Let me tell you a story about two kinds of dependence and why one of them could cost Indonesia its sovereignty.
The first kind is the dependence we choose. When you buy a Coca-Cola, you're dependent on their formula, their distribution, their brand. That's fine. You're getting something you value, and you can always switch to Pepsi if Coke disappoints you.
The second kind is the dependence that others impose on you. That's the kind where you have no choice, no alternatives, and no leverage. That's the dangerous kind. And right now, Indonesia has that dangerous kind of dependence when it comes to its national defense.
The Wake-Up Call from Caracas
On January 3, 2026, something happened in Venezuela that should make every Indonesian policymaker lose sleep. The United States conducted a military operation that resulted in the capture of President Nicolás Maduro. Now, I'm not here to debate the rights and wrongs of that operation. What interests me and what should interest anyone thinking about Indonesia's future is what the operation revealed about military technology and strategic vulnerability.
Venezuela had spent billions building what they thought was a formidable air defense system. They bought Chinese JY-27 "anti-stealth" radars. They deployed Russian S-300VM and Buk-M2E systems. They had Iranian technology integrated throughout. On paper, it looked impressive. In reality, over 150 American aircraft penetrated Venezuelan airspace without effective detection or interception.
Here's the lesson: If you depend entirely on imported defense technology, you're not buying security you're buying the illusion of security. And illusions are expensive, especially when they fail at the worst possible moment.
Indonesia's Defense Dilemma: The Numbers Don't Lie
Indonesia is an archipelago of 17,000 islands, with a coastline stretching 99,093 kilometers and maritime borders with ten countries. Think about that for a moment. If you wanted to design a country that absolutely needed a strong, independent defense capability, you'd probably design something that looks a lot like Indonesia.
Yet today, 74% of Indonesia's defense imports are raw materials from foreign suppliers. The country has set a target called Minimum Essential Force (MEF) essentially, the minimum military capability needed to defend sovereignty. The target was supposed to reach 100% by 2024. The actual achievement? Around 65-70%.
President Prabowo Subianto's administration has made defense a priority. In the 2026 state budget, defense spending received Rp 187.1 trillion ($17 billion), a notable increase from Rp 166.26 trillion in 2025. The government designated defense as one of eight priority programs, specifically emphasizing "strengthening the total people's defense" (pertahanan rakyat semesta) through alutsista modernization and empowering strategic domestic industries. Finance Minister Purbaya Yudhi Sadewa, who took office in September 2025 following a major cabinet reshuffle, has pledged to maintain policy continuity while supporting the president's ambitious economic growth and defense modernization agenda.
But here's the uncomfortable truth: even with this increase, Indonesia's defense budget remains just 0.8% of GDP among the lowest in Southeast Asia and far below the global benchmark of 2.5%. The Indonesian parliament recognizes this gap. Commission I of the House of Representatives supports further increases, but fiscal constraints are real. The 2026 budget projects a deficit of Rp 638.8 trillion (2.48% of GDP), and President Prabowo has pledged to reduce this deficit further.
This is where the math gets interesting and challenging.
Indonesia has allocated Rp 1.7 quadrillion (approximately $125 billion) for defense procurement over 2020-2044. That's substantial. But here's the problem: most of this money is still being spent on imported equipment rather than developing domestic industry. It's like having a leaky bucket you keep pouring money in, but you're not building the capacity you need.
The government's own medium-term foreign loan plan (DRPLN-JM) 2025-2029 earmarks $28 billion for the Ministry of Defense. That's a lot of foreign debt for defense imports. Meanwhile, domestic defense manufacturers like PT Len, PT Pindad, PT Dirgantara Indonesia, and PT PAL Indonesia struggle with limited capital for research and development.
The Lesson from History: Arms Embargoes Aren't Theoretical
Now, you might ask: "Why not just buy more equipment from abroad? Isn't that simpler?"
That question reminds me of something Charlie Munger once said: "Show me the incentive, and I'll show you the outcome." When you're entirely dependent on foreign suppliers for your defense equipment, you're not their partner you're their customer. And customers have very little say when suppliers decide to change the terms.
Indonesia learned this lesson the hard way. After the Santa Cruz tragedy in 1991 and the East Timor crisis in 1999, Western countries imposed arms embargoes that crippled TNI (Indonesian Armed Forces) modernization for more than a decade. That's what happens when your security depends on the goodwill of others.
The Venezuela operation reinforces this lesson with brutal clarity. The day before the U.S. operation, President Maduro met with a high-level Chinese envoy. That meeting didn't prevent what happened the next day. Alliance with a weapons supplier doesn't guarantee protection, it just guarantees dependency.
PT Len: The Underutilized Asset
This brings me to PT Len Industri and why taking it public makes both strategic and business sense.
PT Len is the holding company for Indonesia's defense industrial complex, overseeing four strategic state-owned enterprises: PT Pindad (weapons and ammunition), PT Dirgantara Indonesia (aerospace), PT PAL Indonesia (maritime), and PT Dahana (explosives). Founded in 1965 and transformed into a state enterprise in 1991, PT Len specializes in C4ISR (Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance) essentially, the "brain system" of modern defense platforms.
In 2023, PT Len posted revenues of Rp 25.22 trillion (up 27.92%), with contract realizations of Rp 109.65 trillion (up 29.65%) and net income of Rp 726 billion (up 56.05%). The company is rated "Healthy" by government standards. These are good numbers. But they're not good enough not for what Indonesia needs to accomplish.
The company needs massive investment in research and development, facility modernization, and technology acquisition. The government's budget is stretched thin across countless priorities food security, energy independence, free nutritious meals program, education, infrastructure, and yes, defense. Relying solely on government funding (PMN - State Capital Participation) means competing with all those other priorities.
Why Public Markets Matter: Three Fundamental Questions
When I think about why companies go public, I always come back to three fundamental questions:
First, does the company need capital it can't efficiently obtain privately? For PT Len, the answer is unequivocally yes. The post-Venezuela context makes investment in advanced defense technologies cyber defense, autonomous systems, advanced C4ISR, electronic warfare a strategic imperative that cannot be delayed. Public markets offer an alternative source of capital that doesn't require trade-offs with other national priorities.
Second, will public ownership improve the company's operations and governance? Here again, yes. Public companies face scrutiny that private companies don't. Quarterly reports, analyst calls, shareholder meetings these aren't bureaucratic nuisances. They're accountability mechanisms that force companies to perform. When PT Len goes public, it won't just be answerable to a government ministry. It'll be answerable to institutional investors, retail shareholders, and market analysts who will ask hard questions about efficiency, innovation, and return on investment.
This is particularly important for a state-owned enterprise. Government-owned companies sometimes suffer from what I call "soft budget constraints" the knowledge that losses will be covered, inefficiencies tolerated, and political considerations will trump business logic. Public markets don't allow for soft budget constraints. The market is a harsh teacher, but an effective one.
Third, will public markets provide fair valuation and good stewardship? PT Len's strong financial performance and strategic importance suggest it would be well-received. Indonesia has launched Danantara, a sovereign wealth fund with $10 billion earmarked partly for encouraging SOE IPOs. That's institutional support. The government has explicitly identified defense industry empowerment as a priority in the 2026 budget. Combine that with growing public awareness of defense independence (especially after Venezuela), and you have favorable market conditions.
The Path Forward: Maintaining Strategic Control While Accessing Capital
I've thought about how this IPO might unfold, and here's a structure that makes sense:
Government retains 51% plus one share (golden share for veto power on strategic decisions). This isn't about privatization—it's about modernization. The government maintains absolute control over strategic decisions while bringing in market discipline.
Public offering of 25-30% opens the company to domestic institutional and retail investors. This creates a constituency of stakeholders who care about the company's performance and will demand accountability.
Danantara takes 15-20% as a strategic long-term investor, providing stability and patient capital.
Employee stock ownership of 3-5% aligns management and employee incentives with shareholder value creation.
This structure mirrors how many European countries have handled strategic industries, public ownership combined with private capital and governance standards. France does this with defense companies. So does the UK. It works.
The funds raised estimated at Rp 5-7 trillion in the first two years would be allocated with clear priorities:
- 40% to R&D in critical defense technologies (cyber defense, advanced C4ISR, autonomous systems, electronic warfare)
- 25% to facility modernization
- 20% to infrastructure expansion
- 10% to technology acquisition and strategic partnerships
- 5% to working capital
Key targets within 3-5 years: PT Len aims to join the world's top 50 defense companies, achieve 15-20% of revenue from exports, indigenously develop 3+ critical defense technologies, and increase local content (TKDN) to 65-70%.
Addressing the Concerns
Now, I wouldn't be honest if I didn't talk about the risks and concerns.
"Isn't this privatizing national assets?" This argument misunderstands both the proposal and the nature of strategic ownership. The government maintains controlling interest. An IPO doesn't mean losing control, it means gaining capital and discipline. Think of it this way: Indonesia isn't selling PT Len; it's inviting strategic partners to help fund its growth while maintaining sovereign control.
"How do you handle classified information?" Defense companies handle sensitive technology. How do you maintain transparency for shareholders while protecting classified information? This is a real challenge, but it's one that other countries have solved. The U.S., UK, France, and Israel all have publicly-traded defense companies with robust protocols for handling classified information while meeting disclosure requirements. Indonesia can learn from these models.
"Won't investors see this as high-risk?" Defense industries are sensitive to geopolitical dynamics. But here's the counterargument: The Venezuela operation has actually increased awareness of the need for defense independence. That awareness could translate into stronger political will for consistent defense budgets, which reduces revenue uncertainty for PT Len. President Prabowo's emphasis on "total people's defense" in the 2026 budget signals long-term commitment.
"Can PT Len execute this transition?" Taking a state-owned enterprise public is complex. It requires regulatory frameworks that don't yet exist, cultural changes in corporate governance, and coordination across multiple government agencies. This will take time and committed leadership. But Indonesia has successfully conducted complex structural reforms before. The formation of Danantara and the consolidation of defense SOEs under DEFEND ID demonstrate institutional capacity for major initiatives.
The Sovereignty Premium: A Strategic Moat
When I evaluate an investment, I'm always thinking about moats durable competitive advantages that protect a company's profits. For PT Len, the "moat" isn't traditional competitive advantage. It's strategic necessity combined with first-mover advantage in a protected market.
Indonesia is the world's fourth-largest country by population and a rising regional power. It absolutely needs a credible defense industry. PT Len is positioned to be the center of that industry. As the holding company for Indonesia's defense SOEs, it has assets, expertise, and government backing that no private competitor could easily replicate.
But here's what makes this interesting from an investment perspective: There's what I call a "sovereignty premium" built into this business model. In a normal business, you're competing for customers who can choose alternatives. In the defense industry especially for a country serious about sovereignty the customer base is captive. Indonesia has to buy from someone, and increasingly, under President Prabowo's "total people's defense" strategy, it wants to buy domestically.
The 2026 budget's emphasis on "empowering strategic domestic industries" and reducing import dependency isn't just rhetoric it's policy backed by budget allocation. This provides PT Len with a protected core market that will grow as Indonesia pursues its defense modernization targets.
This doesn't mean PT Len can be inefficient. Public markets and foreign competition will keep pressure on. But it does mean the company has a foundation of demand that makes it fundamentally different from most startups or even mature companies in competitive markets.
Why This Matters Now: The Closing Window
There's a concept in investing called "margin of safety" the difference between a security's intrinsic value and its price. In geopolitics, the equivalent might be "margin of sovereignty" the buffer between your capability and your vulnerability.
Right now, Indonesia's margin of sovereignty in defense is thin. Too thin. The country is in a race between its growing strategic needs and its limited indigenous capability. The longer this gap persists, the more vulnerable Indonesia becomes not just to military threats, but to political pressure from weapons suppliers.
The Venezuela operation demonstrated this with painful clarity. When your defense systems rely entirely on foreign technology, you're not just buying hardware you're buying into someone else's strategic calculations. And those calculations might not align with yours when it matters most.
The good news is that Indonesia has options. PT Len's financial performance shows that the core business is viable. The government's commitment to defense modernization shows political will. The launch of Danantara shows institutional support for strategic investments. The 2026 budget's prioritization of "total people's defense" through domestic industry empowerment shows policy alignment. Market conditions are favorable.
What's needed now is decisive action.
President Prabowo has set ambitious targets: 8% economic growth, strengthening food and energy security, and building comprehensive defense capability. These goals are interconnected. A strong domestic defense industry contributes to economic growth through technology spillovers, job creation, and reduced import dependency. It strengthens national security not just through military capability, but through strategic autonomy.
The window of opportunity is open, but it won't stay open forever. The global security environment is deteriorating. Regional tensions are rising. Technology is advancing rapidly. Indonesia can either use this moment to build indigenous capability, or it can continue down the path of dependency, a path that Venezuela's experience shows leads to vulnerability, not security.
The Bottom Line
I've spent my career looking for situations where there's a significant gap between price and value. The PT Len IPO isn't about buying something cheap, it's about building something essential.
Indonesia faces a choice. It can continue to allocate billions to foreign defense contractors, building their capabilities while remaining dependent. Or it can invest those billions in building indigenous capability through companies like PT Len capability that stays in Indonesia, employs Indonesians, generates Indonesian intellectual property, and creates genuine strategic autonomy.
An IPO of PT Len, structured properly with majority government control, isn't privatization. It's capitalization. It's a way to access domestic capital markets, improve governance, increase accountability, and accelerate the development of indigenous defense capability all while maintaining sovereign control.
The Venezuela operation should be Indonesia's wake-up call, not its fate. The difference between a wake-up call and a disaster is what you do next.
Indonesia has the tools: a strong democracy, a large economy, talented engineers, capable institutions, and political leadership committed to defense modernization. What it needs now is the strategic vision to use these tools effectively.
Taking PT Len public could be a critical piece of that strategy. It's not a silver bullet no single policy ever is. But it's a concrete step toward building the kind of indigenous defense capability that genuine sovereignty requires.
The question isn't whether Indonesia can afford to do this. The question, after Venezuela, is whether Indonesia can afford not to.
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