The Palm Scribe

Palm Oil May Help Indonesia Buy Russian Fighter Jets

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The Indonesian government plans to buy 11 Russian Su-35 fighter jets with part of the payments in key commodities, including palm oil, a source at the defense ministry told The Palm Scribe.

“Key Indonesian commodities, including rubber and palm oil, worth at least $570 million, will be part of the trade mechanism,” the source, who is privy to the deal, said while adding that “This is a test case to see how firm Indonesia is, especially looking at how the European Union treats Indonesian palm oil.”

The source was referring to a decision by the European Union to gradually phase out palm-oil based biofuels from its renewable energy program for the transportation sector.

Under Indonesian law number 16 of 2012 on the defense industry, the procurement of foreign military weaponry and equipment must be carried out under a “reciprocal trade mechanism” which involves part barter and part cash payment, with local content and transfer of technology requirements.

“This is the case with the Russian fighter jets when we started talking about the contract back in March 2017. It’s a Government to Business deal, so we are dealing directly with Rosoboronexport,” the source said.

The source also said that the deal, valued at some $1.1 billion was a very sensitive issue because of the US “Countering America’s Adversaries through Sanctions Act” (CAATSA) issued in August 2017 which concerns military trade with Iran, North Korea, and Russia. The CAATSA puts Indonesia in a tight corner, the source said, even though under Indonesia’s “free and active” diplomacy, it is free to choose its source of weaponry.

Earlier this year, however, Russian news agency TASS quoted Indonesia’s Defense Minister Ryamizard Ryacudu as saying that Indonesia expected the deal to be clinched by end of 2019. “The issue will be solved this year,” Ryamizard said, adding that the challenges in finalizing the contract were because of the required approvals from different ministries and because of the different forms of payment.

“Fundamentally the issue has been solved,” said Ryamizard who had first officially announced the plan to buy the Russian aircraft in 2015.

The Palm Scribe’s efforts to seek comments or confirmation from the Russian embassy in Jakarta have not produced results.

Under former president Megawati Sukarnoputri, Indonesia purchased four Sukhoi aircraft — two Su-27 SK units and two SU-30MKs, — and two Russian helicopters in a partial barter deal worth $193 million in April 2003.

Indonesia’s total defense spending has risen exponentially over the last four years to Rp 108.7 trillion, although it is expected to remain stable at Rp 108.0 trillion in 2017, according to official data. The biggest country in Southeast Asia is expected to spend over 20 billion euros (about Rp 321.88 trillion) on military procurement between 2016 and 2025, making it the fifth fastest-growing defense budget in the world, according to research firm IHS Markit.



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