CHAPTER XXIII: THE STATUTORY BASES OF FINANCING
The budget is one of the cornerstones of the Defense Policy.
The Defense budget represents, to a large extent, the in numbers the missions assigned; it gives an objective measure of the country's intentions as to the dimensions of its Defense. It derives from an act of Congress and is executed under the control of the political branch; it affects the foreseeability of Argentina with respect to the development of its Military Instrument.
1. Budget methodology
Conceptual aspects
Defense expenditures comprise the total actual and financial expenses involved and the budgetary basis for such expenditures.
The latter aspect contemplates all of its sources, whose categories are detailed below.
Decisions on the Defense budget are not made independently by this area, much less by the Armed Forces. Instead, they are a part of the decisions related to the national budget. It is therefore convenient to first provide some clarifications regarding the latter.
Budget preparation
The budget is a process that develops, expresses, approves, executes and evaluates the production of goods and services by public institutions as well as the actual and financial supplies required thereby. It is developed on the basis of the policies and objectives contemplated in government program, in consonance with the denomination of "law of laws" usually attributed to it.
The development of the Budget Bill is established in Act No. 24156, Financial Administration and Control Systems of the National Public Sector. Such regulations establish the various phases of the development process: previous budgetary policy, preparation of the preliminary budgets for each jurisdiction or entity, and development of the Budget Bill.
Since 1991, it is customary for the Executive Branch to submit such Bill to the Congress prior to the legal deadline of September 15th, and the bill is then enacted by the Congress prior to the start of the pertinent financial year, which in our country runs from January 1st to December 31st each year.
- Prior budgetary policy. This policy consists in defining the orientations for the entities and jurisdictions forming the national public sector in order to develop their respective preliminary budgets for the pertinent financial year. In this stage of the process, the jurisdictions receive references on the budgetary ceiling amounts, which determine the financial limitations applicable to their programs.
- Preliminary budget production. This stage is subdivided into two parts: Revenues, which has a centralization level compatible with the budget's financing structure, and Expenditures, which is carried out on a decentralized basis.
- Budget Bill production. The process ends by incorporating each area's information into the "Bill for the National Public Administration General Budget" and is submitted, as mentioned, to the National Congress prior to September 15th each year.
When the Budget Bill is prepared, the System's main entity keeps all the information used, which is broken down to its minimum levels, whereby, after the bill is enacted, the National Budget Office can proceed to the direct administrative distribution of the legal credits.
After the reformation of the National Constitution in 1994, such distribution is approved by the Presidential Chief of Staff through an administrative decision.
This annual budget act cannot contain permanent regulations or abolish current laws. Neither can it create, modify or suppress taxes or other sources of revenues.
Budget execution
The national budget represents a preview of the production for a certain period and of the elements required by such production, all of which is finally expressed in an approved document. The next step after approval, which is closely connected with budget contents, is the implementation of the actions required to achieve the execution. This means that the budget must be executed in an actual and concrete time and space to achieve, in terms of results, the targets expressed in the preparation stage.
To this effect, the Budget Act contains the financial authorizations given by the Legislative to the Executive, so that the latter can achieve the objectives that its government program stated in the Act.
The detailed contents of the document, combining institutional and program classifications, financing sources, geographical elements and objects of expense, makes the Budget an instrument for jurisdictions, entities and authorities to have available the information required to manage the execution of the budget.
Such execution is in charge of internal and external control agencies: the National Comptroller's Office and the National Auditing Office respectively.
Evaluation of budget execution
This is the last stage of the process and is based on the concepts of efficiency and effectiveness. The following steps are performed:
- Measuring the results obtained and the effects produced.
- Comparing the projected and actual results.
- Analyzing the deviations and determining their causes.
- Defining and identifying any corrective actions required.
2. The Future Planning, Programming and Budgeting System (S3P)
This tool is intended to establish a work scheme and a process that facilitate decision-making, allowing to examine and analyze decisions from the point of view of the current national and international situation.
SP3 will be the statutory administrative model for the Defense organizations to develop non-operational planning and execute, supervise and evaluate their activities. Its processes will be designed to guide and coordinate decisions and actions at all hierarchical levels.
It implies a dynamic, repetitive and joint process managed by the Ministry of Defense. It comprises three inter-related phases, planning, programming and budgeting, and emphasizes the following:
- Centralized political management
- Decentralized execution
- Shared administration
It is aimed at identifying the needs required by mission performance, compare such needs with the available resources and transfer them into the proposed budget.
In this system, Planning implies the relationship with the National Defense proposed for the country, with the strategy selected to achieve such relationship. In brief, it means establishing targets, in a wide sense. In this phase, the use of the Military Instrument is examined considering national interests and objectives, the objectives of National Defense, the current situation and the requirements for efficient resource management; the Defense policy and the missions and functions of the Armed Forces are analyzed.
Programming addresses the relationship between the strategy determined in the planning stage, especially in the medium term, and the military forces required for its execution. Such forces are related with the resources available to the country and their distribution between the various jurisdictional sectors. In this phase, the Ministry of Defense, the JSAF and the Services develop, analyze and match the programs proposed in order to achieve the targets established in the Planning phase.
These programs reflect a systematic analysis of the missions and the operational capabilities to be attained in order to fulfill the missions, alternative methods, and an effective resource allocation (personnel, equipment, technologies and support activities) for a medium-term horizon.
Lastly, the third phase of the system, Budgeting or cost determination is executed in the short term. In this stage, the Ministry of Defense, the JSAF and the Services develop a detailed budget for the programs approved during the programming stage. After Congress approval, as explained above, an allocation of annual resources is made to the Defense jurisdiction.
The system allows adjusting the size of the military instrument and its territorial deployment in time, on the basis of the missions assigned.
As a consequence of the application of this system, a Long Term Military Planning and a Medium Term Programming are materialized, allowing to establish an estimated budget for the program. Once approved by the pertinent authorities, such budget will constitute the portion of the National Budget allocated to Defense.
CHAPTER XXIV: THE DEFENSE BUDGET
Information on the national budget is known to the public, but, because of its volume, technical complexity and different jurisdictions, the present document presents a simplified scheme of the specific data for the Defense jurisdiction, broken down by sub-jurisdictions and entities.
Independently of the merely temporary validity of the budgetary information for a given financial year, we understand that its presentation has a special value, as it provides a clear idea of the country's defense expenditure level.
1. The 1998 budget
The General Budget of the National Administration for financial year 1998 was enacted by Congress through Act No. 24938 and published on December 30, 1997 through Executive Decree No. 1463.
The total current and capital expenditures approved for the Ministry of Defense amounted to $ 3,622,071,699, representing approximately 7.44% of the General Budget ($ 48,680,549,311), and 1.07 of the GDP ($ 338,589 million) estimated for 1998.
Chart 24-1 and table 24-2 show each sector's involvement of the Ministry of Defense's budget and that of the remaining jurisdictions within the Grand Total for the National Administration and comparisons with international expenditures in this area.
(IN GDP %)
1. World averages by regions (in decreasing order)
2. South America, by country (alphabetical order)
| Argentina | n/d | 1.7 |
1.2 (1998: 1.1) |
Credit distribution at the close of the 1998 financial year
During the financial year, in order to adapt the mentioned credit level to the actual needs derived from the budget execution process, changes were introduced. As a result, at the close of the 1998 financial year, the total current and capital expenditures amounted to $ 3,656,734,763.
This total represents the amount of resources ultimately assigned to the Defense Sector productive process in 1998, to which we should add the resources allocated to financial investments, which amounted to $ 90,004,960 in 1998.
In summary, at the close of financial year 1998, the grand total of the authorized budget for the Ministry of Defense was $ 3,746,739,723.
Such total is financed as follows:
- With National Treasury Funds: 83.20%
- With the Ministry's own resources and Specific Allocation Resources: 12.72%
- With credits: 4.08%
The allocation of expenditures, according to their object and institutional nature, is distributed as follows:
Detailed information is given in chart 24-3, which shows references to its historical evolution, as well as in Tables 24-4 to 24-16.
The transparency achieved by publishing the budget is enhanced if, at the same time, the clarifications required for a technical interpretation of the amounts are also provided.
With this purpose, some explanations about the various concepts and terms appearing in the attached tables are included for easy analysis.
Precisely because of the well-known difficulties usually encountered when making international comparisons of Defense expenditures, our country has recently agreed with Chile, within the frame of the Permanent Argentine-Chilean Security Committee, to request CEPAL (Economic Commission for Latin America) to study a common standardized methodology to measure the defense expenditures of both countries, with the aim of later advancing towards a regional methodology. It is worth mentioning that the 1998 Declaration of El Salvador on Measures to Promote Confidence encourages the performance of studies aimed at advancing towards a common methodology aimed at facilitating military expenditure comparisons within the region.
It should be mentioned that Argentina reports its Defense expenditures every year to the United Nations in the terms and forms required by the Resolutions of such Organization.
Financing sources
They are the channels through which resources are obtained. Resources are classified according to generic types. This identifies expenses and their orientation according to the nature of the revenues, and facilitates their control.
The source is associated to the legal nature of the resource. In the special case of expenditures financed through indebtedness, donations or transfers, however, it refers to the type of transaction that originated it, in order to control that the resource is channeled to the purpose that originated the debt or donation.
In this respect, it is emphasized that legislation restricts the financing of operational expenses with public credit operations, except in certain cases.
After the implementation and application of Act No. 24156, all resources are included both in budgetary provisions and in the legal credits allocated. Because of this universality principle, the information included in the Budget Act must be interpreted as encompassing the total and consolidated amount of the financial resources available to the entities of the jurisdiction, including the Services, to all effects.
In other words, this information, representing an authorization to spend, is the maximum amount that can be used for National Defense during the current financial year.
For a better interpretation of this subject, the particular technical aspects of each financing source are described below.
- National Treasury resources. They are originated in taxes unilaterally established by the Government and in non-tax resources, in order to finance its expenses without a predetermined allocation.
- Specific Allocation Resources (RAE). The revenues received by Central Administration organizations from the sales of goods and services, revenues on property, asset sales, rate, duty, royalty collections, and funds derived from variations in the different types of financial assets.
- Own assets. They are similar to RAE, when they are received by a decentralized organization and public companies or corporations.
- Internal transfers. Those coming from persons and institutions developing activities in the national territory. They are aimed at obtaining investments or financing operational programs, and include contributions and gifts from persons and institutions not included in the National Administration Budget.
- Internal credit. The source derived from using credit, such as debt bonds, liabilities with suppliers, and amounts borrowed in the internal market.
- External transfers. Resources originated in foreign governments and international organizations for capital formation or to finance operational or consumption expenses. They include contributions and gifts from persons and institutions not included in the National Administration Budget.
- External credit. Credits granted by foreign governments and international organizations and financial entities.
The objects of expenditure
This classification provides a systematic and homogeneous view of the goods and services, transfers, and asset and liability variations that the public administration applies in the development of its economic process.
In this way, it is possible to identify beyond doubt the goods and services acquired, the transfers made and the applications provided for in the budget.
* Personnel expenditures. Remuneration of permanent personnel. This item also includes family subsidies, extraordinary services and social benefits received by civil servants.
* Operations expenditures. These expenditures comprise the following items:
- Consumables. Consumable materials and supplies for the operation of government agencies including those used for the preservation and repair of capital goods.
- Non-personal services. Services provided by third-party companies.
- Plant and Property. Expenses generated through the acquisition or construction of capital goods that increase the assets of the Public Administration entities, which are not exhausted after their first use and which last more than one year.
- Transfers. Expenses derived from transactions which do not imply a consideration in goods or services, and whose amounts are not reimbursed by the beneficiaries.
- Financial Assets. Expenses derived from the purchase of public or private securities, shares and bonds. Lending, increase of ready cash, accounts, notes, deferred assets and advance payments to suppliers and contractors.
- Investments. Expenses related to projects that will improve capabilities.
- Debt Service. Expenses used to cover public debt services and to reduce other liabilities undertaken by the public administration.
- Retirement and Pension Benefits. Payment of retirement and pension benefits.
2. The Five-Year Budget
National Defense is one of the Government's strategic fields of action and requires the basic tools for long and medium term planning.
The development of military equipment plans and the incorporation, education and training of Service personnel, among other aspects, are issues that cannot be adequately faced on the spur of the moment and are very sensitive to short-term circumstances.
The recognition of these particular aspects has led Congressmen and Senators to include in the Armed Forces Restructuring Act a multiannual budgetary framework.
Title V - Financing of this Act defines the universe of programs to which it allocates the resources therein identified, establishing a budgetary base which is increased by a growth projection covering the five-year period involved. However, it is important to consider that the specific allocations for each year are the subject of study and decision by the Legislative when the General Budget Bill is considered for a given financial year.
Furthermore, the National Congress has considered it convenient to separate the budgetary support for equipment and material modernization. Instead, it uses the proceeds derived from the sale of dispensable assets and implements public credit operations authorized to such effect as a funding source.
 |
 |