S. Korea Cuts Indonesia's Payment for Joint Fighter Development: Arms Agency

16 November 2021

KF-21 fighter (photo : MBC)

SEOUL (Yonhap) -- South Korea has lowered Indonesia's planned payment for its share of the cost for a joint fighter development project, as the warplane has been designated as "defense goods" eligible for a tax exemption, the state arms procurement agency said Monday.

Accordingly, the Defense Acquisition Program Administration (DAPA) said Indonesia is to pay 1.6 trillion won (US$1.35 billion) in total, down 100 billion won, for the 8.1 trillion-won project, called KF-21.

DAPA announced the change after it concluded years of negotiations with Indonesia last week on a cost-sharing deal, under which Indonesia reaffirmed its earlier pledge to shoulder 20 percent of the development cost and agreed to make in-kind payments for 30 percent of its share.

In Korea, once an item is classified as defense goods, it is exempt from value-added taxes. The designation for the fighter project came in 2017, but the change had not been reflected in the cost-sharing deal amid Indonesia's call for a renegotiation.

The two countries had held six rounds of negotiations, including Thursday's session in Jakarta, as Indonesia demanded a reduction in its share of the cost and other adjustments to the previous deal.

The two sides will have additional consultations on a detailed plan concerning how and when Indonesia will make its overdue payments for the defense project, which currently stand at around 800 billion won, DAPA officials said.

"Indonesia may find it difficult to make the overdue payments all at once due to the very difficult situations, including the COVID-19 pandemic," a DAPA official said. "But the negotiations had proceeded based on mutual trust."

As for Indonesia's plan for the in-kind payments, the official said no decision has been made yet on what goods it will offer. But he noted the possibility of the country providing its major export item, palm oil.

South Korea has been working on the fighter project since 2015 to develop an advanced homegrown fighter jet to replace the Air Force's aging fleet of F-4 and F-5 jets.

Since April, three prototypes of the single-seat KF-21 jet have been rolled out for testing purposes. The fourth one is set to be unveiled in December under a scheme to produce a total of six prototypes for the defense project, according to DAPA.

(Yonhap)