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Indonesia Defence and Security Report Q4 2010
Business Monitor International, Oct 2010, Pages: 84
The Indonesia Defence and Security Report provides industry professionals and strategists, corporate analysts, defence and security associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Indonesia's defence and security industry.
In July, US Defence Secretary Robert Gates visited Indonesia to discuss strengthening US-Indonesian military ties. He announced that Washington is lifting its ban on links with Indonesia's Kopassus special forces. The ban was imposed because of reported human rights abuses by Kompassus. Indonesia is seen as the largest and, arguably, the most strategically important state in South East Asia. On June 10, the Indonesian Ministry of Defence and the US Department of Defence signed the US-Indonesia Defence Framework Arrangement, which increases military cooperation in training, purchasing and maritime security.
The US moves to enhance its position in South East Asia are ultimately aimed at containing Chinese influence, which has been on the rise as the country has emerged as a major trade partner and source of investment for the region. The US is reasserting its influence in South East Asia, as it attempts to internationalise the dispute over the ownership of the South China Sea. These moves are infuriating to China – at stake is whether China will be able to exert its power beyond its borders.
Although Indonesia has returned to relative orderliness since the post-Suharto chaos of the late 1990s and early 2000s, the country faces multiple challenges and threats to its stability that could flare up again if President Yudhoyono or his successor proves incompetent or if improved governance fails to take hold. These include: poverty and unemployment; the young population profile; a high degree of ethnic diversity; an immature political system; and Islamist terrorism.
Terrorism will remain a threat for Indonesia over the longer term, despite the detention of radical Muslim cleric Abu Bakar Bashir in early August on suspected links to Islamic militant training camps. The Jakarta bomb attack in 2009 serves as a reminder against any complacency that Islamic militancy may be receding.
Piracy in South East Asia is still a major security issue, especially in the Malacca Strait and waters around Indonesia. The Strait is one of the world's main maritime ‘chokepoints.’ There are fears that terrorists could block the channel. Nine attacks were recorded from August 16 to September 2. Since February, 26 attacks have taken place around Indonesia’s islands of Mangkai, Anambas and Natuna. In 2009, there were only seven for the whole year. The International Maritime Bureau has appealed to Indonesia to increase anti-piracy patrols, and has warned ships to keep a strict piracy watch.
Indonesia's real GDP growth reached 6.2% y-o-y in Q210, accelerating from 5.7% in the preceding quarter, taking H110 growth to a robust 6.0%. Beyond 2010, we project Indonesia's real GDP growth to reach 5.3% in 2011, headwinds from a slowing global economy notwithstanding. The growth momentum remains strong across all components of GDP by expenditure, excluding government consumption. Vibrant private sector demand supports our view that Indonesia will be able to sustain this level of economic growth over the long term, forecasting real GDP growth to average 6.2% over the coming decade.
This sanguine outlook for the Indonesian economy is largely due to its strong domestic economic fundamentals. However, we are projecting a slowdown in the major economies, including the US, China and the eurozone, going into 2011. Although Indonesia - with its large domestic consumption base - is relatively more insulated to a slowdown in external demand, there would still be some spill-over negative impact on the economy.
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