SUBJECT: The rapid growth of military spending in the region and its causes.

SIGNIFICANCE: In recent years military expenditure and arms acquisitions have grown at a pace not seen for decades. The individual country policy decisions interweave factors both within and without the region. Go to conclusion

ANALYSIS: The 2002 regional recession gave way to the strongest growth seen in South America for over 50 years. From 2003 through 2008 collective real GDP for 20 countries of Latin America (excluding most Caribbean countries) expanded 30.0%, at an average annual rate of 4.8% (and with annual population growth at only 1.3%). From 1951 through 2002 these economies grew an average of 4.1% (with population growth averaging 2.3% annually), according to the UN Economic Commission for Latin America and the Caribbean. This increased growth, largely based on the surge in international commodity prices, accompanied by an increased state share in GDP, permitted defence spending increases of a kind not seen for decades.

Military expenditure in South America, 2003-2008*

Constant 2005 dollars, millions

* With retirement payments, Paraguay 2008 would be one-third higher. Caution must be exercised in interpreting data as precise.

Sources: SIPRI Yearbook, Oxford Analytica

However, a distinction should be made between those countries that began the period with relatively higher military expenditure (milex) versus those whose relative spending growth originated during the 2003-08 period:

      Brazil, Colombia and Chile began and ended the period as absolute spending leaders.

      While their increased milex generally tracked overall economic expansion, other countries (Venezuela and Ecuador), starting from a lower base, expanded at a faster rate.

      A third group of countries (Argentina, Bolivia, and Uruguay) to date have not participated in milex expansion, though all three state that they will in the near future.

In all countries in the region (with the exception of Chile and Colombia) weapon systems have long since passed their projected life-cycle. This has caused increased accidents, severely reduced operating capacities, and resulted in top-heavy labour and retirement systems. Increased expenditure on acquisitions thus necessarily had to occur if countries wished to maintain conventional armed forces. In this regard, all countries of South America have explicit policies stating that their forces' principal mission is external defence, even while de facto their military grew overly labour-intensive:

      Except Chile and Colombia, all countries spend over 75% of milex for labour costs, while a balanced force design would require that this never exceed 60%.

      The simple unweighted average for NATO countries in 2007 reached 55%, with 16% spent on equipment acquisitions.

This conventional force option has contrasted with Washington's promotion of the so-called 'new threats' missions, for example involving counter-narcotics and counter-terrorism activities.

Pentagon pressures. The US Southern Command (SOUTHCOM) itself has another mission: a growing concern over 'radical populism' (the principal offenders being Venezuela, Bolivia and Ecuador). South America expected a policy change of direction from the incoming administration of President Barack Obama, but have thus far been disappointed. Not only was the deployment of the IV Fleet left standing, but US access to additional bases was recently added in Colombia, most significantly that at Palanquero, with its 10,000 foot runway:

      Defence analysts see this base as part of the Air Force's 'Air Mobile Command', whose task is force projection in the region. Moreover, Colombia has refused its neighbours access to the Treaty agreement.

      According to the "White Paper on Global En Route Strategy", supposedly prepared for a 2009 Air Force symposium organised by AFRICOM, "USSOUTHCOM has identified Palanquero, Colombia as a cooperative security location (CSL). From this location, nearly half of the continent can be covered by a C-17 without refueling. Should suitable fuel be available at the destination, a C-17 could cover the entire continent, with the exception of the Cape Horn region in Chile and Argentina."

This would appear to indicate that the Palanquero airbase is not simply intended for narcotics control and counter-insurgency. Yet its strategic projection capabilities appear to focus more on the south (most especially Brazil and Bolivia), rather than Venezuela. Although US Defense Secretary Robert Gates has denied this document as a statement of US policy, there remains widespread doubt in the region. The Defense Department still seems to be the principal policy maker on Latin America because the State Department has yet to develop a consistent foreign policy approach to the region, in part due to delays in confirmation of Obama's nominees.

Moreover, Washington's presumption of the region's durable relationship with the United States is no longer valid.. It was severely damaged by initiatives under the administration of former President George W Bush, and new partners, especially from east Asia, are fast becoming important economically and politically. US defence policies continue to foster this distrust, adding to momentum for increased acquisitions in South America.

Brazilian concerns. Brazil, the emerging regional power, also views Washington's military initiatives with concern, in part in relation to its recent hydrocarbons discoveries and rich Amazon basin. The previous US "Forward Operating Location" at Estigarribia, Paraguay and the creation of the IV Fleet have been interpreted as possible future challenges. The Pentagon's recent offer to sell 36 F/A-18s will be rejected because Brazil reasons that it has to change its arms suppliers in order to maintain freedom of action. France seems to be in line to be Brazil's ally in arms production. They have also agreed to an "offset" approach with technology transfer including both conventional and nuclear submarines. There are also voices within Brazil favouring the future development of nuclear weapons as symbols of its new power status as a 'BRIC' country. All these moves trigger an 'action-reaction' pattern fostering arms racing in the region, to the extent that national economies recover from the current recession.

In general terms, South America is attempting to distance itself from the current inter-American institutions with the creation of the South American Union (UNASUR) and its defence component, the South American Defence Council. However, its attempts do not appear to be on the right track, much to Brazil's frustration. Nevertheless, what this does show is regional disaffection with Washington policy initiatives.. South America is increasingly divided into blocs, with the populist Venezuela, Bolivia and Ecuador taking the most confrontational line with the United States. Chile, Brazil and Uruguay are at the other extreme, with more predictable and long-term democratic institutional development.

CONCLUSION: Milex growth and arms racing will largely depend on strong recovery from recession, which appears likely. However, increased acquisitions do not automatically translate into operational capacity; purchase does not translate into operations and maintenance. Only Chile and Colombia have balanced force designs, with Brazil attempting to improve operability. In any case, the region is developing some worrisome tendencies, fuelled by perceived outside interests relating to countries' natural resources and by the weakening of state institutions -- except in Chile, Uruguay and Brazil.