US embassy cable - 05VILNIUS1277

UNCLAS SECTION 01 OF 02 VILNIUS 001277 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EUR/NB 
 
E.O. 12958: N/A 
TAGS: PGOV, PINS, LH, HT17 
SUBJECT: GOL DEFENSE SPENDING ON THE RISE 
 
1.  (SBU) Summary: Lithuania is set to achieve a 15 percent 
increase in its defense budget in 2006 in absolute terms. 
The key benchmark of military spending as a percentage of GDP 
will rise from 1.27 in 2005 to 1.32.  Defense officials and 
key members of parliament are aware that sustained increases 
in spending and more flexible funding procedures are 
necessary to meet Lithuania's transformation goals and 
heightened NATO obligations.  The lack of a mechanism to fund 
major capital acquisitions, however, will continue to hamper 
long-term military planning, as evinced this budget cycle by 
disagreements over the purchase of transport aircraft.  We 
will continue to focus on the issue of defense spending in 
discussions with parliamentary leaders and in public 
diplomacy outreach.  End Summary. 
 
2.  (U) Parliament will vote December 8 on the 2006 budget. 
Due to Lithuania's rapidly growing economy, a 15 percent 
increase in defense spending translates into a 0.05 percent 
increase in military expenditures as a percentage of GDP. 
This 0.05 percent growth figure is the goal that proponents 
in parliament of increased defense spending set as their goal 
for the 2006 budget.  MOD officials and parliamentarians told 
us that securing such an increase will be a major 
accomplishment considering the other pressing priorities in a 
country whose GDP per capita is approximately USD 6500. 
 
3.  (SBU) Budget and Finance Committee Chair Jonas Lionginas 
told us November 29 that he sees no obstacles to passage of 
the defense budget in its current form.  The MOD's request to 
take out a loan of USD 36 million to fund the purchase of one 
passenger plane for government officials and three tactical 
transport planes, however, is up against significant 
opposition.  (Two U.S. companies, Lockheed Martin and Boeing, 
would like to sell Lithuania the passenger plane.) 
Lionginas's committee did not approve the loan.  He explained 
to us his view that the MOD should fund its purchases out of 
its budget.  Prime Minister Brazauskas, not normally 
considered a defense hawk, surprisingly weighed in on this 
issue on November 29 with a public statement of support for 
the purchase of the planes.  Brazauskas did not comment on 
the question of whether a loan is the best way to fund this 
acquisition. 
 
4.  (U) The issue of the loan for the transport planes, which 
would help fulfill a NATO force goal, highlights the 
difficulty the GOL faces in making major acquisitions and 
engaging in long-term defense planning.  The MOD is not able 
to fund such large acquisitions out of its budget.  A USD 36 
million expenditure for aircraft, for example, would consume 
approximately ten percent of the entire defense budget.  MOD 
officials told us they have briefed MPs on this problem.  MP 
Vaclov Stankevic, Chair of the NATO commission, told us that 
he is keenly aware of the need for more flexible funding 
procedures, but that many MPs are still not focused on this 
issue. 
 
5.  (SBU) The MOD is also limited in its ability to project 
its budget picture with the accuracy it needs.  The Ministry 
of Finance provides three-year budget projections, but 
defense officials have to figure out how to meet NATO force 
goals far beyond that.  MOD officials also admit that they 
still face a learning curve in NATO force goal development, a 
process that they have now experienced twice.  MOD officials 
told us that locking in a 0.05 percent yearly increase in 
defense spending as a percentage of GDP would be an important 
step in bringing some clarity to their long-term budget 
picture. 
 
6.  (SBU) Defense officials predicted to us that, due to 
these constraints, they will face significant challenges in 
meeting certain NATO force goals and deadlines in the 
2006-2008 cycle.  They specifically cited communications 
capabilities, an explosive ordnance disposal platoon, a role 
2 medical facility, and the transport aircraft as areas where 
they will miss deadlines or only partially fulfill 
requirements.  They assured us that they are in close contact 
with NATO to refine deadlines and keep the Alliance informed 
of potential shortfalls. 
 
7.  (SBU) Comment: The 15 percent increase in defense 
spending that the GOL will likely achieve this year 
represents a step forward in building the military we want 
Lithuania to have.  Support in parliament for increasing 
spending to meet the two percent goal appears solid, though 
there are no illusions that at the current rate the GOL will 
reach its goal anytime soon.  We will work to support the MOD 
in institutionalizing 0.05 percent as a percentage of GDP as 
a minimum yearly increase in defense spending.  We will also 
engage MPs on the necessity of having more flexible funding 
mechanisms for big-ticket items that are difficult to include 
as line items in yearly budgets. 
MULL