{"id":2205175,"date":"2024-05-20T17:01:22","date_gmt":"2024-05-20T08:01:22","guid":{"rendered":"https:\/\/koreapro.org\/?p=2205175"},"modified":"2024-05-21T17:53:08","modified_gmt":"2024-05-21T08:53:08","slug":"south-korean-arms-deals-at-risk-as-poland-struggles-to-secure-funding","status":"publish","type":"post","link":"https:\/\/koreapro.org\/2024\/05\/south-korean-arms-deals-at-risk-as-poland-struggles-to-secure-funding\/","title":{"rendered":"South Korean arms deals at risk as Poland struggles to secure funding"},"content":{"rendered":"

Poland’s military modernization plans, which include significant arms deals with South Korean defense contractors, face substantial risks due to funding challenges and potential delays in the \u201cPolonization\u201d of equipment.<\/span><\/p>\n

Despite the country\u2019s commitment to reaching a defense spending target of <\/span>3.1%<\/span><\/a> of its gross domestic product by 2024, surpassing the 2% goal set by North Atlantic Treaty Organization (NATO) member states, the current Polish government must address the lack of clarity surrounding the funding of these purchases.<\/span><\/p>\n

The previous government signed arms deals worth up to $13.7 billion with South Korean defense contractors, earning Warsaw the title of a \u201c<\/span>defense colossus<\/span><\/a>\u201d from commentators who view Polish military modernization as a model for other European NATO members increasing their defense spending following Russia\u2019s invasion of Ukraine.<\/span><\/p>\n

Although Polish Prime Minister Donald Tusk has continued negotiations to finance the agreements and explore further deals, a review conducted shortly after Tusk assumed office revealed a lack of clarity regarding how the previous government intended to fund these purchases.<\/span><\/p>\n

RAPID MILITARY MODERNIZATION<\/b><\/p>\n

\u200b\u200bPoland had already initiated a significant modernization of its military before Russia\u2019s invasion of Ukraine in Feb. 2022. However, the invasion prompted the Law and Justice Party government to dramatically accelerate the pace of military purchases.<\/span><\/p>\n

In March 2022, Warsaw passed the <\/span>Homeland Defense Act<\/span><\/a>, which mandated spending a minimum of 2.2% of GDP on the military that year and 3% in subsequent years.<\/span><\/p>\n

Poland\u2019s military modernization plan included purchasing Korean K2 main battle tanks, K9 self-propelled howitzers, Chunmoo multiple rocket launch systems, and FA-50 light combat aircraft. Poland also placed additional orders for U.S. armor and surface-to-air missile systems and U.K. frigates.<\/span><\/p>\n

The South Korean deals stood out not only for their unprecedented value but also for the remarkably short delivery timelines. In some instances, equipment originally intended for the South Korean military was redirected to meet the Polish orders.<\/span><\/p>\n

The Polish government also asserted that while the initial deliveries would adhere to South Korean military specifications, Polish defense contractors would supply a larger share of components and systems \u2014 a process termed \u201cPolonization.\u201d<\/span><\/p>\n

For instance, Warsaw projected that Polish assembly lines would commence supplying <\/span>K2 and K9 components<\/span><\/a> by 2026.<\/span><\/p>\n

However, the <\/span>absence of competitive tender processes<\/span><\/a> for any of these purchases raised skepticism about the nature of the contracts, casting doubt on the transparency and due diligence of the acquisition procedures.<\/span><\/p>\n

\"\"

Polish Prime Minister Donald Tusk (left) delivers a speech at the swearing-in ceremony for the country\u2019s Council of Ministers, Dec. 13, 2023 | Image: Chancellery of the Prime Minister of the Republic of Poland<\/a><\/em><\/p><\/div>\n

FUNDING CHALLENGES<\/b><\/p>\n

Prime Minister Donald Tusk, upon assuming office in Dec. 2023, revealed that a crucial loan from the South Korean government, expected to finance a substantial portion of the military purchases, did not materialize due to a \u201c<\/span>misunderstanding<\/span><\/a>.\u201d Despite this setback, Tusk pledged to continue the acquisitions initiated by his predecessors, subject to a comprehensive review.<\/span><\/p>\n

In an effort to support the deals, Seoul <\/span>approved<\/span><\/a> a capital increase for the Export-Import Bank of Korea in February, enabling it to extend an additional $2.9 billion (4 trillion won) in loans to Poland. This followed an earlier $4.4 billion (6 trillion won) loan that had pushed the Export-Import Bank close to its legal lending limit to Poland.<\/span><\/p>\n

However, Polish Secretary of State Pawel Bejda disclosed in March that a review of the country\u2019s military modernization program had uncovered a staggering funding shortfall of about <\/span>$124 billion<\/span><\/a>.<\/span><\/p>\n

Bejda <\/span>led<\/span><\/a> a Polish delegation to South Korea in April to negotiate further purchases under the framework contracts. In a post-visit interview, he expressed his expectation that negotiations for a deal involving 180 K2 tanks and support vehicles would resume \u201c<\/span>immediately<\/span><\/a>,\u201d with a contract signing anticipated by year\u2019s end, contingent upon securing funding from the Polish Armed Forces Support Fund.<\/span><\/p>\n

The Armed Forces Support Fund, established under the previous government, allows Warsaw to finance military spending \u201coutside\u201d the budget through government-backed bond issues by Poland\u2019s national development bank.<\/span><\/p>\n

Lukasz Stach, a political scientist at Poland\u2019s Jagiellonian University, told <\/span>Korea Pro<\/span><\/i> that without new loans from South Korea or alternative sources, Warsaw would need to issue bonds to sustain its military modernization, raising concerns about investor appetite for these bonds.<\/span><\/p>\n

The funding challenges have jeopardized the Polonization timeline. During Bejda\u2019s visit to South Korea, the <\/span>announcement<\/span><\/a> of another contract for 72 Chunmoo multiple-launch rocket systems drew criticism when it was revealed that the agreement only covered technology transfer for spare parts manufacturing and maintenance, with Polish production of rockets and missiles to be negotiated in a potential future contract.<\/span><\/p>\n

\u201cWithout major procurements, financed in part by Korean loans or the Polish Armed Forces Support Fund, it is not possible to achieve a deep \u2018Polonization\u2019 of tanks or other systems,\u201d Stach said.<\/span><\/p>\n

\"\"

South Korean President Yoon Suk-yeol visits a South Korean defense company, Nov. 24, 2022 | Image: ROK Presidential Office<\/a><\/em><\/p><\/div>\n

POLITICAL FALLOUT<\/b><\/p>\n

The sluggish progress of the deals under Tusk\u2019s coalition has sparked Law and Justice Party supporters to allege that the lack of advancement stems from Tusk’s pro-EU stance, which they claim manifests as a <\/span>preference for German defense contractors<\/span><\/a>. These accusations persist despite Tusk\u2019s government continuing to work toward signing deals under the various “framework” contracts.<\/span><\/p>\n

Polish finance minister Andrej Domanski responded by stating that the substantial military spending planned by the previous administration will <\/span>prevent<\/span><\/a> the Tusk government from doubling the annual tax-free allowance before 2026. This comes despite his campaign pledging to do exactly that while also enacting 99 other policies within the coalition government\u2019s first 100 days in office.<\/span><\/p>\n

However, Stach notes that despite the deep polarization of Polish politics, public opinion remains largely unaffected by the funding row and continues to support Poland\u2019s military modernization efforts.<\/span><\/p>\n

OPPORTUNITIES AHEAD<\/b><\/p>\n

The decelerated pace of Poland\u2019s military purchases and technology transfers from South Korea may not entirely be a negative development for South Korean defense contractors.<\/span><\/p>\n

Although a large multi-year purchase would offer greater financial stability, the staggered Polish orders allow production lines for Korean military equipment to remain operational. This approach maintains a skilled workforce and the capacity to surge production when necessary.<\/span><\/p>\n

As other European nations, such as <\/span>Romania<\/span><\/a> and <\/span>Latvia<\/span><\/a>, currently assess South Korean armored vehicles, they may emerge as alternative regional hubs for the maintenance or assembly of Korean armored vehicles. If these countries choose Korean equipment and request local assembly, they could potentially replace Poland in this role.<\/span><\/p>\n

While it now appears unlikely that Poland will become the South Korean defense industry\u2019s primary launch pad for the European market by 2026, the ongoing modernization efforts of European NATO member states suggest that there will likely be no shortage of prospective launch pads in the future.<\/span><\/p>\n

Edited by John Lee<\/span><\/i><\/p>\n

Business & Economy<\/span><\/a>Defense & Security<\/span><\/a>Inter-Korean & Foreign Relations<\/span><\/a><\/div>","protected":false},"excerpt":{"rendered":"

Poland’s military modernization plans, which include significant arms deals with South Korean defense contractors, face substantial risks due to funding challenges and potential delays in the \u201cPolonization\u201d of equipment. Despite the country\u2019s commitment to reaching a defense spending target of 3.1% of its gross domestic product by 2024, surpassing the 2% goal set by North […]<\/p>\n","protected":false},"author":10407,"featured_media":2205176,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[21],"tags":[24,26,28],"class_list":["post-2205175","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis","tag-business-economy","tag-defense-security","tag-inter-korean-foreign-relations"],"yoast_head":"\nSouth Korean arms deals at risk as Poland struggles to secure funding - KOREA PRO<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/koreapro.org\/2024\/05\/south-korean-arms-deals-at-risk-as-poland-struggles-to-secure-funding\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"South Korean arms deals at risk as Poland struggles to secure funding - KOREA PRO\" \/>\n<meta property=\"og:description\" content=\"Poland’s military modernization plans, which include significant arms deals with South Korean defense contractors, face substantial risks due to funding challenges and potential delays in the \u201cPolonization\u201d of equipment. 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