Defense Expenditure will be Driven by Modernization Programs

Wednesday 17 October 2012, Amsterdam

The Argentine defense budget stands at US$3.64 bn in 2012, the result of a CAGR of 15.77% during the review period 2008-12, and this robust growth was primarily driven by high personnel turnover in the armed forces. The government announced a 21% wage increase in the salaries of the armed forces in 2010. In 2013 the defense budget is estimated to beUS$4.22 bn and is expected to register a CAGR of 19.22% during the forecast period to reach US$8.53 bn by 2017. This strong growth is a result of the need to modernize the Argentine armed forces following decades of underinvestment after defeat in the Falklands war in 1982 and the collapse of the Argentine economy in 2001. The government intends to increase the defense budget of the country from 0.8% of GDP in 2012 to 1.1% of GDP and, while the time period for doing so is unclear, it is estimated that the defense budget will increase to 1.5% of GDP by 2017.

Defense expenditure will be driven by modernization programs, contributions to international peacekeeping missions and the Falkland Islands dispute with the UK. The Argentine government is expected to increase its defense budget at a robust pace in order to modernize its defense equipment and support its domestic defense industry. As part of the United Nations (UN), the Argentine government began to contribute to peacekeeping missions in 1958 and since then has contributed over 35,000 troops for various peacekeeping missions around the world.

The Argentine defense industry does not have the requisite technological capability to competitively develop advanced defense equipment and compete with the global arms industry. The defense industry, which was previously mostly state owned, was privatized due to public financial constraints. However, the country has started developing its domestic defense industry and is attempting to improve it through industrial participation policies. The government is also participating in international development projects such as the Embraer KC-390, which will create export opportunities and produce a stable order book.