ECONOMY

Bond loan to aid army

Following the Finance Ministry’s example, the Defense Ministry is now seeking to employ new financial methods in a drive to raise 800 billion drachmas. This will be done through bond loans and the better utilization of 85 military bases around the country, with a total area of 1,298 hectares. Defense Minister Yiannos Papantoniou, drawing on the experience of his previous post at Economy and Finance, is seeking to stabilize arms spending in the medium-term at 4 percent of GDP. Success will largely depend on the performance of the new methods and the situation of the global economy. The funds to be raised will ease the pressure of military spending on the budget in the difficult years leading to the Olympic Games of 2004. Greece spends relatively more than any other EU partner on arms, with a defense budget of about 1 trillion drachmas. In the «guns or butter» controversy which erupted within the government earlier this year, Papantoniou in his previous capacity succeeded in cutting 1 trillion drachmas from the 2001-2005 program. The plans under consideration, which introduce rather novel methods in a traditionally conservative domain, are two pronged. The first aim is to release about 500 billion drachmas annually for big armaments programs. The second is related to improving conscripts’ living conditions, estimated at costing about 300 billion. This is projected to be raised through a variety of methods by utilizing the latent potential of military camps. Already, a group of banks, including Goldman Sachs, Credit Suisse First Boston, Merrill Lynch and General Bank have been presenting different options to Defense and Finance Ministry officials. Contacts are frequent and reports suggest implementation of plans will begin in the first months of 2002. Apart from General Bank, which has evolved from the old Army Officers Fund, other Greek banks are also said to be expecting to play a part. The initial 500 billion drachmas being sought is meant to fund the purchase of 250 tanks, estimated to cost 600-700 billion drachmas. The decision is projected to be completed in the first few months of next year. The buying of military transport aircraft and other hardware is planned to be financed via this method in the future. The scheme allows the government to spread out spending over a number of years and stabilize the percentage of defense spending as a part of GDP. The government will raise the necessary funding through securitizing future receipts, that is, by obtaining bond loans from banks which will be repaid through provisions in the annual budgets of the next 10 to 15 years. The plans for this are already being worked out at the General Accounting Office. A similar funding scheme was employed by Britain’s Royal Air Force, which raised 435 million pounds in January 2001 for the purchase of C-17A aircraft. Plans to improve living conditions for military conscripts are based on tapping the latent potential of underused military bases which were established long ago for much different purposes. Securitization is also envisaged in this case, using the real estate as collateral and the estimated future revenues from its improved utilization. The government will initially raise about 300 billion drachmas in the form of a 10-year bank loan, to be repaid from future revenues. Sources speak of a phased utilization, so as not to hit the real estate market with a glut of supply. Such schemes are also thought to contribute to local development. The initial plans include the involvement of local authorities. The government is said to have accepted the idea that a 50-percent stake in new ventures on those bases will be transferred to regional authorities. Speaking in Parliament recently, main opposition New Democracy deputy Yiannis Varvitsiotis proposed that local authorities receive 75 percent of the land in question. Papantoniou promised to study the proposal.