US embassy cable - 04SANTODOMINGO6564

C O N F I D E N T I A L SECTION 01 OF 03 SANTO DOMINGO 006564 
 
SIPDIS 
 
TREASURY FOR OASIA/MDM:J. FRANCO 
STATE FOR WHA/CAR, PM, EB/IFD/OMA:L. GALLAGHER 
 
E.O. 12958: DECL: 11/29/2014 
TAGS: DR, EAID, EFIN, MARR 
SUBJECT: DOMINICAN REPUBLIC:  TRANSPARENCY OF 
BUDGETS/MILITARY SPENDING 
 
REF: STATE 239929 
 
Classified By: DCM Lisa Kubiske.  Reason:  1.4 (b) and (d). 
 
1. (SBU)  SUMMARY: The Dominican Republic,s military budget 
is determined in the national budget process overseen by the 
Office of the Budget, resulting in an annual national 
government budget bill considered and voted by Congress and 
signed and promulgated by the President.  The military budget 
is subject to audit by civilian authorities and by the audit 
office of the armed forces. The new president's appointments, 
his policy of austerity measures and his adamant call for 
"zero tolerance" for corruption are taken as policy 
guidelines by the Secretary of the Armed Forces Vadm Sigfrido 
Pared Perez.  Defense expenditures at a reported 0.4 percent 
of GDP will not be a priority for this administration. 
 
General Overview of Military Budgeting and Spending 
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2. (SBU)  Government budgeting has achieved limited 
improvements in transparency over the last five years.  In 
2003, the government set up an Integrated Financial 
Management System (SIGF) designed eventually to integrate all 
budgetary, financial, and public debt management of 
government spending under the Finance Ministry.  Several new 
draft law proposals are pending in the Congress that should 
further enhance good governance.  These potential laws would 
address budget, the Treasury, public borrowing, and 
government procurement. 
 
3. (SBU) The Dominican military's annual 2004 budget was 
approximately 5.2 billion Dominican pesos (about USD 180 
million at current rates).  It had sustained minimal growth 
during the previous 4 years.  Its primary function has been, 
and continues to be, to provide employment for the estimated 
42,000 personnel currently on the Armed Forces, rolls. 
Payroll and associated personnel benefits have accounted for 
the bulk of budget expenditures (between 88 to 91 percent 
depending on service branch) known locally as &carga fija8 
(fixed load expenses). 
 
4. (SBU)  Budget trends are likely to continue without a 
reduction in human resources.  Despite the military's request 
for a 2005 budget increase, the defense budget probably will 
not grow during this administration.  Newly elected President 
Leonel Fernandez has announced  plans for general austerity 
as part of an IMF standby program under negotiation, putting 
all institutions on notice of short funding until economic 
conditions improve significantly.  Reduction in the number of 
uniformed personnel is seen as politically difficult, in part 
because about 30 to 35 percent of the uniformed force is 
actually employed in civilian government offices or in the 
private sector, often as private residence guards, 
chauffeurs, and other personal service assistants.  Therefore 
the remaining discretionary portion of the budget leaves 
little for operational requirements and acquisition of 
supplies needed to maintain the Armed Forces.  Inflation and 
the currency fluctuation from early 2003 trough mid-2004 have 
further compounded the erosion of the military,s operational 
capabilities, forcing it to seek off-budget requests to 
conduct some of its day-to-day operations, delay payment of 
rations to soldiers, or postpone the payment of other 
mandated fringe benefits to personnel and materiel suppliers. 
 
 
A.  General Overview of Auditing Procedures 
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5. (SBU)  All Dominican institutions are technically subject 
to audit by the &Camara de Cuentas,8 a five-member 
independent civilian body attached to Congress.  The Camara 
de Cuentas reports to the Congress, presenting on the first 
ordinary legislature of a fiscal year an annual account of 
expenditures of the previous fiscal year.  In early 2004 
President Mejia signed and promulgated Public Law 10-04 
giving the Camara de Cuentas broad authority to look into any 
public institution,s finances.  Reports and examinations by 
the Camara are generally considered to be pro forma. 
 
6. (SBU) The "Contraloria General de la Republic" or 
Dominican General Accounting Office (DGAO) has the authority 
to audit any government office or operation and concentrates 
principally on cases of suspected fraud and abuse. For 
example, in April 2003 the DGAO delivered an audit of "Plan 
Renove," a program to support procurement public transport 
vehicles to be used by transport union members; in November 
2004 the Attorney General of the new administration (in 
office since mid-August) lodged formal charges of fraud and 
embezzlement against 12 persons. The DGAO is currently 
auditing the administration of a financing agreement with the 
U.S. EXIMBANK approved in 2001 in the amount of approximately 
USD 10 million for the purchase of helicopters for the 
military.  As is the case for all foreign financing to 
official agencies creating government debt, the contract was 
approved by both the Senate and House.  The military 
leadership and the responsible office of the Presidency used 
a generally worded "amendments" clause in the agreement to 
increase the amount of the loan from USD 10 million to USD 76 
million, using certifications from the then presidents of the 
Senate and House, who did not refer the amended terms of 
contract to committee or to the full legislature for approval. 
 
7. (SBU) New Comptroller of the Armed Forces Rear Admiral 
Betances has a clear mandate from the Secretary of the Armed 
Forces, Vadm Sigfrido Pared Perez.  Betances is a formally 
trained financial manager/accountant who is highly regarded 
and knowledgeable about the budget submission process.  The 
Comptroller is charged with submitting the services, budgets 
and tracking their expenditures.  He has a team of internal 
auditors who work for him in the respective branches of the 
service.  They in turn are charged with tracking the 
expenditures of the respective services. In application of 
new policies of budgetary restraint, the Comptroller intends 
to prohibit discretionary purchases for sums that involve 
more than 2 million Dominican pesos (USD 75,000), subjecting 
these instead to prior approval from the Presidency and the 
Secretary of Defense.  Service chiefs have in the past had 
 
SIPDIS 
the autonomy to seek exterior financing without concurrence 
from the MOD for such acquisitions or expenditures, provided 
there was political support for such purchases. 
 
8. (SBU) The Dominican military,s budget is formulated 
annually in September by the respective services, which 
submit it in October to the Comptroller General of the Armed 
Forces.  The Comptroller,s office further compiles and 
submits the budget to the civilian-staffed Presidential 
Office of Budget Planning.  Negotiations follow before formal 
submission of the budget authorization and appropriations 
bill to the Congress in December or early January for 
approval, presidential signature, and publication in the 
Official Gazette.  While items for military pay and 
allowances are relatively easy to establish, the operations 
and maintenance portions of the respective service branch 
budgets are archaic and,  in the case of maintenance and 
operations expenditures, formulated without verification of 
the existence or operability of equipment. 
 
9. (C) Military expenditures are not audited on a routine 
basis, as there are no formal regulatory requirements 
requiring them or setting schedules for them. Past 
Comptrollers have only occasionally carried out special 
audits, and these have generally appeared to be motivated at 
least in part by political considerations or in-house 
rivalries -- as in cases when a given commander or staff 
leader has been targeted for misappropriation of public 
funds.  The results of these audits are not publicly 
available and weaknesses of the judicial system mean no one 
to date has been incarcerated or punished severely for 
abusing the public,s trust.  Transfer or dismissal from the 
service are the most severe sanctions employed. 
 
10. (SBU)  Treasury exercises ad hoc controls on military 
spending through the mechanism of the period release of funds 
to military components.  Each service component commander 
must request allocations or checks for payment, a form of 
control for the outflows of funds from the Treasury. 
 
11. (SBU) The nerve center for military finances is the 
office of the Director of Logistics (J-4), which serves more 
as a paymaster and disbursement office than as an office for 
logistics planning and policy making.  Its director has been 
at the helm for more than ten years, apparently immune from 
politics because of his specialized expertise. 
 
B.  The Military Budget and On-Budget and Off-Budget Revenue 
and Expenses 
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12. (C) During the last decade, major military equipment 
acquisitions have not appeared in the military,s budget. 
This changes with the 2005 budget just submitted to Congress, 
which includes specific line items for acquisition of vessels 
(two coast guard vessels and reconstruction of six more, for 
a total of aprox USD 5.7 million) and aircraft and associated 
training (not detailed, for approx USD 23.9 million). 
Financing for these acquisitions is identified as coming from 
"external resources" (loans).  Any such transaction creating 
government endebtedness must be authorized by the executive 
(in practice, either the Technical Secretary of the 
Presidency or the Minister of Finance) and approved by vote 
of both the Senate and the House of Representatives. 
Justification and planning for such acquisitions has been 
poor and it is widely believed that intermediaries and 
approving officials receive under-the-table commissions. 
13. (SBU) Off-budget requests are the end-around for 
resolving budget shortfalls, generally to secure funds for 
special activities or operational needs. For example, during 
a two-month troop buildup on the Dominican/Haitian border 
during the Haitian domestic crisis of the spring 2004, the 
Presidency provided operational funds from the  President,s 
discretionary account, known internally as the &14018 
account.  The funding covered for fuel, maintenance and 
rations. Another  example of off-budget financing from other 
parts of the government was the payment of 2,000 excess Air 
Force personnel shorted pay due to the service,s lack of 
funds at the end of the fiscal year. 
14. (SBU)  Military leaders resort to canvassing the private 
sector for donations when other methods fall short. 
Historically, vendors and wealthy private sector businessmen 
who need favors from the military have provided funds for 
special needs, without the expectation of repayment.  One 
recent example was the return from Iraq of the batallion of 
302 Dominican soldiers. The decision was taken abruptly to 
curtail them by two months from their commitment in order to 
get them home by the date of the mid-May presidential 
election.  When it became evident that U.S. strategic airlift 
would not be available in time to meet that deadline, the 
President persuaded Air Europa, a major operator in Dominican 
tourism, to fly the troops back from Spain, presumably at no 
charge. 
 
15. (SBU) Military and Police budgets are independent of one 
another.  Law enforcement efforts and public safety fall 
under the Secretariat of Interior and Police.  Its budget of 
roughly USD 130 million is completely independent of the 
military budget. 
 
The Military Component of the National Budget 
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16. (SBU) As noted above, on-budget military expenditures 
amount to approximately 0.4 pct of GDP and consist for the 
most part of a "jobs program" for the 42,000 members of the 
Armed Forces.  The 5.2 billion peso budget represents 
approximately 6.3 percent of the central government current 
operating budget of 82 billion, or 4.8 percent of the 
non-financial public sector budget (current   capital 
expenditure).  The fiscal year runs from January 1 to 
December 31; the administration proposes a budget to 
Congress, generally in December, for general debate.  Both 
houses must pass the annual Budget Law, which becomes law 
when it is signed by the President and published in the 
Official Gazette. 
 
KUBISKE