Procurement: February 25, 2005


Don't be surprised if defense spending in Latin America picks up significantly this year. Why? Prices for crude oil, natural gas, copper and other raw materials traded on the global commodities markets have soared, giving some countries a revenue windfall. In some cases, governments extract royalties from mining and energy companies; some other nations have their own enterprises. Either way, there's more cash to go around, and it's already getting spent.

Peru last December awarded a $125 million contract to Russian companies to refurbish worn-down helicopters and transport planes. At least part of the money is coming from larger mining royalties. Venezuela, one of the largest oil producing countries and a member of OPEC, recently agreed to buy 40 Russian attack helicopters and 100,000 assault rifles. Venezuela also has designs on Mig-29 advanced fighters.

Nowhere is the commodities bonus more evident than in Chile, where specifically 10 percent of export sales by the state-owned copper company go directly to defense. That resulted in a $250 million windfall last year, about double what the armed forces get annually from that source. Chile is evaluating a number of acquisitions, including new helicopters. In that competition, the front-runner appears to be India's Dhruv. Speculation is that the purchase (24 helicopters including a naval variant) will be finalized and announced in April, when Chile's defense minister makes an official visit. It would be the first significant export order for the Dhruv, which has digital display panels, high-altitude capabilities (well-suited for an Andean nation) and can carry 12 people plus the crew of two. It costs about $6 million per copy.

Of course, political pressures can limit military acquisitions. Some Chilean politicians are trying to freeze the military's extra cash, and Venezuelan leader Hugo Chavez may rather spend on social programs that enhance his stature with the voting public.

Meanwhile, the largest military contract in recent Latin American history remains bogged down. Brazil's $700 million purchase of 12 advanced fighter jets reached a Dec. 31 deadline without a decision. There was no official explanation, though Brazil's president had voiced support for social programs in earlier discussions about the fighter deal. A new bidding process is planned, although Brazil may seek used planes this time. Brazil had evaluated Sweden's Gripen, the Russian Sukhoi Su-35, Lockheed Martin's F-16 and a French Mirage version proposed by Dassault and Brazil's Embraer. -- J.C. Arancibia


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