The Impact of Law No. 16/2012 on the Development of Indonesia's Defense Industry Ecosystem

Abstract

This study critically examines the strategic impact of Law No. 16/2012 on the development of Indonesia’s defense industry ecosystem. Adopting a qualitative descriptive approach through a systematic literature review, the analysis focuses on regulatory frameworks, institutional roles, offset mechanisms, and technology transfer. The findings reveal that while the law provides a robust legal foundation for defense industrial revitalization, its implementation has been hindered by fragmented coordination, insufficient private sector integration, and limited absorptive capacity in technology transfer programs. The study identifies key structural constraints, including underinvestment in research and development (R&D), a narrow domestic market, and persistent reliance on state-owned enterprises (SOEs). Policy recommendations include the establishment of a centralized offset authority, enhanced public–private partnerships, and targeted human capital investment to strengthen Indonesia’s strategic autonomy. By integrating a decade’s worth of policy developments and performance trends, this research offers an ecosystem-based perspective that has been largely absent from previous studies, thereby contributing to both academic discourse and policy formulation in the defense sector.