Crisis Threatens Multi-Billion $$ Arms Market

South Korea, Thailand, Indonesia and Malaysia -- all caught up in a cash crisis -- are either cutting down on arms purchases or postponing plans to buy major weapons systems, mostly from the United States, Britain, Russia and Germany. If the crisis spreads Japan, Taiwan and Singapore, the impact on Western arms suppliers could be even more devastating.

"We are going to see a steep drop in arms sales to the region in the short term because most of these countries do not have the cash," says Tom Cardamone, editor of the Arms Trade Newsletter.

Cardamome said for most Western arms suppliers, and specifically those from the U.S., the Southeast Asian market was one of the world's most lucrative.

"Now they are going to buy only what they can afford to buy -- mostly spares and inexpensive equipment," Cardamome told IPS, "It will put a crimp on their ability to spend on high-tech weapons systems."

He said the crisis comes at a time when some of these countries were on the verge of buying expensive state-of-the-art weapons systems as part of an ongoing military modernization program triggered by one-time booming economies.

Originally, the Thai government wanted to terminate the contract, but was put off by a $250 million penalty clause for any cancellation. As part of the terms of a $17 billion rescue package from the International Monetary Fund (IMF), Thailand has also been forced to slash its 1998 military budget by 23 percent from its original $2.2 billion allocation.

Until recently, the Thai shopping list included a proposed $1 billion spy and communications satellite system from the U.S., advanced medium range air-to-air missiles, diesel-powered submarines, helicopters and anti-tank weapons.

Malaysia, which recently completed the purchase of 18 MiG-29 fighter planes from Russia and eight F/A-18 Hornets from the U.S., earmarked more than $2.8 billion for arms purchases under its seventh five-year plan which runs through the year 2000. The Russian combat aircraft cost about $550 million while the U.S. fighters about $700 million.

In an attempt to bolster its armed forces, Malaysia has been evaluating the purchase of attack helicopters, battle tanks, offshore patrol vessels, corvettes and even a submarine.

In October 1997, however, Malaysian Defense Minister Syed Hamid Albar said his country had "suspended," several major military purchases because of uncertainties caused by the ongoing financial crisis. In December 1997, Malaysia announced plans for a severe austerity drive with sharp cuts in state spending.

As part of this drive, the Malaysian government has shelved plans to acquire up to 27 offshore patrol vessels, several helicopters and a low-level air defense system. "The delays will not jeopardize our defense as those project (remain) part of our plans to upgrade the system. The country's defense system is not affected by the austerity drive," Hamid Albar asserted.

The biggest casualty could be South Korea, a significant U.S. arms market in the region. In 1996, the Koreans purchased about $1 billion worth of U.S. arms while the projected sales for 1997 and 1998 were $725 million and $692 million respectively.

Since there are 37,000 U.S. troops in Korean soil, Washington could try to stall any attempts by Seoul to reduce its military effectiveness notwithstanding the cash crisis.

The 1995 total marked the second straight rise for the region after having fallen continuously from a peak of $10 billion in 1987 to less than half that amount -- $4.3 billion -- in 1993.

The United States continued to be the number one arms supplier to the region accounting for roughly half of all military purchases. According to the latest figures released by ACDA last year, the Southeast Asian nations purchased $15.9 billion worth of arms during 1993-1995.

Of this, $8.1 billion went to the United States followed by $2.2 billion to Russia, $1.7 billion to British weapons suppliers, $1.6 billion to those in Germany and $535 million to China.

The largest single arms purchaser was South Korea accounting for $3.5 billion followed by Taiwan ($3.2 billion), Japan ($2.0 billion), Malaysia ($1.9 billion), China ($1.6 billion) and Thailand ($1.5 billion).

Last year, there were predictions that Asia's military spending was expected to outstrip Western Europe and the North Atlantic Treaty Organization (NATO) by the end of the next decade. Francois Heisborg, senior vice-president of Matra, one of France's leading arms manufacturers, said that military spending by South Korea, Taiwan and Singapore already were matching those of European countries.

"Going by this trend, East Asia's military expenditure will match that of Europe in 10 to 15 years," he predicted.

The Pentagon also singled out Asia as one of the potentially big regional arms markets through the turn of the century. In its "Worldwide Conventional Arms Trade," released in 1994, the Pentagon said that a dynamic, growing economy in East Asia had provided several governments with resources to increase investments in state-of-the-art military capabilities.

The arms imports projections for Southeast Asia were virtually the same as those for the Middle East which has historically been the world's largest arms market. Pentagon estimates, projected through the year 2000, range from $54-$60 billion in arms sales to East Asia compared with $54.2 billion to $64 billion to the Middle East.