Indonesia’s defence budget for 2026 is 187.1 trillion rupiah (A$17 billion). This is a small increase from last year’s budget but still low compared with GDP and global standards. A significant portion of the budget goes to everyday expenses, leaving little room for modernisation. The government can’t spend much more, however, due to fiscal constraints and public opinion. To get around this, Indonesia needs to set goals, work better with other countries and carefully choose partners to make sure that limited resources lead to significant modernisation and effective deterrence.

At first glance, the new defence budget figure appears substantial—the allocation is one of the largest within Indonesia’s overall budget, and a rise in the defence budget is often seen as a positive signal, particularly amid growing global geopolitical tensions and Indonesia’s pressing need to modernise its arsenal.

However, budget increases are just one part of a bigger picture, and further examination reveals fundamental issues with the allocation. First, the figure amounts to 0.8 percent of Indonesia’s GDP. In comparison, major powers spend around 1.5 percent of their GDP on defence. Indonesia’s allocation is also the lowest among Southeast Asian countries, as reported by the Stockholm International Peace Research Institute (although this data does not include Vietnam or Laos). This fact should worry Indonesia.

Southeast Asian states’ defence budgets as a percentage of GDP. Source: SIPRI.

Additionally, the budget’s focus hampers Indonesia’s modernisation agenda. Routine operational needs, such as salaries, absorb at least 50 percent of the budget. At this stage, only 30 percent of the budget goes to arms procurement.

This spending breakdown, along with the modest percentage of GDP allocated to defence, suggests that the 2026 increase is more of a political-fiscal compromise than a strategic breakthrough. In other words, even with the nominal increase, Indonesia’s defence budget remains far from ideal.

Indonesia cannot afford to stay in this position, given global volatility and the increased possibility of conflict in the South China Sea. Armament modernisation is urgent. A more appropriate target is 350 trillion rupiah (A$30 billion), amounting to 1.5 percent of GDP. This is a minimum benchmark if Indonesia wishes to catch up to neighbouring countries and build a more realistic posture in the face of geopolitical unpredictability.

But Indonesia faces obstacles on the path to increased defence expenditure. The government is dealing with tough fiscal constraints. State revenue has yet to expand much, while spending in other critical sectors—such as education, health, and energy subsidies—remains high.

In this situation, the government cannot simply increase the defence budget to ideal levels. In democracies, public opinion shapes government priorities. A radical defence budget increase would likely be met with popular opposition, as citizens may view the increase as a prioritisation of military spending over essential needs.

In this context, Jakarta will instead need to maximise its limited defence budget. Three key changes can help it achieve this.

Firstly, the government should be more discerning in setting priorities, focusing primarily on procuring key weapons systems and building a domestic defence industry. It should carefully review objectives that could increase operational burden, such as a current plan to establish 500 territorial development battalions by 2029.

Secondly, the government should strengthen international cooperation to reduce the financial burden of modernisation. Schemes such as joint production and technology transfer should be pursued. The involvement of private defence industries, domestic and foreign, should also be promoted, including the formation of joint ventures with foreign partners. This would increase Indonesia’s access to advanced and deterrent-capable weaponry, while also strengthening the country’s indigenous defence industry.

Thirdly, Indonesia must carefully choose its arms suppliers and defence industry partners. Rash decisions cannot be excused by the necessity of modernisation, or the need to develop indigenous defence industry capacity with limited resources.

Indonesia’s cooperation with South Korea has provided two key examples of the potential consequences. The first arose when South Korean company Daewoo Shipbuilding & Marine Engineering signed a deal to provide Jang Bogo-class submarines to Indonesia. These submarines performed poorly in Indonesia due to their faulty selection. The second case involved the joint development of the KF-21 Boramae 4.5-generation fighter plane. Neither Indonesia nor South Korea had much experience in the complicated jet technology. As a result, both countries were forced to dedicate more time and money to research and development, and the need to import critical US components kept third parties involved.

In both cases, large sums of money did not translate into the deterrent power that Indonesia desperately needed. This should remind Jakarta that it cannot afford to let desperation give way to impulsivity, especially when making such important decisions.

The challenge, and the solution, now rests with the government. With a limited defence budget, Jakarta must maximise its spending to achieve targeted modernisation that meets operational requirements and builds credible deterrence. It cannot do so while it continues to let routine expenditure dominate its limited resources.