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. Last Updated: 07/27/2016

Army Reform Means Higher Expenditures

Because of the stormy political events of the past few days, the hearings in the parliament devoted to military reform have escaped public notice. At any other time, the report that the Economics Ministry presented to the State Duma on future financing of the armed forces and defense industry would have attracted more general attention.


But the report is particularly timely for two reasons. First, the president has just charged Prime Minister Viktor Chernomyrdin with forming a new government. The people who will be devising the government's economic strategy are the same as the authors of the report. Second, the new Security Council chief, Alexander Lebed, will be charged with the political supervision of economic policy. And this makes the question of expenditures on the armed forces especially sensitive.


It it worth noting that almost half of the reductions in military spending in 1992 occurred for reasons other than purely economic ones. Spoiled by decades of virtually uncontrolled access to finances during the Soviet period, both the defense industry and the people in uniform turned out to be unprepared to fight for their interests on their own.


Former deputy prime minister Oleg Soskovets, who laid claim to defending the military industries and on whom many generals counted, did not live up to his promise. Last year, the share of expenditures on defense was 3.3 percent of the gross domestic product compared to 6.2 percent in 1991.


The defense and security ministries are now most likely placing their bets on Lebed as a spokesman for their interests. But judging from the Economics Ministry report, even without Lebed in the government, the share of the budget that will go toward the military will be increased.


The Economics Ministry estimates that in the coming years it will be possible and necessary to raise the share of outlays on defense to between 5.1 percent and 5.3 percent of the GDP. The Defense Ministry would like the share to be even higher -- more than 6 percent.


If the point of view of the Economics Ministry holds sway, then the share of military expenditures will grow from 80 trillion rubles ($15.6 billion) this year to 98 trillion rubles in 1997 (in 1996 prices), or an increase of 23 percent. Moreover, the Economics Ministry considers that real demand next year will be even higher, and the projected deficit will have to be financed through unusual means such as selling off or leasing military property.


The government intends to change the structure of the military no matter how much expenditures are increased. Today, the upkeep of the armed forces accounts for almost 55 percent of the allocations to national defense, whereas in 1991, the share was 38.6 percent. The share of arms expenditures has fallen since then from 36 percent to 19 percent. In other words, the army is simply consuming the money that is allotted and is in no way developing.


If the government succeeds in increasing the financing of national security and improving the structure of defense expenditures, then the military-industrial complex will once again become a source of modernization of the entire economy. This, in any case, is what the authors of the report were counting on. And this signals a new tone in the government's approach to the economy.





Mikhail Berger is economics editor of Izvestia.