SANTIAGO -- On January 7, a unanimous vote of approval by the Finance Commission of the Chilean Senate signaled a significant step towards the passage of a new law that would terminate a special defense budget mechanism that has formed a controversial cornerstone of the country's military spending procedures for roughly 60 years.
The funding mechanism known as the Restricted Law on Copper directed that 10% of the annual export profits generated by the Chilean state-owned copper company Coldelco be appropriated into spending accounts separate from the national budget framework and instead managed directly by the three branches of the Chilean Armed Forces. The law also imposes limitations on Codelco's participation in certain joint ventures or investment projects that might be deemed to contradict national security priorities.
Although the financial details and usage of these accounts had long been opaque, the liberalization of Chilean politics since the 1990s has seen the accounts become open to more legislative oversight. Reports indicate that the mechanism has generated from USD180 million a year up to USD1 billion for military spending ledgers depending on the contemporaneous fortunes of the copper industry.
The sitting administration of Chilean President Sebastian Piñera has been working to terminate the Restricted Law since 2011. After that initial effort, Piñera proposed a new version of the bill that would terminate the Restricted Law in August 2018 with the Finance Commission's approval moving the bill one step closer to a potential passage into law as soon as March 2018.
The administration's justification for the Restricted Law's termination includes the lack of democratic oversight and accountability associated with the fund's direct management by the armed forces rather than by the legislature, means to allow Codelco greater flexibility in its business practices and also serves as an attempt to create a more normalized and predictable defense spending framework that is not dependent on the attendant swings of copper exports.
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