What Would $25B Afford the Philippines in Terms of Acquiring Military Hardware?

[dazzerler1]

Based on the Philippines known reserves of $65B, what would afford them to acquire in terms of military hardware if they tap $25B of that reserve? Would $25B adequate to meet their minimal defense procurement requirements, i.e., acquire LIFT aircraft, helicopters, ships (frigates, corvettes, submarines, etc.), radars, infrastructures, munitions, missiles and other modernization equipment for their existing military hardware? Criterion would be that not all military hardware will be acquired brand new.

 

[Vanguard]

If that is USD then that is a considerable amount, greater than what Britain spends per year on procurement. I would be very surprised if they had such funds willing to go to the military outside of a crisis, in theory though there is enough there to support them to cover any number of projects with predominantly new equipment up to some bigger ticket items such as modern fighters or the like.

 

[MrConservative]

Based on the Philippines known reserves of $65B, what would afford them to acquire in terms of military hardware if they tap $25B of that reserve? Would $25B adequate to meet their minimal defense procurement requirements, i.e., acquire LIFT aircraft, helicopters, ships (frigates, corvettes, submarines, etc.), radars, infrastructures, munitions, missiles and other modernization equipment for their existing military hardware? Criterion would be that not all military hardware will be acquired brand new.

Macro Economics does not work this way. Diminishing 30% of ones FR's would jeopardised the countries economic viability and quickly put it in danger of losing the very economic soveriegnty (which in itself is a principal anchor of national security). Taking $25B of the nations FR's, which are made up of a basket of currencies, gold reserves and securities would simply not be palletable to either the countries exporters in terms of FX damage and most especially when exports are only 80% ($48B) of the value of imports ($60B), thus a $12B current account hole, nor would it be dealt with positively around the global capital markets - especially under the current circumstances (Re IMF and World Bank will not like it one bit). Philipines FR's are currently at $78B USD, but its public debt is currently running at 50% of GDP debt ($110B). The gulf between those figures as well as the difference between import / export reciepts says that your $25B defence spend plan is not possible and is not going to happen.

A nations FR's are typically fairly fixed requirements that need to be accounted for within a modern globalised economic player - they are not an off-shore piggybank to dip into when one sees fit. These requirements anchor both the nations collective economic reality as well as the perceptions of its economic health in the global commercial environment, such as - BSP debt/liquidity requirements, a reasonable gold weighting ratio (which in the Philipines case is $9B of holdings), cash holdings of offshore Philipines banks, and a further substantial amount for debt balancing with respect to the countries borrowings ( this data helps groups like Moody's and Standard & Poors anchor their security risk ratings od sovereign debt and give hope of subsequent lower interest rates against borrowing that the Phillipines Govt may require). Cautious borrowing over an extended period of time is essentially the only viable option to provide for a more modern defence capability.

 

[icefrog]

First, I would like to make a correction that the Philippines' reserves is actually US$76.2B as of end of June 2012 and it has passed the US$70B mark since last year.

2nd, to make the intended discussion more realistic the Philippine's pending military modernization bill calls for only US$ 10B. At least that is the lower House's version. Have not seen the Senate version yet. Also note that when the lower House version of the modernization bill was made last year there was still no China-Philippines spat in Panatag shoal so there is increased chance that they may increase that funding but I highly doubt it would go near US$25B.

Would love to add links to my sources but it seems new members are not allowed to post links.

Just google this: "Biazon pushes bill extending AFP modernization program"
and "Philippines reserves end june 2012" to verify what i just said.

 

[icefrog]

To help facilitate further discussion on this topic I would recommend people read a recent report by the Center for a New American Security (CNAS) authored by Richard D. Fischer. It's a good synopsis of Philippines' current state and how they got there. It also has suggestions on what to acquire to achieve a credible deterrent force. Basically calling for 48 F-16s upgraded to 4+ standards and with AESA radars, 4-6 mini-subs most likely from Russia or South Korea, ground-based long range radars and airborne radars, x numbers of well-armed frigates and x numbers of smaller corvette-sized combatants and x number of minesweepers but admitted that it may exceed current planning and finances.

Just google "CNAS Defending the Philippines: Military modernization and the challenges ahead." If you want to read the report.

 

[dazzerler1]

To help facilitate further discussion on this topic I would recommend people read a recent report by the Center for a New American Security (CNAS) authored by Richard D. Fischer. It's a good synopsis of Philippines' current state and how they got there. It also has suggestions on what to acquire to achieve a credible deterrent force. Basically calling for 48 F-16s upgraded to 4+ standards and with AESA radars, 4-6 mini-subs most likely from Russia or South Korea, ground-based long range radars and airborne radars, x numbers of well-armed frigates and x numbers of smaller corvette-sized combatants and x number of minesweepers but admitted that it may exceed current planning and finances.

Just google "CNAS Defending the Philippines: Military modernization and the challenges ahead." If you want to read the report.

Yes, I have read the article and that was one of the reasons I started this thread. The US$25B was grabbed off the air figure just to start an meaningful discussion. So if the Philippines needs all these armaments, what amount would the government have to allocate or budget for it? If I recall somebody mentioned that they should at least have an US$10B budget?

 

[MrConservative]

First, I would like to make a correction that the Philippines' reserves is actually US$76.2B as of end of June 2012 and it has passed the US$70B mark since last year.

Just google this: "Biazon pushes bill extending AFP modernization program"
and "Philippines reserves end june 2012" to verify what i just said.

Yes US$76.2B as notified to the IMF and reported June 30. What is interesting though is the strengthening on PHP over the last fortnight against the basket of currencies - mainly set off by $2.5 billion of hot money entering the Philippines since mid June and the rise in the gold spot price over the same period leads to the figure closer to US$78B (as of 6 July 2012) than US$76B in value FR's. The Philippine FR trending will probably surpass its December projection of $79B in September and if more hot money flows in over the next 6 weeks one could potentially see $80B FR build up by the end of the year. That said its not something to use as play money as its strategic economic purpose is significant.

With the sunnier fiscal projections for the Philippines over the long term (HSBC are bullish over its prospects), now is the perfect time for the PDF to consolidate get its house in order as it seems to be doing, and doing so in a cautious and pragmatic way. A $10B increase in defence capital spending over a 5-10 year period would transform capabilities and over the longer term be a stepping stone to getting defence parity with near neighbours thus reinforcing the regional security umbrella.

 

[dazzerler1]

Yes US$76.2B as notified to the IMF and reported June 30. What is interesting though is the strengthening on PHP over the last fortnight against the basket of currencies - mainly set off by $2.5 billion of hot money entering the Philippines since mid June and the rise in the gold spot price over the same period leads to the figure closer to US$78B (as of 6 July 2012) than US$76B in value FR's. The Philippine FR trending will probably surpass its December projection of $79B in September and if more hot money flows in over the next 6 weeks one could potentially see $80B FR build up by the end of the year. That said its not something to use as play money as its strategic economic purpose is significant.

With the sunnier fiscal projections for the Philippines over the long term (HSBC are bullish over its prospects), now is the perfect time for the PDF to consolidate get its house in order as it seems to be doing, and doing so in a cautious and pragmatic way. A $10B increase in defence capital spending over a 5-10 year period would transform capabilities and over the longer term be a stepping stone to getting defence parity with near neighbours thus reinforcing the regional security umbrella.

Just want to know about the "$2.5B hot money" that you mentioned. Do you have any evidence(s) that indeed that money was hot? What do you really mean by "hot"?

 

[MrConservative]

Just want to know about the "$2.5B hot money" that you mentioned. Do you have any evidence(s) that indeed that money was hot? What do you really mean by "hot"?

Hot money is an FX dealers term for taking large speculative positions.

 

[dazzerler1]

Hot money is an FX dealers term for taking large speculative positions.

I would take then that if FX dealers are taking large speculative positions that it is a good thing for the Philippine economy? Would this speculative positions based on the Moody's and/or S&P ratings?

 

[MrConservative]

I would take then that if FX dealers are taking large speculative positions that it is a good thing for the Philippine economy? Would this speculative positions based on the Moody's and/or S&P ratings?

A good thing? I won't comment on that as we will get sidetracked further into economics and not defence matters - but it is a vote of confidence by the markets in the direction of the economy, which has positive datasets for the first time in a while. A stronger economy has a better ability to recapitalise and this is can be factored into making the Philippine Defence Force more modern.

 

[swerve]

... exports are only 80% ($48B) of the value of imports ($60B), thus a $12B current account hole, ...

But a balance of payments surplus, because of remittances & other 'invisibles', e.g. call centres are earning $11 billion a year, much of it in forex.

 

[SpartanSG]

If a country wants to build a credible military, it must spend consistently in the long term. Short term spikes in defence spending may not be sustainable and may not build capability in the long run. A few more points to add:

1. Buying hardware is only a fraction of the cost in building military capability. After getting the hardware, there is a need to train the people to operate it properly (manpower and training cost), otherwise it cannot be put to use effectively. Then, there is the need to maintain it in operational condition (maintenance cost). This is no small matter due to the need to ensure a constant supply of spare parts, especially for military hardware that is no longer in production. Than, there is also operational cost, which is the cost incurred when military hardware and personnel are deployed for real operations (including surveillance operations. In short, having the money to buy the hardware, but not having the money to pay for the personnel to operate it does not bring new capability.

2. Due to the above issues, long term, consistent spending is required as military capability is built up over time (measured in years, not months). Pilots don't become top-notch after a few hours behind the stick of a multi-role fighter. Neither do sailors become top-notch war-fighters without a lot of training. A feast of famine approach will not build sustainable military capability in the long run.

3. Hence, a country needs a consistent position on its defence needs. If the defence budget is subjected to politicking where different political parties prioritise it differently when they form the government, than don't expect a consistent build-up in military capability.

 

[MrConservative]

But a balance of payments surplus, because of remittances & other 'invisibles', e.g. call centres are earning $11 billion a year, much of it in forex.

Agreed. Yes that is one of the positives particularly in the last 5 months - the repatriation of foreign worker cash and Telcom support. The BOP is in surplus.

 

[dazzerler1]

Agreed. Yes that is one of the positives particularly in the last 5 months - the repatriation of foreign worker cash and Telcom support. The BOP is in surplus.

Therefore, could the Philippines leverage this expanding reserves so they may obtain loans for acquiring military hardware? The country allocated about US$1.8 over 5 years for modernizing their armed forces, which IMHO is not enough to offer minimal defensive deterrence?

 

[icefrog]

There have been calls for "liberating" US$30B of the funds. I'll share this article from 2011 w/c is probably where OP got his idea of getting $25B and also at that time the reserves was still in the $65B level.

They want to use the $30B for various purposes such as infrastructure, education, health and some for the the military as well.

In fact, Neri was said to believe that “we can, if we wish to, use perfectly legal means to liberate half of the fund ($30 billion) to jump-start a number of badly needed initiatives in education, agriculture, and health over and above the money currently available,” stressing that the “P40 billion requested, indeed needed, by the AFP (Armed Forces of the Philippines) is a small amount compared to what can be made available to the three other programs which, in the process of providing the needed services, also means increased employment and livelihood opportunities.”

Neri is a former NEDA Sec. (National Economic Dev. Authority). A former Budget Sec. also suggested to use some of reserves to pay off high-interest debts and then use what have been saved on debt-servicing to channel it to other purposes.

Other suggestions were to use part of the reserves to create a sovereign wealth fund or something similar.

And then of course there are others that say you can't just touch it.

 

[MrConservative]

Therefore, could the Philippines leverage this expanding reserves so they may obtain loans for acquiring military hardware? The country allocated about US$1.8 over 5 years for modernizing their armed forces, which IMHO is not enough to offer minimal defensive deterrence?

My view is that over the next 5 years the Philippines needs to continue to be fiscally prudent so as to set up a platform for long term sustainable economic growth. At present the fundamentals are heading in the right direction - thus that emerging economic strength needs to be the countries primary strategic focus particularly over the next half decade.

Yes it is possible to borrow now but there is a caveat on that. One of the issues at present is its current credit rating (though this is improving) - it is still not at investment grade status which is unhelpful in regards to what you suggest. Personally, I would not yet borrow substantial amounts to acquire defence equipment but stick with the current $1.8B spending plan over the next 5 years. Hopefully, by that stage we will be seeing the emergence of a robust new asian tiger economy with solid fundamentals including an investment grade credit risk status. Then there may be the conditions to gradually ramp up defence spending over the following decade through borrowing or even direct transactional purchases.

Putting in play a vibrant economy over the next 5 years will in my view actually have a greater strategic payoff long term for the Philippines than a premature defence spending spree using borrowings. Less now is more later. Imagine a Philipines Defence Force post 2030 that was well equiped and on parity with its regional neighbors and able to provide a credible security contribution.

 

[dazzerler1]

My view is that over the next 5 years the Philippines needs to continue to be fiscally prudent so as to set up a platform for long term sustainable economic growth. At present the fundamentals are heading in the right direction - thus that emerging economic strength needs to be the countries primary strategic focus particularly over the next half decade.

Yes it is possible to borrow now but there is a caveat on that. One of the issues at present is its current credit rating (though this is improving) - it is still not at investment grade status which is unhelpful in regards to what you suggest. Personally, I would not yet borrow substantial amounts to acquire defence equipment but stick with the current $1.8B spending plan over the next 5 years. Hopefully, by that stage we will be seeing the emergence of a robust new asian tiger economy with solid fundamentals including an investment grade credit risk status. Then there may be the conditions to gradually ramp up defence spending over the following decade through borrowing or even direct transactional purchases.

Putting in play a vibrant economy over the next 5 years will in my view actually have a greater strategic payoff long term for the Philippines than a premature defence spending spree using borrowings. Less now is more later. Imagine a Philipines Defence Force post 2030 that was well equiped and on parity with its regional neighbors and able to provide a credible security contribution.

I can understand your conservative approach, they didn't call you Mr. Conservative for nothing I suppose? Just kidding. However, seriously speaking, if the Philippines followed what you proposes, in 2 to 5 years time, there may not be any need for all these defensive materiel since there is no longer a territory to protect? I suppose the Philippine government is trying to acquire all these defensive equipment now so at least they have a minimal deterrent force to counter the bullying that they're getting from the 5 Dragons? Also, the Philippines is counting on the gas and oil that could be had from the West Philippine Sea for energy self sufficiency, etc.

 

[icefrog]

If they stick with the original modernization plan pre-China incident they are not slated to get front-line MRFs until 2016 and littoral submarines by 2020.

What they are buying now are really basic stuff like lead-in trainer jets to prepare them for MRFs by 2016, radars, long-range maritime patrol planes, utility helos, light attack helos such as the Fennecs, 2nd-hand ships, etc.. They are still being conservative and if ever they buy fighter jets earlier than planned it will be only in the likes of the FA-50s or even 2nd-hand MRFs as interim-MRF before they buy their real front-line MRFs by 2016 or so. They may even be contended by KF5s to be donated by Korea and use that as their interim-MRF as incentive to get the TA-50s.

 

[dazzerler1]

If they stick with the original modernization plan pre-China incident they are not slated to get front-line MRFs until 2016 and littoral submarines by 2020.

What they are buying now are really basic stuff like lead-in trainer jets to prepare them for MRFs by 2016, radars, long-range maritime patrol planes, utility helos, light attack helos such as the Fennecs, 2nd-hand ships, etc.. They are still being conservative and if ever they buy fighter jets earlier than planned it will be only in the likes of the FA-50s or even 2nd-hand MRFs as interim-MRF before they buy their real front-line MRFs by 2016 or so. They may even be contended by KF5s to be donated by Korea and use that as their interim-MRF as incentive to get the TA-50s.

It seems to look like they need ships more than aircrafts at this juncture? Most of their problems are related to the inability to protect their naval territories. IMHO, they need frigates, corvettes, etc. to be able to show their flag in the Spratlys and Scarborough shoal (West Philippine Sea)? Presence is the best deterrence, therefore, if they have enough patrol ships in strategic locations, then the 5 Dragons will not be able to duplicate what happened at Mischief Reef. Another type of hardware is an powerful on-shore radar so they can pinpoint/observe or detect any intrusions.