Abstract

This paper examines the impact of the Defence Industry Law (UU No.16 2012 on Defence Industry) and its implications on the development of Indonesia’s Defence Industry. Currently the 16th largest economy in the world and capitalizing on its growing economy, Indonesia is ready to reinvigorate and modernize its defence industry. In this regard, the Defence Industry law is vital primarily because it functions as a guideline in steering the direction and setting the goals that Indonesia wants to achieve in developing its own defence industrial base. Several steps are required to ensure the smooth implementation of the law: first, the establishment of a strong and clear implementation mechanism that cover clear goals with definite timelines allowing for accountability and full adherence of the law; second, a commitment to reducing the gap between proposed and actual budgets; third, the need to take steps to ensure policy complementarily as a supportive and operational gesture; fourth, the assurance of policy harmonization between stakeholders; and fifth, the need to exercise greater openness and flexibility with regard to international opportunities in the arena of defence industry cooperation. This paper concludes that a healthy development of local industry, technological vibrancy and absorptive capability in Indonesia has to be supported by a more practical, robust, and flexible policy, along with promoting transparency and eradicating corruption.