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Cablegate: Transparency of Budgets/Military Spending - Turkey

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 ANKARA 006644

SIPDIS

SENSITIVE

STATE FOR EB/IFD/OMA AND EUR/SE
TREASURY FOR OASIA/MDM:J. FRANCO

E.O. 12958: N/A
TAGS: EFIN MASS TU
SUBJECT: TRANSPARENCY OF BUDGETS/MILITARY SPENDING - TURKEY

REF: STATE 239929

SENSITIVE BUT UNCLASSIFIED - DELIBERATIVE PROCESS.

1. (SBU) Summary: Military spending in Turkey is under
civilian control though the military has a significant voice
in budgetary decisions. The spending is transparent, though
line commanders have some authority to reallocate between
uses.
Military spending is subject to internal and external audit,
including by civilian authorities. Though a portion of
military spending is funded through extra-budgetary
revenues, these, too, are subject to civilian control and are
being phased out. A major reform of all public sector
budgeting
and auditing processes is greatly increasing budgetary
transparency and the effectiveness of the audit function for
all public spending, including for defense. End Summary.

2. (U) Post provides below responses to reftel questions.

General Overview of Audit Procedures:
------------------------------------

3. (U) Military expenditures are subject to both internal
audits in the relevant government agencies (Ministry of
Defense, SSM, and Ministry of Interior) and to external
audit by the Court of Accounts (Sayistay). At the SSM, the
civilian agency that handles procurement of significant
military equipment, for example, there
is an internal audit committee consisting of
representatives of the Ministry of Defense, the Ministry of
Finance, and the Prime Ministry, the latter two (at least)
being civilians. SSM officials specified that the auditors
look not only at military spending, but also at the
inflows, including the "special funds" that are outside the
budget (see below). GOT officials told us copies of all
audits go to the Prime Ministry and Presidency. By law,
external audits by the Sayistay also go to Parliament. The
Prime Ministry inspectors also have the right to obtain
information from any government officials at any time.

4. (U) In December 2003, with substantial assistance from
the World Bank and IMF, Turkey enacted the Public Financial
Management and Control (PFMC) Law, a major revamping and
strengthening of the budget, auditing and financial control
processes. This far-reaching reform, had multiple
objectives. Designed to bring Turkish budgetary and
financial control practices in line with EU norms, it also
creates greater transparency, functional accounting, and
a beefed-up auditing function. The law institutes very
specific requirements for the internal audits in every
ministry and provides for a government-wide internal audit
coordination board. The law mandates annual
internal audits of all government agencies.

Military Budget and On-Budget and Off-budget Revenues and
Expenses:
--------------------------------------------- ---

5. (SBU) Spending for the armed forces and security forces
comes under the budgets of the Ministry of Defense, SSM,
and Ministry of Interior (for Coast Guard and the
para-military Jandarma). A portion of military spending
has traditionally come from the Defense Industry Support
Fund, which consists of earmarked revenues from a variety
of state enterprise commercial activity and excise taxes
(portions of National Lottery receipts, tobacco taxes, and
mobile phone licenses, for example). Though this funding
has not been included in the budget, and did not require
passage by parliament, SSM officials told us Parliament has
the authority to obtain information about these funds and
the inflows and outflows under the Fund are subject to
audit. Aside from Parliamentary and auditor oversight, all
major procurement decisions are decided by a committee
consisting of the Chief of the General Staff, the Prime
Minister and the Minister of Defense, the latter two being
civilians. In practice, however, the military has a
considerable
voice in the size and specifics of its budget, as civilian
authorities have tended to defer to the military on its
priorities.

6. (SBU) Under the PFMC law, all extra-budgetary
funds are being brought on budget, with the Defense
Industry Support Fund slated to disappear in 2007. During
the transition period, it is shrinking. SSM officials told
us it had declined from about $1.4 billion a few years ago
to about $800 million now. This is relatively small in
relation to total on-budget Defense Spending, which GOT
budget documents put at about $7.6 billion in 2004, at
current exchange rates.

Military Component of the National Budget:
-----------------------------------------

7. (SBU) Since all defense expenditure is subject to
Parliamentary oversight and the vast majority of the
spending goes through the budgetary approval process,
Parliament has ample opportunity to debate budget
priorities, as does the Council of Ministers. In the
context of overall budget austerity due to Turkey's large
debt burden and history of repeated financial crises, the
GOT has tried to protect spending on health and education.
In the 2005 budget which the GOT recently proposed to
Parliament, the share of non-interest spending going to
Defense will decline slightly from 2004, whereas Education
and Health spending will increase slightly.

Comment:
-------

8. (SBU) The passage of the PFMC, with a strong push from
the IFI's, combined with the GOT's interest in EU
accession, have institutionalized a gradual but clear
normalization of the budget and audit processes for Defense
Spending.

EDELMAN

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