Chilean President Sebastian Pinera also faced criticism that his handling of Peru in recent diplomatic contacts lacked a delicate touch and could undermine ties amid a tense series of talks on what Peru denounced as an unnecessary arms race.

The Feb. 28 earthquake forced Pinera to divert millions of dollars he said he would use to steer Chile into the 21st century. That raised optimism in Peru that Pinera would also cut back on arms purchases. However, senior diplomats told the Chilean media no arms spending cutbacks seem to be on the cards.

Former President Eduardo Frei, who ran unsuccessfully against Pinera last year, warned Pinera to be more careful in his diplomatic dealings with Chile.

Peruvian Defense Minister Rafael Rey queried Chilean counterpart Jaime Ravinet when they met in May. During the visit Rey also met with Pinera and sought to revive discussions on a draft agreement binding both sides to transparency in arms sales. The previous round of talks stalled when Peru asked Chile to reduce its arms spending by 20 percent.

Peru campaigned in 2009 and earlier this year for a region-wide accord on limiting arms purchases and diverting funds to development, to no avail.

Ravinet told El Mercurio newspaper the idea behind renewed talks is that "both countries commit to a transparent mechanism which allows the calculation of defense expenses in a meticulous way."

Ambitious plans for joint workshops between the military academies and political and strategic studies institutions of the two countries have also not progressed.

Rey also told La Republica newspaper Peru wanted progress on resolving a border dispute dating back to the 1980s.

Peru's Foreign Affairs Minister Jose Garcia Belaunde revived the arms issue when the two countries attended the Latin America, Caribbean and EU summit in Spain in May.

Chile denied its increased arms spending pointed to militarization: "Chile is engaging no type of arms buildup," Ravinet said, in response to Peruvian President Alan Garcia's claim that Chilean arms spending has polarized other Latin American countries. Bolivia criticized Chile but Ecuador defended its neighbor's right to improve its defense preparedness.

Figures on Chile's arms spending remain unclear, amid Peruvian claims Chilean spending already exceeds $4.5 billion. A French arms manufacturer, Christian Mons of armored vehicle manufacturer Panhard, told the media at Eurosatory arms fair the company would supply light armored vehicles to Chile but gave no details of the deal.

Peruvian critics say Chilean arms purchases don't square with 60-year-old billionaire Pinera's declared plans to increase average income per capita in Chile to $22,000 from $14,000 within a decade.

Chile will eliminate poverty and become a developed country within that period, he said.

"We have to recover lost time and set Chile once again on the path to solid and sustainable progress," he said. "Our target of growing at 6 percent a year will allow us to achieve development in eight years, before the end of this decade, beating the level of per capita income of southern European countries" such as Portugal.

Chile's economy is on course to grow at an average of 4.9 percent in the five years through 2014. International Monetary Fund estimates said that growth would take Chilean income per capita to more than $19,000 per capita by 2015.

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