Beginning in the 1950s, when the country undertook to build up and modernize its armed forces to withstand perceived threats from communist expansion in Southeast Asia, there was a relatively steady increase in government expenditures for defense. During that time, social and economic developments had to compete with an expanding military establishment for limited financial resources. The high cost of maintaining a credible defense posture was compounded by a desire to stay abreast of weaponry advances in a rapidly changing technological age as well as by rising inflation rates and economic retrenchment.

During the three decades of Thai military modernization, the amounts of money budgeted and expended for defense varied somewhat according to whether or not a military regime controlled the government. Predictably, defense expenditures tended to rise moderately when military governments were in power, but even then the percentages of total government outlays for the armed forces were not inordinate when compared with defense expenditures in some other countries, nor were they high when compared with amounts spent on social needs, such as education and health.

In the mid-1980s, defense spending averaged about 30 percent of the government's annual current expenditures and about 4.2 percent of the gross national product (GNP). Additional costs of internal security, which were attributed in government statistics to the Ministry of Interior rather than to the Ministry of Defense, further increased the country's total current security burden by an average of about 6 percent annually. But even with internal security costs added, government statistics still did not reflect the total defense bill. Reports of funds budgeted and expended reflected only amounts covering current accounts and did not include the cost of new equipment acquired to update the armed forces' fighting capabilities.

Although the country's armed forces did not constitute a large military establishment when compared with those of some other Asian nations, the costs of maintaining combat readiness began, by the late 1980s, to pose problems for the government treasury. The country was experiencing many of the economic problems common to developing countries undergoing rapid economic change. Among these were a worrisome trade deficit inherited from previous regimes and the continuing impact of rising oil prices (see International Trade and Finance , ch. 3). At the same time, moreover, the government was still coping with a persistent possibility of insurgency and with the threat from Vietnam.

During the era of American involvement in the war in Vietnam, the United States met most of Thailand's military equipment needs with a steady flow of hardware, mainly in the form of grant aid (see Foreign Security Assistance , this ch.). In the mid-1970s, the United States Congress dramatically reduced the role of grant military assistance, relying instead on foreign military sales and direct com81a ommercial sales. To make up for the loss of United States grants and to cover the costs of equipment needed in the country's efforts to modernize its armed forces, the government in 1976 authorized its Ministry of Finance to obtain US$1 billion in loans from private banks in the United States and Western Europe over the next 6 to 8 years. Approximately one-half of this amount was devoted to hardware requirements of the army air force and navy needs were to be met by equal portions of the remaining one-half. This approximate distribution of funds was the pattern for defense expenditures followed by succeeding governments.

Although it was not a common practice for private banks to lend money to foreign governments for military purposes, banks in the United States, Britain, Canada, and the Federal Republic of Germany (West Germany) had loaned Thailand more than US$335 million by the late 1980s. Thailand's unconventional approach to its defense needs was aided by its generally high credit rating among the world's private banks and the judgment of most bankers that the money would be used for the country's own defense rather than for purposes of aggression.

Data as of September 1987