Wednesday, October 12, 2016

Chile Plans to End Military Funding from Copper as Cash Cow Runs Dry

The largest source of money for weapons acquisitions may finally be dismantled. Chile's government is moving to eliminate a 10% tax on the state-owned Codelco mining company's sales, a sum that goes directly for defense purchases. Plans to end the so-called copper law fizzled in two previous administrations, but now the proposal has more momentum than ever. Why? In short, because Codelco is running desperately low on cash. Depressed copper prices and lower-quality ores have combined to force Codelco to suffer losses. Usually the government's cash cow, Codelco now is seeking a government infusion of cash. The crisis has fanned hopes to free Codelco from its responsibility to the military, as officials revive a plan that would put acquisitions under general expenditures and place major programs in multi-year budget cycles. With a scandal unfolding in the armed forces' procurement process, lawmakers also see an opportunity to gain greater financial control. Since the boom in commodities in the 2000s, the copper tax provided Chile's military with more than $1 billion almost every year. That gave Chile the funds to make major upgrades of its warships, fighter jets and armor units. But now the price of copper is about half its peak in 2011. The money Codelco has passed on is far more than what Chile's military has spent, leaving a reserve that some estimate at more than $6 billion, which is being managed in a sovereign wealth fund. There's been little comment from the generals, but there is concern. Army chief Gen. Humberto Oviedo said Chile's run of more than 100 years without a war has been the result of a well-equipped military, and that advantage must be ensured. Because most weapons deals are financed over many years, the armed forces want to ensure themselves of a predictable source of funds.