In recent years, the Philippines, which has clashed with China over maritime and territorial claims in the South China Sea, has concluded a contract to purchase four warships from South Korean company Hyundai Heavy Industries for a just under a billion dollars. Additionally, the country recently made headlines by announcing that it had signed a $375 million purchase of BrahMos missiles from India.
Indonesia, another country interested in Chinese territorial aggression, has also modernized its navy, acquiring three submarines and several new warships in recent years. Seen through a geostrategic lens, all of this could be interpreted as evidence of an arms buildup among Southeast Asian countries seeking to control an increasingly aggressive China. But a closer look at the budget data shows that it is not so simple.
In the Philippines’ latest budget for 2022, defense actually got a slight haircut, with a budget of 222 billion pesos ($4.3 billion), or about 4.4% of total government spending. This goes against recent trends where, starting in 2015, defense as a percentage of government spending has increased every year, peaking at 7.4% in 2019. This is partly an artifice of the quirks of the Pandemic spending: The government increased overall spending, then reallocated funds. from the military and into economic relief programs and the health care system, which makes the most recent numbers appear smaller.
But even so, the 2022 defense budget is lower than the 239 billion pesos spent in 2018, well before the pandemic. That said, the allocation for capital expenditure has been strengthened, with 39 billion pesos reserved for 2022 (compared to 24.3 billion in 2018). This paints a more nuanced picture, with overall spending not necessarily increasing, but more funds being tied up for targeted purchases of military hardware, including BrahMos missiles and warships.
Indonesia’s defense budget is on a stronger trajectory. Defense spending has risen steadily, from 5.8% of central government spending in 2011 to 9.3% in 2017. As in the Philippines, the pandemic has diverted funds from the military to lifesaving programs and economical, but only temporarily.
Military spending has rebounded in 2021 and 2022, with defense accounting for around 7% of total central government spending each year. The Ministry of Defense has been allocated a total of 271 trillion rupees ($18.8 billion) in the last two budgets combined. The Ministry of Finance forecasts a narrower-than-expected budget deficit, partly thanks to the boom in commodity exports. So, at least for now, this increased spending doesn’t look like it’s going to break the bank.
It is also telling that other regional armies that are in less direct conflict with China, such as Thailand and Singapore, have not increased their military spending in the same way. Singapore, until its last pre-COVID-19 budget in 2020, reliably spent 3% of its GDP on defence, with military spending as a percentage of total budget actually decreasing year on year. Thailand, which is currently tied to a rather messy submarine purchase deal with China, has also not seen military spending rise significantly. Defense as a percentage of total spending actually fell from 7.2% in 2016 to 5.9% in 2021. Capital spending on new military equipment has remained relatively stable over the same period.
Does this mean that an arms race is taking shape in Southeast Asia, led mainly by countries that feel threatened by China? Not necessarily. The Philippine military has long been notoriously underfunded, and the tragic sinking of the aging KRI Nanggala off Bali last year showed that, Chinese aggression or not, Indonesia needs to modernize its submarine fleet. What we see then is probably a confluence of several things, with countries like Indonesia and the Philippines having to modernize their armed forces anyway and finding themselves extremely motivated to do so under the current circumstances.
Defense spending, including capital expenditure for upgraded hardware, is up in countries where we would expect it to be. But not a lot. The thing to look for is whether these patterns will remain in place next year, when governments begin to rein in their countercyclical pandemic spending. If defense budgets remain well-funded even as broader fiscal prudence sets in, that will tell us a lot about the underlying priorities and what is really driving those spending decisions.