by Bill Ostrove, International Military Markets Analyst, Forecast International.
While Argentina does not face the same level of internal and external threats that some other Latin American countries do, defense spending has steadily increased in terms of Argentinean pesos. Both Kirchner administrations were somewhat amenable to increasing defense spending. Furthermore, President Néstor Kirchner made revitalization of the nation’s defense industry a priority, and a significant portion of the extra funds were directed toward this end. The extra allocations were divided equally among the three services.
The military has benefitted from this willingness to spend money. Defense spending increased at an annualized rate of 27.6 percent between 2012 and 2016. However, due to high inflation, that increase did not translate into a boon when converted to dollars. In dollar terms, Argentina’s defense spending only increased at an annualized rate of 1.5 percent between 2012 and 2016. Like much else in Argentina, inflation is hurting spending power.
The category of Personnel continues to make up the bulk of Argentina’s defense spending outlays. In the FY16 budget, personnel expenses make up 73.9 percent of non-social security defense expenditures. That represents a slight increase from 72.8 percent in FY15. At the same time, spending on military and security equipment declined from 3.5 percent of expenditures in FY15 to 3.0 percent in FY16. Overall, investment in military procurement made up 5.1 percent of Argentina’s budget in FY16.
Because such a high proportion of Argentina’s defense spending is used to pay for salaries and day-to-day expenses, Buenos Aires will not have much money left over for large-scale military acquisition programs. Still, the government continues to make modest investment in military equipment. Funding in FY16 will be used to upgrade UH-1H helicopters to the Huey II standard, continue work on IA-58 and IA-63 aircraft, develop unmanned aerial vehicles (UAVs), and continue a maintenance and modernization program for the country’s MEKO 360 destroyers.
Going forward, Argentinean defense spending will increase at much slower rates than in the past. Spending will decline in 2017 and then gradually increase. New president Maurcio Macri has promoted lower government spending as a way to balance the budget. Forecast International expects defense spending to increase at a compound annual growth rate (CAGR) of 9.4 percent between 2017 and 2021.
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The Forecast International International Military Markets series examines the military capabilities, equipment requirements, and force structures inventories of 140 countries, with corresponding coverage of the political and economic trends shaping the defense market outlook for individual countries and regions.