by Bill Ostrove, International Military Markets Analyst, Forecast International.
Overall, Peru is a nation at peace. Although Peru has a history of warfare with its neighbors, the country has largely peaceful borders at this time, reducing the need for its military to act as a deterrent against foreign forces. Peru has even improved relations with its most recent opponent on the battlefield, Ecuador. When Ecuador was hit by an earthquake on April 18, 2016, Peru responded by sending soldiers and equipment to aid its neighbor.
The primary threats to Peru are insurgency, drug trafficking, and crime. Sendero Luminoso (Shining Path) insurgents, although weakened, continue to conduct raids on government facilities and patrols while protecting coca leaf producers in the Apurimac and Ene River Valley region. While Peru has made gains against drug producers and traffickers, the country remains one of the top producers of cocaine. Urban crime also remains a problem in Peru, brought about by deep inequality in the country.
In order to maintain vigilance against internal threats and continue participation in international missions, Peru has steadily increased its defense budget. Robust economic growth and relative political stability have also contributed to Peru’s growing defense spending. In addition to maintaining Peru’s security, the military provides humanitarian aid and participates in peacekeeping missions.
Between 2012 and 2015, defense spending in Peru increased at an average annual rate of 10.9 percent, reaching PEN10.2 billion ($3.2 billion) at the end of that timeframe. In FY16, the government is planning to spend only PEN7.5 billion ($2.2 billion). However, Peru typically spends more than it originally plans, meaning the final figure will likely be higher.
In 2016, Peru plans to spend 60.3 percent of its military budget on salaries and pensions. It will spend 19.3 percent on the acquisition of assets, an increase from the 12.9 percent spent on asset acquisition in 2015. The money for capital expenditures will be balanced by lower spending on procurement of day-to-day items. This may be an opportunity for defense contractors attempting to sell equipment to Peru, since larger purchases could include vehicles, fighter aircraft, and trainer aircraft.
Going forward, Peru will not increase its defense spending at the same rate it did in the recent past. Slower economic growth will sap the government of tax revenue, and some non-military expenditures will be given priority. Still, the government will continue to face threats from drug producers and traffickers and terrorist organizations, especially the Shining Path.
For those reasons, defense spending in Peru will increase at an annual rate of 4.6 percent between 2017 and 2021. Defense spending will continue to make up about 1.4 percent of Peru’s gross domestic product.
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