BMI View: Indonesia benefits from economic, geographic and resource scale, giving the country a substantial advantage over its neighbours. While the co-operative stability of the ASEAN era has in some regards diminished the relevance of this strength, it provides Indonesia with the opportunity to become a key leader for the region. Boasting strong relations with the US, China and key neighbours, Indonesia's regional importance will continue to grow. Successes such as the Komodo multilateral military exercises will boost Jakarta's role in regional affairs.
On the whole, Jakarta has good relations with Beijing. However, Indonesia has at times expressed concern over some Chinese activities in the South China Sea, and Beijing must tread carefully in order to remain on good terms with South East Asia's key state. Indeed, Indonesian pressure will be critical in ensuring that China follows through on its promise to come to the table to negotiate a new Code of Conduct for the South China Sea, although progress to date has been limited, despite the best intentions of Jakarta and Washington, amongst others .
Indonesia's regional importance as the driving force of the Association of Southeast Asian Nations (ASEAN) group has been reinforced in a number of respects. Australia's Prime Minister Tony Abbott visited Indonesia in September 2013 and declared that the bilateral relationship with Jakarta's was Australia's 'single most important [one]'. US President Barack Obama cancelled a trip to Indonesia in October 2013 due to political problems back home, and was severely criticised by Asia watchers for passing up an important opportunity to boost relations with key regional allies. His Secretary of State, John Kerry, attended Joko Widodo's inauguration as president in October 2014, putting relations back on a firm footing. The successful hosting of the Komodo Multilateral Naval Exercises in 2014 both highlights and enhances the importance of Indonesia in the region.
Domestically, however, Indonesia has some security concerns. The economy remains under pressure, particularly with regards to currency weakness, and this has potential implications for social stability and for Indonesia's ability to procure foreign weaponry. Defence spending, at 1.1% of GDP, remains far below outgoing-president Susilo Yudhoyono's target of 1.5% and a weakened rupiah has driven up the cost of imports, with the domestic defence industry too immature to fulfil this demand.
Joko Widodo's election in 2014 brings a number of concerns and uncertainties for the short-term direction of Indonesia, both from foreign policy and defence perspectives. Without experience at a national level, Jokowi (as he is popularly known) remains an unknown quantity with regards to military matters. His vice-president, Jusuf Kalla, returning to his former capacity, is experienced in international matters, but has no military background. Further, vested interests, in the military as well as elsewhere, remain powerful, and a non-military successor administration may seek a break from the ties of previous pro-military governments.
Indonesia still faces domestic security problems, especially in Papua. The Yudhoyono administration has shown little imagination in dealing with the situation, and the election of a new government could prove to be crucial, bringing with it a risk of separatist violence, but also the chance for a new government to address these issues afresh.
Komodo Multilateral Naval Exercises hosted by Indonesia in Q2 2014 are an indication of Indonesia's growing importance in regional affairs.
An agreement with South Korea for technology transfer in the aerospace sector follows a similar move in naval manufacturing, boosting Indonesia's domestic defence industry.
Modernisation and diversification of the navy and air force continue to progress, although Jokowi's election raises much doubt about the long-term direction of this programme.
Key BMI Forecasts
Defence expenditure to reach USD11.4bn in 2015.
Imports to exceed USD150mn in 2015.
Defence trade deficit to deepen, reaching almost USD180mn by 2018, with little export growth expected.