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

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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