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Defense Spending

Defense costs were divided into two categories, budgetary spending and off-budget expenditures. The former were believed to include mainly the ongoing personnel and training expenditures of the National Guard, while the latter included capital expenditures, notably arms purchases. Off-budget expenditures were disbursed from a defense fund, the size of which was not disclosed. The defense fund was financed by a special defense levy on interest, dividends, rents, and company profits. This levy was raised from 2 to 3 percent effective July 1990, and was to be extended for three years until mid-1993. In addition, receipts from increased taxes on gasoline and cigarettes were to be deposited in the defense fund. Private companies and the Church of Cyprus, considered to be the wealthiest institution on the island, also contributed directly to the fund.

According to data published by the United States Arms Control and Disarmament Agency (ACDA), which included only regularly budgeted defense items, military spending had gradually tapered off, from US$42 million in 1981 to US$35 million in 1987. With inflation taken into account, the reduction was even more marked, from US$52 million in 1981 to US$35 million in 1987, in constant 1987 dollars. Budgeted defense spending constituted only 0.9 percent of the gross national product (GNP--see Glossary) in 1987 (down from 2.0 percent in 1981) and 2.9 percent of total central government expenditures (down from 7.0 percent in 1981). Budgeted military expenditures amounted to US$51 per capita annually.

Although total defense outlays were considered classified information, Aloneftis said in a 1990 interview that they would total US$325 million in 1990 and that similar amounts would be spent annually for the following three to five years. This was triple 1986 defense spending. According to Aloneftis, the arms buildup was being financed through supplier credits and loans from France, Greece, Italy, Singapore, Yugoslavia, and Switzerland. During the five-year period of 1983-87, total arms imports had been US$320 million, and most of these shipments had occurred in 1987, according to ACDA. France had been the dominant supplier (US$290 million) and most of the rest had come from Brazil.

Data as of January 1991