Indonesia is quietly talking to the United States about the purchase of 32 new Lockheed Martin F-16 Viper jets and six C-130J cargo aircraft in what may partly be an effort to remove the country from any possible sanctions as the US-China trade war returns to a boil.
Well-placed Washington sources speculate that the Indonesians are seeking to protect their Generalized Scheme of Preferences (GSP) access, as well as to ward off possible US congressional retaliation against friendly countries that have recently purchased Russian military hardware.
Indonesia does not appear to be prominent on US President Donald Trump’s radar. But a US$12.6 billion bilateral trade imbalance and a rising trend of protectionism in Washington could change that, despite Indonesia just reporting its largest monthly trade deficit since 2013.
Two-way US-Indonesia trade last year hit $28.2 billion, a 7% increase over the previous year, with Indonesian exports outweighing US imports by $20.8 billion to $8.2 billion. Those flows only slightly closed the US’ deficit gap compared to 2017.
During a visit that year, US Vice President Mike Pence made it clear to President Joko Widodo that he had to do a lot more to “level the playing field and break down barriers” to ensure US exporters can fully participate in the Indonesian market.
While there is no timeline, Indonesia received another reminder of what is at stake with a visit last week by Bart Thanhauser, US Trade Representative Office director for Southeast Asia and the Pacific. His visit was part of an ongoing year-long GSP eligibility review related to Indonesia’s presence on a list of 16 trading partners with which the US has big trade deficits.
“I don’t think Indonesia is more on the radar than anyone else,” says one executive familiar with the talks. “I don’t think Trump actually knows where Indonesia is. But the State Department is certainly putting more emphasis on private sector trade and investment and overall economic growth.”
Most of the attention is focused on horticulture, beef imports and agricultural quotas in general, along with patent laws and draconian 2012 legislation which stipulates that all electronic data generated by foreign banks, insurance, e-commerce and credit card companies should be housed in Indonesia.
“There are large differences in how regulations are written and applied,” says one US government commercial guide. “Domestic interests often take advantage of the non-transparency of the legal and judicial systems to undermine regulations to the detriment of foreign partners.”
Indonesia’s protectionism has always been a sticking point. But while the resolution of the ownership battle over Phoenix-based Freeport McMoRan Copper and Gold’s Grasberg mine in Papua province has taken at least one irritant off the table, it has since been replaced by the de facto nationalization of the oil and gas industry.
State-owned oil company Pertamina took over the Mahakam block, the country’s second largest gas field, from French giant Total in 2017 and now has plans to assume control of Chevron’s 200,000-barrel-a-day Rokan oilfield in 2021, in addition to many other smaller producing blocks.
Overall, Trump and his advisers won’t find many US manufacturers have moved significant jobs and operations to Indonesia, which is still struggling to rationalize its nationalist economic policies with a desire for more foreign investment to revitalize its faltering manufacturing base.
Finance Minister Sri Mulyani Indrawati and other key figures in the Widodo administration clearly understand the contradiction, but it will take a dramatic change of policy direction by the president for foreign investors to start taking notice.
The latest target of Trump’s ire, blacklisted Chinese telecom giant Huawei, has made major inroads into the Indonesian market over the past eight years, supplying low-cost equipment to state-run Telkomsel and most of the other mobile phone providers.
Industry sources say that has been accomplished through generous financial packages, targeted inducements and the company’s proclivity for agreeing to most of the terms of a contract, including often rigid service performance indicators.
Indonesia is still five years away from making the transition to 5G, with government regulators wisely delaying the issuance of spectrum until they are satisfied existing 3G and 4G networks have been brought up to an acceptable standard.
That will also save the government from having to make any difficult decisions that could rile the US or China.
On the military front, it is still not clear whether Indonesia’s plans to buy 11 advanced Su-35 FlankerE multi-role fighters from Russia will run into the Countering America’s Adversaries Through Sanctions Act (CAATSA), which penalizes procurers of Russian military systems.
The air force has said it will have no option but to terminate the deal if US sanctions are enforced, but as a spokesman has noted: “We need to operate a combination of East-made and West-made fighters. Politics is uncertain, and we need balance because if we have problems with the West, we can use aircraft made in the East.”
Ironically, the Indonesian military only went shopping in Russia in the early 2000s because of a US arms embargo which began with the Dili, East Timor, churchyard massacre by Indonesian troops in 1991 and was only strengthened following East Timor’s bloody separation from Indonesia eight years later.
Although Indonesia already has a squadron of twin-engine Sukhoi Su-27/30 jets, the subsequent lifting of the embargo has seen the delivery in the last two years of 24 refurbished US-made F-16s and eight Boeing AH-64E Apache attack helicopters worth an estimated $1.4 billion.
Indonesia’s intended purchases, including the $1.1 billion Su-35 deal, fit with an ambitious air force modernization plan, announced in June 2018, to bring its force level up to eight fighter squadrons and six refreshed transport squadrons by 2024.
It currently has six fighter squadrons spread across Java, Sumatra, Kalimantan and Sulawesi, with an inventory that includes 25 F-16C/Ds, 16 Su-27/30s and 24 British Aerospace BAE Hawk 200s.
Government sources say the C-130 workhorses are a higher priority than the costly, state-of-the-art Vipers because of the steady depletion of its current 18-strong fleet, invaluable in flying troops and relief supplies to remote parts of the archipelago.
Apart from its normal transport role, the Super Hercules C-130 can also be quickly configured for prolonged maritime surveillance duties with belly-mounted radar and roll-on, roll-off sensor stations in place of cargo.
The Indonesians have yet to publicly announce their interest in the F-16V, which was first demonstrated at the Singapore Air Show in 2012 and only went into service with Taiwan’s Air Force this year.
Developed to inter-operate with Lockheed’s fifth-generation F-35 and F-22 fighters, the latest F-16 variant can be deployed against enemy air defenses and also in air-to-air, air-to-ground and deep interdiction and maritime missions.
US analysts advise Indonesia to continue conducting business as usual and say there is no need for Jakarta to make any major announcements on military procurements or highlight joint military exercises or other unilateral endeavors.
High-level US visits in the recent past by Pence and then Defense Secretary James Mattis went a long way, they say, to establishing Indonesia’s value to the US as a democracy of strategic importance. But whether that assessment extends to the mercurial and unpredictable Trump is a different matter.