The Crucial Role of Financing in Defense Exports: Focusing on the Korea-Poland Deal

The newly elected government in Poland has made a series of public statements suggesting it may review the major defense contract that its predecessor administration signed with Korea. On December 27, 2023, Polish Prime Minister Donald Tusk said that his government had yet to receive the contractually specified loans necessary for Poland to finalize the purchase and acquisition of Korean weapons and technologies. Tusk hinted that his government may review the entirety of the contract, while suggesting that he did not wish to see any changes made to it. Seeing its major arms deal with Poland collapse would make it much more difficult for the Korean government to realize its vision of making Korea one of the four major global defense exporters. Over the past two years, Korea and Poland have concluded a two-phase defense contract. The first is worth USD 12.4 billion and would see Korea send K2 tanks and other major systems to Poland. The second phase is worth USD 2.6 billion, and involves the sale of K9 self-propelled howitzers, among other systems. The two countries are yet to complete the third phase of the contract, which could be worth as much as USD 30 billion. This would see more K2 tanks and K9 howitzers shipped to Poland, along with K239 multiple-launch rocket systems. Failing to close the deal would be a significant setback to Korea’s plans to increase its exports to the rest of Europe and the world. It is crucial that the government take immediate action to amend the Export-Import Bank of Korea Act. This is necessary to raise the ceiling on the Export-Import Bank of Korea (Eximbank)’s capital reserves, from the current KRW 15 trillion to KRW 35 trillion or more. Incentives should also be devised to encourage Korean commercial banks to participate (by providing syndicated loans, for example), helping to mitigate interest rate risk and facilitate the purchase of Polish sovereign debt.