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.

5 comments:

Anonymous said...

To me this is a logical and pragmatic move. Instead of wasting money buying second hand overpraised weapons that will never be used and end up rusted. Better invest in energy development for which Chile is very hungry and will face an energy crisis if they don,t address the problem. The benefits will overweight the reduction in military budget to be wasted.

Anonymous said...

I don't agree, the government will misuse this money I can assure you, because governments always do. This will not end up benefiting the energy crisis, it will end up in constituent's pockets. I suppose people will never learn :(

Anonymous said...

To 6.43pm. OK Let the test of time speak. We will have results at the end of M.B. second term.

Anonymous said...

To 12:31 PM, the Chilean government has the money and the means to affect the energy crisis if it wanted to, the problem is not that but that spending public money on such things does not ensure economic viability. So the government would rather just hold tight on the reigns and squeeze political power out of the situation. I study economics, I know how it works. If the government were to relax it's control on energy providers the problem would disappear - but with it would disappear a good portion of the power they possess.

History has borne this out in other places (like the Philippines). Government didn't butt out, and as a result the economy suffers.

Anonymous said...

The current Chilean government seems to have as it's main goals the expansion of a small government into a large one, and the elimination of military autonomy. You can tell this by the way Bachelet takes credit for her party's "success" in stabilizing Chile's economy. The government did not do that, the free market and the Chilean people did that. The government was too small to get in the way. Unfortunately that is going to change I assure you. The military will be looted, and the end of the energy crisis they will continually claim, will be just one more restructuring - one more tax hike - away. Before long Chile's popular government will be just another gigantic left wing bureaucracy.