YUDHOYONO'S VISIT TO RUSSIA: DEFENSE COOPERATION

C O N F I D E N T I A L SECTION 01 OF 04 JAKARTA 013498

SIPDIS

SIPDIS

E.O. 12958: DECL: 12/13/2016
TAGS: PREL MASS MARR EINV EIND ENRG SOCI ID RS
SUBJECT: YUDHOYONO'S VISIT TO RUSSIA: DEFENSE COOPERATION
AND MORE


Classified By: Political Officer Daniel Turnbull, for reasons 1.4 (b an
d d).


1. (C) Summary: Indonesia and Russia signed a range of
intergovernmental and other agreements during the visit of
Indonesian President Yudhoyono to Russia November 29-December

1. Foremost among these were two agreements on military and
technical cooperation, as well as space exploration, nuclear
energy and commercial activities. Yudhoyono, accompanied by
several senior military leaders, visited Russian naval
facilities and Russia announced a grant of $1 billion in
credits for Indonesian purchases of military hardware,
including Sukhoi fighters. DCM discussed these and related
developments with Russian DCM Barsky on December 8. Barsky
said Yudhoyono had met with senior executives of Alfa Bank,
which was planning to invest $2 billion in communication
technology in Indonesia, as well as RusAl (Russian Aluminum),
Lukoil and gas pipeline manufacturers. Barsky said Russia
expected to coordinate closely with Indonesia during
Indonesia's upcoming rotation on the UN Security Council, had
an active interfaith dialogue with Indonesian Muslim leaders,
and was preparing further agreements on military-to-military
cooperation and counter-terrorism. In related developments,
Russian hardward predominated at recent defense expositions
in Jakarta, and Indonesian Defense Minister Sudarsono
emphasized Indonesia's intention to diversify its acquisition
of military equipment to avoid becoming overly dependent on
the United States. End Summary.


2. (C) DCM met with Russian DCM Kirill M. Barsky on December
8 to discuss Russian- Indonesian relations and the recent
visit of Indonesian President Yudhoyono to Russia, November
29- December 1. Barsky provided background and commentary on
ten agreements signed during the visit, seven of them
inter-governmental. The Joint Statement from the visit,
issued December 1, lists the agreements.


3. (C) Barsky said the visit, which he described as friendly
and substantive, had been Yudhoyono's first and the first
visit by an Indonesian head of state since President
Megawati's in April 2003. The last visit of a Russian
president lay even further in the past. President Putin had
planned to visit Indonesia in 2006 and, when Putin had
canceled those plans, Yudhoyono had offered to travel to
Moscow instead. The visit reflected the progress made since
Megawati's visit, when the two countries had signed a
Declaration of Fundamental Principles of Amity and
Partnership. Key areas in which agreements had been signed
during Yudhoyono's visit were military and technical
cooperation and trade and investment. Major issues discussed
by the two presidents included the Korean peninsula, the
Middle East, Iran, the situation in Iraq and integration of
the Asia-Pacific region. Military cooperation figured
prominently, but the relationship was much broader, as
reflected by the other agreements concluded.

MILITARY AND TECHNICAL COOPERATION


4. (C) In the area of defense cooperation, the two sides
signed agreements "On Protection of Intellectual Property in
Military- Technical Cooperation" and "On Assistance in
Implementation of Military-Technical Cooperation during
2006-2010."


5. (C) Russian-Indonesian military cooperation, Barsky noted,
dated from the 1950s, in the era of President Sukarno but had
subsequently ebbed. In the 1990s, under President Suharto,
several exchanges had occurred and plans for other activities
had been drawn up, but had been overtaken by the financial
crisis of 1997-1998, which had led to the end of the Suharto
regime. Since Megawati's visit in 2003 and Indonesia's
purchase of four Sukhoi fighters, an Inter-Governmental
Commission had worked out the legal basis for protection of
classified information, intellectual property and other
elements necessary for military and technical cooperation.
Yudhoyono's visit had finalized these. Several months ago
Russia and Indonesia had initialed a program for cooperation
during 2006-2010, including a list of the military equipment
Indonesia wanted to purchase.


6. (C) Arms deals were high on the agenda, Barsky
acknowledged, but this represented only a part of their far

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more comprehensive bilateral cooperation. The first step
would consist primarily of hardware sales, but this would
entail training in maintenance and servicing and the
establishment of a maintenance center in Indonesia. The
second stage would feature the transfer of technology,
including Russian investment in Indonesian defense industries
and possibly co-production as well. Indonesia had skilled
defense enterprises to offer in Bandung, and shipyards in
Surabaya, he noted.


7. (C) Barsky said Indonesian interest in Russian arms sales
was evident from the visit. Yudhoyono had brought two top
defense officials: Director General at the Department of
Defense LTG Syafrie Syamsuddin (effectively the deputy of
Defense Minister Sudarsono) and Commander of the Armed Forces
Air Chief Marshal Djoko Suyanto.


8. (C) Barsky confirmed that Russia conducted a significant
number of ship visits, exercises and other forms of defense
cooperation and said the two sides were working on a defense
cooperation agreement which would stipulate the terms and
conditions for such activities. (Note: Barsky did not use
the term "Status of Forces Agreement" and asked about the
reference to a SOFA in the Bush-Yudhoyono Joint Statement of
November 20.) Humanitarian assistance and disaster relief,
however, would be handled through a separate agreement, i.e.,
they were not regarded as a military activity. The two sides
also planned to conclude an agreement on environmental
assistance along the lines of Russia's recent provision of
assistance in the form of airplanes to combat forest fires.

ECONOMIC COOPERATION


9. (C) Several agreements in the economic and commercial
sphere had been signed during the visit, Barsky confirmed,
including "On the Exploration of Outer Space for Peaceful
Purposes" and "On Peaceful Uses of Atomic Energy." In
addition, the respective chambers of commerce had concluded
an agreement regarding the exchange of business information.
In addition, a Russian- Indonesian Business Forum had been
organized, attended by over 100 business leaders from both
countries. Yudhoyono had met with the leaders of Alfa Bank,
which planned to invest $2 billion in the Indonesian
telecommunications sector, and the leaders of RusAl
(aluminum),Lukoil and gas pipeline producers as well, for
similar reasons. (Note: Russian Ambassador Bely told
Ambassador Pascoe separately that Lukoil was seeking an oil
concession in Indonesia and that the Russian Gasprom was
negotiating with the Indonesian Bakrie Brothers concerning
gas pipelines in Kalimantan.) The space agreement provided
for construction of a cosmodrome on the island of Biak (near
Papua). Russia and Indonesia were major energy producers and
wanted to cooperate on a range of energy sources, including
peaceful nuclear energy. Indonesia intended to announce a
tender for the construction of a nuclear power plant in 2008
for completion in 2016-2017, Barsky noted. (Note:
Indonesian Minister of Energy and Minerals Yusgiantoro has
said Indonesia planned to construct its first nuclear power
plant by 2015.) Competitors included South Korea, Japan and
France; DCM confirmed the U.S. was also interested in
cooperation in this sector.


10. (C) Barsky averred Russian investors were concerned about
the investment climate in Indonesia, including corruption,
the rule of law and predictability. Yudhoyono had
anticipated this in his opening speech by highlighting what
Indonesia was doing to improve the investment climate, Barsky
suggested. The issue was admittedly not as acute for Russian
businessmen as it was to U.S. counterparts, but this would
change once the volume and range of investment and trade
increased. DCM responded that the addition of Russia's voice
to the chorus on this issue would be welcome.

OTHER AREAS: COUNTER-TERRORISM AND INTERFAITH DIALOGUE


11. (C) Russia was interested in cooperating with Indonesia
in other areas as well, Barsky affirmed. The two countries
were working on an agreement on counter-terrorism, which
would establish a bilateral working group. Strengthening
direct links between the respective security agencies would
be a part of this effort. Russia was already cooperating
with ASEAN on counter-

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terrorism, Barsky said. (Note: Pre-visit media reports had
listed counter-terrorism among those to be signed at the
visit.)


12. (C) Interfaith dialogue was another area where Russia and
Indonesia were already cooperating, and which was high on
Russia's agenda. Some joint events had been held in regional
fora. Indonesian Muhammadiyah leader Din Syamsuddin had
traveled to Russia twice to participate in the Strategic
Vision Group, a dialogue which focused on tolerance and
mutual understanding, he said. There was also a Russian
Corner at the Syarif Hidayatullah University similar to the
American Corner there. Russia encouraged direct links
between Islamic leaders. Yudhoyono had visited the Cathedral
Mosque, one of the largest in Europe, in St. Petersburg, he
noted.

CLOSE COOPERATION ON UN SECURITY COUNCIL


13. (C) Russia was looking forward to Indonesia's
participation in the United Nations Security Council during
2007-2008, Barsky stated. Russia had supported Indonesia's
candidacy for a nonpermanent seat and expected to coordinate
closely with Indonesia. Russia's and Indonesia's positions
on many issues were very close, if not identical. Russia
valued Indonesia's past and current contributions in the
international arena and welcomed indications that Indonesia
wished to play a more prominent role internationally.
Indonesia's approach to issues was balanced and it
represented a moderate voice within the Islamic world.
Indonesia's contributions in international peacekeeping,
including the recent UNIFIL deployment, were "very
commendable."


14. (C) Russia had an ongoing dialogue with Indonesia at the
director level on human rights, Barsky claimed, and was "very
satisfied" with the results. In 2005 there had been
discussions at the deputy minister level, and these were
scheduled to occur again in 2007. As young democracies,
Russia and Indonesia faced many of the same problems and
challenges.

TRUMPETING DEFENSE COOPERATION


15. (C) Apart from our conversation with Barsky, two recent
developments in Jakarta underscore the mutual Russian and
Indonesian interest in arms sales. Shortly after the
Yudhoyono visit, Indonesia announced that Russia had offered
Indonesia a $1 billion line of credit for the purchase of
military hardware. Indonesian Defense Minister and
Indonesian Director General for Defense Means Rear Marshal
Slamet Prihatino have both subsequently announced Indonesia's
intention to acquire two Sukhoi jet fighters in the next two
to three years, adding to the four it already owns, and buy
another four later. According to some reports, Indonesia
will use $200 million of the credits to buy Mi-17 combat
helicopters. Russian Ambassador Mihkail M. Bely told
Ambassador Pascoe on December 13, however, that Russia had
received the Indonesian letter of request for credits but had
not officially granted the credits. Bely also said only the
sale of two Sukhois had been agreed. He noted that the
hardware on the Indonesian wishlist had a total price tag of
far more than $1 billion.


16. (U) Seeking to capitalize on the announcement of Russia's
grant of $1 billion in military credits, Bely contributed an
op-ed to the local English-language Jakarta Post newspaper on
November 28 titled "Birds of a Feather Flock Together." In
it, Bely stressed Russia and Indonesia were large,
multi-ethnic and multiconfessional countries with governments
desiring to bridge "gaps between civilizations." Russia and
Indonesia were the largest producers and exporters of oil and
gas in the Asia- Pacific Region. On defense cooperation,
Bely asserted that Russian military sales came with "no
political strings attached" and were, for Russia, "a matter
of principle."


17. (U) Indonesia recently held two back-to-back official
defense fairs: the Indo-Aerospace Expo and Forum (November
19-22, 2006) and the Indo-Defense Expo and Forum (November
22-25, 2006). At the two events, which were organized by the
Indonesian military, Russian companies had by far the largest

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footprint of the over 400 represented from 30 countries.
(U.S. companies generally stayed away.) Russia also has a
permanent office in Jakarta for defense sales.

DEFENSE MINISTER STRESSES DIVERSIFICATION


18. (C) Indonesian Defense Minister Sudarsono has made
several public statements recently underscoring Indonesia's
desire to diversify its defense acquisitions, away from the
heavy reliance on the United States in the past to a broader
range of suppliers. Sudarsono has referred to what he calls
the unreliability and inconsistency of U.S. sourcing, a
reference to the arms embargo imposed on Indonesia during the
late Suharto years because of human-rights violations by the
Indonesian military in East Timor and elsewhere. The
normalization of military ties and the resumption of military
exchange programs, financing and sales should not lead, in
his opinion, to a return to Indonesia's former dependence on
the United States.
PASCOE