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Private Financing of the Military: A Local Political Economy Approach

Abstract

In developing countries that are democratizing after military rule, and undergoing liberalizing economic reforms that encourage a shrinking of the state, what missions are the armed forces performing, who funds those missions, who benefits from military services, and why? This article analyzes security provision by the armed forces for paying clients—especially private companies in extractive industries—in accordance with negotiations between clients and commanders of the local military units that directly provide the security. The analysis identifies two paths toward local military–client relations. First, weak state capacity may mean that government control of military finances brought by democratization and economic reform remains limited to the national level, promoting local military–client exchanges. Second, amid minimal government control of military finances, even in the capital city, demand from companies in the powerful extractive industries and from recently endowed subnational governments can encourage local military–client contracting.

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Fig. 1

Notes

  1. 1.

    Between 1990 and 1997, proceeds generated from privatization in Latin America and the Caribbean amounted to over $116.5 billion, or 52.4 % of total privatization revenues of all developing countries (Corrales 2003, p. 90).

  2. 2.

    On the Fujimori government’s authoritarian practices, see Rospigliosi (2000) and Carrión (2007).

  3. 3.

    Peru’s decisive turn toward a liberal economic model is well-known among experts on political economy in Latin America (e.g., Stokes 2001; Weyland 2002). Guasti (1983, pp. 187–192), Kay (1996), and Bury (2005) analyze private-sector involvement in Peru’s extractive industries across time. Ecuador’s most radical reforms were enacted under President Sixto Durán Ballén (1992–1996). Hey and Klak (1999) analyze the uneven nature of neoliberal reform in Ecuador from the 1980s through the 1990s. On the trajectory of private involvement in Ecuador’s oil sector since oil was discovered in 1967, see Conaghan (1988, p. 85), Sawyer (2004, pp. 94–97), and Benton (2008).

  4. 4.

    The author has analyzed the two armies’ varied performance of police missions elsewhere (Jaskoski 2008).

  5. 5.

    As proof of the strong commitment of the Peruvian military in particular to counterinsurgency, in the 1980s and 1990s the military (primarily the army) was responsible for approximately 32 % of the nearly 70,000 deaths and disappearances resulting from Peru’s internal conflict (Comisión de la Verdad y Reconciliación 2003, Compendio estadístico, 86). Of the 50 Peruvian army officers interviewed for this study who were asked to identify the most important activities of Peru’s army, 34 mentioned counterinsurgency and/or external defense in their first three responses: 12 mentioned counterinsurgency, 12 others mentioned external defense, and 10 mentioned both.

  6. 6.

    Andrade (2002), Montúfar (2003), and International Crisis Group (2004) also examine insecurity in northern Ecuador due to Plan Colombia.

  7. 7.

    In 2001, the command center of the army’s division responsible for army security in the northeast moved north to the city of Francisco de Orellana, in the northeastern province of Orellana. The army had added 7,000 personnel to the north as of September 2003 (El Comercio [Quito] 2003).

  8. 8.

    This number represents a relatively large proportion of one division, as the four-division army is made up of approximately 34,000 personnel, according to a journalist with extensive experience reporting on Ecuador’s military.

  9. 9.

    Not all of the army’s oil work has been arranged locally. During major protests, the national government has declared a state of emergency, bringing more military force to the northeast. Furthermore, for a period, military leaders contracted with oil companies (see below), though those national contracts left much to be negotiated at the local level.

  10. 10.

    A senior officer estimated that in the departments of Junín and Huancavelica alone, there were approximately 30 or 35 such units.

  11. 11.

    This estimate is based on interviews with army officers and private-sector officials in 2005 and 2006 and on research conducted by Peruvian security expert Ricardo Soberón Garrido (2006).

  12. 12.

    Although in Peru most army–company contracting has occurred locally, military leaders have participated in cases in which major army equipment is involved, most notably, army helicopter rentals.

  13. 13.

    On the history of Southern’s investment in Peru, see Kuramoto (1999).

  14. 14.

    In Peru, this figure fell from 14.4 % in 1989 to 8 % in 2006. In Ecuador, the defense budget went from 10.9 to 7.3 % of national spending between 1995 and 2006, though security experts interviewed overwhelmingly attributed the drop to the conclusion of the longstanding Peru–Ecuador border conflict rather than to economic reforms or democratization. Budget information in this section is drawn from Palomino Milla (2004, p. 131), Ministerio de Economía y Finanzas, Perú (2006), and Ministerio de Economía y Finanzas, Ecuador (2007).

  15. 15.

    Currencies were converted to US dollars to calculate defense spending. The Ecuadorian and Peruvian cases illustrate a more general dynamic in Latin America, where defense spending has lost importance relative to other sectors but without contracting. On average, South American defense spending as a percentage of GDP dropped from 2.17 to 1.89 % but rose by 49 % in real terms between 1989 and 2007 (Stockholm International Peace Research Institute). For Peru and Venezuela, these calculations use 1991, the first year for which the source provides data, in place of 1989.

  16. 16.

    Another funding source under Fujimori that no longer fuels the army is drug money, though this shift is not explained by democratization or liberal economic reforms. After the army began drug interdiction in the 1990s, corruption from the cocaine trade consolidated throughout the hierarchy (Dreyfus 1999, pp. 388–389; Rospigliosi 2000, p. 219). Military corruption was reinforced by practices of Peru’s intelligence forces under Fujimori’s reign: Fujimori’s intelligence advisor, Vladimiro Montesinos, and the national intelligence service were heavily involved in the cocaine trade (Comisión de la Verdad y Reconciliación 2003; Tomo II, pp. 242–243; Rojas 2005, pp. 208–209). When corruption contributed to the army’s poor performance in the 1995 Peru–Ecuador Cenepa War, the army withdrew from antinarcotics (Rospigliosi 2000, pp. 163–164).

  17. 17.

    Prior to that point, a budget law in the early 1990s had increased the transparency of spending practices of certain public entities, including the JDN, according to an Ecuadorian Central Bank official.

  18. 18.

    Demand to end military–private sector contracting emerged strongly in 2005, immediately after the national press reported on a 2001 5-year contract between the armed forces and 16 private oil companies (Ministerio de Defensa Nacional del Ecuador 2001; Hoy [Quito] 2001; El Comercio [Quito] 2005a, b). The focus of debate over the contract was the extent to which the military’s oil services were in the interests of “national patrimony” as opposed to serving the private sector (El Comercio [Quito] 2005a, b).

  19. 19.

    From 2003 through 2005, between approximately 8 and 11 % of the annual national defense budget came from RDR (Robles Montoya 2003, pp. 159–161; 2005, p. 145). The armed forces earned over one half of those resources by charging for services, including air and sea transportation and medical assistance (Palomino Milla 2004, pp. 144–145).

  20. 20.

    The following discussion of army unit finances is based on information provided by local army commanders and other officers with direct knowledge about the referenced units’ finances, gained through their work on those bases.

  21. 21.

    Nigeria’s 1999 elections heralded in democracy—or at least “a pluralistic and largely credible set of outcomes” (Diamond 2008, p. 71). Despite subsequent irregularities ranging from stuffing ballot boxes to politically targeted assassinations (Diamond 2008, p. 71) that have pushed the regime outside the democratic category, this analysis assumes that the country has opened politically enough such that we would expect some degree of government oversight of the armed forces and their financial practices.

  22. 22.

    Simultaneously, there has also been a drive toward boosting defense spending, to lessen TNI’s reliance on third-party resources (Crouch 2010, p. 162).

  23. 23.

    In a context in which Indonesian law did not allow the audit board to investigate private companies controlled by public agencies, the Indonesian army assigned Price Waterhouse Coopers and Ernst & Young that task (Crouch 2010, p. 168).

  24. 24.

    It took several years for parliament to act because, immediately following the transition to democracy, financing the TNI without its independently acquired, off-budget resources was almost unthinkable, especially in the aftermath of major economic crisis during 1997 and 1998 (Mietzner 2008, p. 233).

  25. 25.

    Economic crisis in 1997 and 1998 and the TNI’s poor management of its enterprises meant that, by the time the military lost its businesses, they were of minor economic value (Mietzner 2008, pp. 230, 235–236; Crouch 2010, pp. 162–164). In addition, whereas the TNI no longer has its companies, it has successfully fought to retain its foundations and cooperatives (Mietzner 2008, pp. 234–235).

  26. 26.

    For analysis of the different dimensions of company and state responses to conflict in the Delta, including repressive security measures, see Frynas (2001).

  27. 27.

    Shell d’Arcy discovered oil in the Niger Delta in the 1950s (Obi 2007, p. 16), and the consortium between the Nigeria National Petroleum Corporation and Shell produced approximately 50 % of Nigerian crude oil as of 2001 (Ukeje 2001, p. 19).

  28. 28.

    Between 1960 and 1999, governments skimmed approximately $400 billion in oil revenues (Okpanachi 2011, p. 28), and in the early 1990s, oil revenues lost because of corruption totaled up to one tenth of Nigerian GDP (Bratton and van de Walle 1997, p. 67).

  29. 29.

    Scholars have linked recent decentralization to neoliberalism and democratization, for instance, expecting that neoliberals prefer decentralization as a means of reducing the size of the central state and that under democracy voters who want decentralization will push for it (Eaton 2004, see especially 11 and 14–15). However, Eaton’s (2004) systematic analysis of decentralization in Latin America challenges these generalizations.

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Acknowledgments

I thank Candelaria Garay, Stephanie McNulty, Arturo Sotomayor, Harold Trinkunas, and two anonymous SCID reviewers for their helpful feedback on earlier versions of this paper. Letitia Lawson and Michael Malley provided invaluable guidance on the Nigerian and Indonesian cases, respectively. The study would not have been possible without the generosity of many individuals in Ecuador and Peru who shared with me their time and views, and for their help, I am deeply grateful. Fieldwork was supported by a National Security Education Program David L. Boren Graduate Fellowship and the Naval Postgraduate School Research Initiation Program. The findings presented here are those of the author and do not represent positions of the US navy, defense department, or government.

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Jaskoski, M. Private Financing of the Military: A Local Political Economy Approach. St Comp Int Dev 48, 172–195 (2013). https://doi.org/10.1007/s12116-012-9119-2

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Keywords

  • Civil–military relations
  • Resource conflict
  • Security privatization
  • State capture
  • Subnational politics