Paying for the Wars of 1982

By Gregg Morris

When the bills start coming in, even the winners lose

Even before the first shots were fired in the Falkland Islands or the latest round of battling broke out in Lebanon, both Argentina and Israel were staring into economic sinkholes, and Britain was desperately trying to crawl out of one. In economic terms, it was almost the worst of times for the three nations to go to war, but patriotism and nationalism persuaded all three that they had no choice. Now, with a Falklands truce still to be negotiated and peace in Lebanon as seemingly elusive as ever, those who chose to pay the price of waging war must deal with the painful costs of that decision.

For Israel, the burdens are enormous.

The country's $5 billion defense budget normally eats up 13% of Israel's gross national product, but the Lebanon campaign has increased the already top-heavy defense bill to 18% of G.N.P. If the U.S., which spends about 6% of G.N.P. on defense, fought a war of proportionately comparable cost, the expenditure would equal almost the entire 1982 defense budget, or more than $187 billion.

Israel's out-of-pocket costs in terms of weapons and lost civilian production could rise as high as $1.5 billion. But the figure will climb sharply unless the country soon withdraws its forces from Lebanon and returns to a more normal peacetime economic footing. Rising defense outlays are expected to push Israel's inflation rate, now growing at 110% annually, up to 150% in a year.

The exorbitant toll of the war will soon begin to hit consumers in their pocketbooks. The government has instituted emergency measures that include increasing the costs of fuel and food prices from 12% to 19%, raising value-added sales taxes from 12% to 15% and placing an additional 2% tax on stock and bond sales. The government is also levying a $26 charge on people traveling overseas.

Despite a weak and wavering economy, the British are feeling feisty and bold from the success of their Falklands ad venture. In a survey conducted by the Economist, 71% of the those polled would support tax increases to keep a garrison indefinitely in the Falklands. The government is ready to station as many as 3,000 troops on the islands at a cost estimated at $37 million per month. British defense planners are now mulling over the upgrading of the country's naval forces, which had been badly depleted by prior-year retrenchments. To mount its assault, Britain had to requisition civilian luxury liners like the Queen Elizabeth 2 as troop transports, at a cost of $225,000 a day.

All of this is coming from a Conservative and stridently monetarist government that has been preaching frugality and budget cutbacks. Yet Prime Minister Margaret Thatcher insists that improvements can be accomplished without resorting to massive public borrowing. Her aides have denied rumors about plans to raise taxes. But a tax increase, plus additional pruning of an already sparse budget, seems the only logical course, especially in light of recent polls indicating the public's willingness to shoulder heavier burdens.

For Argentina, economic quakes are shaking the nation's foundations. Some forecasts indicate that inflation could spiral from 130% to 200% by year's end. Many businesses are carrying debt loads of two and three times their assets. International banks and investors question whether the country can meet the payments on its $34 billion in foreign debts.

To be sure, Argentina has certain economic advantages that both Britain and Israel lack. The country is a major grain and beef exporter and, like the U.K., is self-sufficient in oil. Even so, poor economic management over the years has regularly squandered these advantages, unleashing devastating bouts of inflation as weak governments have sought to bolster their popularity by providing easy credit and generous wages for workers. The defeat in the Falklands could mean more of the same. Sums up a Western diplomat in Buenos Aires: "The new government will be forced into a 25% to 30% wage increase (in the public sector), followed by hyperinflation, followed by more economic problems, followed by bank failures and business collapses, followed by foreign debt payment problems, followed by a fall in government again. Then they'll start all over."

With such problems, rearming could wind up a low priority, especially for costly hi-tech items like jet fighters and missiles. Argentina badly needs outside help to shore up its economy, and no investor can feel safe with an unstable country planning unlimited war. Whatever direction Argentina takes on arms spending, the nation has already been rudely reminded--as have Britain and Israel--of words by the 18th century English poet William Cowper: "War lays a burden on the reeling state/ And peace does nothing to relieve the weight."

--By Gregg Morris. Reported by Leroy Aarons/Jerusalem and Barry Hillenbrand/Buenos Aires

With reporting by Leroy Aarons, Barry Hillenbrand

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