The Miami Herald / February 10, 1998
By Larry Luxner
WASHINGTON -- In mid-December, Litton Industries announced that its Mississippi-based shipbuilding division had won a $315 million contract with the Venezuelan government to overhaul and modernize two Venezuelan Navy frigates.
Then, on Jan. 9, Brazil announced it would pay $70 million for 20 A-4 Skyhawk helicopters to be deployed on its aging Minas Gerais aircraft carrier. And now, Lockheed-Martin and Boeing are licking their chops in anticipation of a juicy Chilean contract for fighter jets that could be worth up to $1 billion.
As late as 1995, such deals would have been unthinkable. The Washington political establishment -- having long ago grown disgusted with right-wing regimes that showed little regard for human rights -- had for years excluded South America from the $14 billion global market for U.S.-made high-tech weaponry. As a result, many Latin militaries began turning to Russia, France, Israel and China for everything from guns to grenades.
Yet with democracy now a fact of life in every Latin American nation save Cuba, Washington has been forced to do an about-face.
Last August, the Clinton administration -- acknowledging that the United States needed to enhance its credibility among Latin armies and discourage "destabilizing acquisitions" -- reversed the long-standing U.S. prohibition against arms sales to Latin America, promising to review each proposal on its own merit and reject cases only in exceptional circumstances.
"Our sole interest was in changing the overall policy on Latin America from one which uniquely patronized Latin America in an unsatisfactory way, to one where you look at arms sales on a case-by-case basis," says Joel Johnson, vice-president of international affairs at the Aerospace Industries Association, a Washington-based trade group representing 54 U.S. defense contractors. "The defense industry is fully aware that Latin America is a modest-size market, which has growth potential over the next decade and has modernization requirements."
The new policy has since been criticized by several think tanks such as the Washington Office on Latin America, which warns that lifting the arms ban "threatens to divert resources from social and economic investments" throughout the region while spurring an arms race between adversaries like Ecuador and Peru.
Nevertheless, the end of the ban thrills U.S. weapons manufacturers, since it could clear the way for several big deals, including Chile's proposed purchase of fighter jets. Among the models being considered are Lockheed-Martin's F-16, Boeing's F/A-18, France's Mirage and the JAS-39, made by a Swedish-British consortium.
The United States' biggest competitors, says Johnson, are France, which manufactures Mirage-5 fighter jets; Israel, which has supplied Pythons to both Chile and Brazil; Great Britain, which makes Hawk 100s, and former Soviet republics such as Belarus, which recently sold MiG-29 jets to Peru.
Indeed, Johnson estimates Latin America as an $800 million to $1 billion market, of which the United States has a 26% share. "Given we have 50% of the world market," he explains, "if were to treat the Latins with the same respect we treat the rest of the world, it wouldn't be unrealistic to assume the U.S. will get at least 50% or maybe more. That alone would argue an increase of $250 million [worth of business] a year."
Adds Boeing spokeswoman Maria Sheehan: "The lifting of the arms ban allows us to compete in international competitions wherever the U.S. government allows us to do so. At this point, our near-term market is Chile and only Chile."
Industry officials argue that Latin America allocates proportionally less on defense than any other region in the world. According to the CIA World Factbook, South America's biggest military spenders as a percentage of GDP are Guyana (6%), Venezuela (4%) and Chile (3.4%). At the other end of the scale are Brazil (0.9%), Colombia (1.3%), Paraguay and Bolivia (1.6%), Argentina (1.7%) and Peru (2%). By comparison, the U.S. spends around 4% of its budget on defense, down from 6% just a few years ago.
Johnson says the best U.S. customers in Latin America are also the wealthiest in terms of per-capita income: Brazil, Argentina and Chile. Another country, Colombia, will get about $37 million worth of U.S. spare parts, communications equipment, ammunition and helicopter maintenance in fiscal 1998 as part of Washington's decision to help the Samper government fight counterinsurgents and drug traffickers.
Since the new U.S. policy on Latin America was implemented, several lucrative deals have been announced. The Brazilian Army, for example, recently revealed it would buy four Sikorsky S-70A Black Hawk helicopters for an undisclosed price, though it could be a long time before the choppers fly over Brazil. Initially, they'll be used for military reconnaisance missions over the disputed Amazon border area between Ecuador and Peru As for Litton's $315 million modernization contract with the Venezuelan Navy, the two 2,500-ton LUPO Class frigates were initially placed in service in Venezuela between 1980 and 1982, and are designed for anti-air, anti-surface and anti-submarine warfare.
"Participating in the modernization of the Venezuelan Navy is certainly compatible with our capability and experience and demonstrates our company's reputation internationally," said Litton senior vice-president Jerry St. Pe.
Not all U.S. defense contracts in Latin America are weapons-related. In the biggest deal of its type, Raytheon Co. has formally begun work on its $1.4 billion Brazilian Amazon radar surveillance project, known by its Portuguese acronym SIVAM. The program will for the first time give the Brazilian government the eyes and ears it needs to monitor Brazil's vast Amazon region. This data will be shared with federal agencies to help protect the environment, improve air safety, increase the accuracy of weather forecasting, fight epidemics, curtail illegal mining, combat the drug trade and enforce border controls.
As part of this contract, Lockheed-Martin's Ocean, Radar & Sensor Systems unit will supply six tactical mobile radars to Raytheon, in a subcontracting deal worth around $50 million; Lockheed has 115 such radars in service in 15 countries.
"This long-awaited contract is our first program in South America," says Stanton Sloane, vice-president of the OR&SS unit, "and we expect it to lead to future opportunities throughout the region."