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. Last Updated: 07/27/2016

Cabinet Reshuffle to Slow Weapon Export Contracts

The ongoing formation of a redesigned Cabinet has paralyzed the system of licensing arms deals, which experts say will have a negative impact on the government's ambitious plans to sell $5 billion worth of arms next year.

President Vladimir Putin kick-started the changes with last Thursday's decree disbanding the Trade Ministry, which supervised and licensed the country's arms exports.

By the same decree, Putin established the Industry, Science and Technology Ministry, which will oversee the defense industry among other things, and the Economic Development and Trade Ministry.

Both of these new ministries are supposed to supervise arms exports, but it remains unclear which one will license weapon deals, according to an aide to Deputy Prime Minister Ilya Klebanov, who oversees the national defense industry and its exports.

Nor is it clear if any of the five federal agencies that have supervised different sectors of the national defense and aerospace industries will become part of the Industry, Science and Technology Ministry or stay independent, the aide said in a telephone interview Tuesday

Thursday's decree, issued the day after Mikhail Kasyanov was approved as prime minister, requires him to determine within a month what each agency in his Cabinet will supervise. The government can take up to two months to produce regulations spelling out how each agency will function.

These deadlines indicate that the state system of arms exports will resume functioning properly no earlier than August, potentially costing the national defense industry millions of dollars in lost export revenues, experts said.

The ongoing reshuffles will slow down processing of new orders, according to Alexander Pikayev, defense analyst with the Moscow Carnegie Center. "I believe the government agencies have already licensed most of the major deals for this year, whereas one will probably find it difficult to have contracts for the next year licensed at the moment," he said in a telephone interview Tuesday.

As it is, customers of Russian-made military hardware have repeatedly complained of arms exporters' slow operational mode.

Klebanov said last month that arms sales should total $4.3 billion this year and he foresees the annual figure climbing to $5 billion by next year. The country exported a record high $3.6 billion worth of arms in 1996, but sales slumped to $2.7 billion the following year and remained at this level in 1998.

An official at Rosvooruzheniye, which accounts for more than 70 percent of arms exports, said Tuesday that the ongoing shuffles "will not affect" his company's plans to export goods worth at least $2.8 billion this year. He asked not to be identified.

But according to Klebanov's aide, the personnel changes cannot help but affect arms exports. "Of course, new people may spend the rest of this year just learning how things are done," the aide said.

Both of the newly created ministries are headed by men who have never supervised arms exports before. German Gref, who heads the Economic Development and Trade Ministry, had served in the State Property Ministry. Alexander Dondukov, the new industry, science and technology minister, used to run the Yakovlev Design Bureau of Moscow, which develops aircraft but has no license to export them independently.

Klebanov should "forget" his promise to have $5 billion worth of arms exported next year, according to Ruslan Pukhov, head of the Moscow-based Center for Analysis of Strategies and Technologies.

The new changes will further discourage foreign customers already frustrated by the continuous reshuffles of the arms export system, he said. "If I were a foreign customer I would not buy anything from Russia. ... The system of arms exports has become very complicated," Pukhov said.