JDA BUDGET: CHALLENGES AND OPPORTUNITIES

C O N F I D E N T I A L SECTION 01 OF 03 TOKYO 001104

SIPDIS

SIPDIS

E.O. 12958: DECL: 02/27/2016
TAGS: MARR MCAP PREL JA
SUBJECT: JDA BUDGET: CHALLENGES AND OPPORTUNITIES

REF: 05 TOKYO 06772

Classified By: AMBASSADOR J. THOMAS SCHIEFFER FOR REASONS 1.4 (B) AND (
D)


1. (C) Summary. Japan's FY 2006 budget, scheduled for Diet
approval on March 2, includes a fourth straight year of
budget cuts for the Japan Defense Agency (JDA). If this
trend continues, Japan will find itself with a less capable
force that cannot maintain a defense posture commensurate
with its emerging, more active defense, policies and its role
as an alliance partner of the United States. Planning the
budget for Japanese Fiscal Year (JFY) 2007 -- a draft of
which the JDA will provide to the Ministry of Finance in
August -- will force the JDA to make tough choices in order
to get more bang for the buck. As with the JFY06 budget, we
expect the JDA to continue reducing planned procurements
vis-a-vis the Mid-Term Defense Program schedule of
procurements. Rather than simply cutting planned
procurement, which drives up unit costs, the JDA should focus
on prioritization of needs and economical program spending,
including the cessation of production/procurement of
ineffective indigenous weapons systems -- and especially
those that do not meet alliance interoperability requirements
- as well as winnowing out cases of "pork barrel"
procurements that reportedly make up a significant part of
the procurement budget. As JDA prepares the JFY07 budget,
Embassy Tokyo will continue to encourage JDA to focus on
procuring systems that strengthen Japan's defense, advance
U.S. alliance interests, and allocate the available budget
more efficiently. End Summary.

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Budget Cuts: JDA's Choices
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2. (SBU) It is expected that the Japan Fiscal Year 2006
(JFY06) budget will pass the Lower house on Thursday, March
2, and will be enacted on March 31st, the final day of JFY05.
The JFY06 budget includes a fourth straight year of budget
cuts for the Japan Defense Agency (JDA) (Reftel). Facing a
steady erosion of its budget by fiscal austerity programs,
the JDA faces tough choices as it begins preparation of its
JFY07 budget -- a draft of which will be submitted to the
Ministry of Finance (MOF) in August -- in order to get more
bang for the buck.


3. (C) LDP draft constitutional revisions, Japanese
participation in Operation Enduring Freedom/Operation Iraqi
Freedom, and Japan Self Defense Force participation in
Peacekeeping Operations are all clear indicators that Japan
emergency defense policy is more active and action-oriented.
The decreasing defense budget, however, limits Japan's
ability to keep up with current challenges of the
international security environment. If budget cut-backs
continue, Japan could find itself with a less capable force
that cannot maintain a defense posture commensurate with its
emerging policies or its role as an alliance partner.

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Personnel: How Low Can You Go?
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4. (C) While personnel and provisions account for a large
portion of the budget, JDA should carefully consider whether
cutting personnel and salaries is the best way to reduce
costs. The National Defense Program Guidelines have already
prescribed that more multi-functional, streamlined
self-defense forces be developed, that would attain greater
results with the limited resources available, and the Council
on Economic Development has recommended a reduction in
government personnel -- both civilian and uniformed -- by
five percent over the next five years. JDA has already cut
open positions (due to poor recruitment) from its books, so
future cuts would affect occupied positions. Officer's
salaries also have been cut by approximately 4 percent;
anecdotal evidence points to bonuses having been cut as well.
Further personnel and salary cuts could further affect JDA
recruitment and the ability to complete the missions at hand.



5. (C) JDA will need to weigh carefully how far it wants to
continue cutting the Ground Self-Defense Forces to support

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other initiatives, such as BMD. The Mid-Term Defense Program
stipulated that active duty strength be reduced from 152,000
to 146,000. General Hayashi (Eastern Army, JGSDF) told a
recent visitor that "gaiatsu" (foreign pressure) is necessary
to increase the defense budget to two percent of GDP to
prevent the Japan Ground Self-Defense Forces from being
further cut. The Ground Self-Defense Forces perform natural
disaster duties, so a further reduction in personnel (even
with the intent of transforming them into a more mobile and
expeditionary force for peace cooperation activities) could
stretch the force thin and make it difficult to deploy
outside of Japan. The Japan Ground Self-Defense Force is
already at risk of being a hollow force. We hear anecdotal
stories about the lack of funds for training. For example,
we have been told that the Western Army's Cobra helicopter
simulator has been sitting idle for over a year now due to
lack of funds for needed repairs.

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Procurement Reform?
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6. (C) The JDA also will need to reprioritize its needs and
engage in procurement reform even if its budget were to
increase, if it is to make effective use of its funding.
Strategic prioritization would help establish public
credibility about the JDA's use of taxpayer money. Every
year MOF issues budget guidelines that allow for a budget
request in excess of the previous year's baseline.
Ministries broadly consider what programs they want, then MOF
later forces them to prioritize these programs by demanding
budget cuts and negotiating with the MOF where these cuts
should take place. JDA has not been particularly effective
in explaining its strategic priorities.


7. (C) Thus far, the JDA has reacted to budget cuts primarily
by reducing planned procurement (Reftel). Thus, not all
procurement listed in the Mid-Term Defense Program actually
takes place. Rather than simply cutting planned procurement,
which drives up unit costs, in the future the JDA will need
to focus on prioritization of needs and more economical
program spending.


8. (C) The budgeted amount to procure Japan's next generation
of fighter aircraft is not sufficient to replace the 100 F-4s
with the F-22 or the joint strike fighter, Director of JDA's
Budget and Accounting Division Daikichi Momma told poloff.
He suggested that JDA would eventually choose not to replace
the F-4s on a one-to-one ratio. The JDA does not have
sufficient budget to buy equipment in bulk in order to take
advantage of economies of scale but could consider multi-year
procurement as a method to improve acquisition. JDA's
traditional desire for indigenous production or
co-development also drives up costs. Perhaps the best
example is the F-2 program, under which the Japan Air
Self-Defense Force procures fighters at about USD 115 million
a copy as opposed to the much cheaper and more capable F-16
on which it is based.


9. (C) The JDA also needs to cease production/procurement of
ineffective indigenous weapons systems -- and especially
those that do not meet alliance interoperability requirements
-- and winnow out cases of "pork barrel" procurements that
make up a significant part of the procurement budget. For
example, the Maritime Self-Defense Forces are planning
procurement of the FCS-3 shipboard radar system for its new
class of Destroyers (19DD),which is reportedly not going to
meet the Maritime Self-Defense Forces' own technical
requirements for missile guidance capability. The U.S. is
competing against the FCS-3 with the AN/SPY-1F system, which
is technically superior, meets all of the requirements, and
would be priced within budget. These advantages may not
override the Maritime Self-Defense Force's desire to award
the contract to Mitsubishi Heavy Industries to prevent it
from losing money on the inferior system.


10. (C) Comment. As fiscal austerity forces the JDA to
choose between competing programs, JDA will make decisions
with a profound and long-term impact on U.S. alliance
interests. As JDA prepares the JFY07 budget request, Embassy
Tokyo will use the climate of fiscal austerity as an
opportunity to encourage the JDA to adjust its procurement to
be more efficient and strategically focused. We also will

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stress to Japanese leadership that it will be increasingly
difficult for Japan to meet its current alliance commitments,
much less face new challenges in the future, within the
confines of Japan's current policy of capping defense
spending at 1 percent of GDP. End Comment.
SCHIEFFER