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Jakarta Post

Caveat emptor: The challenge in implementing defense offset in RI

  • Sezsy Yuniorrita and Curie Maharani

Jakarta   /   Sat, October 13 2012   /  12:31 pm

Jane’s “2012 Defense Market Report” calculated that the Indonesian arms market has the potential to be one of the worlds largest. Under the Minimum Essential Force (MEF) procurement program stage one (2010-2014), a combined rupiah and foreign loan of Rp 156 trillion (US$16.25 billion) will be disbursed.

Small domestic industrial capacity means that the bulk of spending will go to foreign procurement, but Jakarta wants to make sure the economic ripple is felt at home. Countertrade, joint collaboration and offset are among the strategies to serve the objective right.

The recently issued Law on Defense Industry (LoDI) demanded a form of mandatory countertrade equal to 85 percent of contract value of foreign procurement, 35 percent of which is offset (with a 10 percent increase per subsequent year). The law also mandated the implementation of an offset of 18 months behind...