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Indonesia Defence and Security Report Q3 2010
Business Monitor International, July 2010, Pages: 95
Business Monitor International's 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.
Defence Minister Purnomo Yusgiantoro said in February 2010 that revitalising the defence industry is one of 15 programmes that the president has highlighted. Although President Susilo Bambang Yudhoyono has spoken of his determination to reduce dependency on imported defence equipment by increasing purchases from the domestic industry, there has been little progress since a programme to this effect began in 2007. There has been neither a plan nor a budgeting model.
According to an article by two defence purchasing experts in the Jakarta Post in February, what is needed is a reform of the defence acquisition strategy, policy and process. There should be a scaling down of practices that give preference to foreign procurement. There should also be a life-cycle management of purchases, so as to ensure that expenditure consistently leads to improvements in defence capabilities as well as to the sustainability of the domestic defence industry.
Air Force Chief Marshal Imam Sufaat, announced that the Air Force is planning to purchase 16 Embraer EMB Super Tucanoes – light attack and observation jets – to replace its ageing OV-10 Bronco aircraft. Indonesia is continually looking for procurement sources for defence equipment in eastern European countries, as well as China and South American countries, to lower its dependence on the US. This is in part because of its desire to avoid the risk of being exposed to another embargo from the US. President Yudhoyono has noted that Indonesia is still threatened by the possibility of terrorist attacks, even after the recent arrests of senior militants. He urged ‘all people of Indonesia to save [the country] from the terrorism threat, and to all provincial leaders and heads of districts to be alert and contribute to terrorism prevention’,
Indonesia's economy has grown by an impressive 5.7% y-o-y in real terms in Q110. We expect the economy to grow by 5.2% in 2010, and then increase towards 5.7% in 2011.
Private consumption and investment are the main drivers of growth. The unemployment rate reached a five-year low of 7.1% in February and can go lower still, to an expected 6.8% by end-2010. Indonesia has a benign inflation rate. These reasons, coupled with strong investment growth and rising per capita income, suggest that the Indonesian consumer will have greater spending power over time. Meanwhile, investment growth has been strong and will likely remain so over our forecast period (to 2014). The same factors favouring private consumption growth – low lending rates and strong wage growth – should also boost investment growth.
However, government consumption was the main hindrance to growth, shrinking by 8.8% y-o-y in Q110. Slow budget disbursement and a pullback in stimulus spending are likely reasons for this poor result. The government has a poor track record of spending its allocated budget. Yet the greatest risks to growth are external, especially the greater-than-expected weaknesses in key economies, such as the US, the eurozone and possibly China.
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