Military expenditure and debt in South America

Abstract

The debt crisis that struck South American countries in the 1980s led to severe recession and chronic economic problems. This paper considers one potentially important contributor to the growth of external debt, namely military spending. It considers the experience of Argentina, Brazil and Chile. It finds no evidence that military burden had any impact on the evolution of debt in Argentina and Brazil, but some evidence that military burden tended to increase debt in Chile. At the same time, Chile was the least affected of the three countries by acute financial crises resulting from the debt problems, although its relative levels of debt were as high or higher. This suggests that military burden may be important in determining debt in countries, but it is only of significance when it is not swamped by other macroeconomic and international factors.

Keywords:

• Military spending
• External debt
• South America
• JEL Codes
• H56, F40, O54

Notes

‡ E-mail: [email protected]

† Corresponding author. E-mail [email protected]

† Corresponding author. E-mail [email protected]

§ E-mail: [email protected]

* We are grateful to Ron Smith for comments and Dunne is grateful to the ESRC for support under research grant Ref: R00239388.

One former Latin American Finance Minister said of the period ‘I remember how the bankers tried to corner me at conferences to offer me loans. If you are trying to balance your budget, it's terribly tempting to borrow more money instead of raising taxes’ (Brandford and Kucinski, 1988).

Stiglitz (2002) provides a critical appraisal of the role of the IMF.

Recent news reports on Argentina and Brazil, e.g. from BBC News online, http://news.bbc.co.uk.

This happened in a recent South African arms deal, as discussed in Dunne (2003).

As a mark up over the LIBOR rate.

Additional information

Notes on contributors

J. Paul Dunne a,†

‡ E-mail: [email protected] † Corresponding author. E-mail [email protected] § E-mail: [email protected]