{"id":2201587,"date":"2023-07-04T18:09:17","date_gmt":"2023-07-04T09:09:17","guid":{"rendered":"https:\/\/koreapro.org\/?p=2201587"},"modified":"2023-07-05T17:30:54","modified_gmt":"2023-07-05T08:30:54","slug":"how-a-payment-dispute-with-indonesia-puts-seouls-defense-export-goals-at-risk","status":"publish","type":"post","link":"https:\/\/koreapro.org\/2023\/07\/how-a-payment-dispute-with-indonesia-puts-seouls-defense-export-goals-at-risk\/","title":{"rendered":"How a payment dispute with Indonesia puts Seoul\u2019s defense export goals at risk"},"content":{"rendered":"

South Korea is confronting a growing chasm of distrust with Indonesia, centered around a key joint defense project: the KF-21 fighter jet program. The Southeast Asian nation\u2019s <\/span>failure to present a payment timetable<\/span><\/a>, as pledged, for its $1.3 billion share of the project\u2019s cost is causing concern in Seoul.<\/span><\/p>\n

Indonesia\u2019s recent agreements to purchase <\/span>42 French Rafale fighter jets<\/span><\/a> for $8.1 billion and <\/span>12 used Mirage 2000-5 fighter jets<\/span><\/a> from Qatar for $792 million has raised further questions about its commitment to the KF-21 program, with the future of the joint project in doubt.<\/span><\/p>\n

The KF-21, which Seoul has dubbed a <\/span>4.5-generation fighter jet<\/span><\/a>, is a niche platform whose success is vital for the ROK\u2019s plans to become one of the world\u2019s top-four weapons suppliers. However, South Korea will likely find it difficult to amplify pressure on Indonesia for the overdue payments.<\/span><\/p>\n

\"\"

President Yoon Suk-yeol meets with Indonesian President Joko Widodo during the sidelines of the G7 Summit in Hiroshima, May 21, 2023 | Image: ROK Presidential Office<\/a><\/em><\/p><\/div>\n

PAST DUE<\/b><\/p>\n

Indonesia <\/span>agreed<\/span><\/a> to shoulder roughly 20% of the KF-21 fighter jet project\u2019s total $6.5 billion (8.8 trillion won) cost when it joined the program in 2010. In <\/span>return<\/span><\/a>, Indonesia was set to receive a prototype and technical documentation, allowing Jakarta to domestically manufacture 48 units of these advanced warplanes.<\/span><\/p>\n

The advantage of this program for Indonesia lies not only in procuring sophisticated fighter jets that would replace its aging Northrop Grumman-built <\/span>F-5 Tiger fighter aircraft<\/span><\/a>\u00a0but also in propelling its aviation industry forward. The agreement also brings with it a boon of thousands of jobs in both countries, while allowing the Southeast Asian nation to acquire technical expertise for future applications.<\/span><\/p>\n

Between 2016 and 2019, Indonesia demonstrated its commitment through payments amounting to <\/span>$171.5 million<\/span><\/a> (227.2 billion won) toward the program, despite halting payments for unknown reasons from Jan. 2019 until Nov. 2022. As of now, the country is estimated to owe over <\/span>$615 million<\/span><\/a> (800 billion won) for the project ahead of its proposed completion in 2026.<\/span><\/p>\n

Korea Aerospace Industries (KAI), the warplane\u2019s manufacturer, faces significant financial hurdles. The expense of the program necessitates large-scale production to recover its investments. This is precisely where collaboration with Indonesia is economically imperative. KAI requires the production and export of a <\/span>minimum of 300 units<\/span><\/a> to break even.\u00a0<\/span><\/p>\n

Just <\/span>120 units<\/span><\/a> are earmarked to enter into service in South Korea\u2019s air force by 2032, so the promise to jointly produce 50 KF-21s for Indonesia will be key to bringing down the per-unit cost and ensuring the project\u2019s success<\/span><\/p>\n

This need brings the ROK\u2019s strategic partnership with Indonesia into sharper focus. By supplying KF-21 fighters to Indonesia and using it as a launchpad for sales in the broader Southeast Asian market, South Korea can realize the economies of scale required to ensure the project\u2019s viability.<\/span><\/p>\n

This strategy closely mirrors the model employed by the F-35 program, which once held the title of the U.S. Defense Department\u2019s <\/span>most expensive weapons program ever<\/span><\/a>. Today, thanks to economies of scale buoyed by sales to U.S. allies around the world, the F-35 enjoys a <\/span>competitive price point<\/span><\/a>.<\/span><\/p>\n

Indeed, the importance of Indonesia\u2019s participation extends beyond its 20% financial stake. The country\u2019s participation is also necessary to attract potential buyers, particularly in Southeast Asia and the Middle East, regions that are looking to upgrade their air force fleets but which have been unable to acquire modern fighter jets for one reason or another.<\/span><\/p>\n

\"\"

A Chang Bogo-class diesel-electric attack submarine, which was later delivered to Indonesia in 2017 | Image: Hanwha Ocean<\/a><\/em><\/p><\/div>\n

DELICATE RELATIONS<\/b><\/p>\n

South Korea will likely face challenges in navigating the financial impasse with Indonesia over the KF-21 fighter jet program. The most pressing reason is Indonesia\u2019s significance as a defense client for South Korea. In 2019, Indonesia ranked as South Korea\u2019s <\/span>third-largest defense client<\/span><\/a>, highlighting the stakes involved for the Korean defense industry.<\/span><\/p>\n

Over the years, Indonesia has shown an affinity for ROK weapons. The country purchased 21 units of the <\/span>T-50 Golden Eagle aircraft<\/span><\/a>, which are also manufactured by KAI. Moreover, Indonesia has expressed interest in acquiring KAI\u2019s <\/span>KUH-1 Surion<\/span><\/a>, a twin-engine transport utility helicopter, and South Korea\u2019s first domestically produced helicopter.<\/span><\/p>\n

Indonesia\u2019s procurement of South Korean military platforms extends beyond aerospace. The country purchased six of South Korea\u2019s <\/span>Chang Bogo-class submarines<\/span><\/a> from Daewoo Shipbuilding & Marine Engineering, which has recently rebranded to <\/span>Hanwha Ocean<\/span><\/a>. The <\/span>first batch<\/span><\/a> of three submarines was acquired in 2011 for $1.1 billion. The <\/span>second batch<\/span><\/a>, purchased in 2019 for $1.02 billion, further reinforced the countries\u2019 military relationship. Importantly, these transactions positioned South Korea as the <\/span>fifth-largest submarine exporter<\/span><\/a> in the world at the time of the second deal.<\/span><\/p>\n

The business relationship between South Korea and Indonesia is thus not simply a one-off partnership for the KF-21 project. Indonesia\u2019s importance as a revenue stream for the ROK defense industry makes it a valued customer with considerable bargaining power.<\/span><\/p>\n

South Korea\u2019s ability to apply significant pressure on Jakarta is also limited by the risk of potentially souring diplomatic ties with Jakarta. Straining this partnership could risk Indonesia\u2019s future purchases of South Korean defense products, but, more importantly, it could also jeopardize Seoul\u2019s relations with the country that currently <\/span>chairs<\/span><\/a> the Association of Southeast Asian Nations \u2014 a significant bloc in the Yoon administration\u2019s <\/span>Indo-Pacific Strategy<\/span><\/a>.<\/span><\/p>\n

Furthermore, South Korea\u2019s standing as a defense exporter could be tarnished if the KF-21 partnership falls through. The KF-21 is a showcase of the ROK\u2019s technological prowess, so a failure to deliver on this high-profile project could affect its reputation among other potential clients.<\/span><\/p>\n

While it is important for South Korea to ensure Indonesia fulfills its obligations, Seoul will likely take a nuanced and gentle approach in consideration of the larger defense and diplomatic relationships between the two countries. The repercussions of a more aggressive stance could have far-reaching impacts, affecting not just the KF-21 project but also South Korea\u2019s broader standing as a reliable partner in the global defense industry.<\/span><\/p>\n

KAI may take some solace from South Korean media outlets that <\/span>reported<\/span><\/a> in May that Polska Grupa Zbrojeniowa, Poland\u2019s state-owned defense firm, is eager to participate in the KF-21 fighter program and that it expects to issue a letter of intent expressing to do so \u201csoon.\u201d<\/span><\/p>\n

However, until a deal with Poland becomes official, Indonesia remains South Korea\u2019s only international partner in the program. Thus, South Korea will find its options limited for the foreseeable future.<\/span><\/p>\n

Edited by Alannah Hill<\/span><\/i><\/p>\n

Business & Economy<\/span><\/a>Defense & Security<\/span><\/a>Inter-Korean & Foreign Relations<\/span><\/a><\/div>","protected":false},"excerpt":{"rendered":"

South Korea is confronting a growing chasm of distrust with Indonesia, centered around a key joint defense project: the KF-21 fighter jet program. The Southeast Asian nation\u2019s failure to present a payment timetable, as pledged, for its $1.3 billion share of the project\u2019s cost is causing concern in Seoul. Indonesia\u2019s recent agreements to purchase 42 […]<\/p>\n","protected":false},"author":10407,"featured_media":2201588,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[21],"tags":[24,26,28],"yoast_head":"\nHow a payment dispute with Indonesia puts Seoul\u2019s defense export goals at risk - KOREA PRO<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/koreapro.org\/2023\/07\/how-a-payment-dispute-with-indonesia-puts-seouls-defense-export-goals-at-risk\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How a payment dispute with Indonesia puts Seoul\u2019s defense export goals at risk - KOREA PRO\" \/>\n<meta property=\"og:description\" content=\"South Korea is confronting a growing chasm of distrust with Indonesia, centered around a key joint defense project: the KF-21 fighter jet program. 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