PROSPECTS FOR SOUTH KOREAN DEFENSE SPENDING

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00287R001000980002-4
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 4
• Document Creation Date: December 22, 2016
• Document Release Date: August 30, 2010
• Sequence Number: 2
• Publication Date: November 23, 1984
• Content Type: MEMO

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CONFIDENTIAL
Central Intelligence Agency
DIRECTORATE OF INTELLIGENCE
23 November 1984
Prospects for South Korean Defense Spending
Summary
We believe that South Korea remains committed
to allocating a fixed percent of gross national
product (GNP) to defense. Nonetheless, a change in
-the method of.calculating GNP will leave the ratio
below the 6-percent level in 1985, and budget
austerity over the next year or two will complicate
prospects for a near-term return to the 6-percent
level.
South Korea's failure to reach 6 percent of GNP for defense
over the last two years results primarily from a recomputation of
national accounts,in accordance with recommendations of the
International Monetary Fund. 'The use of more sophisticated data
collection'methods, as well as the inclusion of some new
industries and economic activities, in fact produces
significantly higher GNP estimates for the past ten years.
Measured against these new estimates, defensle spending has
surpassed 6 percent of GNP only in 1980, 1981, and 1982. (See
table for a comparison of adjusted rates of defense spending.
Unexpectedly strong growth in 1983 and 1984 also pushed the
ratio down as nominal GNP in both years surpassed estimates made
when defense plans were formulated.
This memorandum was prepared by Korea Branch,
Northeast Asia Division, Office of East Asian Analysis. Comments
and queries are welcome and may be addressed' to Chief, Korea
Branch Information available as of 10 October has
EA M 84-10191
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CONFIDENTIAL
sacrificed.
The 1985 Debate
In planning defense expenditures for 1985, the South Korean
Government was concerned that allocating 6 percent of GNP under
the new accounting ground rules would require a boost of better
than $500 million in expenditures. Such an increase for an
economy with an estimated $79 billion GNP and a $13 billion
national budget would necessitate sharply reduced outlays in
nondefense areas. Moreover, critical economic stabilization
measures entailed in Seoul's commitment under'a standby agreement
with the International Monetary Fund would have to be
level, perhaps as early as 1986.
Deputy Prime Minister Shin'Byong Hyon in talks with US
officials has emphasized that no one in Seoul questions South
Korea's commitment -- conveyed verbally by the late President Pak
Chung Hee in 1979 -- to stand by the-6-percent spending goal. He
has also suggested that Seoul will again attain.the 6-percent
We believe Seoul will make a serious effort to again reach
the 6-percent target. Although slower economic growth next year
will make the targeted ratio easier to attain in the short term,
maintaining the ratio over the long term may become difficult
because of declining growth in- revenue. Moreover, Seoul will
probably continue to seek access to IMF funds when the current
arrangement expires next March. A continued agreement with the
IMF will almost certainly contain a clause restricting budget
deficits. The government, for its part, will probably continue
to put priority on restraining inflation and slowing growth of
foreign debt. These considerations will tend to make Seoul wary
of increasing overall government spending, including that for
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CONFIDENTIAL
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REPUBLIC OF KOREA
REAL DEFENSE EXPENDITURES
1974 TO 1985
Data for 1984-85 is estimated
Legend
? EXPENDITURE
Z % GNP
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U ULH3,)IrI U
COMPARISON OF DEFENSE SPENDING AS A
PERCENTAGE OF GNP
USING THE OLD AND NEW CALCULATIONS OF GNP
Old Series
1984 4.0%
1975 4.5
1976 5.3
1977 5.6
1978 5.6
1979 5.3
1980 6.6
1981 6.4
1982 6.6
1983 6.5
1984 6.0
1985 N/A
Data for 1984-1985 are estimated.
3
UNCLASSIFIED
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