Lee Hyo-jin covers the Bank of Korea, the banking industry and broader financial news. Her previous beats include foreign affairs, North Korea and general reporting on Korean society.
Korea-Poland mega arms deal jeopardized by financial hurdles
Officials from Korea's Defense Acquisition Program Administration (DAPA), including its head Seok Jong-geun, front row fourth from right, pose with a Polish delegation led by Vice Defense Minister Paweł Bejda, center, during a meeting in Seoul, Monday. Courtesy of DAPA
By Lee Hyo-jin
Polish defense officials arrive in Seoul for week-long visit
Defense officials from Korea and Poland met in Seoul, Monday, amid mounting concerns that lingering financial hurdles could hamper a second major arms contract between the two nations.
Seok Jong-geun, head of Korea's Defense Acquisition Program Administration (DAPA), held talks with Polish Vice Defense Minister Paweł Bejda, Marcin Kulasek, vice minister of state assets, and Dariusz Ryczkowski, deputy commander of the Joint Support and Enabling Command under NATO, during the Polish delegation's visit to Korea, according to DAPA.
The visit by senior Polish defense officials took place 10 months after its former Defense Minister Mariusz Błaszczak visited Korea. It marks the first visit by senior defense officials of the new Polish administration under Prime Minister Donald Tusk, who took office in December last year, DAPA added.
The meeting also occurred as Poland, a major buyer of Korean weapons, has been expressing concerns about financial obstacles in closing arms deals with Seoul.
In July 2022, Korea signed a framework agreement with Poland to export arms worth billions of dollars. Under this agreement, the two nations sealed an initial arms export deal worth 17 trillion won ($12.4 billion), marking Korea's largest-ever arms contract with a single country.
This encompassed exports of K239 Chunmoo multi-barreled missile launchers, K-2 tanks, K-9 self-propelled howitzers and FA-50 light combat aircraft.
Korea's defense authorities had aimed to finalize a larger-scale second contract worth 30 trillion won last year but encountered stumbling blocks due to loan issues. In large-scale export deals, it is customary for the bidding country to provide loans to its trading partner to assist in funding the deal.
Warsaw requested over 20 trillion won in capital support for the second deal, but the Export-Import Bank of Korea (Eximbank) could not extend the credit as it had nearly reached its legal cap as stipulated by law.
Polish soldiers pose as they ride in a K2 tank, which was delivered in the first batch of arms from Korea, during a military drill at a military range in Wierzbiny near Orzysz, Poland, March 30, 2023. Reuters-Yonhap
To address the issue, the National Assembly passed a revision bill in February aimed at raising Eximbank's capital limit from 15 trillion won to 25 trillion won. However, uncertainty remains regarding additional contracts as the specific timeline and available options for loans have yet to be determined.
In addition to the loan issues, potential shifts in Poland's defense policies could cast a shadow over Korea's arms export.
The initial weapons deal was struck during the tenure of the right-wing Law and Justice (PiS) party, which lost its parliamentary majority in October's national election in 2023.
Subsequently, the new administration, led by centrist Donald Tusk, was launched in December.
Although the Tusk administration stated that it will respect arms contracts signed by the previous government, upon taking office, the prime minister expressed concerns that there had been misunderstandings regarding the loan Seoul was expected to provide to Poland.
Also, with the upcoming European Union parliamentary elections in June, Poland's ruling party may shift focus to promoting more domestically developed weapons, such as the Krab self-propelled howitzer, potentially impacting further deals with Korea.
It is said that the purchase of K-9 self-propelled howitzers has drawn some criticism within Poland, as it was seen as unfair competition for domestically made Krab.
Korean defense companies may also need to adapt to changes in Poland's arms procurement policy in the long term, with the Polish government potentially turning toward European arms.
The European Commission's European Defence Industrial Strategy, published this March, recommended its members procure at least 50 percent of their defense procurement budget within the EU by 2030.