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3.8. The state of the Russian military economy and the trends of reform

3.8.1. Plans of military development in relation to the federal budget

The beginning of 2003 was on the whole rather favorable for the RF military economy. The budget of the preceding year was administered satisfactory, while the budget for the next year was timely approved. The document determining the general plans of military development, Basic Principles of the State Policies of the Russian Federation Related to Military Development for the Period until 2010, as it seemed, did not raised doubts as concerns its adequacy to the specific objectives set for year 2003. However, it needed concretizing. The necessity was primarily caused by the consequences of the tragedy in the theater center at Dubrovka in Moscow, delay in the political settlement of the Chechen problem, and the military actions of the USA and US allies in Iraq.

Therefore, in May of 2003, the RF President in his Address to the Federal Assembly named modernization of the RF military organization, i.e. rendering it adequate to the current requirements, including the transition to a professional army, reduction of the term of conscription, as well as creation of adequate social conditions for servicepersons among the major priorities of the state policy.

The meeting held in the RF Defense Ministry with participation of the RF President on October 2, 2003, was of great importance for the military development in the Russian Federation. At this meeting it was declared about the completion of major structural shifts and reductions, and about transition of the Armed Forces to the stage of systematic development. In the course of the meeting, the top officials of the Defense Ministry tried to convince the political leadership of the country and the populace that the most difficult stage of the military reform had been completed. However, the RF President, although not doubting directly so optimistic evaluation, pointed out in his final statement on that day that we have not done everything yet we have agreed on and indicated the existing problems in the military planning rendering it cost-intensive and inefficient.

Judging by mass media reports, many independent experts have in this connection paid attention to the insufficient economic substantiation of the plans of modernization of the RF Armed Forces made by the top officials of the RF Defense Ministry without explaining the meaning of the term modernization. In fact, at the given level of the existing strength of the Armed Forces and objectives set for them, the budget expenditures for year 2003, and planned for year 2004 are not adequate to ensure the required combat preparedness of the Army and the Navy answering the available armaments and combat equipment, not to mention the introduction of new models of weaponry. Thus, the allocations for procurement of fuel and lubricants are sufficient only for fulfillment of only about 40 per cent of the flight training program. A similar situation exists in the Navy.

While characterizing the military and political situation, it may be noted that the military and military economic policy of Russia at the international level was rather successful. The Russian Federation did not take part in military conflicts, its relations with NATO and the majority of the countries in the world had stabilized, while the military and technical cooperation successfully developed. In 2003, the amount of revenues generated by the export of weaponry for the first time reached US $ 5 billion.

However, the domestic military policy was not marked with success. The resistance of bandit formations in the Chechen Republic resulted in the fact that special military operations aimed to complete the liquidation of such formation acquired the chronic character. The settlement of siloviki (armed and security service agencies) debts to the enterprises of the defense and industrial complex (DIC) was delayed – for instance, the debt of the Defense Ministry to such enterprises, although it decreased, still makes Rub. 2 billion. Defense procurement was not rational as concerns the balance between the nomenclature of models and amounts of respective purchases. At the same time, out of Rub. 109.8 billion allocated for purchase of weaponry in accordance with the state defense procurement program for year 2003, almost one fourth (Rub. 24 billion) were not utilized as on December 1. At one and half thousand enterprises still remaining in the composition of the RF DIC, the average wages and salaries are below the national average, while the average age of employees exceeds 50 years. The technological level of DIC enterprises is declining.

At the same time, the unresolved problem of price determination as concerns military production results in the fact that in 2003 losses borne by the RF Defense Ministry due to the rising prices of armaments and combat equipment, according to the assessment made by the experts of the RF Audit Chamber presented to the State Duma, made Rub. 50 to 55 billion.

The number of violations registered in the military organization remains rather high. The accumulated social problems have not been settled. The completion of the experiment concerning the transition of the 76th airborne division to the contract based recruitment system encountered significant difficulties. Only by spring the Defense Ministry top officials became aware of the fact that the level of money allowances set forth in the program of the experiment in 2002 and prolonged for 2003 was not sufficient. It should be reminded that at the end of 2002, the Defense Minister and the Chief of the General Staff signed the document setting the money allowance of the contracted serviceman at Rub. 4000 a month, while the national average wage made Rub. 5000 a month. Only after a significant delay there was taken the decision to increase the money allowance of contracted military personnel at a level exceeding the national average. At the same time, since the budget for 2003 contained the previous indicators of money allowance, it indicated that the budget was not fully adequate to the objectives of the military reform and economic realities in the country.

Certain financial problems (extra payments to the contracted military personnel of the 76th airborne division) were settled at the expense of the own resources of the Defense Ministry, some other (repayment of the debts accumulated over the past years) – at the expense of additional allocation of funds in the course of adjustment of the federal budget.

The reform of the recruitment system of the RF military organization has been twice (in April and July of 2003) discussed at the meetings of the Government. In both cases, the meetings were attended by IET representatives, since the Institute was among the developers of the respective federal targeted program (FTP). Many proposals put forward by the IET experts were taken into account in the final version of the program approved on August 25, 2003, however, the program on the whole more answered to the concept worked out by the Defense Ministry.

The regular financing of the state military organization in accordance with the law on the budget may be evaluated as a successful result of the RF Government actions.

The federal budget for year 2003 envisaged the military expenditures as follows (see Table 58 – 61 and Figures 58 – 60; the numeration in figures corresponds to the table entries).

Table 58

Military expenditures of the RF military organization in 2003 (plan)

Item No.


Amount, Rub. million

Share in the expenditures of the federal budget, %

% of GDP

National Defense section

344 525




Military expenditures for the military organization included in the expenditures for National defense, including:

331 161




Development and maintenance of RF Armed Forces

325 564




Ensuring of mobilization and extra-military preparedness, including the expenditures for:

4 161



Federal Railroad Troops Service

3 284




Preparation for and participation in collective security and peace making operations

1 436



Expenditures for the military organization included in item Law Enforcement and State Security

244 794




Military expenditures for the military organization included in item Law Enforcement and State Security, including:

90 547




Troops of RF Interior Ministry

18 490




State security agencies

47 992




Border guard service agencies

24 065




Expenditures for the military organization in other items of the federal budget, including:

6 320




Maintenance of the special construction service

1 028




Maintenance and equipment of Ministry for Emergency Situations (MES) troops, including targeted expenditure items:

5 292




Maintenance of personnel of troops (forces)

2 727




Combat training and material and technical maintenance of troops (forces)

1 344




Procurement of armaments and combat equipment (ACE), products of technical products (TP), and other stocks

1 059




Repairs of ACE, TP, and other stocks at enterprises





Insurance guarantees for servicemen





TOTAL: general military expenditures of the RF military organization

428 027



* The estimated GDP in 2003 makes Rub. 13050000 million (the State Duma Defense Committee findings as concerns draft federal law No. 362797-3 of September 11, 2003, On the federal budget for year 2004).

Figure 58

Structure of expenditures of the RF military
organization in 2003 (plan)

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