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. Last Updated: 07/27/2016

Army May Seek Help From Market Forces

Faced with a huge bill for military reform, a top defense official has outlined an unconventional, entrepreneurial plan to raise money by selling off the army's huge real estate holdings and issuing soldiers with tradable vouchers in lieu of unemployment payments.


The remarks by Yury Baturin, presidential national security adviser and secretary of the Defense Council, in the Saturday edition of the weekly Independent Military Review are the clearest yet amid rumors that the government is looking to the free market to help it head off the crisis in military funding.


They follow months of bitter argument between Baturin and Defense Minister Igor Rodionov over whether the army can afford the huge costs of plans to reequip the army and cut its size.


Baturin, an advocate of rapid reform, has long hinted that private enterprise could play a role in the process. The more conservative Rodionov has stridently called for money from the budget, but even he raised eyebrows last month when he held a meeting with Russia's top industrialists and bankers reportedly to talk about financing options.


Under Baturin's plans, money will be raised from the sale and lease of real estate belonging to the armed forces; this includes huge blocks of prime property in the center of Moscow. Baturin hinted that the army could become a property developer through "contract work, lease, and other agreements involving real estate."


Baturin also envisaged issuing tradable securities in the "form of government bonds, land vouchers, guarantees of housing and insurance policies" to unemployed servicemen in place of the lump sum allowances to which they are now entitled.


Any officer who has served 20 years in the armed forces is entitled to an apartment, but some 100,000 officers are living in barracks, railway carriages or even tents, waiting to be housed. Mass unemployment could leave thousands of officers literally homeless.


Even servicemen who take early retirement are entitled to between 20 and 30 months of full pay, as well as pensions, housing, free travel to their permanent home -- and training to adapt to civilian work.


Since the government lacks the cash to finance the planned layoffs -- 200,000 are set to go ahead this year -- Baturin has suggested that it give out paper promises to the servicemen, redeemable in five years.


Baturin said that, in theory, servicemen could sell the bonds to any taker at a discount. "Such securities must be liquid ones, their price on the secondary market should be equal to the nominal or exceed it, and have a profitability probable, such as selling as scrap the equipment left behind in former Soviet satellite states such as Angola and Yemen, and calling in outstanding debts for hardware supplied to allies during Soviet times. In fact, those countries, largely with debt-ridden cash-strapped economies, are probably not in a position to pay.


Aid packages from Western countries, on the other hand, are already going ahead. The United Kingdom has had a program running for several years helping to retrain army officers to adapt to civilian life, according to a Defense Ministry spokesman.


The United States, Germany, European organizations and NATO were all sources of "humanitarian cooperation" mentioned by Baturin. Germany has spent over $5 billion rehousing Russian officers redeployed from former East Germany.


The government has set aside 3.7 trillion rubles this year specifically for reforms, but Defense Minister Rodionov has said that is not nearly enough. He has said he needs between 40 and 50 trillion rubles for reforms over the next few years.


Baturin placed the blame for the cash crisis on parliamentarians who adopted laws granting servicemen numerous social benefits and then failed to provide the necessary finances in the budget.


"Nothing increases social tension more among servicemen than failure by the state to honor declared rights and benefits," he wrote.


Analysts said that the selling or developing of real estate is potentially the biggest earner among the ideas proposed by Baturin.


Alexander Konovalov, a military analyst at the USA/Canada Institute in Moscow, said real estate was a possible source of income. "But no one knows how much we are talking about," said Konovalov, who cautioned that financing reforms outside the budget was "wishful thinking."a