Argentina - Military Spending

The Mauricio Macri administration released its communique on 11 September 2018 that revealed expected funding cuts for at least six ministries, and increased budgets for military forces. After annoucing mergers and downgrading of ministries, Argentina’s Ministry of Finance announced further budget cuts to the Ministries of Education, Culture, Science, and Technology; Health and Social Development; the Secretariat of Environment and Sustainable Development; and the Secretariat of Tourism, while also increasing funds for the national police and military. The national police force will gain over US$1.1 million and the armed forces will earn another US$18,450,000.

The agenda of maintaining peace with bordering nations and superpowers, such as the U.S., causes the nation to maintain a very stable military budget for the last 10 years. After the submarine ARA San Juan went missing in November 2017, the Government of Argentina succumbed to the pressure of people's protest and decided to modernize all military equipment without an increase in military budget. This attempt to modernize military equipment is the main driver for arms and ammunition market in Argentina. The key international manufacturers of arms and ammunition are indulging in partnerships with local dealers and distributors or are signing contracts and joint ventures with the government to enter the market.

The arms and ammunition market in Argentina was estimated by Research and Markets as $20.8 million in 2017 in terms of value and is expected to reach $23.5 million by 2022. The arms and ammunition market is segmented into categories such as military weapons, revolvers and pistols, firearms and similar devices, spring/gas guns or pistols, parts and accessories for weapons, bombs and grenades, and small caliber ammunition.

The arms and ammunition market in Argentina is driven by the growing demand for weapons by not only the military forces but also civilians for shooting sports, hunting, and self-defense purposes. The market landscape includes players from different geographies having global distribution networks. Factors, such as cost, innovation and development, and ease of accessibility have been significant for the market growth of arms and ammunition in Argentina.

By the time Macri took office, procurement and operations spending had become so reduced that 80 percent of the military budget was dedicated to personnel. Argentine Air Force assets had become deteriorated to the point that the military was hard pressed to scramble two aging fighters to intercept a small Cessna aircraft that had inadvertently entered restricted airspace during President Barack Obama’s visit to the country in March 2016; if the acquisition of new aircraft continues to be delayed, the Argentine armed forces are projected to have no fighter-interceptor capability whatsoever by 2018.18 Argentina’s only icebreaker had been in dry dock awaiting funding for repairs for so long (seven years) that when it was finally ready for sea trials, the channel had filled in with mud and needed to be dredged before the ship could leave the port.

The Macri administration was able to give the military a small budget increase for 2016 and eliminated billets for twenty-three general officers to free up resources for modernization. Yet, the increase in operating costs to support the narcotics campaign in the north has diverted resources, forcing the military to restructure acquisitions.

Argentine Ambassador to the United States Martin Lousteau resigned from his post on 05 April 2017 amid an ongoing scandal over the South American country’s mass acquisition of weapons from the U.S. government, even as the right-wing government pushes austerity at domestically. Local outlet El Destape revealed that Argentine President Mauricio Macri planned to spend US$2 billion in large military equipment from the U.S., making it the largest weapons acquisition since the country's Malvinas War in the 1980s.

The list of military supplies requested includes fighter jets, war tanks, medium and long-range missiles and helicopters, which together made up almost half of the 2016 budget for the Ministry of Defense. The Argentine government ordered the equipment from the U.S. through Lousteau, who has close connections to Washington D.C.’s military-industrial complex. The government justified the deal by claiming the arsenal would help Argentina “fight terrorism.” Since news of the arms deal surfaced, Macri’s administration has come under fire from thousands of protesters who opposed cuts to social programs and the rising expenditure on defense.

Argentina's military is severely under-funded. In February 2014 Argentina announced a $4 billion revamp of its armed forces. Buenos Aires planned to acquire military hardware including fighter aircraft, ­anti-aircraft weapons and specialised radar, as well as beefing up its special forces. The extra money meant Argentina would increase defence spending by 33.4 per cent this year, the biggest rise in its history.

It includes $1 billion for 32 procurement and modernisation programs. They will include medium tanks and transport aircraft and the refurbishment of warships and submarines. The shopping list also includes Israeli air ­defence systems, naval assault craft, rocket systems, helicopters and a drone project. There will be a range of hi-tech capabilities for the army and the formation of new commando and special forces units.

By 2012, Argentina's defense budget had doubled since 2007. Personnel salaries consumed 70% of the $4 billion defence budget in 2011. The $4 billion budget, while a 100% improvement on 2007, still represented only about 0.6% of Argentina's GDP. The large growth in the defense budget was due to increased personnel salaries, but overall defense budget was expected to register a CAGR of 15.87%, to reach 5.5 billion USD by 2015.

Defense expenditure is primarily driven by modernization plans, participation in peacekeeping missions and a dispute with the UK regarding the sovereignty of the Falkland Islands. The Argentine government has announced plans to increase defense expenditure, which stood at 0.7% of GDP in 2010, to 1.5% of GDP over an unspecified period. It is estimated that by 2015 the defense budget will stand at 1.3% of GDP. Capital expenditure accounted for an average of 3.6% of the defense budget during the review period. However, modernization plans will increase capital expenditure to an average of 6.2% of the defense budget during the period 2011-2015. The defense policy, reflected in the budgets of two decades, showed a dramatic military instrument “downsizing” as the most relevant change. From 1983 to 2003, the total budget assigned to Defense was reduced by 58.7% and the sector’s share in the national budget plunged from 13.78% to 7.7%, a tendency which continued to 2007.

Such shrinking took place in a purely gradual and marginal manner. In other words, it did not respond to a medium and long term centralized strategic decision, defining which military capabilities were to be kept, promoted or eliminated. It is possible to see how successive weapon systems have been decommissioned because they reached the end of their operational life rather than as a result of a deliberate political decision based on a tactical-military analysis.

The total budget established for the Argentine armed forces in 1984 was roughly the equivalent of US$2 billion. Military expenditures for 1984 were 40 percent lower than those presented in the 1983 budget, which had been prepared while the military junta ruled the country. After a four-month delay, the 1985 defense spending plans were submitted to Congress in early 1985.

Because of the fluctuating value of Argentine currency and the nation's extraordinarily high inflation rate, data presented on Argentine military expenditures were often tied to gross domestic product (GDP) or overall government spending. According to the Ministry of Defense, the 1985 proposed budget represented slightly over 3 percent of GDP, compared with 2.7 percent in 1984 and more than 5 percent in 1982 and 1983. At the same time, the government hoped to hold military expenditures in 1985 at approximately 14 percent of total public spending. The AlfonsIn administration also hoped eventually to reduce armed forces expenditures to 2 percent of GDP.

The military budget cutbacks during the initial years of the AlfonsIn administration were made more difficult by the armed forces' obligation to make payments on the large debts owed to domestic as well as foreign suppliers. One report estimated that between 1978 and 1982 the military juntas had spent some US$10 billion on foreign arms purchases. Another stated that in early 1985 the army's debt to civilian suppliers alone stood at over US$1 billion.

An April 1985 Ministry of Defense report estimated that the total foreign debt of military-related corporations — including those under the jurisdiction of the Ministry of Defense, the armed forces, and the National Antarctic Department — totaled close to US$4 billion at the end of 1984. Of this debt, it was estimated that close to US$1 billion — an amount equivalent to approximately 1 percent of GDP — would have to be paid off each year between 1986 and 1988, in accordance with agreements on the refinancing of Argentina's foreign debt.

Such unprecedented foreign obligations led to a reapportionment in the distribution of budgeted funds. In 1985 the army, which since the early 1970s had received at least 40 percent of military expenditures, found its share reduced to only 30 percent because of the navy's foreign debt obligations. As a result, the navy obtained slightly over 42 percent of available funds, a 9-percent increase over its traditional share. The air force, which traditionally received one-fourth of expenditures, was scheduled to receive about 23 percent.

The officer corps of all three services warned that the budget cutbacks had damaged the armed forces' operational capabilities and morale and, if continued, would cause "irreparable damage" in terms of the armed forces' equipment, maintenance, and training programs. Nevertheless, the AlfonsIn administration continued to view the defense budget as one of the few areas where major budget savings might be most easily achieved. In responding to the officer corps' criticism, a government report maintained that the 1985 defense budget was set "low enough to make military reorganization necessary, but not so low as to cause conflicts and problems capable of hampering essential and organizational tasks."