Indonesia to buy 8 Italian frigates and hike defence spending as China tensions rise

Jakarta is planning a massive boost in defence spending, with a leaked document suggesting a budget of US$124 billion over five years – three times the previous level
Need to modernise fleet has been highlighted by sinking of the submarine KRI Nanggala and increasing Chinese activity near the Natuna Islands, experts say

South China Sea

Resty Woro Yuniar

Published: 6:31pm, 15 Jun, 2021

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Nearly two months after one of its submarines sank off the coast of Bali during a training exercise, Indonesia has begun to modernise its defence forces by ordering eight frigates from Italy.

Analysts say the deal highlights the Southeast Asian nation’s concerns over violations of its territory by Chinese vessels and its ability to defend its interests with its current fleet of ageing vessels.

According to a leaked document, the Indonesian defence ministry will propose a budget of US$124 billion, which will be split over five years, representing a massive increase in defence spending for Indonesia. Over the previous five years it spent around US$38.8 billion.

News of the deal comes as defence ministers of the Asean (Association of Southeast Asian Nations) bloc took part in virtual talks on Tuesday and conducted an Asean-China meeting, where a code of conduct for the South China Sea may have been discussed, though no details were provided by the Asean chair Brunei in a statement at the end of the meeting. The Asean countries will meet with eight dialogue partners – Australia, China, India, Japan, New Zealand, South Korea, Russia and the United States – on Wednesday for talks in which regional security and Chinese assertiveness in the region are likely to feature high on the agenda.

According to the website of Italian shipbuilder Fincantieri, Indonesia has signed a contract to purchase six new FREMM multipurpose frigates and two used Maestrale-class frigates. The two Maestrale-class frigates will be available after they are retired by the Italian Navy.

An Indonesian Navy ship leaves for the search and rescue operation following the sinking of submarine KRI Nanggala in East Java. Photo: Xinhua

The company said the deal was “of the utmost importance” to strengthen the collaboration between two countries in the “strategic area of the Pacific”. It did not disclose the value of the contract.

Muhamad Haripin, researcher at the Centre for Political Studies at the Indonesian Institute for Sciences, said the frigate deal reflected increased engagement by European nations with the Indo-Pacific region.

“European countries are becoming more aligned with US foreign policies under President Joe Biden that aim to tackle China’s rise in the region,” Muhamad said.

Indonesia also “urgently” needed more patrol ships to monitor its 54,000km coastline and vast territorial waters, he said.

“Indonesia is concerned about China’s rising assertiveness in the Indo-Pacific as it continues to monitor China’s behaviour in Southeast Asia and the wider Asia Pacific region. Indonesia recognises that there is a rivalry [between China and the US] that could affect regional stability, but it doesn’t want to get involved directly,” Muhamad added.

While Indonesia considers itself a non-claimant state in the South China Sea territorial dispute, its maritime forces have regular run-ins with Chinese counterparts near the Natuna Islands, which border the sea. Part of Indonesia’s exclusive economic zone (EEZ), which extends beyond the islands, falls within the nine-dash line China uses to mark its territorial claims to more than 90 per cent of the South China Sea. China also claims to have historical fishing rights in North Natuna waters, leading to regular visits of Chinese fishing and coastguard vessels to the area. Indonesia has further disputes with Vietnam due to overlapping EEZ claims near the Natunas.

The South China Sea issue could test the growing economic ties between Indonesia and China.

Jakarta and Beijing recently established a new dialogue to speed-up Chinese investment in Indonesia, Southeast Asia’s largest economy. China is Indonesia’s top trading partner and it has consistently ranked as Indonesia’s second-largest foreign investor in recent years, just behind Singapore.

Indonesia also has a strong relationship with the US, though America invests less than China in the country. The US recently granted an extension of the Generalised System of Preferences, a preferential tariff agreement for Indonesian exports to the US. Indonesia aims to double the value of its trade with the US to US$60 billion per year by 2025. The value of Indonesia’s trade with China last year was US$71.4 billion.

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Massive defence budget

The Fincantieri deal was announced after a recently leaked document showed Indonesia’s defence ministry planned to spend 1,700 trillion rupiah (US$124.9 billion) from 2020 to 2024 to modernise its military. The effort would be entirely funded by foreign debt, which needn’t be repaid until 2044 and would only incur a small interest rate, the document said.

Pressure on Indonesia to modernise its ageing naval forces grew when one of its five submarines, the KRI Nanggala, sank in April during a torpedo drill, killing all 53 crew in what is widely seen as one of the worst submarine catastrophes in history.

Even so, the proposed budget has sparked controversy because the Indonesian economy is still reeling from the coronavirus pandemic. In November, the country officially recorded its first recession in over 20 years. The economy contracted 2.07 per cent in 2020, compared to 2019. In the first quarter of this year, while it grew by 0.96 per cent from the fourth quarter of 2020, it remained 0.74 per cent lower than the first quarter of 2020.

“Increasing the budget to 1,700 trillion rupiah, amid the pandemic and economic crisis, will certainly put the burden on the public. The government is better off allocating the money, even if it comes from foreign debt, for public health and economic recovery,” said Al Araf, director and military researcher at the Jakarta-based human rights watchdog Imparsial.

Indonesian President Joko Widodo aboard a navy ship during a visit to a military base in the Natuna Islands, which border the South China Sea. Photo: AFP

“The number is excessive. Indonesia already has a massive foreign debt burden, if it continues to add it the burden will get heavier and it will affect the economy.”

The defence ministry said the budget had not been finalised.

“We are still discussing and closely examining [the proposed budget]. It is not yet a final number. We regret that there are parties who leaked the document and made it a political tool to develop hatred fuelled by political jealousy,” Dahnil Simanjutak, a spokesperson for Defence Minister Prabowo Subianto, said on June 1.

Dahnil said the ministry had prepared the budget on the “directive of President Joko Widodo to Minister Prabowo” and that the president had asked for a list of defence equipment that the country could buy in the next five to 25 years.

“Sixty per cent of our defence equipment is really old, obsolete, and concerning. That is why the Ministry of Defence submitted a formula to modernise through a reorganisation of defence equipment purchasing and funding,” Dahnil said.

The defence ministry was granted the second-largest budget of any ministry this year, of 137.3 trillion rupiah, behind the Ministry of Public Works and Housing, which is in charge of infrastructure. The defence ministry had a budget of 150 trillion rupiah to modernise military equipment in 2014-2019, Widodo’s first term, but only used 80 per cent of it, Al said.

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Al said the ministry should work on a white paper and strategic review which could be used as a “foundation” for its policies, doctrines, and budget. Without such a review the budget would be “vulnerable to misappropriation,” Al said. A lack of transparency over spending within the ministry could exacerbate that risk, he added.

“The ministry typically hesitates to announce its spending, under the guise of it being state secret, which I think is irrelevant in a democracy, where transparency and accountability are important,” Al said.

The ministry also needed to prioritise its spending, he said. In 2008, Indonesia established the Minimum Essential Force [MEF] concept, which outlines the minimum level of force needed to attain immediate strategic defence interests. When it was first outlined, the MEF called for around 300 ships, of various classes, and 12 submarines.

Under the MEF, the government is supposed to allocate 150 trillion rupiah to modernising equipment over a five-year period.

However, Haripin from the Indonesian Institute For Sciences, said in reality only a small percentage of the ministry’s budget went towards modernising equipment.

“Most of the budget goes to labour-intensive necessities, such as hiring new employees. Meanwhile only around 16 to 17 per cent of the total budget is spent on procurement, innovation, research and development. Our goal to modernise defence equipment will not be met if we continue like this.”