Addressing fiscal gap between budget availability and financing needs for Indonesian defense strategies

PurposeThis article aims to examine strategies to address the persistent fiscal gap between Indonesia's defense budget needs and its available fiscal capacity by optimizing the role of strategic defense companies.Design/methodology/approachAn approach with mixed methods is employed. The study quantitatively applies an ARIMA model for the identification of the fiscal gap and for the projection of state revenue. It uses process-tracing qualitatively to analyze policy alternatives, then validates findings via stakeholder interviews.FindingsThe study finds that Indonesia faces a growing fiscal gap in defense budgeting, projected to persist through 2045 if revenue growth remains modest. Five state-owned strategic defense companies, Pindad, PAL Indonesia, PTDI, LEN and DAHANA, have the potential to support defense financing, yet currently underperform with none generating over IDR 5 trillion in profit. Proposed strategies to enhance their contributions include capital injection, private sector collaboration, bond issuance and international partnerships.Research limitations/implicationsARIMA projections depend on historical data accuracy and assume stability in macroeconomic trends. Policy recommendations are context-specific and may not be generalizable.Practical implicationsThe study provides actionable insights for policymakers seeking alternative defense financing mechanisms. It highlights how defense SOEs can bridge fiscal gaps through improved performance and strategic reforms.Originality/valueThis research is one of the first to comprehensively assess Indonesia's fiscal gap in defense from both economic and strategic perspectives, integrating empirical modeling with defense policy analysis.