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Chile - Military Spending

The armed forces have been entitled, under Law 18,948, to a level of funding out of the national budget at least equal to their 1989 level, which was US$640 million. From 1990 to 1993, the defense budget amounted to US$1 billion annually, according to annual Military Balance surveys published by London's International Institute for Strategic Studies. Personnel reportedly account for more than 70 percent of the defense budget.

According to the Copper Law enacted in 1954 by the government of Carlos Ibez del Campo (1952-58), the armed forces are entitled by law to 10 percent of the total copper earnings of the state-run Copper Corporation (Corporacin del Cobre--Codelco). The purpose of this legislation is to provide the armed forces with stable funding and hard currency for major purchases abroad. In 1987 the military government changed the law, applying the 10 percent figure to all Codelco export earnings, including the sale of gold and molybdenum (the sale of which is insignificant compared with the copper sales). Between 1989 and 1993, Codelco provided more than US$1.2 billion to the armed forces, as follows: US$313 million in 1989, US$287 million in 1990, US$223 million in 1991, US$204 million in 1992, and US$197 million in 1993. These figures correspond to approximately 20 percent to 30 percent of the military budget.

Under the Codelco subsidy, the armed forces are guaranteed a minimum of US$189 million annually, plus accumulated inflation (with 1987 as the base year). In 1993 the guaranteed minimum was US$210 million, but 10 percent of all Codelco sales totaled only US$197 million, or US$13 million short of the guaranteed minimum. The 1993 shortfall in Codelco revenues resulted from the drastic fall in the price of copper. Codelco managers argued that the public treasury was responsible for making up the shortfall, but there was no mechanism for such a measure.

The 1993 shortfall in Codelco revenues intensified the debate between those supporting the 1954 law (the armed forces and the political right) and those opposed to such an arrangement (Codelco, the Ministry of Mining, and many within the center-left CPD governing coalition). Those opposed to the Codelco subsidy to the armed forces argued that it was an unacceptable burden for Codelco, making it unable to compete in the world market. Total profits for Codelco in 1992 were US$920 million; in 1993 they were estimated at US$480 million. This means that 22 percent of all Codelco profit earnings in 1992 went to the armed forces and that approximately 41 percent went in 1993.

Those arguing for an end to the Codelco subsidy maintain that the armed forces should be funded through the general budget. In addition, there has been increasing pressure to privatize Codelco altogether, a measure that would probably include the abolition of the 10 percent subsidy. Those arguing against the Codelco subsidies for the armed forces have been careful to state that they are not trying to cut the resources of the armed forces but rather are giving them a more legitimate source.

The armed forces oppose an end to their Codelco funds, fearing that their budget would be politicized and reduced. Furthermore, virtually all of the resources that the armed forces receive from Codelco are already committed beyond the year 2000, mostly through the purchase of armaments on credit. Ironically, the privatization of state firms that was initiated by the military government could lead to the end of the Codelco revenues for the armed forces.

Principal beneficiaries of the increased spending in the early 1990s were the navy and air force. Their projected acquisitions include thirty British Harrier and twelve Sea-Harrier VTOL (vertical take-off and landing) aircraft, which the Chileans hope to have in service by 1997. Up to 1992, however, interservice rivalries appeared to have permitted the civilian administration, which favored cuts in military purchases, to take minimal action on this procurement. Spending on the army, navy, and air force accounted for approximately 41 percent, 33 percent, and 21 percent, respectively, of total defense expenditures; the remaining 5 percent was accounted for by costs under the general heading of national defense.





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