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.