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Need to improve the efficiency of the defense budget by strengthening economic analysis of large-scale defense acquisition projects

Author Ann Young-su, Lee Sang Hyun, Yoon Jayoung Date 2013.09.11 Issue No 565

○ With large-scale arms acquisition projects underway, a substantial increase in defense spending is expected. To honor the President’s campaign pledge to enhance public welfare and secure resources to achieve a creative economy, voices are urging the elimination of inefficiency in the national defense budget.


- The Ministry of Defense is pushing ahead with projects worth several trillion won, including the next-generation fighter jet, Boramae and FFX, and is requesting an increase in the defense budget.


- To implement the government’s welfare pledge, the defense sector is required to reduce its budget by up to KRW 17 trillion over the next five years. Instead, however, the ministry recently submitted a request for a defense budget of KRW 214 trillion for 2014-18, placing pressure on the government’s fiscal operations.


- Meanwhile, the government has recently improved the tax exemption and reduction system to make up for declining revenue due to the economic slowdown. This has resulted in tax hikes on the working middle-class worth about KRW 2 trillion annually to enhance fiscal soundness.



○ To raise efficiency of the defense budget and reduce government spending, integrating economic analysis into the validation project of weapon systems acquisition and the feasibility study of defense projects is needed by adding subcategories to the analysis.


- To implement the directive of President Park Geun-hye of “strengthening the feasibility study into new projects to develop arms,” economic analysis factors, namely marketability and overseas market analysis, potential for export and employment effect, should be reflected in the subcategories of analysis.


- Also, the Instruction for the Defense Acquisition Development and Directions for Defense Expenditure Management need revision to reflect the quantified results of economic analysis in the feasibility study.



○ In addition to the budget cuts, the paradigm shift ? through the improvement of the feasibility study of defense projects by supplementing it with rigorous economic analysis - will enable the defense industry to sharpen its competitive edge, pursue exports more effectively, and help realize a creative economy by creating more jobs.


- Through these efforts, the defense industry can achieve qualitative growth with a more sophisticated structure in breaking away with its previous growth strategy of being heavily dependent on increases in defense spending. Also, the sector can transform itself from a mere “consumer” of taxpayers’ money into a “producer,” contributing to economic growth.