The role of defence on external indebtedness: An assessment of turkey

Abstract

Turkey has been undergoing a severe economic crisis recently. Despite its low standing in terms of basic economic and welfare indicators, Turkey has been leading in arms imports. The pressing issues of macroeconomic imbalances are budget deficits, current account deficits and external debt burden. Previous work on the trade-off between defence and growth and between defence and budget deficits concludes that the presence of such trade-offs is not confirmed. As budget deficits are financed through internal and external debt, this paper attempts to explore to what extent defence might be contributing to Turkey's current account deficits and external indebtedness since the 1980s. Related data problems are also assessed.

Keywords:

• Defence
• Debt
• Arms imports
• Turkey

Acknowledgements

This paper is a by-product of our project on Turkish defence expenditures initiated by TESEV (Turkish Economic and Social Studies Foundation). An earlier version of the paper was presented at the Sixth Annual Middlesex University Conference on Economics and Security and at the Third Lisbon Conference on Defence Economics, both in June 2002. Comments by the participants in both conferences and by P. Levine, R. Smith and T. Sandler in particular are gratefully acknowledged. Special thanks go to F. Emil, H. Ersel and U. Senesen for their comments on earlier versions and to C. Loo and E. Sköns of SIPRI and S. Sezgin for their data and document support.

Notes

†[email protected]

Data are from Undersecretariat of Treasury (2002: 71).

See United Nations (1993: 145–146, 226–227). The one exception for this practice to our knowledge is the Israeli national accounts where defence imports are explicitly classified with related data disclosed. See www.bankisrael.gov.il.

SIPRI: Stockholm International Peace Research Institute; USDSBVC: United States Department of State Bureau of Verification and Compliance, formerly known as USACDA: US Arms Control and Disarmament Agency. See their yearbooks or annual publications for coverage. See Brzoska (in this volume) for an up-to-date assessment.

See Brzoska (1992) for a review of these findings.

Data cited here and used in Figure 1 are from Undersecretariat of Treasury (2002: 66–67).

See Günlük-Senesen (2002a) for the impact of these policy changes on budget deficits and Karagöl (2002) on external indebtedness.

See Harris (2002) for a similar observation on the impact of recent financial crisis on defence spending in Asian countries.

The data here are compiled from national resources, therefore they might not comply with international information.

Sections 3–5 rely on Günlük-Senesen (2002c) in general and on chapters VII and VIII in particular.

In SIPRI terminology arms importers are ‘recipients of major conventional weapons’ (e.g. see SIPRI, 2002: 403).

Imported intermediate inputs of indigenous arms production would be an additional cost item in the import bill of arming, which is overlooked in this paper due to data unavailability.

Brzoska (1992: 94) estimates that, for the end of 1988, Turkey's total debt is around $41 billion and FMS debt is around $3 billion, leading to a 7% share in total debt. This places Turkey in the 6th rank in military debt following Israel, Lebanon, Egypt, Greece and Pakistan.

For example, Defense News, 18 October, 1999: 24, 12–18 November 2001: 14 and 21–27 October 2002: 84; Cumhuriyet, 28 February, 2002; New York Times, 17 July 2002.

See Günlük-Senesen (2002b) for a list of Turkey's recent transactions in the international arms market.

Comparative data used here are from Undersecretariat of Treasury (2002).