Korea to Promote Defense Industry Cooperation with Indonesia, India during Yoon’s Visit

As South Korean President Yoon Suk-yeol embarks on a tour of Indonesia and India Sept. 5-10, much attention is being paid to the South Korean defense industry’s issues with Indonesia and India. Indonesia is a major defense export destination with which South Korea has close military ties, although the country is delaying its payment for the KF-21 fighter jet. India, a global arms importer, is also considered a potential big market for South Korea’s defense industry.

President Yoon began his visit to Indonesia and India on May 5 to attend an ASEAN summit and a G20 summit.

From Sept. 5-8, Yoon will travel to Jakarta, Indonesia, to attend the South Korea-ASEAN Summit, the ASEAN+3 (trilateral) Summit, and the East Asia Summit (EAS) with 18 heads of state. Then, from Sept. 8-10, he will attend the G20 Summit in New Delhi, India. The trip will also include meetings with Indonesian President Joko Widodo and Indian Prime Minister Narendra Modi.

South Korea’s biggest issue with Indonesia in the defense sector is the KF-21 project. Indonesia joined the project in 2015 and agreed to contribute about 1.7 trillion won, or 20 percent of the total project cost. Upon completion of system development in 2026, Indonesia will receive one KF-21 prototype and technical data.

However, Indonesia had paid only 227.2 billion won as of January 2019 and then did not pay its share for nearly four years, citing a budget shortfall. The country only paid another 9.4 billion won in November 2022 and about 41.7 billion won in February this year. The overdue amount is more than 800 billion won.

However, Indonesia has maintained the stance that it will make the payment and the South Korean government and KAI have been in contact with the Indonesian side in various ways to continue discussions about payment. Kang Koo-young, president of Korea Aerospace Industries (KAI), the developer of the KF-21, will also fly into Indonesia in step with President Yoon’s trip. While there is no official economic mission on Yoon’s trip, Kang and other South Korean business leaders will participate in a business roundtable.

While the KF-21 project facing the delay in the payment from Indonesia, the country is still Southeast Asia’s largest defense market with close military ties to South Korea. According to Global Firepower (GFP), a military power assessment company, Indonesia’s military power is ranked 15th out of 142 countries in 2022, the highest among ASEAN countries. The country also plans to spend US$125 billion to replace its aging defense hardware by 2044.

According to the Export-Import Bank of Korea’s report titled “Characteristics and Export Strategy of the South Korean Defense Industry” published in 2022, Indonesia ranked second (14 percent) in the list of South Korea’s top arms export partners in the 2017-2021 period. It was also the first country to successfully import the Korean-made T-50 advanced trainer aircraft.

Experts say that it bodes well for South Korea’s defense cooperation with Indonesia. After his summit with Indonesian President Joko Widodo, who visited South Korea in July 2022, South Korean President Yoon said, “We reaffirmed our willingness to continue working together to ensure that the joint fighter jet development project proceeds smoothly to the end,” adding, “Both sides also agreed to actively promote other defense cooperation projects.”

India is Yoon’s next stop after Indonesia, a military powerhouse where South Korean defense firms are looking to expand their presences. In a report on the economic effects and challenges of becoming one of the world’s top four defense exporters published in July, the Federation of Korean Industries (FKI) suggested that Korea should develop customized export strategies for India, Saudi Arabia, and Egypt, which have large demand for arms.

According to the Stockholm International Peace Research Institute, India is the world’s largest arms importer with an 11 percent share from 2018 to 2022. In the last five years, India has imported 45 percent of its weapons from Russia, but Korean defense companies are also seeing some positive results.

In 2017, Hanwha Aerospace won a contract to export 100 K9 self-propelled howitzers to India through its joint venture with local defense contractor L&T, and the Indian government is reportedly planning to acquire another 100 units of the Korean gun.

In addition, Hanwha Aerospace will seek to take part in the Indian Army’s Self-Propelled Air Defense Gun Missile System (SPAD-GMS) Project with its K30 Biho. Previously, Hanwha Aerospace was selected as the preferred bidder for the project in 2019 due to the excellence of the K30 Biho. But it failed to sign the final contract as the Indian government canceled the bid after receiving protests from Russia, a competitor. At the time, the project was reportedly worth US$2.5 billion.

In order to enter the Indian market in the future, South Korean defense companies will need to actively localize their defense products for their clients. India has a “Make in India” initiative to promote the Indian manufacturing industry and demands that foreign defense companies produce goods locally in India or at leasts use Indian parts when importing weapons from abroad.