Balancing Transparency and National Security in Defense Procurement: A Hybrid Model for Indonesia’s Major Weapons Systems Acquisition

Abstract

The procurement of major weapons systems in Indonesia presents a persistent policy dilemma between market-based transparency requirements and the strategic necessity of direct appointments for national security interests. This qualitative study employs a comparative approach integrating principal-agent theory, market failure analysis, and security economics to evaluate the effectiveness of competitive tendering versus direct appointment in Indonesian defense procurement. Analysis of regulatory frameworks, particularly Law No. 3/2002 and Presidential Regulation No. 46/2025, and procurement practices indicates that neither mechanism is universally superior. Competitive tendering can mitigate agency problems through supplier competition when qualified alternatives exist, but its effectiveness declines in oligopolistic defense markets characterized by information asymmetry and high entry barriers. Direct appointment supports urgent operational requirements and protects strategic information, yet increases risks of moral hazard, supplier dependency, and weak price verification, including potential cost overruns. This study proposes a hybrid procurement model that prioritizes competitive mechanisms for standardized and non-sensitive acquisitions while permitting direct appointment under clearly defined criteria, including confidentiality, high technology, operational urgency, interoperability, and limited supplier availability. Policy recommendations emphasize strengthening probity audit functions of the Government Internal Supervisory Apparatus and the Audit Board of the Republic of Indonesia, international price benchmarking, clearer confidentiality classifications, and mandatory cost transparency with independent oversight. This framework promotes risk-proportionate governance that balances public accountability with Indonesia’s defense sovereignty.