TRANSPARENCY OF BUDGETS/MILITARY SPENDING

UNCLAS CARACAS 003617

SIPDIS


NSC FOR CBARTON
HQSOUTHCOM FOR POLAD
TREASURY FOR OASIA/MDM: JFRANCO
STATE FOR EB/IFD/OMA: LGALLAGHER

E.O. 12958: N/A
TAGS: EFIN EAID MARR VE
SUBJECT: TRANSPARENCY OF BUDGETS/MILITARY SPENDING

REF: STATE 239929


1. This message responds to action request (REFTEL).


2. Q: How (or are) military expenditures audited?

A: Each branch of the Venezuelan Armed Forces (army,
navy, air force, and national guard) has its own budget and
planning office. The services submit proposed expenses and
acquisition planning documents to a Ministry of Defense
budget office. The Defense Ministry in turn presents the
armed forces budget to the Ministry of Finance's national
budget office and to President Hugo Chavez for review. The
National Assembly also approves the budget.


3. Q: Who audits military expenditures?

A: The Defense Ministry's budget office performs audits
of each military service. The Armed Forces Inspector General
oversees the process.


4. Q: To whom are the audits reported?

A: Ultimately, the military reports its audits to
President Chavez. Chavez micromanages the military budget
with the assistance of a close circle of military advisors.
The Defense Minister and the Finance Minister also receive
reports.


5. Q: Are any of the people who receive the audits civilian
authorities?

A: Hugo Chavez is an elected, civilian president. The
Defense Ministry's budget office contains some civilians.
The Finance Minister is a civilian, but an army general
currently heads the ministry's national budget office. The
Defense Minister and his second-in-command, the Inspector
General, are active duty military officers.


6. Q: Is there an existing framework for conducting annual
audits of military expenditures?

A: Yes.


7. Q: Is there legislation or an instituted government
policy that requires annual audits of receipts that fund the
military?

A: While not explicitly requiring an audit, the
Venezuelan constitution requires the executive branch to
present to the National Assembly the "rendering of
(budgetary) accounts" within six months after the end of each
year. To post's knowledge, however, the government has never
disciplined notoriously corrupt elements of the armed forces
for failing to account for expenditures outlined in the
budget.


8. Q: Is control over the audit process effective?

A: The President wields absolute control over the audit
process; however, he has approved budgets without adequately
addressing problems of corruption and off-budget
expenditures.


9. Q: What are the deficiencies of the audit process?

A: Three major problems complicate auditing the military
budget:

-- Because of frequent policy changes and exogenous factors,
proposed military budgets poorly demonstrate actual
expenditures. The militarization of the Venezuelan
government and society has swollen the responsibilities of
the armed forces at a pace faster than the official budget.
For example, the GOV has begun to rely increasingly on the
military to carry out health, education, and poverty
reduction programs; therefore, each year's expenditures can
differ significantly from the previous year's budget
submission. Economic factors, such as inflation and the
price of oil, also tend to demand revisions to budget
provisions.

-- A significant portion of the budget remains hidden and
exempt from audit. The official budget did not grow
significantly after Chavez imposed regulations in 2001
requiring the disclosure of over three billion dollars of
off-line funds.

-- Corrupt contracts tend to enlarge budget inaccuracies, and
the government has ignored and even detained some
whistleblowers.


10. Q: Are these deficiencies intentional or due to
capacity constraints?

A: Both. Economic factors and an institutional lack of
expertise have made the budgetary process more difficult for
the GOV. Nevertheless, the administration also has ignored
opportunities to tackle corruption and to make the process
more transparent.


11. Q: Does the country's defense budget include the armed
forces and security forces?

A: Yes. Although the budget does not include civilian
police, law enforcement is a major part of the mission of the
Venezuelan National Guard.


12. Q: Are there significant off-budget military receipts?

A: The military budget includes most significant
line-item expenditures. The President's military unit (Casa
Militar),however, has an account of unknown size that
remains separate from the audited Defense Ministry budget.
The President also uses an undisclosed amount of
"discretionary" petroleum revenue for expenses such as
bonuses, pensions, military hardware, and other spot payments.


13. Q: Are productive development objectives prioritized
over unproductive (e.g., military) objectives?

A: The government has prioritized poverty reduction
over traditional military expenditures. In fact, the
military's mission has shifted towards social development
projects at the expense of its national defense role.


14. Q: Is there a mechanism for a debate over budget
priorities, such as through a legislative assembly?

A: The Ministry of Defense presents the completed
budget to the National Assembly, which is constitutionally
authorized to alter budgetary entries.
Brownfield


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2004CARACA03617 - UNCLASSIFIED