The deal marks a seismic shift in the global arms market. It is the biggest move of any major developing or oil-producing nation -- and Indonesia is both -- out of the sphere of U.S. or Western European arms manufacturers in decades.
Awash in windfall oil and gas revenues with global oil prices still around an extraordinary $70 a barrel, Russia could certainly afford to offer Indonesia generous terms and did so, proving a credit line for the full $1 billion price tag.
RIA Novosti reported Thursday that the deal was ignored by Russian Deputy Finance Minister Sergei Storchak and his Indonesian opposite number after it was hammered out by Russian President Vladimir Putin and Indonesian President Susilo Bambang Yudhoyono in Jakarta.
RIA Novosti reported Indonesian Defense Minister Juwono Sudarsono as announcing that Jakarta would use the money to purchase Russian fighter aircraft, submarines and helicopters.
As we have previously noted in these columns, the deal was signaled by Indonesia's decision during the MAKS-2007 air show at Zhukovsky outside Moscow late last month to purchase three multi-role Sukhoi Su-27 fighter bombers and three Su-30s fighters for $350 million.
Indonesia has been a major ally of the United States for the past 40 and more years, and relations between Washington and President Yudhoyono have been good, especially in cooperation in the war on terror. But Russia has been building its presence as a major arms supplier ever since the United States temporarily slammed an arms embargo on Indonesia over its role in East Timor during the Clinton administration back in 1999.
The deal needs to be seen in the context of President Putin's sustained and highly successful drive to build Russian influence and weapons sales opportunities through South and Southeast Asia, and especially in the Association of Southeast Asian Nations, a huge, sprawling region of 10 nations and 500 million people that is projected to account for 40 percent of global gross domestic product by 2040.
The deal for high-tech, complex weapons like helicopters, fighter aircraft and submarines effectively institutionalizes Russian diplomatic and military influence in Indonesia for years, possibly decades, to come.
Historically, the armed forces of Indonesia, TNI, have been, and even under the current democratic system they remain, the most powerful element in the enormous nation of 210 million people stretched out over thousands of islands in an ocean area larger than the United States.
That has been the case ever since TNI generals, fearful of a takeover by communists looking to China, toppled President Sukarno in 1965-66 and replaced him with President Suharto, precipitating one of the bloodiest massacres in modern Asian history. But now Putin has succeeded in reversing that dynamic.
RIA Novosti noted that the arms deal was accompanied by a significant strengthening of Russian influence in Indonesia in other areas. Several other agreements were signed at the same time, a memorandum on mutual understanding to coordinate the fight against terror between their governments on cooperation in the international war on terror.
This marks another successful Russian incursion into a traditional area of U.S. influence. Indonesia, the most populous Muslim nation in the world, was plagued by Islamist terror attacks against tourist sites frequented by Westerners in 2002 and thereafter, especially a multiple bombing on the resort island of Bali that killed 200 people, most of them Australian tourists.
Putin also pointedly told a news conference in Jakarta that he and Yudhoyono agreed on the need to boost the role of the United Nations in fighting terrorism: That is diplomatic code-talk for seeking to prevent or discourage U.S. unilateral activities in the war on terror, or U.S. initiatives carried out just with allied nations that are not subject to Russia or China's veto power in the U.N. Security Council.
RIA Novosti further reported that the Russian president said Yudhoyono shared his determination to double the value of Russian-Indonesian trade, currently running at the already healthy level of $500 million a year.
Putin also announced new agreements on prospecting for new oil and gas deposits between Russian independent oil major LUKoil and Indonesia's state-owned Pertamina Corp.
RIA Novosti reported that Yudhoyono predicted far vaster deals would soon be signed, too.
"The volume of Russian investments in Indonesian economy has been very low, but we now plan to sign bilateral agreements worth over $4 billion," the Indonesian president told the news conference.
That kind of business could make Russia's $1 billion arms credit for the submarine, helicopters and fighter planes a very good deal indeed.
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