Tim Ripley
Huge cuts in Asia-Pacific defence spending are temporary phenomena which will not affect the region's good long-term prospects, say market analysts and corporate sources.
Overall defence cuts of up to 25%, and larger cuts in overseas purchases because of regional currency crashes, have resulted in a number of major defence equipment sales to key Asia-Pacific countries being put on hold.
High-profile victims of regional defence retrenchments include the sale of12 Sukhoi Su-30MK fighters to Indonesia, Thailand's long-standing deal for eight Boeing F/A-18 Hornet strike aircraft, and the Philippines' $600-million multi-role fighter requirement.
Orders
With these orders on ice for the foreseeable future, some $1.5 billion of business is at risk.
Up to $5 billion of orders for aircraft missiles, helicopters, naval vessels and ground equipment are also under threat if a number of major Asian-Pacific countries, including Thailand, Malaysia, Philippines, Singapore, Indonesia and South Korea, make 25% across-the-board cuts in defence spending this year.
"There is no doubt that eventually the demand for defence equipment in the region will return to normal and although it is certain to be a more competitive market place, traditional suppliers will be well placed to reap the rewards," says Damon Bristow, Asia programme co-ordinator of the London-based Royal United Services Institute.
Bristow says the Asia-Pacific defence market was worth $60 billion between 1992 and 1997.
Predictions of similar sales between 1998 and 2001 look overly optimistic, but for the four years from 2002 sales of $70 billion are expected.
Postponement
The current talk is of postponement or rescheduling of existing orders rather than outright cancellations, say corporate spokesmen at Asian Aerospace. Most at risk are new programmes that have yet to come on stream, such as Malaysia's ambitious plans to form an airmobile force equipped with South African Denel Rooivalk attack helicopters, the Philippines new multi-role fighter force and Thailand's satellite surveillance system.
"The devaluation in the region's currencies means that the cost of buying defence equipment could rise by up to 50%," says Bristow. At the same time the need to cut excessive external deficits that lie at the root of the region's financial problems will place its previously burgeoning defence budgets under severe strain for the foreseeable future."
Bristow says there is likely to be an increased regional emphasis on buying second-hand equipment or upgrading existing systems.
The foreign currency crisis may also stimulate local production.
However Bristow does not expect a "free fall" in defence spending.
Problems
"Any suggestion that the increasingly defence-minded nations of South-East Asia will stop buying defence equipment is completely wide of the mark," he says.
"For a start, continued efforts to address their economic problems means that in the long term market confidence will grow again and the value of the region's currencies eventually will return to their original value.
"Furthermore, in countries such as Indonesia or Thailand, where the military plays an active role in politics, the chances are that when decisions are made about where cuts will take place it is likely that the military will fight successfully against a massive reduction in defence spending."
Source: Flight Daily News
