Sunday, June 1, 2014
Government May Raid Military Funds to Raise Revenue
More than $5 billion in surplus funds for Chile's military could be used to shore up tight government revenues. The finance ministry says that's one alternative under discussion, which could be blended with a proposal to revamp the defense budget, El Mercurio reported. By raiding military funds, the government would strike another blow into a financing mechanism that grants the armed forces with more than $1 billion a year. For decades, 10% of export sales by the government-owned Codelco mining company has been assigned for weapons acquisitions. The so-called copper law has provided the money to buy F-16 fighters, modern warships, Leopard 2 tanks and other major weapons systems. The sum started growing sharply in 2004 as the price of copper boomed. For a country of Chile's size, that's a bountiful pot of money, but not all of it reaches its intended purpose. Under an interpretation of the copper law made some years ago, any surplus above the minimum allocation ($220 million for each service) was taken away from the military and left in the hands of the finance ministry. Then in 2011, as the surplus from the copper tax continued swelling, the money was placed in a sovereign wealth fund. That surplus has climbed to more than $5 billion, not including capital appreciation, according to analysts quoted by El Mercurio. Minister of Defense Jorge Burgos insists the budget proposal wouldn't harm Chile's defense needs, or that it would leave projects vulnerable to political bickering. The new plan wouldn't be the first time Codelco funds are used for non-defense needs: In 2010, $614 million was tapped for post-earthquake reconstruction. The new government of President Michelle Bachelet plans to introduce legislation in the second quarter that would eliminate the copper tax entirely and replace it with four-year spending programs passed by Congress. Similar legislation stalled and eventually died in the previous two presidential administrations.