Tuesday, February 1, 2011

The Armed Forces as International Financiers

A huge fund for weapons acquisitions is no longer in the hands of a defense panel but under the control of Chile's finance ministry. The ministries of defense and finance agreed to the shift in recent weeks in a step toward more transparency in military spending. This followed a series of questionable expenditures. (See previous post.) The funds will be invested abroad in a move that could help keep the Chilean peso lower. Specifically, the military's money will be placed in a portfolio that mirrors Chile's foreign investment fund, which was created to curb inflationary pressures at home. Under a decades-old law, the state-owned copper company, Codelco, transfers 10% of foreign sales to Chile's armed forces for weapons programs. How much is in the fund is secret, but it has been estimated at upwards of $3 billion. Just in the first nine months of 2010, Codelco passed through to the Defense Ministry $866 million. The government, though, is moving to eliminate that funding source and replace it with a general fund.

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