lobo estepario
Forista Sancionado o Expulsado
An Analysis by Armen Kouyoumdjian
Next year's national budget was presented to Congress at the very last minute of the September 30 deadline. It has to be voted by November 30, and it is just possible that there might be more parliamentary debate and controversy than is usual in these matters. It is unlikely that defence expenditure may be affected by any changes, though you never know. This paper relates to the draft proposals and compares them to the same proposals for 2006, for which the actual spent amounts will not be known until the first quarter of 2007.
As usual, the documents on which this report is based are Appendix Nº 11 (Ministry of National Defence) and 15 (Ministry of Labour & Social Security), as well 05 (Interior Ministry) for the National Intelligence Agency. The methodology used for the calculations is that drawn up by NATO and also used by other research organisations.
As has been mentioned in my monthly updates, the likelihood of any of the reforms affecting the structure of the defence budget actually becoming law during this administration appears increasingly remote. The ministry's organisational law has been sent back to the drawing board by congressional committees, the matter of a new Ministry of Public Security is still shrouded in controversy, and proposals for a reform or abolition of the Copper Law have yet to see the light of day. In summary, the structure of the 2007 budget therefore sticks to the pattern of previous years.
There are, however, indications that the budget was prepared in huddled conversations between the defence and finance ministries, without consulting the area under-secretaries or the service chiefs as to their needs for next year. This may mean that severe shortages of funds may appear in some areas during 2007. If confirmed, such an attitude is incomprehensible during a period of substantial fiscal surpluses.
Chile's total national budget for 2007 (using an exchange rate of 555 pesos per U$ for the whole year, which is the basis for official calculations, even though it is a long while since anyone changed dollars at that rate) is set at U$ 32.6 bn. From this amount, there are U$ 2,112 million allocated for the Defence Ministry, and another U$ 1,534 million for military pensions and welfare in the budget of the Ministry of Labour & Social Security. There is not much point in comparing the dollar figures to previous years, as the exchange rate has been all over the place, nor is it of any relevance making percentage calculations on GDP, itself a shifty figure. However, looking at the peso amounts, the total budget of the defence ministry is up 6.9 % in real terms (less than the average of just under 9 % for expenditure as a whole). The dollar component (around 8.5 % of the total) is up 11.4 %. Having jumped substantially in the 2006 budget, pension costs have moderated their increase. Their budgetary allocation is up only 2.4 %, to the equivalent of U$ 1.53 bn.
Having had to revise upwards the yield from the Copper Fund throughout 2006, it would be courageous indeed to make precise predictions for 2007. The final figure for this year should be above U$ 1.2 bn, and the off-budget official estimate of U$ 811 million for 2007 appears conservative for the moment. I have arbitrarily put in U$ 1 bn in the calculations.
As I did last year, I have added to the Copper Fund the budgetary items listed as "non-financial investments" and "investment initiatives", which I presume are non-lethal plant and equipment capital expenditure, totalling U$ 172 million, with over a third of that amount accounted for by the police forces.
Expenditure Totals
The budgetary allocation of the Defence Ministry, as mentioned earlier, is U$ 2,112 million, or 6.5 % of central government expenditure. Of this sum, U$ 180 million is in foreign currency. This of course is only part of Chilean expenditure on Defence and Internal Security. In addition, the armed forces have their own "operational" revenue budgeted at U$ 373 million. A substantial part of this revenue is made up of the income from running the civil aviation (33 %) and harbours (18.4 %) authorities as well as the forces' hospitals (41.6 %). To the extent that Chile's civil aviation systems are highly ranked, the likelihood of the responsibility being taken away from the Air Force, as recently happened in Argentina, is remote. The pension and welfare allocation (which is to be found in the budget of the ministry of Labour & Social Security, is U$ 1,534 million.
Total expenditure from budgetary sources thus totals U$ 3,646 million, 11.2 % of the total and is the third largest item in the national budget after civilian Social Security (U$ 5,175 million) and Education (U$ 5024 million), and well above Health expenditure (U$ 2065 million). Off budget, we also have the contributions from the Copper Fund (estimated at U$ 1,000 million). Together with the "other income and transfers" mentioned above for U$ 174 million, and the own-generated revenue for U$ 373 million, this brings the total up to U$ 5193 million to be spent on military and internal security .The sums include a stable U$ 7.2 million under reserved (i.e."secret") expenditure, and U$ 25.5 million towards United Nations operations.
Hidden in the budget of the Interior Ministry, the domestic intelligence agency (ANI) continues to get a miserly allocation of U$ 6.8 million (+ 7.8 %). Its staff allocation is increased by 5 people to 130, with an authorised fleet of vehicles stuck at 4. Hardly surprising that it took the Chilean intelligence community weeks to find out about the Bolivian-Venezuelan military assistance pact, which had been mentioned in regional papers in full detail.
Breakdown by function
Personnel costs for active forces take up nearly a third of total outlays 32.8 %), with pensions accounting for another 31.2 %. However, as U$ 295 million of the personnel cost (188 million for the military and 106 million for the internal security forces), are actually pension contributions deducted from wages and paid to the ministry of Labour & Social Security, the real breakdown is 36.8 % for pensions and 27.2 % net personnel.
The possibility of any major reform to the military pension structure is also remote. Currently, military personnel can retire on a full pension (equal on average to 85 % of recent earnings) after 30 years' service which includes the last 2 years spent in a military academy. The contributions from active members cover 15.4 % of gross pension expenditure in the draft budget.
REVENUE 2007 U$S MILLION
Ministry of Defence Budget 2102
Social Security Budget 1534
Own Revenue 373
Other income & transfers 174
Copper Fund (estimated) 1000
TOTAL 5193 <
EXPENDITURE 2007 U$S MILLION
Personnel 1706
Pensions(Net) 1618
Goods & Services 646
Plant & Equipment (estimated) 1172
Other 51
TOTAL 5193 <
Breakdown by branch
BREAKDOWN BY BRANCH I have as previously regrouped the procurement, plant and equipment expenditure under a separate heading. The Copper Fund is the bulk of the procurement expenditure, but until its allocation is more transparent, there is not much more than can be said. From a straightforward three-way split, the fund is now the subject of secretive management by the Finance and Defence ministers with a few advisers and little visibility.
One should note the above average increase of the allocations for both the uniformed (+ 10.7 %) and the civilian criminal police forces (+ 12.7 %), reflecting the increasing concern with public security. Expenditure on Carabineros, excluding procurement and pensions, now exceeds the army's budget.
Though I have not itemized them separately in the table, there has been a reduction in the budgets of the Army's Geographical Institute (- 3.5 %), and the Navy's hydrographic survey agency (- 11.5 %), but the air force's survey facility gets a 19.5 % increase. The three together receive U$ 5.8 million from the defence budget, and spend U$ 12.4 million thanks to revenue from selling some of their output commercially.
Branch 2007 Million U$S Notes
Army 653
Navy 536
Air Force 402
Plant & Equipment for above 1087 estimated
Social Security for above 1045 net of U$ 189 million contributions in 2007
Total Armed Forces 3723
Carabineros (uniformed police) 665 <
Civilian (Investigaciones) police 189
Plant & Equipment for above 63
Social Security for above 573 net of U$ 106million contributions in 2007
Total Internal Security 1470
Overall Total 5193
Final Comment
If you have found this note predictable, it only reflects the virtually unchanged presentation of the official documents over the years, which allows me to use the same template by only updating the figures and percentages. We would dearly like to have details of the specific destination of the Copper Fund (a somewhat obscure version is given in the quarterly budget report from the Budget Directorate, but it is mainly of use to Egyptologists). It would be also interesting to know how much Chile spends on military intelligence.
This note can be quoted (but not reproduced in full on a public medium such as a print publication or a website without express authorisation by the autor). For shorter quotes, full attribution must be given to the author.
by Armen Kouyoumdjian ©copyright
Member, Defence Expenditure Network SIPRI (Stockholm)
Phone / fax 56-32 612180
[email protected]
Next year's national budget was presented to Congress at the very last minute of the September 30 deadline. It has to be voted by November 30, and it is just possible that there might be more parliamentary debate and controversy than is usual in these matters. It is unlikely that defence expenditure may be affected by any changes, though you never know. This paper relates to the draft proposals and compares them to the same proposals for 2006, for which the actual spent amounts will not be known until the first quarter of 2007.
As usual, the documents on which this report is based are Appendix Nº 11 (Ministry of National Defence) and 15 (Ministry of Labour & Social Security), as well 05 (Interior Ministry) for the National Intelligence Agency. The methodology used for the calculations is that drawn up by NATO and also used by other research organisations.
As has been mentioned in my monthly updates, the likelihood of any of the reforms affecting the structure of the defence budget actually becoming law during this administration appears increasingly remote. The ministry's organisational law has been sent back to the drawing board by congressional committees, the matter of a new Ministry of Public Security is still shrouded in controversy, and proposals for a reform or abolition of the Copper Law have yet to see the light of day. In summary, the structure of the 2007 budget therefore sticks to the pattern of previous years.
There are, however, indications that the budget was prepared in huddled conversations between the defence and finance ministries, without consulting the area under-secretaries or the service chiefs as to their needs for next year. This may mean that severe shortages of funds may appear in some areas during 2007. If confirmed, such an attitude is incomprehensible during a period of substantial fiscal surpluses.
Chile's total national budget for 2007 (using an exchange rate of 555 pesos per U$ for the whole year, which is the basis for official calculations, even though it is a long while since anyone changed dollars at that rate) is set at U$ 32.6 bn. From this amount, there are U$ 2,112 million allocated for the Defence Ministry, and another U$ 1,534 million for military pensions and welfare in the budget of the Ministry of Labour & Social Security. There is not much point in comparing the dollar figures to previous years, as the exchange rate has been all over the place, nor is it of any relevance making percentage calculations on GDP, itself a shifty figure. However, looking at the peso amounts, the total budget of the defence ministry is up 6.9 % in real terms (less than the average of just under 9 % for expenditure as a whole). The dollar component (around 8.5 % of the total) is up 11.4 %. Having jumped substantially in the 2006 budget, pension costs have moderated their increase. Their budgetary allocation is up only 2.4 %, to the equivalent of U$ 1.53 bn.
Having had to revise upwards the yield from the Copper Fund throughout 2006, it would be courageous indeed to make precise predictions for 2007. The final figure for this year should be above U$ 1.2 bn, and the off-budget official estimate of U$ 811 million for 2007 appears conservative for the moment. I have arbitrarily put in U$ 1 bn in the calculations.
As I did last year, I have added to the Copper Fund the budgetary items listed as "non-financial investments" and "investment initiatives", which I presume are non-lethal plant and equipment capital expenditure, totalling U$ 172 million, with over a third of that amount accounted for by the police forces.
Expenditure Totals
The budgetary allocation of the Defence Ministry, as mentioned earlier, is U$ 2,112 million, or 6.5 % of central government expenditure. Of this sum, U$ 180 million is in foreign currency. This of course is only part of Chilean expenditure on Defence and Internal Security. In addition, the armed forces have their own "operational" revenue budgeted at U$ 373 million. A substantial part of this revenue is made up of the income from running the civil aviation (33 %) and harbours (18.4 %) authorities as well as the forces' hospitals (41.6 %). To the extent that Chile's civil aviation systems are highly ranked, the likelihood of the responsibility being taken away from the Air Force, as recently happened in Argentina, is remote. The pension and welfare allocation (which is to be found in the budget of the ministry of Labour & Social Security, is U$ 1,534 million.
Total expenditure from budgetary sources thus totals U$ 3,646 million, 11.2 % of the total and is the third largest item in the national budget after civilian Social Security (U$ 5,175 million) and Education (U$ 5024 million), and well above Health expenditure (U$ 2065 million). Off budget, we also have the contributions from the Copper Fund (estimated at U$ 1,000 million). Together with the "other income and transfers" mentioned above for U$ 174 million, and the own-generated revenue for U$ 373 million, this brings the total up to U$ 5193 million to be spent on military and internal security .The sums include a stable U$ 7.2 million under reserved (i.e."secret") expenditure, and U$ 25.5 million towards United Nations operations.
Hidden in the budget of the Interior Ministry, the domestic intelligence agency (ANI) continues to get a miserly allocation of U$ 6.8 million (+ 7.8 %). Its staff allocation is increased by 5 people to 130, with an authorised fleet of vehicles stuck at 4. Hardly surprising that it took the Chilean intelligence community weeks to find out about the Bolivian-Venezuelan military assistance pact, which had been mentioned in regional papers in full detail.
Breakdown by function
Personnel costs for active forces take up nearly a third of total outlays 32.8 %), with pensions accounting for another 31.2 %. However, as U$ 295 million of the personnel cost (188 million for the military and 106 million for the internal security forces), are actually pension contributions deducted from wages and paid to the ministry of Labour & Social Security, the real breakdown is 36.8 % for pensions and 27.2 % net personnel.
The possibility of any major reform to the military pension structure is also remote. Currently, military personnel can retire on a full pension (equal on average to 85 % of recent earnings) after 30 years' service which includes the last 2 years spent in a military academy. The contributions from active members cover 15.4 % of gross pension expenditure in the draft budget.
REVENUE 2007 U$S MILLION
Ministry of Defence Budget 2102
Social Security Budget 1534
Own Revenue 373
Other income & transfers 174
Copper Fund (estimated) 1000
TOTAL 5193 <
EXPENDITURE 2007 U$S MILLION
Personnel 1706
Pensions(Net) 1618
Goods & Services 646
Plant & Equipment (estimated) 1172
Other 51
TOTAL 5193 <
Breakdown by branch
BREAKDOWN BY BRANCH I have as previously regrouped the procurement, plant and equipment expenditure under a separate heading. The Copper Fund is the bulk of the procurement expenditure, but until its allocation is more transparent, there is not much more than can be said. From a straightforward three-way split, the fund is now the subject of secretive management by the Finance and Defence ministers with a few advisers and little visibility.
One should note the above average increase of the allocations for both the uniformed (+ 10.7 %) and the civilian criminal police forces (+ 12.7 %), reflecting the increasing concern with public security. Expenditure on Carabineros, excluding procurement and pensions, now exceeds the army's budget.
Though I have not itemized them separately in the table, there has been a reduction in the budgets of the Army's Geographical Institute (- 3.5 %), and the Navy's hydrographic survey agency (- 11.5 %), but the air force's survey facility gets a 19.5 % increase. The three together receive U$ 5.8 million from the defence budget, and spend U$ 12.4 million thanks to revenue from selling some of their output commercially.
Branch 2007 Million U$S Notes
Army 653
Navy 536
Air Force 402
Plant & Equipment for above 1087 estimated
Social Security for above 1045 net of U$ 189 million contributions in 2007
Total Armed Forces 3723
Carabineros (uniformed police) 665 <
Civilian (Investigaciones) police 189
Plant & Equipment for above 63
Social Security for above 573 net of U$ 106million contributions in 2007
Total Internal Security 1470
Overall Total 5193
Final Comment
If you have found this note predictable, it only reflects the virtually unchanged presentation of the official documents over the years, which allows me to use the same template by only updating the figures and percentages. We would dearly like to have details of the specific destination of the Copper Fund (a somewhat obscure version is given in the quarterly budget report from the Budget Directorate, but it is mainly of use to Egyptologists). It would be also interesting to know how much Chile spends on military intelligence.
This note can be quoted (but not reproduced in full on a public medium such as a print publication or a website without express authorisation by the autor). For shorter quotes, full attribution must be given to the author.
by Armen Kouyoumdjian ©copyright
Member, Defence Expenditure Network SIPRI (Stockholm)
Phone / fax 56-32 612180
[email protected]
