ARMENIA, TRANSPARENCY OF BUDGETS/MILITARY SPENDING

C O N F I D E N T I A L YEREVAN 002588

SIPDIS

DEPT FOR EUR/CACEN SIDEREAS, EB/IFD/OMA GALLAGHER, TREASURY
FOR OASIA/MDM FRANKO

E.O. 12958: DECL: 12/03/2014
TAGS: EFIN EAID AM
SUBJECT: ARMENIA, TRANSPARENCY OF BUDGETS/MILITARY SPENDING

REF: A. STATE 239929 B. YEREVAN 2510

Classified By: A.F. Godfrey for reasons 104 (b) and (d)

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SUMMARY
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1. (U) Following is Yerevan's response to ref A request for
information.

Section A: Overview of Military Expenditure Audits
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2. (U) The primary responsibility for auditing the GOAM's
military spending lies with the Ministry of Defense's
internal auditing mechanism, the Department of Financial
Inspection. The Defense Ministry's Department of Financial
Inspection conducts internal audits and reports to the
Minister of Defense. The framework for the internal auditors
is decided annually upon receipt of the Ministry's budget
allotment.


3. (U) The Ministry of Finance and Economy is also charged
to audit military spending to the level of "the most detailed
version of the government budget." The Ministry of Finance
and Economy may review budget expenditures for military
spending before the funds are allocated and again at the time
of disbursement. Upon request of the Prime Minister, the
Ministry of Finance and Economy may carry out a special
inspection to ensure proper use of the budget funds for
military expenditures, but the Prime Minister has never
exercised this option.


4. (U) The National Assembly has a Supervisory Committee
that is charged with auditing any part of the government
budget upon request of a Deputy of Parliament, although this
committee has never reviewed defense expenditures.


5. (C) Comment: While Armenia claims it does not provide
for the defense of the self-proclaimed "Republic of
Nagorno-Karabakh," in fact it is common knowledge that it
does. Funds for this purpose are not accounted for in public
documents and are therefore not subject to independent
oversight. End Comment.

Section B: The Military Budget
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6. (U) The state budget has separate lines for the Ministry
of Defense and the Ministry of the Interior (security
enforcement).


7. (C) Several mechanisms exist for significant off-budget
spending for defense purposes, including the transfer of
state revenues to foundations and the direct sale of state
assets (ref. B). The Ministry of Defense reportedly uses
these assets to provide for the defense of Nagorno-Karabakh
(see above). Because there is no effective independent
oversight of these expenditures, it is widely suspected that
senior Ministry of Defense officials take advantage of these
off-budget funds for personal use.

Section C: Spending Priorities
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8. (C) In the official state budget, national defense,
national security and law enforcement spending in 2004 was
74.7 bln dram (USD 150 million),or 23.6 percent of the
budget. Spending on the social sector, (health care
education and culture) was 111.7 billion AMD (USD 220
million) or 35.5 percent of the budget. There was debate in
Parliament this year after the Minister of Defense objected
that defense spending was less than spending on education for
the first time. The Ministry of Defense also typically
benefits from supplemental spending bills throughout the year
as well as off-budget expenditures.
EVANS