A potential $30 billion weapons deal between Korea and Poland faces a significant threat due to an export financing cap, warns the Korea Institute for Industrial Economics & Trade (KIET). The industrial policy think tank urges lawmakers to swiftly pass a proposed revision to the Export-Import Bank of Korea (Eximbank) Act, emphasizing the pivotal role of export financing in securing arms supply deals.
The Stakes for Korea:
Korea’s ambition to become one of the world’s top four arms dealers by 2027 could be severely jeopardized if the arms contracts with Poland fall through. KIET highlights the need for immediate action, stressing the importance of enhancing Korea’s export financing capacity to compete on the global stage.
Poland’s Stance and Potential Implications:
Polish Prime Minister Donald Tusk’s recent comments suggest a commitment to military modernization, but concerns arise as he questions the validity of certain Korean loans intended for arms deals. KIET points out that if the contracts face alterations or cancellations, Korea’s strategic goals in the arms market could face setbacks.
Call for Legislative Action:
The Korea Eximbank Act, which has been dormant for months at the National Assembly, requires urgent revision to address the export financing constraints. KIET recommends increasing the statutory limit of Korea Eximbank’s capital from the current 15 trillion won to 30 trillion won, or even 35 trillion won, through proposed bills pending in the parliamentary committee.
Current Constraints and First Round of Contracts:
The existing law limits the state-run bank from providing more than 40 to 50 percent of its total equity capital to a single debtor. With a 15 trillion won cap, Korea faces constraints in offering export financing to Poland for the first round of contracts, valued at approximately $12.4 billion.
Future Orders Hang in the Balance:
The second round of arms orders, estimated to be worth over $30 billion, faces delays due to insufficient export financing. KIET emphasizes the need for Korea to actively support export finance at a level comparable to developed countries, crucial for market entry and securing long-term aftermarket commitments.
Potential Financial Measures:
While reports suggest the Finance Ministry is considering injecting up to 15 trillion won into Korea Eximbank over the next seven years, no concrete decisions have been made. Swift legislative action is crucial to ensuring Korea’s competitiveness in the lucrative global arms market.
