TF-Gov-book-E.pdf

COLLEGE OF INTERNATIONAL AND SECURITY STUDIES

Program in Advanced Security Studies (PASS)

Exercise

Tighter Fist — Government Team

English

Edition 6 #4034-E

#4034-E

Exercise Tighter Fist – Government Team

6th Edition

EXERCISE TIGHTER FIST

GOVERNMENT TEAM

BACKGROUND

Marislova has experienced several years of political stability. Its government is committed to the consolidation and preservation of liberal democracy and economic growth based on a maturing capitalist market system. It sees friendly relations with its neighbors as a necessary condition for meeting these goals. Indeed, in the long run, it would like to see increasing political and economic integration of the four countries in the Cerulean region.

At the moment, the government of Marislova is in the final stages of preparing its budget for the 2009 fiscal year. Unusual for Marislova, this particular budget exercise is attracting a considerable amount of interest among the population. For weeks now, the media has been speculating on whether the government will be able to continue its policy of modernization through increasing investment in education and infrastructure and still meet its obligation to the IMF to bring its national debt under control. The IMF has recently inferred that it may withdraw financial support if it does not see some improvement in the management of Marislova’s fiscal affairs. As a result, there has been considerable pressure on the lova (the national currency) as speculators shift funds out of the country.

While attempting to deal with the public debt issue, the government has more immediate policy challenges, including reducing the unemployment rate and funding its generous national pension scheme. To add to these challenges, the government is constitutionally required to hold a general election for the House of Deputies before the end of 2009. This is obviously not a convenient time for the government to be considering either tax increases or reductions.

The fiscal situation is further complicated by what many perceive to be a need to bolster the nation’s defenses to counter the deteriorating security situation in the Cerulean region. The nation’s weapons systems are old, obsolete and expensive to maintain, most of them dating back to Marislova’s membership in the Warsaw Pact. Since then, progress toward modernization has been halting and somewhat aimless. Indeed, its current force structure, which heavily emphasizes conscript ground forces, remains largely a legacy of Cold War doctrine and planning. However, a national debate, especially among mid-level military officers and other security professionals, is focused on a major transformation of the armed forces, both to meet immediate security concerns and to ensure that the Marislovan military can make a useful contribution to regional and international stability.

A number of members of the government, including the dynamic and militarily inexperienced new Minister of Defense, share this view. They see the major problem as one of too many people in the armed forces. Reducing personnel levels, they argue, would free up funds for new equipment and would ultimately provide more military capability for less money. These members also question the military value of the current conscription system. However, conscription is fiercely defended both by the Chief of the Army Staff, other senior serving military officers and some members of the government, all of whom see it not only as a military asset, but also as a means of achieving social cohesion and nation building. Concurrently there is a growing public sentiment, especially in the press, that considers that Marislova is spending too much on external defense and far too little on internal security.

THE EXERCISE

GENERAL

This exercise is intended to provide you with a realistic example of the competing demands that must be reconciled in establishing a nation’s force structure and its defense budget. At the government level, defense funding must compete with demands from other government programs—some aimed at providing social benefits, others at maintaining the social and physical infrastructure, and still others at encouraging economic growth. At the same time the government’s budgetary discretion is constrained by the necessity to maintain a reasonable balance between revenues and expenditures and to service the public debt.

At the defense level, there is competition for resources both among the various services and also among the demands for personnel, operations and maintenance (O&M), and procurement expenditures. Somehow, through all of this, a coherent force structure and defense budget must be fashioned such that the nation’s military security needs are adequately funded without unduly compromising the social, political, and economic balance.

Exercise Tighter Fist requires the evaluation of alternative government programs and force structures within a constrained fiscal environment. Expenditure requirements for alternative government programs and alternative force structures are determined using simple spreadsheet analysis.

OBJECTIVE

The objective of the exercise is to arrive at a fiscal plan, a force structure and a defense budget for the next fiscal year (2009) for the country of Marislova. This force structure and budget are approved by the government and ultimately accepted by the defense leadership. They are arrived at, however, through a process of negotiation. The negotiation process is essentially a confrontation between defense needs, as seen by the defense leadership, and other national goals, as seen by the government. The defense leadership must make the best case it can for a particular force structure and a defense budget, drawing upon the recently published National Security Strategy and National Military Strategy (See Appendix.). The government must trade off these defense needs against other national goals and do so with full recognition of the political, economic, and security contexts in which Marislova finds itself.

ORGANIZATION

Half of each seminar will be designated as the Government Team and the other half as the Defense Team. You are member of the Government Team.

Government Team The Prime Minister chairs the Government Team. This team consists of two Council Committees: the Defense and Security Committee and the Social and Economic Committee. The Minister for Foreign Affairs chairs the Defense and Security Committee while the Minister of

Finance chairs the Social and Economic Committee. The Prime Minister is an ex officio member of both committees. The two Council Committees are structured as follows:

Defense and Security Committee

1. Minister for Foreign Affairs (Chairman)

2. Minister of Defense

3. Minister of Internal Affairs

4. President’s National Security Advisor

Social and Economic Committee

1. Minister of Finance (Chairman)

2. Minister of Human and Physical Resources (Education, Pensions, Infrastructure)

3. Deputy Minister of Finance (Civil Servant)

Defense Team (for information only) The Deputy Minister of Defense, the senior civil servant, and the Chief of the Defense Staff, the senior military officer, jointly chair the Defense Team. Each has his own staff as follows:

Civilian ministry staff:

1. Deputy Minister of Defense

2. Director of Finance and Personnel

3. Director of Maintenance and Procurement

The Directors carry out staff functions and work for the Deputy Minister.

Military staff:

1. Chief of Defense Staff (CHOD)

2. Chief of Naval Staff

3. Chief of Army Staff

4. Chief of Air Staff

There are currently four military headquarters, one for the Chief of Defense Staff and one each for the three services. The service chiefs are responsible to the Chief of Defense Staff) for the operational readiness of their respective forces.

GOVERNMENT LEADERSHIP OBJECTIVES

The Prime Minister is obsessed with continuing the economic progress upon which his political success has depended. He maintains an intense interest in both the education and the infrastructure programs. He is keenly aware that heavy demands are being placed on the educational system as a result of the relatively high rate of population growth. He is particularly pleased, however, that the infrastructure program is apparently helping to bring down the rate of unemployment. In fact, his economic advisors have suggested to him that for every one billion lovas spent on infrastructure, the unemployment rate can be reduced by about one percentage point. (This reduction is calculated automatically as infrastructure spending is increased.) He is more or less convinced that conscription has both military and nation-building advantages.

The Prime Minister is keenly aware that he must fashion his fiscal strategy taking into consideration that he must face an election before the end of next year. He desperately wants to avoid a tax increase because any such increase would not only be politically unpopular but would be certain to increase unemployment. The Finance Ministry has estimated that the unemployment rate will go up by about one-half of one percentage point for every one percentage point increase in the tax rate. (Again, changes in the unemployment rate as a result of tax rate changes are automatically calculated for you.)

The Minister for Foreign Affairs, a Marshall Center graduate, is much enamored of “cooperative security” notions, and is attempting to integrate his country into several different international institutions. He remains concerned about the potential for conflict in the region and is looking for “cooperative security” solutions. He continues to believe, however, that in negotiations he must be able to speak from a position of solid military strength.

The Minister of Finance is adamantly insisting on a reduction in the national debt. Current debt service payments are crippling the national finances and hamstringing the government’s efforts to modernize the economy. Moreover, the IMF is reviewing its assistance program in light of the government’s continuing failure to bring the national debt under control. He favors an increase in taxes even though he realizes that it would lead to more unemployment. His officials have estimated that the unemployment rate would go up by about one-half of one percentage point for every increase in the tax rate of one percentage point.

The Minister of Human and Physical Resources leads the Movement for the Left party in the governing coalition. He has threatened to resign if pension benefits are reduced. He also adamantly opposes any increase in taxes. At the same time, he is looking for dramatically increased funding to support education, particularly because a large age cohort is about to enter university age level. He believes education is the critical ingredient for economic growth. He considers his program of infrastructure renewal and extension critically important for continuing economic growth. He has planned to increase infrastructure expenditures by two billion lovas for next year. In addition, he has promised the Prime Minister that he will reduce the rate of unemployment by at least one percentage point over the next fiscal year. He feels that any increase in taxes will lead to further unemployment.

The Minister for Internal Affairs, increasingly concerned that the deteriorating situation in Denabia and Goria is creating a potential for terrorist disruption in Marislova, is demanding a fifty per cent increase in his budgetary allotment in order to provide both for an expansion of his ministry’s border control capabilities and for an increase in the intelligence gathering and assessment resources of the national police force.

The Minister of Defense is new to the job, but he sees himself as a possible successor to the Prime Minister. He is militarily inexperienced but is anxious to modernize the armed forces and recognizes that much equipment needs to be replaced. He considers conscription to be detrimental to rational defense planning and recognizes that low pay is the principal cause of low morale and low reenlistment rates. If at all possible, he would like to initiate pay raises, at least for the regular forces.

The President’s National Security Advisor is a member of the parliamentary committee on Defense and Security, which is responsible for ensuring oversight of defense expenditures and the development of defense policy. He, like the President (your Seminar Leader), with whom he is in constant communication, is a keen supporter of a strong defense for Marislova, but he is also convinced that there is considerable waste in the allocation of defense resources and is constantly prodding the defense ministry to do more with less. He would particularly like to see a vigorous modernization of the Marislovan forces but without any increase in defense expenditures.

The Deputy Minister of Finance, a graduate of Harvard and former chief economist for the World Bank, now finds his greatest challenge to be managing a spreadsheet. However, he desperately wants to see his country become a shining example of how a transitional country can become an economically dynamic participant in the global economy. He knows little of military affairs and considers the current expenditure on defense to be a complete waste of resources and a huge impediment to his country’s future economic development.

EXERCISE PLAY

Prior to play the Prime Minister should briefly address a joint meeting of both teams on his or her general goals and priorities for the coming fiscal year. His or her major concern will of course be to get re-elected. This of course does not and should not, as in real life, dissuade other players from furthering their own assigned agendas.

The exercise is then played in three sessions. The Government and Defense teams will meet independently in the first two sessions. You will then meet with your seminar’s Defense Team in the third session.

Session I. Using all information available and taking into consideration the agreed National Security Strategy, each Government Team council committee (the Defense and Security Committee and the Social and Economic Committee) will prepare its own draft budget for the next fiscal year. The Defense Team will be simultaneously preparing its proposed force structure, including equipment replacement projects, and its proposed budget options for the next fiscal year.

Session II. During the second session the two council committees will come together to agree on a national budget proposal. The objective for the Government Team at this stage is to arrive at a national budget that will reasonably provide not only for the economic and social goals of the government but also for an adequate defense posture.

At the end of the session, the Minister of Defense will provide the Deputy Minister of Defense with the Government Team’s budget proposal. The Deputy Minister of Defense will in turn present the Defense Team proposals to the Minister, who will convey them to the Government Team. All proposals will be in the form of printed spreadsheet documents.

Session III. During this session the Government and Defense teams will meet jointly under the chairmanship of the Prime Minister. Each side will present the results of its deliberations in the previous sessions. Using these positions as a starting point, two representatives from each of the two teams will publicly negotiate a compromise force structure and defense budget. At the end of this session, the two teams should have jointly produced a national budget, a defense budget and a force structure and will brief these results to the President. (your Seminar Leader).

COMMUNICATIONS

Formal communications between the Government Team and the Defense Team will be through the Minister and Deputy Minister of Defense. However, corridor conversations between members of the teams are permitted and strongly encouraged. The Prime Minister will be the spokesman for the Government Team and the Deputy Minister of Defense will be the spokesman for the Defense Team.

DATA AND ANALYSIS

Each Government and Defense Team is provided with an appropriate Excel Spreadsheet that calculates the budgetary and economic implications of alternative government and defense budgeting choices. Instructions for the use of the spreadsheets are included as a separate page in the appropriate spreadsheet workbook.

For the Government Team, the spreadsheet offers limited choices among Pensions, Infrastructure, Education, and Defense Expenditures. It may also choose to alter the Effective Tax Rate. To assist the Government Team in making its budget decisions, the implications of program choices for total government expenditures, budgetary balance, the public debt, and the unemployment rate are automatically calculated in the spreadsheet.

The Government Team is also provided with the current force structure and defense budget, but it will have no precise idea of what the Defense Team will be asking for in the way of funding for the next fiscal year. Force structures are greatly simplified. Each force structure component (battalions, ships, air squadrons) is assigned a fixed personnel level and an annual O&M requirement. However, only the Defense Team knows the precise unit costs for defense inputs.

Note that the Government Team can only change values in the shaded areas of the spreadsheet.

With the exception of pension benefits and public debt charges, the budgetary expenditures for 2009 are shown initially to be the same as those for 2008. Expenditures for pensions have been increased to allow for an increase in the number of pensioners in 2009. It is of course possible to change the budgetary totals for pensions, but this would involve an increase or decrease in the average pension. Public debt charges have increased because the deficit in the previous year has increased the size of the public debt upon which interest has to be paid. Because the economy is expected to grow, the government’s tax revenue would continue to increase in 2009, even with no change in tax rates.

CAVEAT

Given the constraint of time and the necessity to focus on only the main learning objectives, this exercise, like all simulation exercises, necessarily abstracts from reality in several important respects. Most importantly, it imposes a certain suspension of belief in the time required to modify force structures, either through replacement or addition of new equipment and units. In the real world, such changes obviously require several years to take effect. Consequently real world budgeting and force planning will structure planned changes through multi-year budget plans rather than through the single year changes depicted in this exercise. However, despite this time foreshortening, the essential emphasis on making very difficult economic, internal security and military tradeoffs remains entirely valid.

APPENDIX

NATIONAL SECURITY STRATEGY

The Government of Marislova has formally documented its National Security Strategy, which can be summarized as follows:

National Interests

• Sovereignty, independence, and national unity

• Democratic rights and freedoms for all citizens

• Regional and global stability

• Rising standards of living for the population

Domestic Objectives

• Preserve democratic stability

• Enhance economic development

• Respect rights of minorities

• Implement and maintain the rule of law

• Protect and improve the physical environment

• Foster Marislovan culture and language

International Objectives

• Preserve peace and stability in the Cerulean region

• Manage conflict through cooperation with neighbors

• Encourage regional integration

• Contribute to international stability

• Pursue EU membership

NATIONAL MILITARY STRATEGY

On the basis of its National Security Strategy, the defense leadership of Marislova has formulated a National Military Strategy as follows:

National Military Objectives

• Maintain a credible deterrent capability

• Provide credible security guarantees for Denabia.

• Acquire a capacity for conflict prevention and crisis management

• Undertake the modernization of the military forces

• Work toward further integration with regional and Euro-Atlantic military structures

Scenarios (in order of probability)

• Internal conflict in Denabia

• Conflict between Goria and Denabia

• Tashmara invasion of Denabia

Military Goals

• Maintain freedom of navigation on the River Dena

• Ensure Denabian internal stability

• Deter Goria-Denabia conflict

• Deter Tashmaran invasion of Denabia

• Defend legal rights of Marislova within maritime economic zone and on the high seas

• Protect Marislovan borders, coast and air space

• Ensure air and sea access to world markets

• Take part in international humanitarian and peace operations

• Conduct joint and combined operations

• Defeat any invasion by enemy forces

• Project power against attacking forces’ territory, military, and assets

NATIONAL DEFENSE STRUCTURE

The following tables summarize Marislova’s current (simplified) force structure.

Forces Regular Conscript Reserve Total Frigates 10 2 0 12 Patrol vessels 8 4 2 14 Infantry battalions 4 16 5 25 Armored battalions 6 6 6 18 Fighter squadrons 4 0 0 4 Helicopter squadrons 6 0 0 6

Total Personnel Navy 11,900 2,800 600 15,300 Army 30,500 71,000 32,500 134,000 Air Force 9,500 0 0 9,500

GHQ 2,500 0 0 2,500

Total 54,400 73,800 33,100 161,300

There are currently four headquarters, including General Headquarters (GHQ) and one headquarters for each of the three services. The GHQ includes 2,500 personnel while each of the service headquarters includes 1,500 personnel.

The Marislovan GHQ estimates the mobilizable force structures of other countries in the region to be roughly as follows:

Forces Goria Denabia* Tashmara Frigates 0 0 6 Patrol vessels 0 6** 8 Infantry battalions 9 15 40 Armored battalions 3 3 12 Fighter squadrons 3 1 7 Helicopter squadrons 2 1 0 *Denabia’s armed forces are in a disorganized state. National Guard formations are controlled by provincial governments and are of varying quality. The national MoD controls only the small unit of older fighter jets.

**Operated by State Police.

For all three countries, equipment seems to consist of old and obsolete weapons systems, though there is some evidence that Tashmara has been attempting to modernize its air force and navy with the help of military aid from an undisclosed foreign power.

Instructions

This spreadsheet is for use by the Government Team during Exercise Tighter Fist.

It enables you to quickly compute the implications for Government Expenditure, Budgetary Balance, the National Debt and the Unemployment Rate resulting from changes in expenditure on Pensions, Infrastructure, Education, Defense, and Internal Security.

To use the spreadsheet click on “Government” at the bottom of this sheet and enter your decisions with regard to expenditure on Pensions, Infrastructure, Education, Defense and Internal Security for the next fiscal year. Note that you may only change values appearing in the yellow shaded cells. When you enter your choices, the economic and budgetary implications of these choices are immediately computed. Note that the economic policy targets of Unemployment Rate and Public Debt have been highlighted in blue to keep you focused on these important government objectives. These values change as a result of your budgetary expenditure decisions.

The budget for the current year (2008) as well as data on tax revenue, borrowing and certain economic information is provided to assist you in making your budgetary choices.

With the exception of the pension expenditure and public debt servicing, the values for 2009 are initially the same as the expenditure values for 2008. Expenditures for pensions have been increased to allow for an increase in the number of pensioners in 2009.

Pension benefit rates per person have not changed. Public debt charges have increased because the deficit in the previous year has increased the size of the public debt upon which interest has to be paid. With the effective tax rate unchanged, the government’s tax revenue will continue to increase in 2009 because the economy is expected to grow over that year.

Since you are required to come to a decision regarding next year’s defense budget, the 2008 force structure and defense budget are provided on the sheet “Defense Information” to give you some basis for anticipating what the Defense Team will be requesting.

Save your work under a new file name so that you can then run the spreadsheet again to explore and compute different alternatives. Printing out the results of each run will make it easier to assess and compare these alternatives.

EXERCISE TIGHTER FIST GOVERNMENT TEAM

(all money figures in constant 2008 lovas) Economic Planning Data:

Change % Percentage

GDP (millions of lovas) 207500 214763 7262 3.5% Population ('000) 10894 11123 229 2.1% GDP per capita (thousands of lovas) 19.05 19.31 0.26 1.4% Unemployment rate 8.5% 8.5% 0.0 0.0% Interest rate 9% 9% 0.0 0.0% Income Tax Rate 34.00% 34.00% 0.0 0.0%

Government Expenditures:

(millions of lovas)

Total Share Total Share Change % Percentage

Pensions 9900 13.7% 10500 14.0% 600 6.1% Education 12677 17.5% 12677 16.9% 0 0.0% Infrastructure 6900 9.5% 6900 9.2% 0 0.0% Defense 5782 8.0% 5782 7.7% 0 0.0% Internal Security 2088 2.9% 2088 2.8% 0 0.0%

Intelligence Service 650 650 0 0.0% National Police 900 900 0 0.0% Border Guards 538 538 0 0.0%

Public debt charges 31300 43.2% 33242 44.3% 1942 6.2% Other 3840 5.3% 3840 5.1% 0 0.0% Total 72487 100.0% 75029 100.0% 2542 3.5%

Defence as proportion of GDP: 2.8% 2.7%

Government Revenues: 2008 2009 (millions of lovas) Revenue 70550 73019 2469 3.5% Borrowing (deficit) 1937 2009 72 3.7% Total 72487 75029 2542 3.5%

Public Debt: 369350 371359 2009 0.5%

2008 2009

2008 2009

EXERCISE TIGHTER FIST GOVERNMENT TEAM

Defense Information 2008

Existing Force Structure Total Personnel Regular Conscript Reserve Totals

Number of HQs 4 Navy 11900 2800 600 15300 Army 30500 71000 32500 134000

Forces Regular Conscript Reserve Totals Air Force 9500 0 0 9500 Frigates 10 2 0 12 GHQ 2500 0 0 2500 River patrol vessels 8 4 2 14 Total 54400 73800 33100 161300 Infantry battalions 4 16 5 25 Armored battalions 6 6 6 18 Fighter air squadrons 4 0 0 4 Transport squadrons 6 0 0 6

Budget Budget Distribution (thousands of lovas)

Navy Army Air Force GHQ Totals Navy Army Air Force HQ Totals Personnel Costs 529200 2811000 380000 125000 3845200 Personnel Costs 49% 77% 43% 81% 67% O&M Costs 436000 751000 375000 0 1562000 O&M Costs 41% 20% 42% 0% 27% Procurement Costs 80000 75000 100000 0 255000 Procurement Costs 7% 2% 11% 0% 4% HQ Overhead Costs 30000 30000 30000 30000 120000 HQ Overhead Costs 3% 1% 3% 19% 2% Totals 1075200 3667000 885000 155000 5782200 Totals 19% 63% 15% 3% 100%

Annual Pay Rates (thousands of lovas)

Regular Conscript Reserve Navy 40 16 14 Army 40 16 14 Air Force 40 16 14

GHQ 50

Government Expenditure Distribution

14%

17%

10%

8%3%

43%

5%

Pensions Education Infrastructure Defense Internal Security Public debt charges Other

Government Expenditure Distribution

14%

17%

9%

8% 3%

44%

5%

Pensions Education Infrastructure Defense Internal Security Public debt charges Other