INDONESIAN MILITARY RECEIVES SIX RUSSIAN MI-17

C O N F I D E N T I A L SECTION 01 OF 02 JAKARTA 001536 SIPDIS DEPT FOR EAP, EAP/MTS, PM, EUR, EAP/MLS, EAP/RSP SECDEF FOR D.WALTON NSC FOR E.PHU E.O. 12958: DECL: 08/12/2018 TAGS: PREL MASS EIND ID RU SUBJECT: INDONESIAN MILITARY RECEIVES SIX RUSSIAN MI-17 HELICOPTERS REF: 07 JAKARTA 2475 JAKARTA 00001536 001.2 OF 002 Classified By: Pol/C Joseph L. Novak, reasons 1.4(b+d). ¶1. (C) SUMMARY: The Indonesian military recently received six new lift helicopters from Russia. The helicopters can be used for disaster relief or for military operations. The deal is based on a contract signed in 2005 and uses Indonesian credits from 2003 before U.S. sanctions were lifted. The deal is marred by an Indonesian-focused corruption scandal that remains inconclusive after several years of investigation. The GOI would need to purchase additional helicopters to complete a squadron and a tight budget will make that difficult. END SUMMARY. DELIVERY OF HELICOPTERS ¶2. (U) Russia delivered six Mi-17 medium transport helicopters to Indonesia in late July. The helicopters, manufactured in Kazan, Russia, were assembled by a Russian team of specialists in Surabaya, East Java. Earlier in the year, 15 Indonesian pilots and technical specialists visited the plant in Kazan for training. The helicopters will be used by the Indonesian Army and are the first Mi-17s in Indonesia's inventory. They can carry up to 32 persons or a payload of four tons and can be used for disaster relief as well as military operations. Indonesian defense officials say there are plans to purchase another ten to make a complete squadron. USING EXPORT CREDITS ¶3. (C) The deal uses export credits made available in 2003 and is based on a contract signed in 2005 for $21.6 million. According to Ambassador Albert Mandatong, Foreign Affairs Adviser at the Coordinating Ministry of Politics, Law and Security, the export credits are Indonesian, not Russian. The deal lacked transparency and $3.24 million of it was allegedly skimmed off by TNI officers and/or middlemen. Authorities have been investigating the scandal for several years and have only named one suspect so far. ¶4. (C) Press reports that the current purchase involves the $1 billion in Russian credits announced during Putin's September 2007 visit to Jakarta (see reftel) are in error. Russia and Indonesia reportedly remain far apart on the terms of the financing to support the credits. A submarine deal using $800 million of those credits is dead, according to both TNI and Russian defense contacts in Jakarta. Defense Minister Sudarsono announced on May 27 that, owing to new strains on the national budget caused by sharp fuel and food price increases, Indonesia would not purchase any new aircraft or submarines in the next five years. ¶5. (C) According to previous DAO reporting, Indonesia purchased two Mi-35 attack helicopters from Russia in 2003, when Megawati was president and Indonesia was still under U.S. sanctions. The sale was part of a package that included two Su-27 and two Su-30 Sukhoi fighters. The helos were delivered in September 2003, in time for the TNI's birthday celebration in October. Although Indonesia would need to purchase an additional six Mi-35s to complete a squadron of eight, no further purchases occurred. FURTHER DEALS? ¶6. (C) Whether this deal leads to further Indonesian purchases of Russian equipment remains to be seen. Sharp increases in fuel and food prices have severely pinched the Indonesian budget as a whole, given the extensive subsidization of staples. Those costs have directly affected JAKARTA 00001536 002.2 OF 002 the military, reducing the amount of real money available. Meanwhile, the two sides remain apart on the financing terms for the $1 billion in credits. Further purchases of Russian equipment are likely to be few and far between and oriented to the lighter end of the defense spectrum. HUME