History of the world economy

Crisis Thwarts Pentagon Efforts to Beef Up Asia Military:

Ailing countries rethink investment in U.S. weapons, some made in Southland, for their own defense

By Paul Richter, in Los Angeles Times
15 January 1998

WASHINGTON--The Asian financial crisis, suddenly touching U.S. security interests, has set back the Pentagon's efforts to get Asian allies to pay more for their own defense and is threatening sales of American arms manufacturers, including Southern Californian firms.

As the crisis has rippled across Asia, it has caused South Korean and Japanese officials to rethink investment in high-tech weapons--AWACS surveillance planes and missile-defense systems--that the Pentagon has urged in a bid to move the countries toward a larger role in their own defense. Similarly, the financial turmoil has spurred various Asian nations to delay or cancel arms deals that have helped keep U.S. weapons makers busy at a time when procurements by the Pentagon have tumbled.

Thailand, for example, has just asked the Pentagon for help in renegotiating a $400-million deal for eight F/A-18 fighter jets, 40% built at Northrop Grumman's facilities in El Segundo. Asian arms purchases have been strong in recent years and have recently set off a bruising scramble among weapon-making countries for deals worth billions of dollars. East Asian military spending reached $165 billion last year--twice its 1990 level.

Purchases by Asian nations from American companies, which accounted for about 10% of U.S. arms exports a decade ago, last year made up about 25% of the $16 billion in weapons that U.S. manufacturers sold abroad. Growth has been particularly strong in the fast-growing nations of Southeast Asia, such as Malaysia, Thailand and Indonesia.

By providing avenues for U.S. defense manufacturers, these sales have helped lower per-unit prices of aircraft and other weapons for the Pentagon and helped assure that the strained defense manufacturing base would survive its post-Cold War retrenchment.

But now South Korea and Thailand have agreed to defense cuts as part of austerity programs proposed by the International Monetary Fund in exchange for bailout financing.

Pentagon officials, while stressing that they do not want the Asian allies to buy anything they cannot afford, have acknowledged their concern about the potential effects of such defense cutbacks and offered to help renegotiate the deals with U.S. manufacturers.

"We will certainly urge defense contractors to grant stretchouts in purchases," a senior defense official said last week. "We're not unaware of the changed circumstances."

Defense Secretary William S. Cohen, in Kuala Lumpur, Malaysia, on a seven-country swing through Asia, told a news conference earlier this week that the administration would help allies in their efforts to extend, defer or find "some other method of making payments" to contractors. Analysts note that cancellation of any sizable deal will directly affect Southern California, which has about 130,000 defense and commercial aerospace workers in the five-county region, according to the UCLA Business Forecasting Project. "You'd be hard-pressed to find any major defense contract that doesn't have a large Southern California component," said Joel L. Johnson, a vice president of the trade group Aerospace Industries Assn.

Northrop Grumman employs about 2,500 people in El Segundo to build the middle and rear sections of the F/A-18 aircraft, which cost about $35 million to $40 million apiece. Jim Taft, a spokesman for the company, played down the threat from the Asian turmoil, saying, "We have production scheduled through June 1999."

As they threaten U.S. contractors, the Asian defense cutbacks also throw at least a temporary roadblock in front of the Pentagon's effort to strengthen and update its alliances with its key partners. U.S. officials have been pushing the South Koreans to spend more for their own defense and urging the Japanese, who have limited their military activities since World War II, to expand their role in the region's defense network. Defense officials insist that the U.S. commitment to the region is steadfast. But amid signs that U.S. forces may need to reduce their numbers in some areas, such as Okinawa, because of local resistance, defense officials want assurances that their allies can pick up the slack. In the face of budget pressures at home, they also want the U.S. commitment to be as lean as possible. To accomplish these goals, U.S. defense officials have been urging Asian allies--sometimes gently, sometimes not--to buy high-tech weapons that would be useful in defending themselves in the first hours or days of an attack.

They have urged the South Koreans to buy, for example, four AWACS surveillance planes, which keep track of aircraft and missiles, and counter-battery radar, which enable defensive forces to quickly track and retaliate against incoming artillery fire. And the United States has been pushing the Japanese to take part in a complicated, expensive effort to develop a "theater missile defense" program that would provide a shield against short- and medium-range missiles.

But the South Koreans, who have dragged their feet on some of these purchases, are now postponing the purchase of AWACS, as well as a list of other defense systems: submarines, military training aircraft and, according to Korean newspaper accounts, U.S.-built C-17 transport aircraft. Japanese officials have made no official comment on whether they will commit to the next stage in development of the theater missile defense program.