Procurement: March 5, 2004


Officials in Peru finally announced that they are buying two used frigates from the Italian navy. The $30 million deal includes an option to acquire an additional pair of warships next year. The Lupo-class frigates, of which Peru already operates four, are smallish frigates, with a displacement of about 2,500 tons. But they are adequately armed with Aspide anti-aircraft missiles, MK44 or MK46 anti-submarine torpedoes, a rapid-fire Oto Melara main gun and twin 40-millimeter anti-aircraft guns. Peru has equipped its current Lupos with Otomat anti-ship missiles, and Sea King helicopters can operate off the deck. 

The acquisition will help Peru replace warships it decommissioned in the 1990s. Another warship, a former Dutch cruiser launched in 1953, is now scheduled for retirement in 2008. The Italian purchase had been in the works for well over a year, as the Peruvian government struggled to come up with funds. But the government came under intense pressure to close the deal after neighboring Chile announced its own purchase of four used Dutch frigates. Peru's frigate deal may still fall apart because the government has to come up with the cash. But indications are they'll do whatever it takes to write the check.

With the $350 million frigate deal, Chile abandoned a long-running program to build warships locally. Still, Chilean admirals shouldn't be disappointed. Beside the Dutch warships (and another frigate just acquired from Britain) the navy is awaiting delivery of two Scorpene-class submarines that cost $450 million. And savings from the cancellation of the new-ship program have freed up funds for other projects, such as new helicopters and a pair of off-shore patrol vessels.

So why is Chile having an easier time than its neighbors in buying weapons? Besides a relatively healthy economy, its armed forces enjoy the benefits of the so-called copper law. Under this financing mechanism, 10 percent of all export sales by the state-owned copper company are earmarked for defense acquisitions. In 2001, that came out to about $235 million. With the price of copper soaring over the past year, the defense funds are only getting bigger. And even if the price of copper were to collapse, the law provides for minimum annual transfers of $180 million, periodically adjusted for inflation.

As a footnote to all this came a report in the Chilean press that the U.S. hasn't given up hopes of selling a Spruance-class destroyer to Chile. In fact, reports say the latest offer consists of three such destroyers for a mere $17 million. Tempting as the offer sounds, some analysts don't think Chile will go for it. Spruance destroyers are more costly to operate than the Dutch frigates, which are newer and more than adequate for the region. -- J.C. Arancibia


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