United Nations – Indonesia, grappling with a severe shortage of hard currency, has been forced to slash its defense spending and shelve an ambitious military modernization program.

"Given the state of our economy, it would be the height of irresponsibility to continue with our arms purchases," Indonesian Foreign Minister Ali Alatas told IPS today. The only exception would be an order for 16 British Hawk fighter aircraft already in the pipeline. "Our first priority is to put our economy back on track," Alatas said. "We have no plans for any major weapons purchases." The biggest single casualty of the cash crisis is a proposed $500 million arms deal with Russia under which Indonesia was to buy 12 Sukhoi Su-30 fighter planes and eight Mil Mi-17 military helicopters. The Russians also were hoping to offer sophisticated radar-guided air-to-air-missiles and air-launched anti-ship missiles, pushing the overall cost of the arms package to an estimated $1 billion. A sizeable part of Russian package was to due to be paid under a barter agreement between the two cash-strapped nations. The Indonesians were going to "exchange" tea, palm oil, coffee, textiles and cement for Russian military equipment. But with the lingering cash crisis in Jakarta and a $40 billion bailout package from the International Monetary Fund (IMF) and other Western donors, the Indonesian government couldn't possibly justify the arms deal – barter or no barter.

Indonesia also was expected to postpone plans to purchase about four used submarines from Germany which were negotiated in August 1997. Prices of the submarines were not disclosed.

Last month, the British government agreed to guarantee payments owed by Indonesia to British Aerospace Company for 24 Hawks purchased in September 1992 and an additional 16 contracted in December 1993. The aircraft are in the process of being delivered. Indonesia's military spending, which reached $3.1 billion in 1996 and $3.3 billion in 1997, has been reduced to an estimated $2.5 billion in 1998. If the planned military modernization program continued as scheduled, the country's defense budget was expected to average about $3 billion to $4 billion annually through the turn of the century. According to the Washington-based Arms Control and Disarmament Agency (ACDA), the biggest arms suppliers to Indonesia were Germany and Britain.

Between 1993 and 1995, Indonesia ordered $110 million worth of arms from Germany followed by $100 million from Britain and $70 million in arms from the United States. In September the US Senate voted to curb the sale of arms to Indonesia if the weapons were intended to be used in the disputed territory of East Timor. The Indonesian armed forces are already equipped with a variety of US weapons systems, including F-16 fighter planes, Boeing maritime patrol aircraft, Lockheed C-130 transports and Bell and Sikorsky combat helicopters.

In June 1997, Indonesia backed out of a planned purchase of nine additional F-16 fighters from the US and canceled its participation in the US International Military Education and Training (IMET) program primarily because of Congressional criticism of alleged human rights violations by the Indonesian government and the armed forces.