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Viewing cable 04CARACAS3617, TRANSPARENCY OF BUDGETS/MILITARY SPENDING

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Reference ID Created Released Classification Origin
04CARACAS3617 2004-11-23 18:26 2011-08-24 01:00 UNCLASSIFIED Embassy Caracas
This record is a partial extract of the original cable. The full text of the original cable is not available.
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 
 
 
NNNN 
      2004CARACA03617 - UNCLASSIFIED