In December 2002, Poland decided to purchase 48 F-16 Falcons from Lockheed Martin Corporation – an American defense contractor. Pegged at $3.5 billion, this is the biggest defense order ever issued by an east or central European country. The financial package includes soft loans and a massive offset program – purchases from Polish manufacturers that more than erase the costs of the deal in foreign exchange.
Offset in all its forms – including co-production, licensing, subcontracting, and joint ventures – is not uncommon in the defense industry. It is being offered even to far richer clients such as Israel. But in central and east Europe it is more prevalent than the West realizes.
According to numerous studies, barter-like arrangements (known throughout the region as “compensation”) constitute between 20 and 40 percent of all transactions in the economies of the former Soviet bloc. Corporate debts to suppliers, payments for goods and services, even taxes – all have a non-cash component or are entirely demonetized.
The implosion of communism led to a rapid shrinking of the manufacturing base and the evaporation of...
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