Argentine Defense Industry

Within the Argentine armed forces, there does not currently exist a centralized system for decision-making and procurement for defense related articles. Decisions to procure new equipment or enter into long-term service contracts are normally made at the Chief of Service level. The Ministry of Defense is usually responsible for consolidating Service requests and seeking approval for the required funding from the Ministry of Economy. For large contracts, the Ministry of Defense plays a larger role in source selection and contract negotiations.

Argentina has privatized most of its government-run organizations. The private electrical, gas and telephone systems are well into their second or third year of existence. The gas and oil industries have also experienced changes, and many U.S. companies are involved in their privatization.

During the mid-1990s the military began to sell off many of its industrial assets and it started the process of privatizing traditionally military-run systems such as the airports, ship repair facilities, steel mills, and maintenance and repair industries. SOMISA, FORJA, FM ECA, TAMSE, Area Material Cordoba were among the most important military related industries that were privatized or liquidated or their production was drastically reduced. Companies Petroquímica General Mosconi, residual Tanque Argentino Mediano S.E. (TAMSE) and the ex Military Aircraft Factory still remain within the sector and are pending dissolution. The only succsesful case of conversion was Area Material Cordoba which was leased to Lockheed Martin for the national and regional aircraft maintnance.

Argentina has a tax-free import policy for used boats that may seem favorable to fleet operators (usually known as shipowners), but it also exposes them to old, out-of-date boats and this left the national shipbuilding industry in trouble. boats. During its prime, in the 1960s and 1980s, this sector employed some 60,000 people, while today they do not reach 5,800. Currently, among the ships that circulate through the Paraná Waterway, the national flag vessels are barely 1%, while the vast majority are Paraguayan, largely thanks to the stimulus laws for the naval sector in that country. All naval policies require some kind of state participation, always. Through a rate subsidy or through a guarantee system. There are a thousand ways, but there always has to be some kind of State participation.

Argentina lacks the requisite technical infrastructure, and therefore, many of the high-tech products currently in use in the defense industry would not be practical for Argentina to consider at this time. Argentina's military is well educated and many of its senior officers, through special military programs, have lived and studied in the United States and Europe. They appreciate the need for a better technological infrastructure within their military, and realize they have far to go. Currently however, other issues, e.g., such as changing from a conscript military to an all-volunteer military, may take higher priority over the need for more sophisticated equipment.

The military moved to an all volunteer Army and changed its focus more toward international peacekeeping missions; these changes bring many new requirements that offer potential business to U.S. firms accustomed to defense support. Although the Argentine market is open to U.S. imports, the imports, especially in the Defense sector, are accepted only if the foreign firm is willing to invest in Argentina. The two primary hindrances to U.S. firm's entry into this sector are limited funding; and the available Argentinean work force which is controlled by complicated labor regulations. Companies willing to invest capital, offer generous financial support with an eye toward long- term profits, and the fortitude to work within the regulatory constructs of the labor market, will find ample business prospects.

Argentine businesses are adopting international standards in both daily business practices and management and training, having already entered (or are poised to enter) in international competition in the goods and services sectors. Argentine business infrastructures do not offer the quality of goods nor the breadth of services to support the requirements of the evolving Argentine military. The Argentine military has become increasingly active in international peacekeeping missions, and is interested in the technological support required for the modernization required to interact in an international environment. Defense contracting is a ripe field for business opportunities.

American suppliers of defense related equipment enjoy an excellent reputation for price, quality and after sales service. Standardization of equipment plays a key role in maintaining the U.S. position in the market.

European suppliers have been aggressive in their marketing promotion in Argentina and have thereby increased their marketing share by over ten percent in the past five years. One reason for their success is the pooling of equipment by specialized Government offices. American suppliers, able to work with other firms in providing turn-key solutions instead of single pieces of equipment, will most likely turn out to be very competitive against European suppliers of comparable equipment. Attractive terms of payment of over 8-10 years will add competitiveness for American vendors seeking to enter the market. Adequate after-sales servicing has played a key role in increasing the U.S. market share over the share now held by France.

Following the U.S. embargo of defense equipment to Argentina, the Humphrey-Kennedy amendment of 1978, the role of American supplies in this market was greatly reduced. French companies rapidly filled the gap with equipment that, although more costly to purchase and maintain, were the only available alternatives. While the Argentine military prefers U.S. made products for reliability and simplicity of operation, many systems are now based on French products: combat aircraft; helicopters; A/A missiles; radars, and others.

The current budget constraints will make it very difficult for the Argentine military and security forces to invest in complete systems. This works against U.S. suppliers because replacement of obsolete or damaged equipment is authorized by legislation and can be purchased automatically through existing suppliers.

The Foreign Military Sales Program through the U.S. Security Assistance Office secures U.S. involvement and cooperation with the Argentine military departments. In the last several years, the Argentine military establishment has shifted to purchasing most goods (military equipment) and services (training) from the United States. Most government-to- government military hardware purchases and contracts for training in the U.S. are made under the Foreign Military Sales (FMS) program.