demonstrate its commitment to modernise the National Armed Forces (TNI), which was started in 2009 under the Minimum Essential Force (MEF) program. Albeit sporadically, the post-MEF program has begun to take shape as the Ministry of Defence and/or TNI reported to have signed some major weapon system contracts and announced several programs and procurement targets. According to the Law on Defence Industry (UU No.16/2012), any procurement from abroad must be supported by Counter Trade, Local Content, and/or Offsets (CTLCO) programs. Such measure is essential as the government is aiming to transform its defence budget from ‘merely’ an expenditure to the development of an efficient and independent Defence Technological Industrial base (DTIB). In this perspective the post-MEF program has the potential to support the rise of Indonesia’s domestic defence industry. However, such plan might face challenges: What is the state of the Indonesian defence industry? Does the domestic defence industry currently has the capacity and capability to absorb all the CTLCO opportunities? What kind of CTLCO schemes and/or programs the Indonesian Government should prioritise?