Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Klebanov Picked to Rescue Military

President Boris Yeltsin on Monday tapped a defense industry veteran for the unenviable task of turning around Russia's battered military industrial complex.

Ilya Klebanov, who successfully restructured one of St. Petersburg's largest defense enterprises, was appointed Monday to the federal government as deputy prime minister in charge of Russia's military industrial complex.

An economic liberal who is widely said to be an ally of businessman and politician Anatoly Chubais, the new deputy prime minister has chaired the economics committee in the St. Petersburg city government since Jan. 1998. The current government has two first deputy prime ministers and three deputy prime ministers.

Prior to joining the city administration, Klebanov, 48, ran the giant St. Petersburg optics plant LOMO - famed for precision microscopes and high-speed cameras that have become a fad among Russian and foreign enthusiasts.

Shortly after his appointment, Klebanov - who addressed the federal government last week on problems in St. Petersburg's defense industry - said that he planned to carry out extensive reforms in Russia's military industrial complex.

"We need to examine attentively the list of defense enterprises who receive state orders and work to maximize their capacity and begin restructuring them," Klebanov said. The system of state military orders also needs to be brought "under control" and the practice of chronic nonpayments brought to a halt, he said.

Klebanov has earned praise from industry insiders and the president himself for turning a loss-making Soviet industrial dinosaur into a lean and competitive enterprise.

The post of deputy prime minister in charge of the defense industry is a new government portfolio established at the insistence of Prime Minister Sergei Stepashin and approved by Yeltsin.

Yeltsin's Monday decree appeared to be a major personnel victory for the recently appointed Stepashin, who also hails from St. Petersburg.

Talking to reporters in Moscow on Monday, Stepashin praised his prot?g? as an "experienced, powerful specialist."

Stepashin also told the press that he will personally head the special government commission that supervises arms exports which generate more than $2 billion per year and account for 80 percent of Russia's machinery exports.

This self-promotion appeared to have dealt another and much more tangible blow to Stepashin's ambitious First Deputy Nikolai Aksyonenko who has recently vowed to "supervise everything" in the government.

Stepashin said he will meet defense industry moguls June 5 to work out an entire "new development strategy" for the industry.

For Klebanov, however, the post could well turn out to be something of a poisoned chalice, considering the monumentally tough nature of the task the new man faces. Without sufficient funds - unlikely to be forthcoming - fixing up Russia's military industrial sector looks like an impossible dream, analysts said Monday.

The Kremlin and the federal government are too weak and "privatized" by rival clans of oligarchs to pursue any consistent policy of reviving Russia's once powerful defense industry, Dmitry Trenin, senior military analyst with the Moscow Carnegie Center, said in a phone interview Monday.

The Russian leadership has also failed to develop any plans spelling out the country's long-term strategic priorities in order to be able to develop its war machine accordingly, Trenin added.

As St. Petersburg deputy governor, Klebanov introduced a program designed to assist local industries to restructure by helping them to rent out unproductive real estate and cutting redundant staff. He also threatened to initiate bankruptcy proceedings against enterprises that failed to pay taxes or wages.

Additionally, Klebanov introduced measures to reform the city's alcohol market, by setting up a system of state- controlled warehouses and authorized distributors; requiring producers to purchase local excise stamps; and cracking down on bootleg producers. Klebanov said the new regulations led to a threefold increase in tax revenues from vodka producers in the last quarter of 1998.

"Producers will pay, or they will not work in our city," Klebanov said last week.

Prior to his appointment to St. Petersburg Governor Vladimir Yakovlev's Cabinet, Klebanov ran the giant local optics firm LOMO - a firm he worked at since 1977, rising to general director in 1992. Under Klebanov's stewardship, LOMO wrote the book on corporate downsizing Russian style, laying off about 11,000 employees from 1992 to 1997.

LOMO also increased productivity per worker by 11 percent during Klebanov's five-year tenure as director, and saved $2,000 a day by confining production to two premises.

During a visit to St. Petersburg in the summer of 1997, Yeltsin singled out Klebanov as an example of the new-look industrial manager Russia needs to revive its economy.