Military Spending
| 2005 | Rp 21.0 trillion | US$ 2.5 billion |
| 2006 | Rp 23.6 trillion | US$ 2.6 billion |
| 2007 | Rp 32.6 trillion | US$ 3.4 billion |
| 2008 | Rp 36.4 trillion | US$ 3.8 billion |
| 2009 | Rp 33.6 trillion | US$ 3.3 billion |
| 2010 | Rp 42.3 trillion | US$ 4.5 billion |
| 2011 | Rp 47.5 trillion | US$ 5.2 billion |
| 2012 | Rp 64.4 trillion | US$ 7.5 billion |
| 2013 | Rp 77.0 trillion | US$ 8.1 billion |
| 2014 | Rp 80.5 trillion | US$ 7.7 billion |
| 2015 | Rp . trillion | US$ 10.0 billion |
| 2016 | Rp . trillion | US$ 14.0 billion |
| 2017 | Rp . trillion | US$ 18.0 billion |
| 2018 | Rp . trillion | |
| 2019 | Rp . trillion | |
| 2020 | Rp . trillion | |
| 2021 | Rp . trillion |
The document proposed funding of USD79 billion for defence equipment during this 25-year period, USD32.5 billion for sustainment, and the remaining USD13.4 billion for interest payments on foreign loans. The regulation prioritises sourcing TNI modernisation requirements from local industry. However, it states, “In the event that domestic products cannot be [procured], then foreign products can be used.” When defence equipment is imported, the regulation stated a requirement to enforce “technology transfers and offsets” to support local industry’s involvement in procurement. This industrial strategy also included the provision of countertrade through which Indonesia seeks to export local commodities in part exchange for materiel.
Budget allocation to defense function concerns with the efforts of Government to magnify the defense capacity of nation to pursue one of national objectives as prescribed in the preamble of 1945 Constitution, i.e. to protect the nation and Indonesian people. Indonesia’s defense spending is expected to reach US$25 billion by 2020. Indonesia's defense spending is projected to increase at 17% CAGR during the period 2012 to 2020. In July 2009 President Susilo Bambang Yudhoyono said that government would increase defense budget 20% more than 2009 budget for the 2010 fiscal year. President Yudhoyono announced a 36% increase in the Ministry of Defense budget for Fiscal Year 2012, targeting replacements for aging weapons, systems and platforms – specifically naval assets. On 19 January 2012 Defense Minister Purmono Yusgiantoro announced that after 10 years of frugality on the part of the military designed to give precedence to political reform, the country was now enteringan intensive period of military procurement.
In 2013, budget allocation to defense function reaches Rp.81.8 trillion for various defense programs implemented by the Ministry of Defense (including Armed Force Head Quarter, Army, Navy and Air Force), National Defense Agency and National Defense Council. If compared with its allocation in APBN 2012 reaching Rp.73.9 trillion, budget allocation for defense function in 2013 reflects an increase of 10.6 percent. This sum can be further detailed as follows: (1) national defense sub-function Rp.57.7 trillion (70.6 percent of total budget for defense function); (2) defense support sub-function Rp.22.9 trillion (28.0 percent); and (3) defense research and development sub-function Rp.1.2 trillion (1.4 percent).
In September 2012 the Indonesian government committed 99 trillion rupiahs ($11.2 billion) to spend on defense equipment until 2014 but the Indonesian Parliament in October added an additional 57 trillion rupiah for a total of 156 trillion rupiah ($16.2 billion). In June 2013 it was reported that the Defense Minister Purnomo Yusgiantoro Kemhan had reported that a 2014 indicative ceiling of Rp 80.497.980.000.000 (eighty billion Indonesian Rupiah, or US$ 7.7 billion) for the defense budget.
Inflation had been holding steady at about 5% since 2008, but there have been substantial fluctations in the Rupiah / dollar exchange rate since 2008. By mid-2013 the Indonesian rupiah had tumbled to a four-year low, at about 10,000 per dollar.
The Indonesian defense market, estimated to value US$8.1 billion in 2013, is expected to grow at a CAGR of 22.4% during the period 2013-2017, to value US$18.2 billion in 2017. The primary stimulator of defense expenditure is the government military modernization program, which was undertaken to compensate for severe military underfunding during the period 2008-2012.
Budget allocation to the Ministry of Defense in 2007-2012 records steady increase at 21.1 percent per annum on the average, i.e. from Rp.30.6 trillion (0.8 percent of GDP) in LKPP 2007 to Rp.72.9 trillion (0.9 percent of GDP). Such budget allocation is to support the realization of mission of the Ministry of Defense, i.e. to realize safe and peaceful Indonesia with defense development target toward minimum essential force (MEF). The realization of budget allocation of the Ministry of Defense during 2007-2011 are mainly reflected in the following programs: (1) defense technology and industry development program; (2) integrated denfense power use program; (3) land military force preparedness support program; (4) modernization program for primary weaponry system and non-primary weaponry system and facility and infrastructure development for sea military force; and (5) modernization program for primary weaponry system and non-primary weaponry system and facility and infrastructure development for air military force.
The realization of expenditure budget in the Ministry of Defense during such period is used to support the following activities: (1) power and capacity development and expansion of Indonesian Armed Forces’ system, personnel, materials and facilities; (2) defense capacity building at MEF scale to reach primary weaponry system preparedness of 43.67 percent by 2012; and (3) new procurement, repowering of primary weapons that are economically operatable. In addition, such budget realization for the Ministry of Defense is expended for the financing of Indonesian Armed Forces’ facility, infrastructure and services with the output of, among other things, the development/renovation of houses/accommodation for the soldiers, officiers, headquarters and maintenance facilities.
The Ministry of Defence (MoD) finally completed the 2009 Strategic Defence Review and formulated the Minimum Essential Force (MEF) document in February 2010. The MEF systematically outlined -- for the first time in a long while -- Indonesia's strategic requirements until 2029.
Indonesia was unique among developing countries, and unusual among other Asian countries, in the relatively low priority given to defense spending. In 2009 the military budget totaled US$3.3 billion, about the same military budget and force level as Thailand, a country with less than one-third of Indonesia’s population, and Burma (Myanmar), which has only one-quarter of Indonesia’s population.
One of the supporting factors to achieve considerable defence force is the budgetary support to fulfill urgent requirements. At the present, the state has only managed to allocate defence budget at an annual average of under 1 % of the Gross Domestic Product (GDP). As a comparison, South East Asian nations generally allocate more than 2 % of GDP. For nations with higher threat estimates, defence budget allocation may range from 4 % - 5 % of GDP. With less than 1 % of GDP it is not only difficult to develop an adequate defence force, it is also difficult to maintain the established minimum strength required.
According to the 2003 White Paper "Defending the Country: Entering the 21st Century", "Projections of the defence budget for the next two to three years are expected to reach around 2% of GDP, and increase gradually in the next five years. In ten to fifteen years a rational defence budget is projected to be 3.86% of the GDP."
Ditulis oleh Muhamad Haripin wrote in October 2012 that "Only in 2005, did a serious discussion in relation to the future of the TNI and concrete steps to realize military modernization begin to emerge. Unfortunately, it was a bit too late. The development of weaponry, particularly defense technology, had moved ahead fast and left Indonesia lagging behind. Those facts do not undermine Indonesia’s quest to catch up with other countries in terms of military modernization. Indeed, the government’s grand strategy on the minimum essential force (MEF) is a constructive policy that needs to be realized. The defense budget has been increased in accordance with the MEF, but so far, the biggest spending, around 70 percent, goes on soldiers’ welfare."
The results of Indonesia’s relatively limited commitment to the military are aged weapons systems, poor maintenance, and low levels of combat readiness. The TNI’s readiness posture was also badly affected by the arms embargo imposed by the United States and other arms suppliers. Chronic poor maintenance was compounded by Indonesia’s inability to purchase spare parts, which resulted in the inoperability of most of the air force C–130 transport fleet, most of the transport helicopter fleet, and many of the navy’s logistics and transport ships. The effect of these shortcomings was sadly demonstrated in the TNI’s inability to respond quickly to the devastation caused by the 2004 tsunami.
By the late 1970s, Indonesia had retired most of the Soviet-bloc military hardware left over from the Sukarno era. Between 1977 and 1982, national allocations to the Department of Defense and Security and armed forces doubled in absolute terms, and modest upgrades took place in all three military services. Ensuing years saw the military portion of the budget stabilize at between 6 and 7 percent of the overall state budget. However, with the military having to obtain as much as two-thirds of its total revenues from its own business empire, the official budget figures were misleading. The last quarter of the twentieth century saw the purchase of matériel such as F–5 and F–16 fighter aircraft (in 1978 and 1988, respectively) and A–4 ground attack aircraft (in 1981); several used frigates and destroyers; and tanks, armored personnel carriers, and towed howitzers. The most controversial acquisition was the purchase, in the mid-1990s, of nearly the entire navy of the former Democratic Republic of Germany (East Germany—DDR). While the price for the 39 ships was relatively low, the costs to upgrade, acclimatize, and maintain these aging vessels soon became prohibitive. The purchase strained the defense budget for many years, and by the early twenty-first century most of the ships were no longer operational. This purchase was arranged by then-Minister of Research and Technology B.J. Habibie, thus straining his relationship with the military.
Many traditional military suppliers began to reduce the scope and breadth of military relations with Indonesia in the 1990s, to protest human-rights abuses in East Timor. The violence there in 1999 caused the United States, the European Union (EU), and Australia to cease arms sales entirely. As a result, Indonesia’s military equipment deteriorated dramatically because of a lack of spare parts and maintenance. Only after the December 2004 tsunami disaster in Aceh did those countries resume progress toward normalization of their respective military-to-military relations.
The military has never been as dominant in the economic sphere as in the political sphere. Total military expenditures as a percentage of gross national product (GNP) began a steady decline in the 1960s, with the military share of the budget shrinking from 29 percent in 1970 to just over 1 percent by 2009.
The sources of funding for the Armed Forces consist of budgetary and non-budgetary sources. Budgetary means that the funds are recorded and available within the framework of the annual budget, while non-budgetary funds come from other sources not recorded in the annual budget. Non-Budgetary Funds have at least two sources - the president or state secretariat, and the military’s commercial enterprises. These funds are beyond public scrutiny as all information pertaining to them is classified. Even military personnel have no knowledge of the amount of money accumulated or of how that money is used. Although the total figure is unknown it is believed to be a substantial one. These non-budgetary funds are also known as on-top funds. The purchasing of the Rapier air defense system for instance was made using non-budgetary funds. Indonesia’s F-16 fighter planes were acquired in the same manner.
Throughout the Suharto years, the central government had provided insufficient funding for the military, with only about one-third of its administrative and operational costs covered by the defense budget. The rest of the military’s financial requirements were met by receipts from its extensive business empire or diversions from other government institutions.
Like its counterparts in China, Thailand and Vietnam, TNI - the Indonesian Armed Forces - became involved in business to supplement an inadequate budget. Profits from military busi- nesses are intended to support projects like housing for troops and the military's dwi-fungsi role of ensuring national security and socio-political stability.
Under the New Order regime, within the framework of the Dual Function (Dwi Fungsi) doctrine, the TNI was active on both the military and socio-political level. This doctrine was supported by the military’s Territorial Command (Komando Teritorial Koter) structure, which was exploited by military personnel for corrupt purposes. Riefqui Muna argues that the Armed Forces were long considered a byword for corruption in Indonesia since so much of their income was outside the government budget and so little was accounted for. Since much of the Armed Forces corruption has been linked to their dealings with government and business officials, it is not easy to isolate their corruption from others’ corruption. In the New Order period the principle of territorial command duplicated the bureaucratic structure from the local, regional to national level. It was rampant with abuses and corruption acted as the engine for the authoritarian regime of the New Order.
The military’s primary means of economic influence derives from operation of a business empire, comprising both legal and illicit enterprises, which had its beginnings in the struggle for independence. It expanded in December 1957, when Dutch enterprises and agricultural estates were taken over by local trade unions and immediately put under direct military supervision. December 1958 legislation led to the nationalization of these enterprises and estates during the first half of 1959. This involvement in commercial enterprises projected the military, especially the army, into a new sphere of activity, where it acquired entrepreneurial expertise, a vast patronage, and a source of enrichment for many of its personnel.
By the 1990s, the military business empire may have provided as much as two-thirds of the total military budget. However, the region-wide economic crisis that began in 1997 had a significant adverse effect on the TNI’s income from off-budget sources. While the policy of economic involvement continued through the 1990s and into the twenty-first century, it was estimated that the large military business empire, and diversions from other budgetary resources, had declined significantly in the first decade of the 2000s. Although no definitive information has ever been provided on the amount of funds received from the military’s business enterprises, it was estimated to have shrunk to less than half of the total funding received by the TNI.
Engaged in enterprises such as air and highway transportation, shopping centers, and mines, many military-owned businesses operate in the open market much like any private company. In an effort to gain greater control over the military-run business empire, in 2004 the DPR mandated that such military businesses be civilianized by 2009, a process that was not 100- percent completed on schedule. The TNI continued to operate military-supervised cooperatives (similar to the U.S. military’s post-exchange and commissary systems).
Far more controversial than these legitimate enterprises are the illicit businesses run by both the military and the police. Accurate information on such activities is understandably difficult to obtain. Both the armed forces and the police allegedly are involved in illegal businesses ranging from extortion, gambling, and “security protection” rackets to more substantial enterprises such as illegal logging, support of renegade mining operations, and trafficking in marijuana. Subsequent to the separation of the police and the military in 1999, there have been occasional outbreaks of violence as personnel from the two institutions strive to protect “turf” and at the same time poach on the illegal enterprises of the other side.
Another kind of military enterprise was the service-owned factory, which had as its primary purpose the production of ordnance and equipment for the armed forces. By the mid-1980s, however, the government had taken over and managed as public-sector enterprises such major concerns as the navy’s P. T. PAL shipyard in Surabaya, Jawa Timur Province, and the army’s munitions factories.
While they cannot be singled out from other actors in the national economy, the armed forces of the early twenty-first century continue to face the problem of coping with a legacy of corruption. The military, though, is still viewed by Indonesian society as generally less corrupt than other sectors of the government. Nonetheless, the low salaries of military personnel require that they take up “constructive employment” to make ends meet.
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