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2 AllRussian Agricultural Census of 2006 www.gks.ru 3 The entitling of PFs as legal bodies with ownership rights is the practice violating Russian legislation. Still, it exists and one should take it into account.

4 Land fund of the Russian Federation as of January 1, 2008. Rosnedvizhimost, 2008.

5 According to Rosselkhozbanks regulations the collateral value is usually assessed to be 30% below the cadastral one.

6 Data of Rosselkhozbank.

7 The collateral value of land plots was estimated on the basis of their cadastral value with coefficient 0.according to Rosselkhozbanks methodology.


RADICAL REFORMS ARE URGENTLY NEEDED V.Zatsepin In the past two months, the RF authorities have taken a number of important decisions in the sphere of management of the Russian defense sector that should determine its development in the long-term perspective. However, many such decisions were also frequently made in the past, and then invariably proved to be totally inefficient. The recent political decision to the effect that Russia should purchase foreign-made weaponry has become yet another proof of the necessity to modernize the management of her defense sector so as to increase the transparency of defense programs, defense purchases and defense-related budget expenditures.

On 1 March 2010, President Dmitry Medvedev approved The Fundamental Principles of the State Policy of the Russian Federation on the Development of the Defense Industrial Complex for the Period Until 2020 and Beyond drawn up by the RF Ministry of Industry and Trade with participation of other relevant agencies the Rosatom state corporation and the apparatus of the RF Security Council.

On 19 March, there was a meeting between the President and Vice Prime Minister Sergei Ivanovthat was devoted to the plans of developing Russias defense-industrial complex. Sergei Ivanov informed the President that the Government had determined, as a percentage of GDP, the volume of funds necessary for financing the new state program of armaments for the next ten years, and that the RF Ministry of Finance had received an application for the funding, in the amount of approximately 100 bn Rb per year, of the new federal target program for reforming the defenseindustrial complex for the period until 2020. It can be assumed that, as far as the armament program is concerned, the authorities have indeed taken into consideration their recent experience of operating under crisis conditions, because in 2007 the volume of financing earmarked for the current state program of armaments had been nominally set at 4.9 trillion Rb.

The current Federal Target Program The Development of the Defense Industrial Complex for the 2007 2010 Period and for the Period Until 2015 that was adopted in October 2006 for some mysterious reasons has been made classified, which makes it impossible to put forth any judgments as to the extent to which the appetites of the defense industrial complex have recently grown.

A similar program the Federal Target Program The Reform and Development of the Defense Industrial Complex (2002 2006)2, which was entirely non-classified, cost the federal budget only 11.2 bn Rb, i.e., 2.2 bn Rb per annum on average. Even after adjusting for inflation, the exponential growth in defense spending is clearly alarming. It should be understood that this sum of 100 billion rubles so desperately needed by the defenseindustrial complex includes a hidden surcharge, for customers, on weapons and equipment. Naturally, the bill for all this is to be footed by taxpayers.

Equally revealing are Sergei Ivanovs words that the afore-mentioned plans will be implemented with participation of 1,729 enterprises included on the official register of the defense industrial complex. They indicate that, after having been reformed time and again, the Russian defenseindustrial complex has made a full circle and so effectively returned to its former status as of June 1998, when the federal target program of defense industry restructuring and conversion for the years 1998 2000 was adopted. At that time, the defense industrial complex officially included 1,749 enterprises and organizations, and in accordance with the said program3 it was planned that their numbers should be reduced almost threefold to a mere 667. However, this 1 Prezident utverdil Osnovy politiki Rossii v oblasti razvitiia OPK do 2020 goda i dalneishuiu perspektivu:

Stenogramma vstrechi D. Medvedeva s vitse-premerom S. Ivanovym. [The President has approved The Fundamental Principles of the State Policy of the Russian Federation in the Field of Development of the Defense-Industrial Complex for the Period Until 2020 and Beyond: Transcript of the meeting between D. Medvedev and Vice Premier S. Ivanov.

Gorki, 19 March 2010. See http://kremlin.ru/transcripts/7146.

2 See http://fcp.vpk.ru/cgi-bin/cis/fcp.cgi/Fcp/ViewFcp/View/2006/125/.

3 Confirmed by Decree of the Government of the Russian Federation, of 24 June 1998, No 625.


objective was never achieved. The same is true of other goals such as the creation of modern and efficient mechanisms of management and control, the achievement of an internal consolidation of the defense industry and an elimination of its redundant structures, and the improvement of the efficiency and effectiveness of the use of state property.

In 2001, two more documents were developed for the purpose of dealing with these issues, as well as for providing solutions to a number of other problems: The Fundamental Principles of the State Policy of the Russian Federation on Development of the Defense Industrial Complex for the Period Until 2010 and Beyond and the new Federal Target Program The Reform and Development of the Defense Industrial Complex (2002 2006). The latter had, in fact, a better chance of being implemented than its predecessor a three-year program because of its longer duration (5 years).

In these two documents it was envisaged that the number of defense enterprises and organizations should be reduced from 1,770 to 1,300. It was planned that the remaining enterprises would then be integrated into 50 to 60 holding companies specializing in production of war materiel and armaments. The holding companies were to be created with due regard for either their historically established cooperation links with other enterprises or the various geographic factors. As a result, by early 2006, the Combined Register of defense-industrial complex enterprises had been reduced to 1,265 enterprises and organizations. By the end of 2006, the RF Ministry of Industry and Energy had managed to create 27 integrated structures and 19 out of the 20 planned treasury-owned enterprises. However, as had been the case with the previous programs, the aims and objectives of this federal target program could not be achieved in full.

The results of implementing the current classified federal target program are far from trivial:

the Russian defense industrial complex has restored the numerical strength that it had more than ten years ago. Although the specific reasons for and the mechanisms of this achievement clearly merit a special investigation, one can already point to the increased availability of federal budget funds for financing both the ever growing state defense order (Figure 1) and the numerous overlapping federal target programs oriented to state support of the defense industrial complex.

The robust growth in defense spending accompanied by the non-transparency of state finances has significantly increased in the past five years, while the twenty-five percent profit rate officially guaranteed for the unique domestic producers, the relaxing of state financial control over the defense sector (in 2009 the RF Audit Chamber carried out only 3 inspections in the defense sector vs. 18 inspections in 1999) and the increased politicization of this sector have created exceptionally favorable conditions for rent extraction and so have considerably undermined the effectiveness of budget processes.

In this connection, the approval, in March 2010, of The Fundamental Principles of the State Policy of the Russian Federation on the Development of the Defense Industrial Complex for the Period of 2020 and Beyond, the forthcoming approval of the State Program of Armaments for 2011 2020 which is planned to be signed by the 580,RF President in June, and the adoption of the next at current prices federal target program of 2001 at 2001 constant prices 389,defense-industrial complex 302,reform for 2011 2020 is clearly a continuation of 236,traditional bad practice with 188,146,roots in Soviet times. This 112,80,practice owes its existence 52,to the ineffectiveness of the 2001 2002 2003 2004 2005 2006 2007 2008 institutions responsible for Years drawing up the program of armaments, the institution Source: Data published in mass media; Rosstat (the GDP deflator for governof the state defense order, ment final consumption expenditure).

and paradoxically tight Figure 1. The State Defense Order of the RF Ministry of Defense in 2001- state secrecy. As regards Bn Rb.

RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES these phenomena, their origin can be easily traced back to the principle of security through obscurity.

In February1 the RF Government announced its plan that, by 2015, modern weapons should account for no less than 30 percent of all military equipment of the RF Armed Forces, and that by 2020 this figure should rise to 70 percent. Many people were evidently deeply surprised by the statement made by RF Deputy Defense Minister and head of armaments for the Russian armed forces Vladimir Popovkin at a round table conducted by the Russian News Agency Novosti on 7 April2. He said that the development of redundant and morally obsolescent weapon systems (many of which had been represented at military parades in Moscow as an example of the Russian defense- industrial complexs achievements) had been discontinued, and that it was possible that Russia would purchase from France a Mistral-class amphibious assault ship3. But the news did not come as a surprise for specialists as early as December 1997, Rachik Faramazian (the Institute of World Economy and International Relations, Russian Academy of Sciences) had warned that, unless Russia put an end to the existing trend, we will be forced to import the newest weapon systems4.

1 Ibid.

2 Nuzno li Rossii zakupat oruzhie za rubezhom Moskva, 7 aprelia 2010. [Should Russia purchase weapons abroad Moscow, 7 April 2010. See: http://www.rian.ru/press_video/20100407/219089968.html.

3 Politicheskoe reshenie o zakupke uzhe priniato. [The political decision on the purchase has already been made].

See: Vremia Novostei [Time of News]. 22 April 2010 (No 69).

4 Finansovo-ekonomicheskie problemy voennogo stroitelstva i puti ikh resheniia (materialy nauchno-prakticheskoi konferentsii) [The financial and economic issues of military capability development (Materials of a scientific practical conference)]: Nauchnye trudy [Scientific Works]. No 6p. IEPP [IET]. 1998. P. 102. See: http://www.iet.ru/files/text/ working_papers/06.zip.


WORLD TRADE WITH GOODS AND SERVICES IN AND PROSPECTS OF RUSSIAN FOREIGN TRADE DEVELOPMENT A.Pakhomov At the end of March 2010 the World Trade Organization Secretariat published analytical review on the results of international trade development in 2009 and prospects for its development in 2010.The review includes preliminary statistical data on the world trade with goods and services in as broken by countries. According to these data, among the leading trading countries it is in Russia where the fastest decrease rates of export-import operations were observed.

According to WTO analysts estimations the global GDP reducing by 2.3% in 2009, the drop of the world trade in real terms made 12.2% (the most dramatic drop over the last 70 years) as compared with the increase of 2.0% in 2008 and 5.5% in 2007. According to the initial WTO forecasts the international trade was expected to decrease up to the level of 10% in 2009, but the estimation of economic situation in the world market by the OECD experts was right predicting the fall of 13%.

In nominal terms the global export of goods reduced by 23% primarily at the expense of the reduction of prices for energy carriers and raw materials and made USD 12.2 trillion. Export of services decreased by 13% and made YSD 3.3 trillion, the deepest drop being observed in the sector of transportation services. As a result real average annual growth rates of world trade with goods in 2005 -2009 made 4% and with services 7%.

The recession of the world trade in 2009 turned out to be so large-scale also because up to two thirds of physical volume of goods are intermediate ones (35% of import in Russia), which are imported by the countries to create a final product which is exported after that. Not taking into account this factor the drop of the world trade could have been by 1.5-3 times less. If only added value was to be taken into account, trade deficit of the USA in trading with China would be 30% less, and with Japan 25% more, since many goods that China and other countries import to the USA contain components that they have purchased in Japan2.

According to the forecasts of WTO experts the volume of world trade in 2010 could increase by 9.5%, which is accounted for by the world economy overcoming the crisis. The main reason for goods turnover upsurge is the recovery of developing markets: they are to become the main engines of trade. In this connection it is assumed that that export of developing countries will increase by 11%, of the developed ones only by 7.5%.

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