Research Communication: The Military Related External Debt of Third World Countries

Abstract

The structure of arms imports financing has changed considerably in the past. While in the fifties and sixties grants prevailed, in the seventies credits and cash-payments became most important. It is not possible to indicate how much of arms credits were included in available debt statistics. Anyhow, some theorizing has led to the conclusion that direct military credits might not be such an interesting indicator if we are interested in the total burden imposed on Third World countries through the credit financing of arms imports. I have therefore introduced an 'opportunity cost' assessment. Both from direct payment statistics and my indirect estimates, I conclude that in the second half of the nineteen seventies credit payments became the most important financing source of arms imports. Measured indirectly, in the second half of the seventies, more than half of all arms imports in the Third World were credit financed. The opportunity cost burden of military credits in the second half of the seventies rose to about 20 to 30% of all real inflow of debt to Third World countries. Had the Third World countries importing debt capital in 1979 not imported arms in 1979, the net transfers of debt could have been up to 20 to 30% lower. The opportunity cost burden of accumulated debt over time is estimated at around 20% of the total Third World debt burden for 1979. For the same year, I estimate that interest in amortization of old debt added up to more than twice the cost of new weapon imports for credit importing countries. The fast rising credit burden of arms imports adds a very important dimension for the burden measurement of Third World arms imports.

Does Military Spending Explode External Debt in Pakistan?

“…In seminal work by Brzoska (1983), he showed the importance of military spending to investigate its effect on external debt in case of developing nations. Brzoska pointed out that 20-30% external debt in developing world is due to spending on arms.…”

“…The akaike information criterion (AIC) is used to select the optimal lag structure to make sure that serial correlation does not exist. The decision will be inconclusive if calculated F-statistic lies between lower and upper critical bounds 6 .…”

“…Military spending in developing countries are import-intensive and have direct and positive effect on county's debt stock (Looney and Frederiksen, 1986). In this regard, Brzoska (1983) identified that an increase in military spending is major contributor to the stock of external debt in developing countries and latter on military spending-external debt was investigated by Looney (1987Looney ( , 1989Looney ( , 1998 etc. …”

The relationship between military expenditure and certain growth and development related variables in transition economies: A panel data analysis

“…In the same strand also belong the supporters of the view that military expenditure deteriorates employment (Szymanski, 1973;De Grasse, 1983), crowds out private investments Deger and Smith, 1983;Lim ,1983;Dunne and Vougas, 1999) and results in sovereign debt piling up (Brzoska, 1983;Ahmed, 2012;Alami, 2002;Looney and Frederiksen, 1986;Alexander, 2012;Agostino et al, 2012;Gunluk-Senesen and Sezgin;Paleologou, 2013) while leaving other public sectors -such as education and health-underdeveloped (Deger, 1981).…”

Internal and External Factors in Effecting Third World Military Expenditures

“…The Third World is also the major market for weapons exported by the industrialized countries. For many developing countries, the surge in arms imports in the late 1970s and early 1980s has left a legacy of growth impairing external indebtedness (Looney, 1987a;Shubik & Bracken, 1983;Brzoska, 1983).…”