The

Chile Chile, officially the Republic of Chile, is a country in the western part of South America. It is the southernmost country in the world, and the closest to Antarctica, occupying a long and narrow strip of land between the Andes to the east a ...

an La
N° 13.196
known as Ley Reservada del Cobre (Spanish for "Restricted Law on Copper") was a highly controversial

secret law Secret law refers to legal authorities that require compliance that are classified or otherwise withheld from the public. Secret law in the United States Since about 2015 the branches of the United States federal government have accused one anot ...

("restricted" in this context refers to the law not being freely available) issued on 29 October 1958 under the administration of

Carlos Ibáñez del Campo General Carlos Ibáñez del Campo (; 3 November 1877 – 28 April 1960) was a Chilean Army officer and political figure. He served as President twice, first between 1927 and 1931, and then from 1952 to 1958, serving for 10 years in office. T ...

in order to allocate revenues from the copper mining corporations for the purchase and maintenance of

Materiel Materiel (; ) refers to supplies, equipment, and weapons in military supply-chain management, and typically supplies and equipment in a commercial supply chain context. In a military context, the term ''materiel'' refers either to the specifi ...

of the

Chilean armed forces The Chilean Armed Forces ( es, Fuerzas Armadas de Chile) is the unified military organization comprising the Chilean Army, Air Force, and Navy. The President of Chile is the commander-in-chief of the military, and formulates policy through the Mi ...

. The law was replaced in 2019, with the armed forces' finances scheduled to come under the national budget by 2029.

History

Automatic military funding from natural resources revenues can be traced in Chile to the 1880s.Michael Radseck
''Rohstoffe und Rüstung. Hintergründe und Wirkungen ressourcenfinanzierter Waffenkäufe in Südamerika''
, in Lateinamerika Analysen N° 16, 1/2007, Page 203-241, Edited by Institut für Lateinamerika-Studien, Hamburg, Germany On 7 January 1938, law N° 6.152, known as ''Ley de Cruceros'' (Spanish for "Cruciers Law"), was issued to transfer 90% of the leasing receipts of South Patagonian territories to arms purchases. Later, in 1942, the Chilean Government, worried about the ongoing

Pacific War The Pacific War, sometimes called the Asia–Pacific War, was the theater of World War II that was fought in Asia, the Pacific Ocean, the Indian Ocean, and Oceania. It was geographically the largest theater of the war, including the vast ...

and the defense, created the CONSUDENA, Consejo Superior de la Defensa Nacional, and allowed them to allocate revenues from currency dealings, alcohol tax, cigarettes tax and income from big copper companies for the purchase of weapons without parliamentary oversight. The ''Ley de Cruceros'' or ''Ley Reservada del Cobre'' was issued in 1958 after a serious military incident on the Snipe islet by the administration of President Ibáñez in order to deviate funds from tax revenues from big copper mining corporations directly to the armed forces. The

Chilean nationalization of copper The nationalization of the Chilean copper industry, commonly described as the Chileanization of copper ( es, Chilenización del cobre) was the process by which the Chilean government acquired control of the major foreign-owned section of the Chile ...

transferred in 1971 the properties of the big copper mining corporations

Anaconda Copper Company The Anaconda Copper Mining Company, known as the Amalgamated Copper Company between 1899 to 1915, was an American mining company headquartered in Butte, Montana. It was one of the largest trusts of the early 20th century and one of the largest mi ...

and

Kennecott Utah Copper Corporation Kennecott Utah Copper LLC (KUC), a division of Rio Tinto Group, is a mining, smelting, and refining company. Its corporate headquarters are located in South Jordan, Utah. Kennecott operates the Bingham Canyon Mine, one of the largest open-pit ...

to the Chilean state and in 1976

CODELCO Codelco (''Corporación Nacional'' ''del'' ''Cobre de Chile'' or, in English, the National Copper Corporation of Chile) is a Chilean state-owned copper mining company. It was formed in 1976 from foreign-owned copper companies that were nationali ...

was created in order to manage the development and production. The law has been modified in 1973, 1975, 1986 and 1987.

The Law

The Ley Reservada del Cobre stipulates that 10 per cent of Codelco's export sales are to be transferred to the armed forces. Each year Codelco deposits the earmarked resources in dollars in three secret accounts (army, air force and navy) at the

Central Bank of Chile The Central Bank of Chile ( es, Banco Central de Chile) is the central bank of Chile. It was established in 1925 and is incorporated into the current Chilean Constitution as an autonomous institution of constitutional rank. Its monetary policy is ...

. These accounts are maintained outside the treasury single account and the parliamentary oversight, fragmenting it and impeding obtaining the benefits of managing all government cash in a centralized way. The expected minimum contribution is US$180 million annually, the floor, to be adjusted according to variations in the

U.S. Producer Price Index The Producer Price Index (PPI) is the official measure of producer prices in the economy of the United States. It measures average changes in prices received by domestic producers for their output. The PPI was known as the Wholesale Price Index ...

. In case the revenues are less than the stated amount, as in 1986 and 1987 occurred, the Treasury must supply the difference (US$38 and US$25 million, respectively). During the decade 1995-2005 the government managed to restrict the annual level of investment spending by the armed forces by imposing a ceiling on them in order to guarantee that their expenditures are consistent with the structural fiscal balance limit. However, the ceiling does not reduce the amounts received by the armed forces; any surpluses are accumulated in the bank accounts of the defense sector. The Chilean armed forces have transformed into the region's most capable military forces, both in training, force composition, logistics as in the general quality of their materiel. Their technical capabilities as well as local industrial capacity to service the majority of its equipment is far superior to any other country in the region. Chile has been pushing its armed forces to reach

NATO The North Atlantic Treaty Organization (NATO, ; french: Organisation du traité de l'Atlantique nord, ), also called the North Atlantic Alliance, is an intergovernmental military alliance between 30 member states – 28 European and two No ...

standards and is able to conduct domestic and external operations to a high degree. In 2011, the Finance Ministry took over management of the military's copper fund from the Defence Ministry.

Criticism

Funding the Chilean military with off-budget revenues from a stateowned company is controversial and not in line with practices in most developed countries because: * it is outside democratic control, * it doesn't compete with other sectors for funds * it does not necessarily reflect the government's priorities and sectoral strategies * it is not under supervision or accountability on the use of the funds In addition, the procurement process for military equipment is a closed process. As stated by

SIPRI Sipri may refer to: * As-Safira, a city in Syria, known in pre-Islamic times as Sipri *Shivpuri, a city and a municipality in Madhya Pradesh, India, formerly known as Sipri *Stockholm International Peace Research Institute Stockholm Internati ...

, “Chile’s arms procurement process is almost entirely under the armed forces’ control and takes place with little or no civilian political involvement”. A January 7, 2007, article in

The New York Times ''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...

explained that “record prices for copper, Chile’s main export, have given the government a multibillion-dollar windfall, but it also has produced for Chile’s economy unexpected side effects and has set off a sharp political debate about how to use the money.” Also the fact that Codelco serves the interests of the armed forces is viewed as a serious impediment for a firm that strives to be a worldclass mining company.

A new law

Legal initiatives modifying the financing scheme, establishing a four-year budget and replacing the current law, has been announced on September 8, 2009, by

Michelle Bachelet Verónica Michelle Bachelet Jeria (; born 29 September 1951) is a Chilean politician who served as United Nations High Commissioner for Human Rights from 2018 to 2022. She previously served as President of Chile from 2006 to 2010 and 2014 to 201 ...

and May 17, 2011, by President

Sebastián Piñera Miguel Juan Sebastián Piñera Echenique OMCh (; born 1 December 1949) is a Chilean billionaire businessman and politician who served as president of Chile from 2010 to 2014 and again from 2018 to 2022. The son of a Christian Democratic polit ...

. Under Bachelet's project, allocations for arms procurement will be made on a yearly basis as part of the national budget; there will be a 12-year strategic plan for long-term procurement, revisable every four years by the president; and the unspent funds received under the 1958 law will be used to create a contingency fund for the replacement or refurbishment of equipment. The project was not approved. Piñera's project considers multi-annual budgets approved during the first year in office of each government, a planning process with a horizon of twelve years, reincorporation of Congress into the debate on defense strategic capabilities, creation of a Strategic Contingency Fund, which will allow the Armed Forces to address unforeseen circumstances arising from external threats or national disasters. Piñera revived this bill, with amendments, in 2018,{{cite web , last1=Harris , first1=Paul , title=Codelco military funding change gets closer , url=https://www.mining-journal.com/copper-news/news/1353892/codelco-military-funding-change-gets-closer , website=mining-journal.com , publisher=Aspermont Media Ltd , accessdate=15 September 2019 and signed it into law in September 2019.

References

External links

* Chilean news in website "El Mostrador" published on 5 May 2016 the content of the law i
Exclusivo: esta es la secreta “Ley Reservada del Cobre”
archive.org

archive.org

* Michael Radseck
''Rohstoffe und Rüstung. Hintergründe und Wirkungen ressourcenfinanzierter Waffenkäufe in Südamerika''
in Lateinamerika Analysen N° 16, 1/2007, Page 203–241, Edited by Institut für Lateinamerika-Studien, Hamburg, Germany, in German Language * Israel Fainboim
Changing the Financial Management of the Defense Sector in Chile: Leaving Expenditure Earmarks Behind
November 25, 2009,

International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster globa ...

Law of Chile Military of Chile Government of Chile Politics of Chile 1958 in Chilean law