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March 14, 2012

How Much Butter Are Those Guns Costing?

Posted by Benoit Taiclet and Greg Horman

We have read—and appreciated—a recent publication under the program, “The Transparency of National Defense Budgets,” by Mariya Gorbanova and Leah Wawro, on budget transparency around defense expenditures.

Defense and security establishments have traditionally been among the organizations least open to public or intra-governmental scrutiny. The secrecy that veils some defense activities often extends far beyond what is justified on security grounds, making the sector particularly vulnerable to corruption, anti-competitive behavior, and other illegal practices. Facilitated by excessively secretive budgets, corruption reduces the operational effectiveness of the armed forces and security services and reduces public trust in them. Corruption in defense and security establishments also wastes scarce resources that could be spent on other public services. International companies are less inclined to invest in countries where government or private-sector corruption is significant, impeding economic development. Thus, corruption not only harms defense institutions themselves, but also hinders a country’s economic and social development, undermines the integrity of the government, and reduces public trust in the authorities.

Against this background, the International Defense and Security Program, an initiative started in 2004 by the UK chapter of Transparency International, is committed to reducing corruption and increasing transparency and accountability in defense and security ministries and agencies, the armed forces, and defense-related suppliers. The objectives are to raise awareness of corruption in the defense sector and provide practical tools to reduce corruption-related risks, collaborate with governments and international organizations to enhance transparency in defense institutions, work with defense companies to raise industry standards in contracting, and develop centers and international networks of anti-corruption expertise.

A recent publication under the program, The Transparency of National Defense Budgets, by Mariya Gorbanova and Leah Wawro, identifies strengths and weaknesses in budget transparency around defense expenditures and sets a framework for further study in this area. The publication addresses the main aspects of defense-budget transparency from available public information and, importantly, establishes a baseline evaluation of defense-budget transparency in 93 countries.

This is apparently the first-ever cross-country comparison of defense-budget transparency. Using responses from a questionnaire, the authors assessed defense budget transparency according to a 5-point scale against criteria such as the dissemination of defense-related budget information to the public, the extent of classified items in the budget, the nature of the defense-related information provided to the legislature, and audit practices pertaining defense expenditure.

The results of this research make clear the scale of the challenge. Nearly two thirds of the countries scored low, moderate-to-low, or moderate. At the other end of the scale, only 14 percent of the countries, predominantly developed countries with strong democratic systems in place, scored high. In the middle, one fifth of the countries scored moderate-to-high, representing a diverse range of countries from Africa, Asia, Europe, and Latin America.

The publication also highlights some good practices. In South Korea, for example, to enhance transparency of defense expenditure, while mitigating the risk of exposing highly sensitive security-related information, the defense budget is split into three categories where information is gradually disaggregated: first, information presented for discussion to the entire National Assembly in an aggregated form; second, information disclosed to members of a designated committee of legislators in a somewhat more disaggregated and detailed form; and lastly information that is substantially disaggregated and presented only to the Committee of National Defense. In South America, the countries subscribing to the Santiago de Chile Declaration, supplemented by the more recent Guayaquil Declaration of May 2010, have agreed to adopt a common methodology for measuring defense spending in order to encourage higher transparency. This regional agreement not only provides its members with a platform for discussions on defense-related matters, but also demonstrates that bolstering defense-budget transparency on a cooperative basis can strengthen regional security and stability.

This publication is a real step forward, but it deserves to be followed up. A transparent budget is helpful but, in itself, is not sufficient to eradicate corruption. Further research could include on-site studies and should cover the whole scope of defense-related expenditure. Decision-making regarding defense procurement also merits investigation and could be assessed in a similar way, against criteria such as the scope of procurement covered by restricted procedures, the efficiency of defense-related markets, the average costs of supplies and deliveries, perceptions of corruption along the chain of defense expenditure, and the extent and readiness of the armed forces compared to budget expectations and other constraints.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

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