Sunday, November 29, 2015

Chile's Military Budget Shrinks As Copper Prices Slump

Chile's government set a $2.72 billion budget for its armed forces for 2016, a decrease of 0.6%. There aren't any major shifts in funding programs, according to The annual budget mainly goes to payroll, maintenance, R&D and day-to-day operations. But the larger picture is the decline in funding from the state's copper giant Codelco. The company is struggling as copper prices sag, which is reducing how much money the military gets for weapons acquisitions. In 2014, Codelco's contribution to the military was $989 million, down from $1.2 billion in 2013, according to the company's annual report. That's directly a result of Codelco's 6% drop in revenue, to $14.15 billion. Higher output helped offset the lower prices. According to the "copper law," Codelco is mandated to pass through 10% of all foreign sales (adjusted for currency exchange rates) to the armed forces, specifically for weapons purchases. That's provided Chile's military with a huge stash of funds that swelled during the boom in copper and other commodities. In 2010, with copper prices still high, the pass-through totaled $1.27 billion. For several years, however, Chile has hardly touched its treasure chest. Weapons acquisitions have been modest, while some key programs (such as helicopters for the Air Force and armor for the Marines) continue to be pushed back. Plans are to replace the copper tax with a legislation-authorized budget, but that effort has been stalled for years.

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