Financing the Arms Trade

When a government acquires a product from foreign sources, some financial transaction must occur. Countries may pay cash, borrow funds to pay for the goods over time, provide other goods in return, or receive the goods on a grant basis. With respect to commercial goods, such as aircraft, power generation equipment, and telecommunications products, methods of financing are well known, and an international framework disciplining such practices has gradually been established. Financing involving the defense trade is much more opaque, however, and there are no international agreements governing such transactions. With the end of the Cold War, and the sharp decline in military assistance formally available from the superpowers, the issue of how arms sales are financed will become more important for purchasers and vendors. This article will review the means by which arms sales have been and are financed and will discuss the possibility of increasing information and international discipline on financing practices.