LATIN AMERICAN ARMS MARKET: CHANGING PATTERNS OF SUPPLY

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• Collection: General CIA Records
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• Original Classification: K
• Document Page Count: 13
• Document Creation Date: December 15, 2016
• Document Release Date: May 17, 2004
• Sequence Number: 1
• Publication Date: August 16, 1978
• Content Type: MF

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~S
i r. .
N~ Assessment
Latin American Arms
Supply Market:
Changing Patterns
of Supply
An Intelligence Assessment
Secret
ER 73-IO476
Augr.st t918
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Latin American Arms Market:
Changing Patterns of Supply
Central Intelligence Agency
National Foreign Assessment Center
Key Judgments
Latin American countries, closely tied to the United States after World
War II for military security assistance, began shifting arms procurement to
Western Europe in the late 1960s to refurbish their outdated arsenals and to
adjust to a more restrictive US sales policy.
Latin America, one of the last of the Third World regions to acquire
modern weaponry, procured $4 billion worth of arms in 1974-77. West
European suppliers garnered $2.3 billion of this total, or about three times the
US figure. While the United States remained the single largest supplier, its
sales slumped badly toward the end of the period. The USSR signed major
contracts with one client-Peru.
In the past four years, Argentina, Ecuador, and Peru together placed
nearly two-thirds of the equipment orders and Venezuela, Brazil, and Chile
another 30 percent.
We expect a substantial drop in sales in 1978-79, as Latin American,
countries absorb deliveries of their recent large purchases and ponder the
requirements of their upcoming new equipment cycles.
Military sales to Latin America in 1980-83 could reach $3 billion to $4
billion (in 1976 prices), with West European suppliers increasing their share
Latin America: Arms Suppliers'
United
States
Western
Europe
Other Non-
Communist
USSR
Total
1974
..............
240
265
55
5
565
1975
..............
205
700
145
55
1,105
1976
..............
145
315
35
340
835
1977
..............
130
1,035
140
110
1,415
1st half, 1978 NA
55
30
0
NA
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of the market even further. We expect market developments in this four-year
period to follow this general pattern:
? US sales will be largely made up of span:: parts and electronics
equipment.
? France will have excellent prospects for sale, of jet aircraft and air
defense systems.
? West Germany should be able to market missiles, ground force
equipment, and submarines.
? Italy should be building new surface combatants for several Latin
American states.
? British sales will tend to lag behind the sales cif other West European
producers.
? Israel can be expected to replace the United States in a growing
number of technical assistance programs in the region, including the
training of local personnel and sales of certain types of advanced
military equipment..
? Brazil and Argentina, which are the first ~..rms producers of any
consequence to emerge in the region, should inore than double their
combined $105 million sales of 1974-77.
? Fhe USSR will continue to play a restricted role in the market.
d.
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Latin American Arms Market:
Changing Patterns of Supply
The Latin American Market
Latin America ` ranks as one of the lesser
arms markets. Protected from extraregional
threats under the security blanket of the United
States, Latin America's $4 billion worth of weap-
ons purchased in 1974-77 pale in comparison
with the nearly $90 billion of total Third World
arms orders.
Even though purchases are small relative to
the global total, orders have swelled in absolute
terms in recent years, spurred by the rise of
military dictatorships whose security depended
on the support of their military establishments.
Other countries have been seeking arms to (a)
replace obsolete equipment, (b) ensure prepared-
ness against internal tensions and perceived ex-
ternal threats, and (c) enhance their prestige in
the international community through acquisition
of sophisticated hardware.
Arms for Latin states have usually trailed by a
generation the weaponry introduced into the
Middle East and South Asia. In many cases, the
bulk of military inventories have consisted of
helicopters, transport aircraft, motor vehicles,
and communication equipment.
US Dominance, Gained and Lost
The United States became Latin America's
major arms supplier during World War II and
retained its dominant position for two decades
thereafter. In general, the United States fur-
nished a wide range of surplus, low-level modern
weaponry under the early postwar accords to
help maintain a regional arms balance and chan-
nel Latin American military interests into inter-
nal security. Easy terms, relatively low cost, and
almost immediate delivery attracted the Latin
American buyers. After two decades as prac-
tically the sole arms supplier for. Latin America,
the United States adopted restrictive sales poli-
cies that began to reduce the US role. After the
first restrictions were imposed in 1967, other
Western suppliers gradually stepped in to fill the
vacuum. US sales were further eroded by the
shift from grant aid (Military Assistance Pro-
gram-MAP) to the Foreign Military Sales
(FMS) program. From the heyday of the late
1950s and early 1960s when it controlled at least
three-fourths of the market, the United States
has slipped; in 1974-77, West European sales
outran US sales by about 3 to 1 even though the
US sales of $720 million outstripped sales of any
other single supplier except West Germany.
Within the four-year period, US sales were
stronger at the beginning than at the end. The
French outsold the United States in both 1976
and 1977 and the West Germans had a 5 to 1
edge in 1977.
Beginning in 1974, US sales have been concen-
trated in nonlethal weapons, such as jet trainer
aircraft, helicopters, and support and communi-
cations equipment. Arms restraint policy an-
nounced by Washington in May 1977 will have
little effect on sales to Latin America, because
Latin America has already turned to non-US
arms suppliers. The guidelines on human rights
announced shortly thereafter could reduce US
sales further by their exclusion of six Latin
American countries (Argentina, Brazil, Chile, El
Salvador, Guatemala, and Uruguay) from mili-
tary sales on credit. These policies will encourage
the further development of Argentine and Bra-
zilian arms industries.
Peru, Brazil, Argentina, Venezuela, Ecuador,
and Chile together purchased about 90 percent
of the arms going to Latin America in 1967-73.
Their share subsequently has increased to 91
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percent as shown in the accompanying tabula-
?rceul of
I Purchases
t74 77
Argentina
t=;cuadnr 17
V"nezueia iu
Brazil x
d ~hile fi
Of her 43
Western Europe Assumes Major Supply Role
Since 1970, West European countries have
applied about 60 percent of all military equip-
ment going to Latin America-50 percent of the
aircraft, 75 percent of the naval craft, and a
large share of the ground forces equipment.
France made the first major inroad into the
LS market in Latin America in 1969 and 1970
with sales of Mirage jet fighters to Argentina,
Brazil, and Venezuela. Orders by Argentina,
Bt?azil, Ecuador, and Venezuela in 1977 put
I , ench sales over the $300 million mark. The
s
ale of 18 F-1 fighter aircraft to Ecuador alone
amounted to $280 million. The planes were
bought after Washington would not allow Israel
to sell less expensive Kfir jet fighters, which
contain components licensed by the United
States. The French have centered their sales
campaign on Mirage aircraft and ground forces
rouipment and have sold these items to almost
every major Latin arms importer. France's first
major naval contract in Latin America was
initialed late in 1976 with a $180 million sale of
six guided-missile boats to Peru.
West Germany sold $660 million worth of
arms to Latin America in 1977, establishing its
position as a major supplier for the first time.
Bonn has promoted the sale of submarines and
surface warships from the very beginning. Early
in the 1970s it had sold patrol craft to Argentina
and minesweepers to Brazil and export model
Type 209 submarines to five Latin states. In a
contract, second only to the nearly $435 million
1975 Venezuelan order for frigates from Italy,
Argentina agreed to pay $430 million for six
West Germar submarines last December. Three
to rive of these craft will be assembled in Argen-
tina. Bonn had previously permitted local assem-
bly of its Cobra antitank missile in Brazil and
Chile and had contributed to the development of
Argentina's new production line for armored
vehicles (including a 30-ton tank, an armored
personnel carrier, and a 155-millimeter towed
howitzer, all Lased on the West German Marder
chassis). The easy credit terms and lower prices
& West German equipment have made it appeal-
ing to several Latin American governments.
Bonn also sold the Roland surface-to-air missile
to Brazil, although it has denied the equipment
to Middle Eastern countries.
Italy, like West Germany, has sold mostly
naval craft to Latin America. Its first important
deal was a $190 million sale in 1973 of four
Lupo-class frigates to Peru. The Venezuelan
order in 197` for six Alpino-class frigates was
the largest sale ever to a Latin American country
and was followed in 1977 .by a $14 million sale of
six antisubmarine warfare helicopters for deploy-
ment on the vessels. Italy also has signed licens-
ing agreements with Peru for assembling two
Lupo-class frigates and with Brazil for producing
the MB-326G let trainer. In January 1978 Italy
agreed to set up a factory in Brazil to produce
Italian artille_,y.
Before 1974 the United Kingdom had sold
almost $1 billion worth of arms to Latin Amer-
ica. Since then British sales have tapered off in
part because of political differences over the
Belize issue, the Chilean human rights problem,
and Argentine claims to the Falkland Island
territories. In 1976, Argentina canceled a $379
million order for six frigates-the largest British
arms contract in Latin America. Stiff competi-
tion from France, West Germany, and Italy have
made inroads into British sales. The United
Kingdom has followed the practice of other West
European countries in using resident military
attaches to market arms in Latin America but,
unlike the other West Europeans, the British do
not offer local assembly or production rights.
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More than 30 other non-Communist foreign
countries sell small arms, motor vehicles, ammu-
nition, and logistics equipment to Latin America.
The Netherlands, Switzerland, Spain, and Bel-
gium, for example, slave made sales of aircraft,
artillery, and vintage naval combatants. Israel
sold about $120 million worth of ground and air
equipment in 1975 and 1976. It sold small patrol
craft to Nicaragua, air-to-air missiles to El Sal-
vador, and jet aircraft to Honduras in 1977.
South Africa is the newest country to solicit arms
orders in the region, with Paraguayan contracts
for military-related equipment already inked.
Johannesburg also may soon sign agreements
with Chile and El Salvador.
Within Latin America, Brazil and Argentina
have themselves become arms suppliers to the
region, signing a combined total of $105 million
in new accords in 1974-77 (see the accompany-
ing tabulation).
Bolivia ....................
17
Chile ........................
45
Ecuador
................
31
Honduras
..............
0
Nicaragua
.............
0
Paraguay
..............
2
Uruguay
................
5
Other Latin American nations look increas-
ingly to Brazil and Argentina for armored vehi-
cles, small arms, rockets, and small aircraft.
Early in 1978, Brazil announced plans to cooper-
ate with Western Europe in establishing facilities
in Brazil for the manufacture of a wide variety of
weapons, using West European technology. Bra-
zil has signed four such agreements with individ-
ual West European countries for licensing rights
and assistance in' the construction of new mili-
tary production and assembly plants.
The importance of Argentina's arms industry
also is rising; we expect Argentina to become a
strong competitor of Brazil. Before 1977, most of
Buenos Aires' sales were for motor vehicles and
small arms (90 percent for Peru). In addition,
Argentina apparently sold its Pucara counterin-
surgency aircraft to Nicaragua and Bolivia-
sales that could top $70 million.
The USSR's arms sales to Latin America
have been essentially confined to Peru. Sales
amounted to $500 million in 1974-77, with deliv-
eries through June 1978 including:
? 300 T-55 tanks.
? 36 SU-22 fighter-bombers.
? SA-3 and SA-7 surface-to-air missiles.
? 6 MI-6 helicopters.
? 36 MI-8 helicopters.
? 16 AN-26 transports.
? 44 ZSU-23/4 antiaircraft guns.
Even though Soviet sales were limited to Peru,
the USSR's share of the Latin American market
during 1974-77 was 70 percent that of the US
share. Soviet sales to Peru in 1974-77 were about
5 percent of Moscow's total arms sales to LDCs
in this period. Despite numerous Soviet proffers
to other Latin American countries, only one
contract outside Peru has been signed-a 1977
half million dollar jeep contract with Colombia.
We know of no major arms agreement between
an East European and a Latin American
country.
Short-Term Prospects for the Latin American
Market
Unless tensions mount in the Andean region or
in Central America over Belize, we expect a
lull in Latin American arms procurement in
1978-79. New orders will be limited mostly to
logistical and support equipment and small arms
and ammunition in the next few years. We also
expect Latin American countries to make a more
pronounced effort to adopt new licensing ar-
rangements through which their own arms indus-
tries can take up more of the supply task. Annual
arms sales to the region in 1978-79 could drop as
much as 50 percent below the 1974-77 average.
Latin American countries will be absorbing
deliveries on the $4 billion in orders placed in
1974-77, some 75 percent of which still await
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shipment. A few countries also will be con-
trained by the already large debt obligations
!.hey have incurred. Where modernization does
jake place, it will continue to focus on internal
end intraregional threats.
New acquisitions in the short term will also
include precision guided munitions, antisubma-
rine warfare helicopters, and guided-missile pa-
rol boats because they are relatively low cost,
mighly effective, prestigious weapons.
In the first six months of 1978. arms sales to
Latin America fell to less than $100 million and
;ossibly will total a half billion dollars for the
/car as a whole. The US Government plans to
Finance about $46 million in military credit sales
.o Latin America in fiscal year 1979 (start-
ing 1 September 1978), down from the $73
Million of 1978. Commercial US contracts may
i.ake up some of the slack with sales of aircraft,
artillery, and support equipment, predominantly
o Ecuador and Venezuela.
We expect France, West Germany, and Italy
o continue as major suppliers in 1978-79. Brazil,
)olstered by a relatively strong financial position
m.nd stable government, will probably lead the
i'uyers' list. At the same time, it will expand
domestic arms production capacity to include jet
i 3 ainer aircraft, surface-to-air missile systems,
..vaned tanks, and sophisticated precision-
3;uided munitions, all based on West European
iesigns. Peru is expected to cut back its large
9purchases until it brings its financial affairs
finder control.
Latin American Demand, 1980 Onwards
In the early 1980s we expect another upsurge
orders as many Latin American countries
y particularly Mexico, Ecuador, Venezuela, and
'hile) move into a new supply cycle. They
-inmost certainly will want to replace their aging
'fighter aircraft inventories with supersonic jet
lighters and modernize their tanks, other ar-
,aored vehicles, and air defense systems. The
z ccquipment cycle could mean expenditures of $3
aillion to $4 billion (in 1976 dollars) over the
our-year period beginning in 1980, roughly
.-qual to orders in 1974-77.
The United States probably will sell mostly
spare parts and electronics equipment. West
European suppliers will play a more aggressive
part, profiting especially from the reequipment
cycle in aircraft, patrol craft, and guided muni-
tions. We also expect Brazil and Argentina to
more than double their arms exports (especially
small arms, ammunition, armored vehicles, light
aircraft, and support equipment) to other Latin
American countries.
France almost certainly will continue to offer
ground forge equipment, Exocet antiship mis-
siles, Mirag(: jet aircraft, and the popular Aero-
spatiale helicopters. This equipment, as well as
French-made air defense equipment such as the
Crotale surface-to-air missile systems, will find a
receptive market in Latin America. France will
also try to sell local production packages and
may sweeten these contracts with "sell-back"
.;lauses and expanded exporting rights.
West German contracts will probably include
licensed production in Brazil of the Leopard tank
and, with french concurrence, manufacturing
rights for the HOT and Milan antitank missiles
in South American countries. The largest agree-
ments will probably be for broad-based technical
assistance and electronic packages for develop-
ing local military-related production facilities.
Bonn's sales of the new submarines to Argentina
in late 1971 could ultimately generate further
orders for the new German craft.
Mexico, Ecuador, and possibly Colombia will
he looking for larger class, modern guided-mis-
sile ships and may purchase Italian designs for
local assembly. Italy is much less competitive in
sales of jet aircraft and armored vehicles al-
though it might sell some Augusta helicopters
and ground force equipment. Italy is also ex-
pected to sign additional licensed assembly and
production agreements for artillery and aircraft,
particularly with Brazil.
We do not at the moment envisage a resur-
gence of the British as major suppliers; the
United Kingdom might attract customers for its
Jaguar groutLd-attack aircraft if the Ecuadorean
Air Force continues its acclaim for the plane.
The United Kingdom also would be a logical
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choice for replacing outmoded tanks (particu-
larly with the Chieftain), armored vehicles, com-
munications gear, and 'electronic countermeas-
ures equipment. The British Rapier surface-to-
air missile system also,has a good chance of
finding Latin buyers.
Of the smaller arms suppliers to Latin
America, Israel almost certainly will replace the
United States in some technical assistance pro-
grams and will be called upon to supply certain
types of modern weapons now obtained from the
United States. Brazil and Argentina should more
than double their combined armed exports in
1980-83, with sales featuring small arms and
ammunition, armored vehicles, light aircraft, and
support equipment. The USSR, in the absence of
the development of another big customer, will
continue to find slender pickings in Latin
America.
The author of this paper is Office 25X1
of Economic Research. Commen s an queries
are welcome and should be directed to Mr.
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STATISTICAL TABLES
Table A-1
Latin America: Arms Agreements
Total ................................................ 3,920 565 1,105 835 1,415
Non-Communist .......................... 3,410 560 1,050 495 1,305
United States ' ........................ 720 240 205 145 130
Western Europe ...................... 2,315 265 700 315 1,035
France .................................. 710 80 125 185 320
West Germany .................... 780 70 5 45 660
Italy ...................................... 580 35 520 10 15
United Kingdom ................ 120 50 30 25 15
Other .................................... 125 30 20 50 25
Other non-Communist ......... 375 55 145 35 140
USSR ............................................ 510 5 55 340 110
' If Soviet agreements were expressed in terms of US costs of production and if the coverage were
expanded to include a full range of support and services included in US military exports, the value of Soviet
agreements would be raised by about one-third for 1974-77.
Table A-2
Latin America: Arms Agreements, by Major Recipient
Total ................................................
3,920
565
1,105
Peru ..............................................
1,125
85
100
Argentina ....................................
680
55
20
Ecuador ......................................
650
160
165
Venezuela ....................................
555
30
480
Brazil ............................................
315
80
150
Chile ..............................................
250
100
105
Bolivia ..........................................
105
20
10
Honduras ....................................
35
Negl
30
Guatemala ..................................
25
5
10
Uruguay ......................................
25
5
15
Colombia ....................................
20
5
5
Nicaragua ....................................
15
Negl
Negi
Mexico ........................................
10
Negl
Negl
El Salvador ..................................
5
Negl
5
Other ............................................
105
20
10
835 1,415
615 325
45 560
20 305
15 30
55 30
40 5
5 70
Negl 5
5 5
5 Negl
5 5
Negl 15
5 5
Negl Negl
20 55
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