As part of the commitment on the bilateral agreement that was signed by the two countries on 1 December 2006, Russia will provide one billion USD in loan for Indonesian armament procurement for the period of 2007-2010.
Indonesia's Ministry of Defence decided to use the loan to acquire 10 MI-17-V5 helicopters and five MI-35P helicopters along with weaponry for the TNI AD [Indonesian Army]; two Kilo class submarines and 20 BMP-3F infantry battle vehicles for the TNI AL [Indonesian Navy]; and six avionic equipment packages and Sukhoi weaponry for the TNI AU [Indonesian Air Force].
Ministry of Defence Secretary General Lieutenant-General Sjafrie Sjamsoedin, who led the delegation on the commission III Indonesia-Russia meeting in Moscow on Monday, said that government to government cooperation on military equipment procurement could be a model for further military cooperation.
"Similar to the Ministry of Defence in Indonesia, the Federal Service for Military Technical Cooperation (FSMTC) is expected to be the only gateway to formulate and procure military equipment to Indonesia," said Sjafrie.
The Deputy Director of the FSMTC, Lieutenant-General V.K. Dzirkalin, who was the head of Russian commission shared Indonesia's view.
Furthermore, he added, Russia had acknowledged Indonesia's financial difficulties in developing a Defence system, thus a more flexible method of financing was opened for formulation.
The Director General of the Defensive Facility, Air Vice-Marshal Slamet Prihatino, said that the procurement of arms through a loan instalment was needed to strengthen the Indonesian Defence Force in protecting territorial integrity.
Military armaments will produce a deterrent effect to other countries who attempt to disturb Indonesia's territorial sovereignty. "What we are doing right now is limited to our budget capability, but will be beneficial because it produces a deterrent effect to other countries," said Slamet.
He sets out an example of the six various avionic equipment and weaponry procurement for Sukhoi. With the additional equipment, TNI AU [Indonesian Air Force] planes will be equipped with better avionic systems, electronics, and weaponry to guard Indonesian territories.
The same thing is also true when the two submarines will be available later. TNI AL [Indonesian Navy] will have the mobility to guard Indonesian seas which are often trespassed by foreign vessels for various purposes including fish theft.
Ministry of Defence staff expert on Economic Affairs Adnan Ganto regarded the Russian loan instalment as competitive and favourable with 5.3 percent annual interest rate which was lower compared to the loan instalment rate on export procurements for national armament OECD.
"Russia is not a member of OECD, they can not provide export loan instalments. But, with the rate of 5.3 percent, the interest rate from the Russian government proves to be lower because there are no other fees that have to be paid, whether it is for loan commitment, management, or country risk," said Adnan Ganto.
The Russian government loan will mature in 15 years, with the first five years acting as a grace period where the borrower does not have to pay for the principal nor the interest amount.
Also discussed at yesterday's meeting, was the procurement of six Sukhoi planes, which consisted of three SU-27 SKM and three SU-30 MK2. With the new additions, TNI AU [Indonesian Air Force] will own 10 Sukhoi planes.
"The signing agreement of the six Sukhoi planes procurement on Tuesday also coincides with Moscow's outer space exhibition," said Dzirkalin.
The procurement of six Sukhoi worth 355 million USD will be dealt with separately since the cost is not covered by the one billion USD Russian government loan. "We will look for a finance method with an interest rate that is not burdening," said Adnan.
[Source: Kompas, Jakarta, in Indonesian August 21, 2007.]