Jon (ex_mastodon326) wrote in russian_news,

Billions Down the Drain
Pavel Felgenhauer
1 June 2004

In his state of the nation address a year ago, President Vladimir Putin announced that military modernization was a national priority, and ordered the creation of a corps of professional sergeants or noncommissioned officers. As well-trained NCOs are an essential part of Western professional armed forces, many observers welcomed Putin's statement as the first step toward military reform.

In this year's address, Putin talked not only about "modernizing" the armed forces, but specifically mentioned "civilian control" of defense spending as an essential prerequisite for reform. "We should know how large sums of money are being spent," he said. Again, civilian control is an essential part of a Western-style military organization.

In recent years, with oil prices at record highs, defense spending in Russia has also increased substantially. The Kremlin's priority has been to spend more on military procurement to update Soviet-era weapons that are on average at least 15 years old.

In 2003, the Defense Ministry officially spent 118 billion rubles ($3.84 billion) on procurement. This year, more than $4 billion has been allocated for Defense Ministry procurement. If one takes into account that the U.S. dollar's relative purchasing power in Russia is twice that in the United States, it is indeed a large sum of money, as Putin says.

If the military procurement funds of other Russian armed forces are added to the Defense Ministry's budget, the total amount is roughly equivalent to Russia's net proceeds from weapons exports.

China, India and other countries spent about $2 billion per year in the 1990s, rising to about $4 billion per year from 2000, to buy Russian weapons. Over 400 jet fighters and bombers, over 20 new submarines and warships and many other weapons were procured, while the Russian military got nothing.

Last year procurement money was spent, but next to nothing was actually acquired -- several new tanks, four helicopters. And that's it. The official line is that most of the money went to develop new weapons that the Russian military will get in years to come.

But Russian defense analysts report that they can clearly see the returns from Chinese and Indian procurement spending in the accounts of Russian defense industry companies, while they can find almost no trace of the $3.84 billion the Defense Ministry has spent on procurement and R&D. This money has apparently been misappropriated or disappeared down rat holes.

The Defense Ministry publishes no financial reports of any kind. Its accounts are a state secret and analysts can be prosecuted for disclosing how much money the Defense Ministry spends on this or that defense project.

Figures occasionally appear, of course, but they are unofficial and the overall picture remains opaque. There have been reports that the Defense Ministry has closed a number of R&D projects after spending hundreds of millions of dollars without result.

If weapons are exported by our defense industry, they are exempted from tax and customs duty. R&D spending is also VAT-exempt, but if the Defense Ministry procures actual weapons, taxes must be paid. Defense insiders say that many R&D projects are run in Russia simply to avoid taxes with no intent to ever produce anything in the end.

Defense Ministry officials most likely get kickbacks, and this defense procurement racket is much aided by the total secrecy surrounding defense spending.

Putin has been allocating lots of money to the military and surely wants to see new weapon systems produced -- they always make for good PR, after all. But so far he has nothing to show for it.

The Kremlin is clearly annoyed by the magnitude of the loss and misappropriation and is now calling for civilian control. But can civilian control be achieved?

The independent press has been stamped out, and to add to that, last week Putin viciously attacked nongovernmental organizations that the Kremlin does not control.

Total corruption has engulfed Putin's Russia. With oil prices high there is much more money to steal and there is nothing the Kremlin can do, since it itself is the center of authoritarian corruption. Nothing has been done by the Defense Ministry to begin training professional NCOs after Putin's address last year.

Within a corrupt authoritarian state, the bureaucracy reverently pays public homage to the supreme leader, but never does anything without the prospect of a substantial kickback.
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