Bombs away: arms spending kicks into high gear in Latin America. (Defense).

Latin Americans are bellying up to the bar, and Uncle Sam is pouring. Governments are on the market for military goods-many looking to replace tattered warplanes bought in the 1960s and 1970s-and U.S. arms companies are prepping for a south-of-the-border bonanza.

Brazil will spend US$3.3 billion to modernize its air force. Chile has signed on to spend $660 million on new F16 jet fighters. And Colombia and its neighbors will get almost $2 billion over the next few years from the United States alone, $1.3 billion in military aid toward defeating drug traffickers, including 56 attack helicopters.

Nearly $400 million more in U.S. funding is being arranged for the war-torn Andean region and could be spent for strictly military ends, if the U.S. Congress approves. An extra $385 million in economic aid is proposed as well. The Bush Administration has also asked for a 78% increase in grants and loans to Latin American governments, to $115 million from $9 million annually, to buy more weapons. "We are moving to stage two in what should be a two- or three-stage process that should last a number of years:' says William Brownfield, U.S. ambassador to Chile.

The avalanche of big-money deals marks the effective end of a two-decade ban on U.S. sales of advanced weaponry to Latin America. U.S. President Bill Clinton in 1997 lifted the embargo- enacted by the last Democrat in office before him, Jimmy Carter-to help the U.S. defense industry recover from the end of the Cold War.

Worldwide, much of the money the United States spends helping foreign countries arm themselves washes back up in the United States. The United States accounted for about half of all international arms deals from 1996 to 2000, $49.2 billion of the $104.3 billion sold. Russia, France, Great Britain and Germany combined make up the next $39.2 billion.

Hand-me-downs. During the U.S. embargo, Chile bought refurbished Exocet missiles from MBDA, a French-English-Italian defense consortium, and secondhand battle tanks from France's state-owned Giat Industries, as well as from RDM of the Netherlands. Brazil bought Mistral surface-to-air missiles from MBDA and missiles from Russia, Israel and Italy.

In turn, a hand-me-down system exists: Chile, for example, sells its castoff planes to the Dominican Republic and Mauritius, while Peru buys aircraft from Nicaragua, Belarus and Ukraine. Brazil, meanwhile, has begun to develop its own defense industry, sealing a $500 million rocket-launcher deal with Malaysia in 2001.

Other global defense contractors actively looking for new business in Latin America include Rosoboron-export, the Russian state agency charged with selling surplus heavy weaponry, Sweden's Saab, Bombardier of Canada and France's Dassault Aviation, tapped to work with Brazil's Embraer on the Brazilian fighter deal.

During the lost decades, U.S. defense contractors actively campaigned to end the embargo, fearing mergers among European competitors would create super-contractors capable of cutting into U.S. market share.

When the U.S. military buys new gear, a whole generation of weaponry becomes available to Latin America, says Frank King, head of Latin American sales for Bell Helicopter. Defense contractors typically make money refurbishing older equipment with updated electronics and through long-term service contracts.

"The U.S. Army is withdrawing the Huey helicopter from its active inventory fleet. So it becomes surplus, and then they are provided through the U.S. State Department on loan to host governments," King says. "It will be interesting to see what happens to the Cobra [attack helicopter] that is being surplused by the U.S. Army. I don't know of any case yet where an agreement has been signed, but it is a matter of time."

If any corporation can take credit for the end of the embargo, it is Lockheed Martin, which since the early 1990s has led the fight against the weapons ban. citing lost U.S. jobs at the F16 assembly plant in Fort Worth, Texas.

Lockheed's aeronautics division recently won a $19 billion U.S. Department of Defense contract to develop the next-generation F35, the Joint Strike Fighter. As the United States and its major allies make the transition to the new fighter--expected to appear as early as 2005--Lockheed stands to earn plenty of money selling its P16 plane to the rest of the world, including Latin America.

If Latin America instead buys older F16s from the U.S. military or other governments. Lockheed still wins: The company in March won a 23-year multilateral contract to maintain the world's fleet of F16s, valued at up to $12.7 billion. Seventeen countries, including Venezuela, now take part in the deal hid through the U.S. Department of Defense. "This is a very positive signal to Latin America that the policies of the U.S. government are to establish military and defense ties to the region," says Henry Gomez, head of the F16 program at Lockheed Martin.

Upgrade. Lockheed is now talking with Venezuela about revamping that country s F16 squadron. "We would upgrade them into the newest, state-of-the-art technology," Gomez says. Venezuela was the only country able to get around the Carter embargo, buying 24 F16s during the first Reagan administration. At the time, Cuba was considered a threat, and Venezuela served to keep pressure on the island dictatorship.

As experts around the region hotly debate new arms sales, buyers are quietly defensive. "You must not forget that we have a complicated situation in Colombia which means that peace is not yet a given, even in our area, says Brazilian Foreign Minister Celso Lafer, whose country could receive roughly $16 million in U.S. military and police aid in 2002, up from less than $4 million last year.

Brazil wants the 24 new jet fighters to replace Mirage jets in the air since 1972 and due to be grounded by 2005. Chile, meanwhile, wants Fl6s to replace Mirage fighters it bought from the Belgian Air Force in the mid-1990s and F5s it says are outdated. Only two years ago, Chile retired 19 A-37 combat planes, a U.S. Air Force fighter that debuted in Vietnam.

National defense is not an issue of the past, although economic problems in some countries complicate policy, says Hugo Saenz, a researcher at the Washington, D.C., Center for Defense Information. "It depends on each country's security needs. Colombia is fighting a war. Other countries are replacing old equipment, as in the case of Chile and Brazil," says Saenz. "These are very difficult and tough choices to make."

Some weaker economies, such as Peru, have seen military budgets shrink dramatically. In August 2001, Peruvian President Alejandro Toledo proposed a 10-year arms freeze in the region--a measure it seems will be roundly ignored. Both Peru and Bolivia warn a regional arms race is imminent.

The secretary general of the Chilean government, Heraldo Munoz, scoffs at the idea. "Chile does not have geographic or territorial pretensions," he says. Analysts, too, point out that Peru's purchase of Russian MiG fighters during former President Alberto Fujimori's rule prompted Chile to buy newer aircraft.

Yet Chileans do face 13% unemployment and a disastrously underfunded state health care system, charges Rodrigo Pizzaro, an economist at Chile's Terrain Foundation. Spending millions on new airplanes is ludicrous for a government that claims job creation is its No. 1 goal. Pizzaro says. "Who can explain this to the unemployed?"

ARMED FORCES OF LATIN AMERICA

           Military spending        2001 Budget
              (% of GDP)
                 1990         1999  US$ billions

Argentina         1.3          1.5      3.1
   Brazil         1.9          1.3      8.8
    Chile         3.6          3.1      2.1
 Colombia         2.6          2.5      2.1
   Mexico         0.5          0.6      3.3
Venezuela         2.0          1.4      1.9

SORUCE: United Nations Development Program, International Institute for
Strategic Studies, Government of Mexico