NEWTOWN, Conn. - Venezuelan defense budgets in general have seen major increases in recent years, with an overall rise in nominal terms of 142 percent from 1999 to 2004. The increases have been particularly noteworthy since 2001. President Chávez embarked on a major re-armament program funded by strong oil prices. Though defense spending was initially expected to increase on the heels of the ambitious force structure revitalization program, economic troubles are causing the government to reduce the defense budget and may ultimately limit procurement for the coming years.
The Venezuelans have a tendency to increase defense budgets over the course of the fiscal year, and there is no guarantee that what is being shown under the "defense" budget represents the entire expenditure on the military. The funding for the reserves is especially murky. Significantly, the government has also implemented what is essentially a parallel budget. These "slush funds," under the direct control of the president, divert money from oil intakes and the Central Bank, with the president able to spend as he sees fit - without any apparent oversight. Considering that in two years, financial resources of up to VEF58 trillion ($27 billion) were diverted into these funds, considerable room is left for spending on military equipment that does not have to appear in the regular budget. Taking that into account, we have increased our projection for Venezuela's military spending to accommodate the government's need to meet its ambitious spending goals.
As approved, the defense budget for 2015 stood at VEF85,377.1 million, an increase of 158 percent compared to the amount allocated for the 2015 fiscal year. However, that increase is due to extremely high inflation. When measured in dollars, defense spending declined from $1.4 billion to $960.5 million. Personnel spending will make up the bulk of overall spending at 50.5 percent of the total in 2016.
Forecast International expects defense spending to decline through 2018. A rapidly declining GDP, high inflation, and a focus on spending on social welfare means that the government will not be able to increase defense spending in real terms. However, by 2019, defense spending will start a slow increase through the end of the forecast period.
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