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IDN Southeast Asia

Defence procurement in
Indonesia.

Indonesia asks for more back than almost anyone. Under the 2012 Defence Industry Law, countertrade, local content and offset together must be worth no less than 85% of the main contract — split roughly 50% countertrade and 35% local content and offset — and technology or skill transfer is mandatory in any deal involving a foreign company. Countertrade here is literal: palm oil, rubber, coffee and other commodities have all been used to settle defence obligations, which makes the commercial structure of a bid as demanding as its technical content. SIRAT analyst desk · reviewed 2026-09-05

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Governing lawLaw 16/2012
In force5 October 2012
Total requirementAt least 85% of contract value
Split50% countertrade · 35% local content / offset
MinistryKementerian Pertahanan

At a glance

Governing lawLaw No. 16 of 2012 on the Defence Industry, signed 5 October 2012
Buying ministryKementerian Pertahanan (Ministry of Defence)
Total requirementCountertrade, local content and offset together worth no less than 85% of the value of the main defence contract
How it splitsApproximately 50% through countertrade and 35% through local content and offset
Technology transferMandatory in deals involving foreign companies
Industry tiersNational defence production is organised in four tiers; private industry operates in tiers three and four
01

The law that sets the terms

Law No. 16 of 2012 on the Defence Industry, signed on 5 October 2012, introduced local content requirements for defence equipment and remains the framework a foreign supplier is measured against. It also organises national defence production into four tiers, with private industry confined to the lower two.

02

What is expected back: 85%

Countertrade, local content and offset together must be worth no less than 85% of the value of the main defence contract. In practice that has been applied as roughly half countertrade and just over a third local content and offset — an obligation large enough that it shapes the commercial structure of the bid rather than sitting alongside it.

03

Countertrade is literal

Countertrade covers both defence and commercial products, and Indonesia has favoured commodities including palm oil, rubber, coffee, cocoa, textiles and machinery. A supplier without a trading arm or a partner who has one will struggle to discharge the obligation, whatever the quality of the equipment offered.

Compiled from the published material of the Indonesian Ministry of Defence and Law No. 16 of 2012 on the Defence Industry, last reviewed 2026-09-05. A public reference note, not an assessment. Something wrong or out of date? Tell us.

Indonesia,
through your company.

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