The Political Dimensions of Military Spending and Debt Service in Southeast Asia

Abstract

Although the imperatives of external debt service have led to a reduction in the size of defence budgets in most Third World countries, the impact of military spending cannot be understood separately from the political attractiveness of external borrowing in the 1970s. While the cumulative impact of defence expend itures has been to worsen Third World borrowers' debt levels and hamper their debt servicing efforts, this is of secondary importance compared to the low political capacity of many debtor governments to mobilize and redirect the human and material resources under their nominal control towards that end. Many Third World countries used much of the borrowed capital to fin ance current budget deficits, government consumption and arms imports. Generally, the four major Southeast Asian borrowers ? Indonesia, Malaysia, the Philippines and Thailand ? did not use foreign capital to finance their budget deficits, but appear to have invested some borrowed funds in domestic defence indus tries. One result is an apparent arms import-substitution effect: their arms imports actually declined as a percentage of total imports even as their external debt increased. Thus, their arms imports do not impair their debt service performance the way they have worsened the debt service problems of heavily indebted Third World countries elsewhere.