CHILE'S DECISION TO BUY RUSSIAN HELICOPTERS

UNCLAS SANTIAGO 000703 SENSITIVE SIPDIS STATE FOR PM/RSAT - DANIELEWSKI, WHA/BSC - CROFT COMMERCE FOR MANN DOD FOR OSD - LENIHAN E.O. 12958: N/A TAGS: MASS PREL CI PE RS SUBJECT: CHILE'S DECISION TO BUY RUSSIAN HELICOPTERS CREATES CONTROVERSY ¶1. (SBU) Summary: Chile's decision to buy five Russian MI17 helicopters generated controversy, especially after a letter from Commerce Secretary Locke to Chilean Ambassador to the U.S. Jose Goni was leaked. Congressional members of the Defense Committee reacted strongly to the news, calling the decision "worrisome." The controversy has led the press to publish further information on purchases of U.S. arms and equipment, sparking Peruvian "concern" regarding the purchases. While the letter from Secretary Locke made news, the flap will likely subside, especially as the ongoing investigation into a scandal surrounding the early 1990's purchase of Mirage jets will continue to garner public attention. End summary. ¶2. (U) Chile's purported decision to buy five Russian MI17 helicopters began to generate controversy both internally and with its neighbors when a letter from Commerce Secretary Locke to Chilean Ambassador to the U.S. Jose Goni was leaked to the press on July 7. While the letter expressed disappointment at the lack of an open bidding process, in the press it was characterized as a U.S. complaint that the Russian model was chosen over the U.S. made Black Hawk. Chile's reasons for deciding on Russian helicopters were characterized as two-fold -- cost savings and an attempt to improve its trade imbalance with Russia. ¶3. (U) Members of the Chamber of Deputies' Defense Committee reacted strongly to the news, making calls for full transparency and calling the decision "worrisome." They cited an apparent contradiction between this purchase -- the first-ever of non-Western equipment -- and recent efforts to standardize purchases to save on maintenance costs. The committee has called in top civilian and military officials to explain the decision. ¶4. (SBU) Embassy MILGP notes that the MI17 would need significant post-purchase investments in order to bring the equipment up to Western standards and allow Chile to use the helicopters outside of Chilean Air Space without special permission from its neighbors. Despite Secretary Locke's letter's focus on the benefits of an open bidding process, the bidding issue has not been highlighted in the resulting controversy. One mainstream blog even incorrectly purported that the Chilean decision to buy Russian came as the result of an open tendering process. ¶5. (U) The controversy has led the press to publish information about Chile's planned purchase of $275 million in U.S. arms and military equipment, a purchase already under review by the U.S. Congress. In turn, the focus on Chile's arms purchases from the U.S. and Russia caused the Peruvian Minister of Defense to criticize Chile's "lack of transparency" and cite concerns that Chile is making "disproportionate" purchases that are going to concern Chile's neighbors due to an arms "imbalance." A Peruvian congressman stated that "unfortunately, this pulls us into an arms race." On July 21 Peru's Foreign Minister reiterated that Chile is "inciting an arms race" and suggested the issue be addressed by the UNASUR's Defense Council. Chile's Foreign Minister called his own press conference the next day to respond, stating that "Chile's arms aquisitions are in accord with the country's modernization....just as we have a modern agricultural sector, we must provide our Armed Forces with the conditions they require to do their jobs." ¶6. (U) Meanwhile, the flap comes at an inopportune time -- there is an ongoing investigation into a scandal surrounding the purchase of French Mirage jets in the early 1990's that allegedly involved kickbacks for high level military and civilian personnel. ¶7. (SBU) Comment: While the letter from Commerce Secretary Locke made news, the press has not highlighted the central issue regarding the lack of an open bidding process for medium lift helicopters. The GOC recently hosted a seminar on government procurement to educate the public and private sectors about its commitments under the U.S.-Chile Free Trade Agreement. It is unclear whether the proposed purchase of helicopters without an open tendering process is in keeping with Chile's government procurement commitments in the FTA. The flap has clearly raised some questions amongst key Chilean members of Congress, but will likely subside as the Mirage scandal continues to garner public attention. Peru's reaction to Chile's arms purchases is expected and falls within the usual rhetoric on this issue. End comment. SIMONS