Indonesia is still negotiating a deal to buy 9 Su-35 fighter jets with Russia and has not abandoned it under pressure from the United States.
However, negotiations have remained struck over the last two years over issues such as price calculation for barter goods and the two countries not being able to negotiate a currency swap deal to replace the US dollar to fund the cash part of the deal.
Several industry sources told defenseword.net that a 2018 agreement regarding the Su-35 sale between Jakarta and Moscow concerned the mechanism of funding the sale (barter plus cash) and was not an agreement regarding delivery. The agreement also included a 35% offsets to be separately negotiated between PT Perusahaan Perdagangan and Russia’s Rostec.
The two sides conducted negotiations for the whole of 2019 regarding what will be included in the barter trade. Indonesia planned to purchase the 11 Sukhoi Su-35 fighter jets in exchange for Russia buying goods such as rubber, crude palm oil, coffee, tea, furniture and spices worth approximately 50% of the purchase price. The agreement was signed by former Indonesian Defense Minister Ryamizard Ryacudu in February 2018 and the Russian government.
The agreement was to be followed up with a “purchasing agreement” specifying the payment and delivery terms. The purchasing agreement is yet to signed, Russian ambassador to Indonesia, Lyudmila Georgievna Vorobieva said in a December 18 2018 comments to Indonesian news agency ANTARA news.
“The commodities part of the deal is worth US$570 million (out of the total $1.14 Billion) and here is the biggest challenge as prices of Indonesian cash crops identified under the barter- rubber, palm oil, coffee, furniture and spices- keep fluctuating,” a senior industry source told defenseword.net. “The challenge is further compounded as the commodities are to be supplied over a period of a few years. While Russia wants the commodities to be priced at their lowest mean prices, Jakarta wants them to be tagged at a much higher price,” the source added.
Indonesian Defence Minister Ryamizard Ryacudu had said in a June 2, 2019 statement to TASS while on a visit to Moscow - Indonesian defence ministry has signed documents concerning the purchase of 11 Su-35 fighter jets while the trade and finance ministries are still in the process of approval. The need for approval from multiple ministries arises as "there will be different forms of payment," Ryacadu had said.
In addition to arriving at an equitable price for Indonesian commodities, Russia wants to negotiate payment terms in national currencies to beat US sanctions on Russian defence companies. “Jakarta has not started this as yet due to concern over its impact on Indonesia -US trade with which it enjoys a $ 12 billion trade surplus,” the industry source said.
Russia already has negotiated a trade-in-national-currencies pact with China and India. Payment for Russian military imports into India is made though a Rupee-Ruble exchange mechanism while with China it is Yuan-Ruble which is proving beneficial to all countries.
The US has so far not invoked CATSAA Act against any buyer of Russian arms (including India and Turkey). The US approved sale of a missile defence system to India after it signed up to buy the Russian S-400 air defence system (ADS). The official reason given by the Pantagon for canceling the F-35 deal with Turkey is that the S-400 ADS is “incompatible” with NATO systems. US officials have repeatedly emphasized that traditional buyers of Russian equipment would not be penalized.
Interestingly, purchase of the Su-35 fighter features on the Indonesian defence budget procurement plan for 2020 to 2024. According to the budget document, “the TNI (Indonesian defence force) plans the development of a Network-Centric Warfare (NCW) communication system for the Air Force to integrate all fighter planes, radars, intelligence, surveillance and reconnaissance (ISR) sensors and missiles into one centralized network, and the procurement of Airborne Warning and Control System (AWACS), tankers, as well as F-16 Block 70/72 fighters from the US for two squadrons and 11 Sukhoi fighters from Russia.”
In a December 2019 media interaction in Jakarta Russian Deputy Ambassador to Indonesia Oleg Kopylov said the procurement (of Su-35 jets) would go ahead and that the Russian side was “not in a hurry” to follow up on the deal (due to complexity of negotiations?).
Another factor, the launch of Indonesia’s defence diplomacy under the new defence minister Prabowo Subianto seems to be interfering with a closure to the Su-35 deal. The defence minister and former general has visited several countries- France, Japan, Malaysia and has plans to visit several more to engage with countries in military exercises and defence procurement. A visit to France generated excitement that Jakarta was interested in a weapons package including Rafale jets.
The new thinking under minister Prabowo is that Jakarta will use defence procurement to boost its indigenous manufacturing capability and in addition wants defence deals free of the threat of sanctions.
Indonesia is wary of buying American arms due to the sanctions imposed from 1991until 2006 over its actions in East Timur and strict end-user condition regarding the use of US-supplied weapons.