Defense Spending

Venezuela slashed its defense budget by 34 percent in 2014, marking the largest decline in military spending in all of Latin America. But the dramatic cut in a country with a history of military coups did not generate audible grumbles because the top brass are bought into the socialist country’s system. Venezuela’s military spending is “erratic”, reflecting major hardware purchases. It fell under the $2.6 billion mark in 2010 and 2011, but bounced back to $4 billion in 2012 and 2013, before making a big drop in 2014.

Venezuela’s military spending was among the lowest in South America. Despite claims to the contrary, Venezuela’s military spending is not unusually high. In fact, it remained below that of U.S. allies in the region. As of 2009 bout 1.1 percent of Venezuela’s GDP goes to military spending, below the South American regional average of 1.7 percent and significantly less than Colombia (5.7 percent) and Chile (2.9 percent). Despite having the region’s second-largest GDP, Venezuela is fourth in total defense spending, behind Brazil, Colombia and Chile. In 2003 military expenditures were slightly more than US$1.1 billion, or 1.3 percent of gross domestic product (GDP), as compared with US$1.2 billion in 2002, a figure that amounted to US$50 per capita, 1.8 percent of GDP, and US$15,227 per member of the armed forces.

From 2005 to 2006, Venezuela maintained approximately the same level of spending for security and defense. The 2006 expenditures of US$3.1 billion (2 percent of GDP) for defense and security include maintenance of existing military systems and equipment, investment and construction projects, and the maintenance and repair of military infrastructure. This does not include the reported US$3 billion deal for Russian fighter aircraft and helicopters. The source of funding for these purchases has not been announced. The budget stresses support to Mission Miranda, Chavez's military reserve force created in 2003 with prior enlisted military personnel. Despite the increases in funding, there are reports of defense funding shortages for equipment, travel, and fuel, among other areas. These shortages could be due to widely alleged corruption, mismanagement, diversion of funds, or as a result of Chavez favoritism. Chavez is believed to be spending on the National Guard and Army, but minimally supporting the Navy and Air Force because he does not trust them.

Between 2005 and 3007, Venezuela agreed to purchase over US$4.3 billion in military hardware and equipment. Many of these purchases are funded by FONDEN or through other off-budget means that reduce the transparency of the purchases and make tracking their actual cost and completion difficult to ascertain. Over US$3 billion of this amount constitutes deals with Russia, which include the purchase of 100,000 AK-103 assault rifles, 24 Su-30Mk2 fighter aircraft, Spanish patrol boats, helicopters, and surface to air missile batteries. These purchases mark significant increases in military spending, which, not including these extra-budgetary purchases, only amounted to US$3.2 billion in 2005 and US$3.1 billion in 2006. The arms buildup caused concern among Venezuela's neighbors and shows no signs of abating. In 2007, the BRV has announced that it plans to purchase additional helicopters, trainer aircraft, and submarines for at least another US$3 billion.

President Chavez decided in July 2007 to centralize the budget of the National Armed Forces (FAN through the Ministry of the Peoples Power for Defense (MOD). As a result, the Army, Navy and Air Force chiefs manage no budgets and all expenses incurred must be approved and paid for by the MOD. Large expenses, other than operations and maintenance, were approved personally by Chavez.

Previously, each branch of the Venezuelan Armed Forces (army, navy, air force, and national guard) had its own budget and planning office. The services submitted proposed expenses and acquisition planning documents to a Ministry of Defense budget office. The Defense Ministry in turn presented the armed forces budget to the Ministry of Finance's national budget office and to the President for review. The National Assembly also approves the budget.

Because of frequent policy changes and exogenous factors, proposed military budgets poorly demonstrate actual expenditures. The militarization of the Venezuelan government and society has swollen the responsibilities of the armed forces at a pace faster than the official budget. For example, the government has begun to rely increasingly on the military to carry out health, education, and poverty reduction programs; therefore, each year's expenditures can differ significantly from the previous year's budget submission. Economic factors, such as inflation and the price of oil, also tend to demand revisions to budget provisions.

The military budget includes most significant line-item expenditures. The President's military unit (Casa Militar), however, has an account of unknown size that remains separate from the audited Defense Ministry budget. The President also uses an undisclosed amount of "discretionary" petroleum revenue for expenses such as bonuses, pensions, military hardware, and other spot payments.

Although there is some evidence that military spending tightened in response to the fiscal crisis of the 1980s, the process of drafting and approving the defense budget remained largely closed to public scrutiny. The FAN submitted its budget requests directly to the president through its own comptroller general. Much of the budget was approved or amended by the executive with only limited consultation with the Congress. The heads of the various branches of service reportedly exercised broad control over their budget requests. They were restricted as to the overall level of those requests, however, by several factors. One was the traditionally high percentage of the military budget devoted to salaries and benefits; in times of fiscal austerity, military equipment and readiness suffered disproportionate cutbacks. Another budgetary limitation was the high cost of the entitlements and other benefits accorded civilians; these outlays and the maintenance of a large government bureaucracy also tended to limit the funding available to the military. As a result, the military portion of the overall government budget rarely exceeded 10 percent.

From 1950 to 1986, Venezuelan military spending as a percentage of gross domestic product ( GDP) averaged between 1.5 percent and 2 percent. Increases in this figure in the late 1980s appeared to be attributable to the government's efforts to maintain a stable military budget amid a contracting overall economy. This effort continued a pattern of several decades' standing, whereby during austerity periods the military portion of the budget was cut by a lower percentage than was the remainder of the budget. By the same token, during periods of expanding revenue, military expenditures generally rose by a lower percentage than did other outlays. This pattern indicated a desire on the part of both AD and Christian Democratic Party (Comité de Organización Política Electoral Independiente--COPEI) administrations to insulate the military, at least to some extent, from budget cuts; the comparative restrictions on military expansion during boom times might also have indicated a preference by the civilian executive for limiting the role of the military in the overall government. Even in an established democracy such as Venezuela's, presidents felt compelled to continue a political balancing act with regard to the military.

Venezuela's lack of a significant domestic arms industry and its consequent importation of almost all of its weaponry represented another constraint on defense spending. The FAN attempted to address this deficiency in 1975 by establishing the Venezuelan Military Industries Company (Compañía Anónima Venezolana de Industrias Militares--Cavim). Despite initial expectations of channeling government revenues into the development of a significant domestic arms industry, by the 1990s Cavim had made little progress. Domestic arms production consisted of small arms ammunition, explosives, some spare parts, and coastal patrol craft for the navy. Cavim's development fell victim to the oil revenue crisis of the 1980s and the purchase of big-ticket advanced weaponry such as the F-16 fighter. Further expansion of the domestic arms industry appeared unlikely during the 1990s.

Venezuela's closest neighbors spend many times more each year on defense. Colombia's military expenditures are three and a half times higher, and Brazil's budget is a staggering 12 times larger.

The difference is even more pronounced when these numbers are presented as a percentage of Gross Domestic Product (GDP). According to the World Bank, Venezuela's defense spending by GDP actually decreased yearly between 2001 and 2004. Only in 2005 did it slightly increase from 1.17% to 1.2% of GDP, according to the Central Intelligence Agency. This resulted in $1.61 billion in defense spending that same year. Other nations in the region have consistently increased their military spending as a function of GDP over the years. By this calculation, Venezuela currently ranks behind Colombia, Chile, Ecuador, Bolivia, Uruguay, Brazil and Peru. The United States, of course, is by far the largest spender in the hemisphere, devoting nearly 4% of GDP to military spending.