US embassy cable - 04ANKARA6644

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