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The price of Taiwan's
defense
By Laurence Eyton
For 20 years after the United States switched
formal diplomatic recognition for Taipei to Beijing and
abandoned their defense pact, Taiwan's primary defense
problem was how to maintain and upgrade its aging
weaponry. With the exception of the US sale of 150 F-16
fighter jets - approved by the elder George Bush to win
him votes in Texas during the 1992 presidential race -
and some highly controversial deals with France,
Taiwan's armed forces' main enemy has been less China's
People's Liberation Army and more the increasing
obsolescence of its weaponry. Enter George Bush the
younger and Taiwan is faced with almost an embarrassment
of military riches. But debate is now raging in Taiwan
as to whether this is materiel that Taiwan either needs
or can pay for.
The basic scenario is something
close to this: Taiwan wants to buy state-of-the-art
Arleigh-Burke-class destroyers equipped with the AEGIS
weapons guidance system, something that would
effectively end China's hopes of gaining air superiority
over the Taiwan Strait. The United States would prefer
to sell it four Kidd-class destroyers, over 20 years
old, and originally built for the Shah of Iran.
Second-hand the Kidds may be, but they are not cheap
with a price tag of nearly NT$60 billion (US$1.6
billion). The debate in Taiwan is about why it should
pay a steep price for ships that it doesn't really want.
Actually this masks a range of political and budgetary
consideration and conflicts which go well beyond the
realm of naval upgrading.
Taiwan's budget for
the coming fiscal year is projected to NT$1.57 trillion,
down NT$1.2 billion from the current fiscal year.
Defense accounts for the largest share at NT$261.6
billion, up NT$600 million from this year. By
comparison, spending on education is budgeted at NT$192
billion while spending on the "six year national
development project", a catch-all name for a bundle of
infrastructure projects envisioned as a stimulus to
Taiwan's flagging economy, is NT$156.8 billion. Even so,
proportionally the defense budget is the lowest in the past
six years. Not only that but personnel costs are
consuming an ever increasing portion of this budget.
While Taiwan has a number of exotic weapon
purchases on its wish list, it has budgeted only NT$17.6
billion for the task this year. Out of that amount,
NT$3.1 billion is earmarked for the Kidd-class
destroyers. Given the cost of the Kidds, however, some
NT$56.8 billion, a far larger chunk, has to be taken out
of the budget in future years for this purchase. And
then there are the eight submarines Taiwan wants to buy.
These aren't off-the-peg weapons systems but rather have
to be specially designed and built for Taiwan since the
United States stopped building diesel submarines more
than three decades ago. The price tag for these is
estimated somewhere in the region of NT$200 billion.
The submarine program has been hobbled by the
fact that the United States doesn't build such ships and
cannot find a country that does which is willing to
supply Taiwan. But, interestingly, there has been
another less-noticed hitch in the project. Taiwan
officials blanched when faced with the size of the
development costs, much of which they have to pay up
front. Nevertheless, Taiwan is so eager to get the subs
that it has already paid the Pentagon some NT$17.5
billion, and this from a government with barely a spare
penny to its name.
In fact, sources in Taiwan's
Ministry of National Defense say that weapons purchases
should soak up NT$600 billion over the next 10 years, of
which half will go to the navy. The problem is that the
numbers don't add up. Taiwan has NT$17.6 billion to
spend on weapons systems this year but plans to spend an
average of NT$60 billion a year over the next 10 years,
an increase in weapons expenditure of 250 percent. This
seems implausible, involving as it would a 3 percent
rise in the total national budget. And all that on
weaponry alone? This seems a tough electoral sell.
Of course, the government could simply be
intending to run up public debt. At the moment this is
around 33 percent of GDP, which by the standards of most
developed economies means that Taiwan still has some
latitude. But the government is nevertheless limited by
law as to how much of its spending can be underwritten
by debt. Currently the ceiling is set at 12 percent, of
which in this fiscal year 11.9 percent has actually been
used. There has been talk of raising the debt ceiling,
but this has encountered a lot of opposition on
newspaper op-ed pages from experts in monetary policy.
The problem for Taiwan's government and a major
factor in how national debt was run up to 33 percent of
GDP in the first place is that Taiwan has over the past
10 years developed a taste for Western-style welfare
programs. This is partly a function of social change:
the breakdown of the extended family network leaving old
people uncared for, working parents with children who
need care, and a rise in unemployment almost unheard of
for decades without any social safety net.
Promises of welfare largesse have become a
standard component of election campaigns. Making good on
these promises within Taiwan's public revenue system is
altogether another matter. Taxes are low in Taiwan, the
average tax burden for employed workers is about 12
percent of income and people want things to stay that
way. No political party is prepared to tell Taiwanese
they can have their welfare if they double their tax
burden. A socialized medical system, financed by
government-set insurance provisions and introduced in
1995 on a very poorly financed plan, has faced
bankruptcy every year and has needed an annual bailout
by the government. Everybody likes the health system,
yet the government suffered a dive in popularity this
year by forcing through legislation to straighten out
the system's finances by increasing the insurance
premiums a mere half a percentage point of people's
salaries.
In this situation the government faces
a demand for butter and a desire for guns, but lacks the
money to provide either.
Not surprisingly, there
has been a movement among Taiwan's opposition
legislators and also among some of its military men to
hold off on buying some weapons that are considered less
than optimal. For this reason Taiwan has sounded
doubtful about whether it wanted the Kidds at all. A
legislative report earlier this year described the
destroyers as "unwanted" and a financial burden for the
navy with limited use. And the legislature's defense
committee has several times questioned the need for the
ships. To take this concern at face value however is to
misunderstand the nature of the Kidd deal and the nature
of much opposition in Taiwan to it.
The real
issue at stake is that the US simply does not think that
Taiwan's navy is up to handling the Arleigh-Burkes and
AEGIS at the present time. The idea is that they can
upgrade their skills on the Kidds and then graduate to
the Arleigh-Burkes at a later date. Washington sources
say that there is little controversy about Taiwan's need
for the more advanced ships and that an announcement
that they will be provided may be made in the next few
months. What there are, rather, are worries that
Taiwan's navy doesn't have anything like the skill to be
able to use them; that, as one source put it, "You
wouldn't give the keys of a Porsche to a learner
driver."
That being so, if the Kidds are
recognized as a necessary step to the more advanced
ships then the opposition to their purchase by certain
elements in the armed forces and in the political
opposition begins to look like more than a concern over
taxpayers getting value for money. "The fact is that
China really, really doesn't want Taiwan to get AEGIS.
So it would like to stop the process by which that might
be possible," said a Taiwanese national security source
on condition of anonymity. "The problem is that there
are so many in Taiwan who are eager to give China what
it wants."
This is not to say that China has a
fifth column among Taiwan's armed forces or opposition
parties, but rather that there is a similarity of
purpose. None of the parties want to see Taiwan's armed
forces upgraded to the level whereby the island can feel
too safe. The whole thrust of the case for reunification
is that it is better to negotiate reunification than
have China run out of patience and attempt it by force.
Since a patriotic appeal for Taiwanese to take pride in
returning to the mother country falls largely on deaf
ears, to reduce the seriousness of the threat of force
is to lose the only reason why Taiwan might seek to
negotiate.
The situation is more complicated,
therefore, than it might seem. As Taiwan's legislature
settles in to review the budget over the next few
months, there will be much debate on spending so much on
old ships when there are other more pressing social
welfare causes at hand. At least from some quarters this
is a mere feint. What is at stake is how strong Taiwan's
armed forces should be and, therefore, its ability to
hold China at bay.
Of course, this will not be
resolved in the short term. There are many
uncertainties, such as the ability of the Democratic
Progressive Party and George W Bush to stay in power.
The Bush administration's willingness to give Taiwan the
defense toys it has been seeking for two decades is
remarkable. But whether this will survive "regime
change" in Washington is another matter. And there still
remains the question of where Taiwan is going to find
the money.
(©2002 Asia Times Online Co, Ltd. All
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