Friday, July 18, 2008

Military's Copper Cash Cow Threatened

Chilean lawmakers and defense officials are working to curtail or eliminate the largest source of funding for weapons purchases. The state-owned copper company, Codelco, is mandated to pass 10% of all sales proceeds on to the military. With the price of copper booming in recent years, the so-called copper law has provided Chile's armed forces with huge sums. Just last year, the allotment amounted to $1.39 billion. There's a growing consensus that the armed forces really don't need that much, especially when neighboring countries are making modest military purchases. There's also a push to improve Codelco's performance. Details of a new financing program, reviewed by the military brass, haven't been released. But the basic plan is to create four- or five-year acquisition programs and establish funding for the weapons systems approved. Largely thanks to the copper funds, Chile has acquired top-shelf F-16 fighters, frigates, Leopard II tanks and other hardware. But it hasn't spent all Codelco funds it's entitled to. Funding for salaries, health care, housing and other expenses come out of the government's general budget. Copper funds typically don't pay for maintenance costs, a major expense with any new system.

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