P 241945Z FEB 09
FM AMEMBASSY SANTIAGO
TO SECDEF WASHDC PRIORITY
SECSTATE WASHDC PRIORITY 4503
INFO AMEMBASSY LIMA 
HQ USSOUTHCOM MIAMI FL
DIA WASHDC
JOINT STAFF WASHDC

C O N F I D E N T I A L SANTIAGO 000167 
 
 
E.O. 12958: DECL: 02/24/2016 
TAGS: PGOV PREL OVIP MASS MARR CI
SUBJECT: CHILE SCENESETTER FOR CHAIRMAN OF JOINT CHIEFS OF 
STAFF ADMIRAL MIKE MULLEN 
 
Classified By: EPOL COUNSELOR TIM STATER FOR REASONS 1.4(B/D). SUMMARY -------

¶1. (C) The U.S. Mission in Santiago welcomes your visit to Chile on March 2-3. Your presence is an excellent opportunity to further strengthen military-to-military relations and to encourage Chile to exercise greater regional leadership. We have had several successful high-level defense and security-related exchanges, including a visit by Defense Secretary Gates to Chile in October 2007 and Defense Minister Goni's April 2008 visit to the United States. In 2008 alone, we have had visits from CSA Gen Casey, USMC Commandant Gen Conway, CNO Adm Roughead and Southcom Commander Adm Stavridis (three times) who helped up the level of coordination with their Chilean counterparts.

¶2. (C) Chile continues to promote "the Chilean way" through free trade agreements, closer ties with like-minded countries, and new areas of cooperation (e.g. energy) with traditional allies, including the U.S. Chile is also trying to strengthen relations with its neighbors by promoting concrete, confidence-building measures that focus on the future and avoid rehashing historical differences. The Chilean economy has been impacted by the global financial crisis, but its fundamentals remain strong. The Chilean military's international efforts are consistent with the Chilean government's goals of increasing global trade and ties with Chile's neighbors. The U.S. and Chile have taken several positive steps to strengthen ties in the last year, and Chile is taking on greater leadership roles. These include extending their PKO commitments in Bosnia and Haiti; encouraging the U.S. Congress to ratify the U.S. free trade agreements with Colombia and Panama; and endorsing the Proliferation Security Initiative (PSI), as well as the Global Initiative Against Nuclear Terrorism, and joining the Partnership for Democratic Governance Steering Group. End summary.

Concertacion Still in Power After 19 Years ------------------------------------------

¶3. (U) Chile's center-left coalition government, known as the Concertacion, has been in power continuously since the end of Pinochet's military dictatorship in 1990. The election of current president Michelle Bachelet in January 2006 was heralded as historic. Bachelet is Chile's first female president, a single mother and agnostic in a country with strong conservative Catholic roots, and a survivor of torture during the Pinochet regime. Bachelet has had her share of ups and downs during her term in office. She started her presidency with soaring popularity and high expectations, but a series of domestic problems--including large student protests, the expensive, failed reform of public transportation in the capital, and a number of relatively minor corruption scandals--led to a drop in public confidence. In recent months, however, Bachelet's star has begun to rise again as the public generally approves of her handling of the international financial crisis.

¶4. (SBU) The Concertacion will face a test of its popularity in the presidential and parliamentary elections to be held in December. Opposition candidate Sebastian Pinera, a wealthy business tycoon and former presidential candidate and senator, enjoys a substantial lead over his Concertacion rival, former president Eduardo Frei. While many believe that Pinera and his Alianza coalition have their best chance ever to break Concertacion's domination of Chilean politics, analysts on both sides of the aisle believe that the election will be very close. Pinera and Frei both represent centrist tendencies in their coalitions, so the actual political differences between the two are not large. Instead, Pinera is trying to frame the election as a call for change, casting himself as the agent of renewal. Regardless of who wins, U.S.-Chilean relations will remain strong.

Chile on the International Stage --------------------------------

¶5. (SBU) Bachelet performs well on the international stage and has contributed to Chile's rising international stature. In September 2008, she convened a summit of UNASUR, the nascent South American political union, which helped to defuse, at least temporarily, the crisis in Bolivia and prevented the meeting from degenerating into an anti-American forum. Chile serves as UNASUR's president pro tempore; has the largest group of Latin American peacekeepers in Haiti; and is generally active, if behind the scenes, in regional multilateral fora. The GOC sent two planeloads of humanitarian aid to Syria and donated money to the International Red Cross during the most recent Israeli-Hamas conflict in the Gaza Strip. This demonstrated Chile,s international commitment to provide aid but also helped appease Chile,s large Palestinian population of 400,000. Even though Chile and the U.S. see eye to eye on many regional and international issues, Bachelet has made it clear that Chile does not blindly follow where the U.S. leads. In comments last fall during the UN General Assembly, Bachelet said that the U.S. and Chile were "political friends, but not unconditional friends" and criticized the U.S. for its role in precipitating the financial crisis. She has repeated the latter charge in other public fora as well.

¶6. (C) During the first visit of a Chilean head of state to Cuba in nearly 40 years (February 10-13), however, President Bachelet suffered her most serious foreign policy setback. She received considerable criticism from the opposition and the Christian Democratic Party (a leading Concertacion member) for not meeting with Cuban dissidents and being the brunt of Fidel Castro,s bad manners. Hours following their meeting, the revolutionary leader issued a column that revealed part of their private conversation in which Fidel pressed her on Bolivia,s access to the sea)-a sensitive issue for Chile domestically.

Chile's Strong Economy Being Tested by Financial Crisis --------------------------------------------- ----------

¶7. (U) Chile is fortunate to be in a strong economic position as the global financial crisis unfolds. The country maintains a budget surplus (5.2% of GDP in 2008), has relatively low debt, and has over USD $22 billion in offshore sovereign wealth funds, much of it from record copper revenues. Poverty has dropped from 40% of the national population in 1990 to 14% in 2006. Nonetheless, the global economic downturn has significantly impacted Chile's real economy, with only 3-4% GDP growth in 2008. Forecasts already predict much slower growth in 2009. President Bachelet recently announced a $4 billion economic stimulus plan designed to create 100,000 jobs and maintain a GDP growth rate of 2-3% in 2009. The plan calls for increased public infrastructure spending, temporary tax cuts for businesses, direct payments to low-income families, and other incentives.

¶8. (U) A decline in copper prices at the end of 2008, an economic downturn, and a likely rise in unemployment top the list of Chilean economic concerns. In December 2008, domestic economic activity hit its lowest level since 1998. Copper accounted for 64% of Chile's exports in 2007, and the price hit its lowest point in four years in December 2008. The financial crisis has affected liquidity in the Chilean banking system, making it harder for some companies to maintain access to capital. Chile's trade volumes have decreased as a result of the global economic downturn. In January, exports decreased 41% and imports decreased 26% from the year before. These factors have caused many companies to reduce investment plans, cut costs, and begin laying off workers. Unemployment was 7.5% in December 2008 and many predict it will increase significantly in 2009. Other economic worries include high inflation (6.3% in December 2008), though that rate has been decreasing, high levels of consumer indebtedness, and low business confidence.

The U.S. and Chile: Strong and Increasing Trade --------------------------------------------- ---

¶9. (U) The U.S. and Chile implemented an FTA in 2004, which has achieved impressive results in the bilateral trading relationship. The U.S. is Chile's largest trading partner, and Chile is our fifth largest trading partner in Latin America. Overall bilateral trade grew by more than 200% during the first five years of the FTA, reaching $20.3 billion in 2007. Chile's top three exports to the U.S. in 2008 were copper (34%), fruit (17%), and seafood (11%). The top three U.S. exports to Chile were non-crude oil (30%), machinery (18%), and vehicles (8%). Chile ran a trade deficit with the U.S. in 2008 for the first time since 2000.

¶10. (SBU) Despite this FTA success, some economic sticking points between the U.S. and Chile remain. Chile is on the Special 301 Priority Watchlist for its poor performance in protecting intellectual property rights (IPR), including copyrights, trademarks, pharmaceutical patents, and proprietary clinical trials. In October 2008, the Chilean Congress took a positive step by passing the Patent Cooperation Treaty. Drafts of four other IPR-related laws are still pending before the Congress. Chile still has a long way to go in its IPR protections, including improving enforcement mechanisms. For its part, Chile is concerned about negative U.S. press reports related to sanitary conditions in the all-important salmon industry.

The U.S. and Chile: Partners Across the Board --------------------------------------------- -

¶11. (U) The U.S. and Chile continue to partner on a broad set of initiatives, including education, scientific research, and military-military cooperation. In May 2008, President Bachelet announced government plans to significantly increase scholarships for Chileans to study abroad. The new GOC scholarship program sent over 1,000 students/scholars overseas in 2008 and there are plans to send 2,500 in 2009. Program leaders estimate that approximately one-third may choose to study in the U.S. These exchanges build on the success of the U.S.-Chile Equal Opportunities Scholarship Program, inaugurated in 2007, to sponsor English and academic studies for Chilean PhD students who come from disadvantaged and rural areas that have not traditionally had access to English language schools or study abroad opportunities.

¶12. (U) In June 2008, President Bachelet and Governor Arnold Schwarzenegger launched the Chile-California Partnership for the 21st Century. The partnership is fostering collaboration between individuals, government, and the private sector in areas such as agriculture, energy efficiency, environmental resource management, and education. A similar program existed from 1963-1970 and this renewed effort will seek to leverage the numerous economic and geographic similarities between Chile and California.

Facing a Serious Energy Crisis ------------------------------

¶13. (SBU) Chile continues to face a serious energy crisis which, at least in the shorter-term, is being addressed by industry making adjustments to accommodate fluctuating hydroelectric generation and reduced natural gas supplies. Uncertainty about how Chile will meet the projected 12,000 MW it needs over the next 10 years, however, is having a negative impact on the country's economic growth and investment prospects. Chile's electricity matrix is dominated by hydropower and thermal plants with limited spare capacity. In 2007 and early 2008, record low water levels forced hydropower plants to operate at minimum capacity and Argentina reduced exports of natural gas to the bare minimum needed for residential use, forcing the entire thermal infrastructure to rely more heavily on expensive diesel and increase the use of coal.

¶14. (SBU) Chile is building liquid natural gas (LNG) terminals, but natural gas supplies will still be subject to fluctuations in price and availability (and growing demand from China), as well as the need to increase capacity to transport it to the center of the country from terminals. Moreover, due to resistance from environmentalists and growing public concerns, the future of a large hydroelectric project in Patagonia is very much in question. Although President Bachelet has promised not to introduce nuclear power during her administration, a national debate over nuclear generated power is underway. The National Energy Commission has commissioned three studies on nuclear energy issues and the two leading presidential candidates are pro-nuclear.

¶15. (SBU) The GOC clearly recognizes the need to reduce energy consumption, increase energy efficiency, and explore the full range of energy sources, including renewables and nuclear. The situation is complicated by the fact that although Chile has a Minister of Energy, Marcelo Tokman, responsibility for energy policy is currently distributed among several government agencies. The formation of a Ministry of Energy is still under discussion by lawmakers, but should be resolved by mid-2009. (Comment: Like several other senior Chilean government officials, Tokman carries the title "Minister" although there is currently no ministry that he commands. End Comment.)

¶16. (SBU) President Bachelet, and nearly every minister with whom the Ambassador has met since his arrival, have emphasized that Chile welcomes increased bilateral energy cooperation with the U.S. across the board. As the GOC struggles to develop a coherent energy policy, we are working with U.S. agencies and the Chilean Minister of Energy to increase bilateral cooperation in four target areas: renewable energy; nuclear power for electricity generation; energy policy formation; and energy efficiency. Of note, on 19 February, Minister Tokman met with Department of Energy Secretary Chu in Washington, D.C. to discuss Chile,s energy challenges and prospects, the possibility of establishing a strategic partnership in the area of non-conventional renewable energy and the country,s strong ties to the Lawrence Berkeley National Lab.

Outstanding Mil-Mil Cooperation ------------------------------- 17. (C) The Bachelet administration is interested in strengthening mil-mil relations as an element in modernizing and normalizing the Chilean military's role in society. There have been several high-level exchanges on mil-mil issues in the past years: Secretary of Defense Gates' October 2007 visit to Chile, Chilean Defense Minister Goni's April 2008 visit to the U.S, three USSOUTHCOM CDR's visits to Chile in 2008, CSA Gen Casey in April 2008, USMC Commandant Gen Conway in May 2008, CNO Adm Roughead in December 2008, and innumerable other general and flag officer and senior-level OSD visits. Together with the annual Defense Consultative Commission (OSD-Defense Ministry-level talks, to be held 26-31 May 2009) and annual Joint Staff Talks (to be held November 2009), these visits have intensified U.S.-Chile dialogues on mutual defense-related issues.

¶18. (C) In April 2008, Minister of Defense Goni and the Secretary of Defense discussed defense and security issues in Washington, D.C. Both agreed the U.S. and Chile share common values from a security standpoint, and that relations between OSD and the Ministry of Defense were strong and growing. The Secretary of Defense noted a recent agreement to expand the U.S.-Chile Defense Consultative Commission (DCC) by adding two subcommittees on energy/environment and education, and the signing of the Master Information Exchange Agreement, all of which marked a step forward in the relationship. Minister Goni said the U.S. was Chile's most important defense and security partner, and said Chile seeks greater interoperability with the U.S. Minister Goni also highlighted the Chilean Defense Ministry's current reform and transformation efforts, and expressed interest in U.S. assistance in developing expertise in the Defense Ministry's civilian community though professional education opportunities in the U.S. (e.g., NDU, CHDS).

¶19. (C) During his trip to the U.S., Minister Goni also visited the Western Hemisphere Institute for Security Cooperation (WHINSEC) to better understand the institution and its capabilities. There remains a small minority of opponents to WHINSEC in Chile (including some members of Congress) and the Minister wants to take advantage of the transparency of WHINSEC to help educate this minority. To this end, the Minister, at the recommendation of the Secretary of Defense, has invited several Chilean Congress members and NGOs to visit WHINSEC in March 2009 in an effort to help opponents better understand exactly what WHINSEC is all about. Of note, Chile has sent roughly 190 students to WHINSEC every year since 2006.

¶20. (C) Goni noted that the pending transfer of the oiler USNS Andrew J. Higgins was important to Chile's overall defense position. The Secretary reiterated his support for the transfer. (DAO Note: FY09 Ship Transfer Legislation passed the U.S. Senate in October, 2008 and Congressional notification was received the next month authorizing EDA transfer to Chile.) Goni said Chile was interested in more exercises with U.S. Special Forces, and also updated SECDEF on the status of the joint Chile-Argentina PKO force "Cruz del Sur." Goni characterized the level of security cooperation between Chile and Argentina as "excellent." The Secretary expressed appreciation for Chile's participation in MINUSTAH in Haiti. Noting the high level of proficiency and professionalism of Chilean military forces, the Secretary asked Goni to consider having Chile participate in the Proliferation Security Initiative (PSI) Operational Experts Group. Goni said Chile was looking at this possibility. 21. (C) In September 2008, after several years of effort explaining the benefits of the State Partnership Program (SPP), the GOC formally requested, via the Ministry of Foreign Affairs, that Chile be considered to partner with the National Guard. The request also suggested that the Texas National Guard be strongly considered as the optimal partner in this new security cooperation initiative. The current Chilean Army and Air Force service chiefs pushed for SPP through Minister Goni, having noted the experience of National Guard service members in support of OIF/OEF and in assisting with the aftermath of numerous natural disasters in the U.S. The expectation is that this security cooperation initiative will allow sharing experiences in disaster relief and emergency management operations which not only lead to closer mil-to-mil ties, but will also create conduits for greater civilian-military and civilian-civilian cooperation. The work by all parties has come to fruition and the SPP signing ceremony between Texas and Chile is scheduled to be held in Austin on 27 April.

NO SOFA -------

¶22. (C) Chile does not have a Status of Forces Agreement (SOFA) with any country. T he U.S. and Chile exchanged diplomatic notes to provide limited protections to DOD personnel in Chile for military exercises in 2005 and 2006, but failed to conclude a similar agreement in subsequent years. Despite the lack of a bilateral agreement granting protections and immunities, SOUTHCOM proceeded with CY 2007 military exercises and exchanges, and continued to do the same in 2008 and 2009. These included several successful joint exercises, including JCETs with the Chilean Army and Carabineros (national police) Special Forces, Partnership of the Americas Initiative (which included a Chilean frigate), UNITAS (Pacific), Teamwork South Naval exercises, the Marines' Southern Exchange, Exercises WILLKA and NEWEN with the Chilean Air Force (FACH), an Army platoon exchange program with the 101st Airborne Division, and a SOCSOJCET in May 2008.

¶23. (C) Before entering into formal SOFA-related discussions with the U.S., the GOC must first enact a law granting the executive branch the authority to negotiate SOFAs. This legislation was introduced into Congress in March 2007, but ran into opposition from members who (together with Chile's Supreme Court) believe it would grant an unjustifiably large number of foreigners immunity from local jurisdiction. The draft bill's lack of reciprocity for Chileans abroad is also a concern. Senior Chilean government officials have told USG officials that the Chilean Congress most likely will not approve a draft law which does not include mutual reciprocity. During the April 2008 DCC meeting, the Chileans told us they are preparing a new draft proposal for the Congress, which specifically addresses this concern, although whether this proposal would be acceptable to the U.S. and the Chilean Congress remains to be seen. To date this draft has not been introduced to Congress.

¶24. (C) In March 2007, Chile endorsed the Proliferation Security Initiative (PSI), participated in May 2008 PSI exercises, and is considering joining the PSI Operational Experts Group (OEG). However, it is unlikely the GOC will reach a decision on the OEG before the national elections in 2009. Chile also endorsed the Global Initiative Against Nuclear Terrorism. The GOC is interested in joining the Missile Technology Control Regime (MTCR), the Wassenaar Arrangement, and the Australia Group, and has requested U.S. support and assistance. Chile also co-sponsored the OAS MANPADS resolution. Chile enforces the U.S. Coast Guard's International Ship and Port Facility Security Code, but is not a signatory to the Container Security Initiative or the Megaports Initiative.

New South American Defense Council ----------------------------------

¶25. (U) The proposed South American Defense Council (SADC) would be an integrated defense alliance of Union of South American Nations (UNASUR) member countries. Theoretically the SADC would function to prevent local conflicts, coordinate defense policies, contribute to UN and other humanitarian missions, and coordinate military technology and resources. The creation of the SADC was approved by UNASUR members, including Chile, in December 2008 at a summit of Latin American and Caribbean leaders in Brazil, but organizational documents must be approved by the proposed members before the SADC can be officially created. However, what was agreed was that each respective country would maintain separate defense industries and that the SADC would be based upon defense cooperation between nations with an emphasis on training and equipment issues. UNASUR was unable to come to a consensus on who should be SADC Secretary General. A meeting has been scheduled for April 2009 to discuss and vote on this issue.

ICC Ratification Near, But No Article 98 ----------------------------------------

¶26. (C) Chile has signed but not yet ratified the International Criminal Court Rome Statute. The Bachelet Administration and the Concertacion coalition support ratification and are working out final details to amend the constitution and ultimately ratify the Statute. Concerns about the potential cut-off of U.S. military assistance under the American Service Members Protection Act (ASPA) had been a factor in delaying ratification. However, with IMET, FMF and EDA safely protected from ASPA sanctions, ICC ratification in 2009 appears increasingly likely. The GOC has repeatedly told us that there is no political support in Chile for an Article 98 agreement.

Helping in Haiti ---------------- 27. (C) Chile self-deployed a battalion to Haiti on 48 hours notice in February 2004. In May 2008, Chile's Congress voted to extend Chile's 500-plus peacekeeping troops for one more year, to June 2009. Some opposition members of Congress opposed the measure and question the need for Chilean troops to remain in Haiti now that elections have taken place. They remain concerned about Chilean casualties (four wounded, no deaths to date, although one Chilean peacekeeper committed suicide while on R&R in the Dominican Republic), deployment costs, and the perceived slow pace of funding for economic development programs. 28. (C) The GOC is especially concerned about coastal security. It believes the U.S. Coast Guard should take the leading role in securing Haiti's coasts to stem the flow of drugs and weapons/munitions. Chile would like to see donors disburse pledges more rapidly and completely, an increase in maritime interdiction capacity, and a shift in MINUSTAH composition from military to civilian police. A February 2009 visit by MOD Goni and CHOD Lt Gen Ewing to Haiti focused on building Haitian civilian law enforcement and security capabilities as a requirement for Haitian prosperity.

Showing Peacekeeping Leadership -------------------------------

¶29. (SBU) Chile has contributed small contingents to UN missions in Cyprus, Bosnia and Kosovo, in addition to the troops and engineers currently stationed in Haiti. Chile and Argentina are working to stand up a joint peacekeeping battalion as a standby unit for United Nations PKOs. Chile also responded positively to the U.S. request to support the Global Peacekeeping Operations Initiative (GPOI), by sending three PKO trainers to assist the Conference of Latin American Armed Forces peacekeeping center in Guatemala in April 2007. The Chilean Congress approved a bill that establishes rules and procedures for deploying Chilean PKO personnel abroad in the future.

¶30. (SBU) The USG has supported Chile's PKO contribution in Haiti through FMF. We provided helmets, flak jackets and other accessories, vehicle spare parts, and water purification equipment. Ten HMMWVs are pending delivery to Chile's CECOPAC joint peacekeeping training facility and the Navy. The U.S. has provided over USD one million to CECOPAC for training facilities in the past, including five English language labs to the Chilean Army last year to support greater English language proficiency in the military.

Military Sales and Transfers ----------------------------

¶31. (C) In March 2007, the U.S. delivered the last two of ten new Block 52 F-16 fighter aircraft--the first major purchase of U.S. equipment since the 1976 U.S. cut-off of military sales during the Pinochet era. Chile also received 18 reconditioned Block 15 F-16s (mid-life upgrade--MLU), with Block 50-like capabilities from the Netherlands. An LOA for a USD 45 million, five-year FMS support case for these aircraft was submitted to the FACH and signed on May 15, 2008. Delivery of U.S. manufactured weapons systems for the aircraft purchased from the U.S. began in 2007 and include AIM 9M Sidewinder, AIM 120 C5 AMRAAM, GBU 31 JDAM, AGM65 G2 Maverick, and GBU 10/12 Paveway. It should be noted that the Chilean Air Force (FACH) also purchased Derby and Python 4 air-to-air missiles for their F-5, F-16 MLU, and F-16 Block 52 fighters from Israel.

¶32. (C/NF) After being offered the USG grant of two Excess Defense Article (EDA) KC-135E refueling aircraft for USD 42 million, the FACH instead decided to pursue acquisition of an alternative fixed boom air refueling capability for their F-16s, contracting with EADS for purchase of two modified Airbus A-310 MultiRole Tanker Transport (MRTT) aircraft, reportedly for USD 114 million. The acquisition of A-310s was problematic and the FACH canceled the contract due to expense and long delivery times. The FACH has recently submitted an official Letter of Request (LOR) for three KC-135E aircraft and requested delivery of at least one operational aircraft by October 2009. Other recent developments in FACH weapons system acquisition are the potential purchase of 16 additional used F-16 aircraft from the Dutch, as well as an LOR for the Avenger air defense system. If selected, this system could reaffirm benefits of the FMS program.

¶33. (C) Additionally, the Chilean Ministry of the Interior may be to be interested in a medium-lift helicopter for domestic missions, with both the Blackhawk and the Russian Mi-17-V5 receiving the strongest considerations. Ambassador Simons has made forceful presentations on behalf of the Blackhawk to both the FACH Commander in Chief as well as the Minister of the Interior. However it appears that a decision is not imminent at this time. The FACH recently contracted with Bell for 12-18 model 412 utility medium-light helicopters.

¶34. (C) With regards to space, the FACH has expressed interest in training and education in space operations and information on other cooperative opportunities. In October 2008 they inaugurated a satellite imagery download and processing station, consisting of U.S-purchased radar and data processing equipment. Chile reportedly will purchase imagery on the commercial market until they can use their own earth observation satellite. The GOC recently awarded a contract for approximately USD 70 million to EADS-Astrium to develop the satellite, which reportedly will also be used for defense-related purposes. The satellite is scheduled to be launched from China in 2010 as a part of Chile,s bicentennial celebration.

¶35. (SBU) The Army and Navy are also considering significant purchases of U.S.-manufactured systems. In 2006, the Chilean Army received 72 of a projected 200 M1098A2 series HMMWVs, and has nearly exhausted its first FMS case for USD 600,000 in spare parts for the M-113 A2/M548 A1 FOV. The Army has requested its first major purchase FMS case for 12 M109A5 self-propelled 155 mm Howitzers. The Army is interested in future government-to-government purchases to enable transparency of future acquisitions and support life-cycle interoperability via FMS. The Chilean Army and Air Force are considering acquiring together a short-to-medium range air defense system that is being offered by the U.S. Army. Both services requested Letters of Offer and Acceptance for the AVENGER system, which includes the SENTINEL radar. If selected, this system could reaffirm benefits of the FMS program, build greater interoperability, and further strengthen military ties between the U.S. and Chile. The Army has also expressed interest in acquiring MILES equipment and training, engineering equipment, and cargo aircraft. Lastly, the Chilean Army has requested a Letter of Offer and Acceptance to establish an office at USASAC New Cumberland. The Chilean Army FMS office at USASAC New Cumberland is a priority for the Army to equal its sister services acquisition benefits and will be the linchpin for additional FMS cases being established. 36. (SBU) Over the last four years, the Chilean Navy has modernized its entire surface combatant force through the purchase of four frigates from the U.K. (one Type 22 and three Type 23 frigates) and four frigates from the Dutch (two L Class and two M Class frigates). The Navy has ordered Harpoon launch systems and upgrades for all eight recently acquired frigates (this order included 22 Harpoon BLK 1C and a number of NATO Sea Sparrow missiles), and ordered the SM-1 missile launch system for the Type 22 frigate. Additionally, the Navy intends to upgrade the L Class frigates with the SM-2 missile launch system. The Navy, within the last year, took possession of 10 Harpoon BLK II missiles that were purchased from the U.S. in addition to 50 NATO Sea Sparrow rocket motors and miscellaneous equipment. The Chilean Navy is in the process of joining the U.S.-organized Harpoon Missile International Users Group and has already joined the SM-1 Missile International Users Group (at a combined cost of approximately USD 17 Million). The Navy recently purchased KIT-1C MODE IV IFF for their Cougar helicopters, four Defender Class Patrol Boats, P-3 pilot training in Jacksonville Florida, and the C2PC Command and Control system for their Marine Corps ground forces.

¶37. (C) In 2007, the Chilean Navy took possession of the second of two Scorpene Class submarines built by a French/Spanish consortium (DCNS of France and Navantia of Spain). The Chilean Navy has asked for a Letter of Offer and Acceptance to purchase the US Navy Oiler, Andrew J. Higgins. The November 2008 Congressional notification authorized the LOA to be presented. On November 17, 2008, CNO Roughead submitted a letter expressing the oiler,s availability, and on December 18 both Adm Codina and Adm Roughead signed an MOA regarding utilization of the oiler in support of USN maritime operations. The approximate value of the Higgins transfer is USD 48 million.

Unusual Copper Law ------------------

¶38. (SBU) Chilean law requires that 10 percent of earnings from the state-owned copper company, Codelco, be set aside for the Chilean Armed Forces for military acquisitions. However, the Chilean military does not yet have a multi-year budgeting system, and the so-called "copper funds" cannot be used for operations and maintenance expenses (e.g. maintaining PKO troops in Haiti), deployments, or military salaries. Proceeds from copper sales accumulate in a holding account held by the Finance Ministry and are not readily available for use as the Armed Forces choose. Instead, funds are distributed annually from this account to sustain approved acquisition programs, which are subject to civilian oversight. The Armed Forces reportedly are receiving payouts for acquisitions that average around USD 740 million per year. A goal of the Bachelet Administration has been to rescind the &Copper Law,8 but as the price of copper declined by more than half of its 2008 average, pressure to rescind the law dissipated. Additionally, until the MOD submits an alternative multi-year funding system, the prospects of the &Copper Law8 going away are slim. SIMONS