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The results of a comparison, by means of Figures 810, of the implementation of federal budget expenditures, by each of the major components of direct military expenditures listed in Section 02 National Defense, have provided no grounds to suggest that the change of the Ministry of Defenses leadership in February 2007 have indeed had any impact on the implementation of expenditures.

On the whole, the dynamics of Russias military expenditures in the post-crisis period of 19992007, reflected in Table 34, lend credence to the views of those132 who eight years ago were warning us about the futility of increasing military expenditures without reforming the institutions inherited by Russia from its Soviet past.

Shlykov, V. Neizbyvnyi kompleks (The indelible complex) // -Vlast, 5 May 2000 ( 19).

RUSSIAN ECONOMY IN trends and outlooks Table Implementation of Military and Associated Expenditures of the Federal Budget 2007, by month, billion rubles Expenditure items National defense 822.0 839.1 22.5 61.1 66.5 72.6 68.5 65.9 67.4 52.9 50.1 60.9 63.8 181.7 7.RF Armed Forces 549.9 606.2 20.0 46.2 47.8 55.7 50.2 49.6 46.5 40.6 38.4 45.8 46.4 116.0 4.Mobilization-related and mili- 5.9 4.2 0.0 0.1 0.4 0.2 0.2 0.8 0.2 0.2 0.2 0.2 0.4 1.0 0.tary training for civilians Preparation of economy for 3.5 4.7 0.0 0.1 0.1 0.6 0.4 0.4 0.6 0.3 1.5 0.5 0.9 0.3 (0.9) mobilization Preparation of and participation 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 in ensuring collective security and peace-keeping activity Nuclear weapons complex 12.1 12.1 0.8 3.3 1.5 0.6 1.1 0.4 0.7 0.6 0.8 0.9 0.9 1.2 Implementation of international 6.0 6.7 0.8 0.1 0.2 0.8 0.0 0.2 0.8 0.1 0.1 0.7 1.4 0.6 0.obligations in sphere of militarytechnological cooperation Applied research in sphere of 120.5 122.8 0.6 10.8 13.1 7.3 10.9 6.5 13.1 5.5 4.3 6.0 4.9 38.5 1.national defense Other items in sphere of national 79.1 82.4 0.2 0.6 3.4 7.4 5.6 8.1 5.6 5.5 4.9 6.8 8.8 24.1 1.defense National security and Law- 662.9 674.8 27.9 42.7 48.4 53.0 49.1 55.7 50.2 51.2 52.6 55.0 60.9 116.5 7.Enforcement Activity Internal service troops 45.9 46.4 1.3 2.5 2.9 3.8 3.8 3.6 3.8 3.8 3.8 3.7 5.0 8.3 (0.4) Security agencies 113.2 116.0 5.1 6.9 7.8 10.3 7.7 9.1 9.8 9.8 9.3 9.2 9.6 21.5 (0.9) Frontier-service agencies 55.3 56.9 1.7 3.2 3.1 4.0 3.6 4.1 4.6 4.2 4.1 4.5 5.5 10.1 3.Prevention and liquidation of 40.3 42.0 1.6 3.8 4.0 3.8 2.8 3.2 2.6 2.8 2.5 5.2 3.3 6.2 (0.4) consequences of emergency situations and natural disasters, civil defense Applied research in sphere of 4.7 5.1 0.2 0.3 0.3 0.3 0.3 0.5 0.3 0.3 0.4 0.3 0.5 1.3 0.national security and lawenforcement activity Other issues in sphere of na- 11.2 5.92 0.2 0.5 0.2 0.5 0.2 0.1 0.4 0.2 0.2 0.3 0.2 0.5 2.tional security and lawenforcement activity Source: IET estimates based on the data of the Federal Treasury.

July May June April March August October January February December November September FB 2007, amended.

Envisaged in FB - Economy (overspending) Section Institutional Problems 25% 20% 15% 10% 5% 0% Source: IET estimates based on the data of the Federal Treasury.

Fig. 8. The Implementation of the Federal Budgets Expenditures under Subsection The Armed Forces of the Russian Federation in the Years 200540% 35% 30% 25% 20% 15% 10% 5% 0% Source: IET estimates based on the data of the Federal Treasury.

Fig. 9. The Implementation of the Federal Budgets Expenditures under Subsection Applied Scientific Research in the Sphere of National Defense in the Years 2005 May July April June March August January October February December November September May Luly April June March August January October February December November September RUSSIAN ECONOMY IN trends and outlooks 35% 30% 25% 20% 15% 10% 5% 0% Months Source: IET estimates based on the data of the Federal Treasury.

Fig. 10. The Implementation of the Federal Budgets Expenditures under Subsection Other Issues in the Sphere of National Defense in the Years 2005Table The Basic Indicators of the Russian Federations Military Expenditures in 19991999 2000 2001 2002 2003 2004 2005 2006 1 2 3 4 5 6 7 8 9 1. In nominal terms (current prices), billion rubles Execution of FBs expenditures under Section 115.6 191.7 247.7 295.4 355.7 430.0 581.1 681.8 831.National Defense, in current budget classification FBs allocations under Section National 93.7 209.4 214.7 284.2 354.9 427.4 578.4 686.1 839.Defense:

in current budget classification withdrawn to other sections of budget 44.3 77.7 91.classificationb in a comparable budget classification 93.7 209.4 214.7 284.2 354.9 427.4 622.6 763.9 930.Military expenditures, according to UNOc 202.6 294.4 325.9 447.0 499.0 665.0 822.1 Overall direct military expendituresd 128.9 270.4 283.4 353.1 456.5 544.5 759.6 992.5 1,201.Overall direct and indirect military expendi- 144.0 304.6 329.6 455.6 594.6 630.7 844.4 1,079.0 1,362.tures related to current and previous military activitiese Implemen-tation of Ex-penditures l y t r y y i y r h r r r s a er e c er ul be b une b M J ua gu ar Ap o J t mb nua m m u M br e a e A te v J Oc p Fe No Dec Se Section Institutional Problems Table 34 (continued) 1 2 3 4 5 6 7 8 9 2. In real terms (in the 2007 prices)f, billion rubles Execution of FBs expenditures under Section 926.8 1,109.9 933.5 828.3 786.0 797.1 900.0 854.3 831.National Defense in current budget classification FBs allocations under Section National 751.3 1,212.4 809.1 796.8 784.2 792.3 895.7 859.7 839.Defense:

in current budget classification withdrawn to other sections of budget 68.6 97.4 91.classification In comparable budget classification 751.3 1,212.4 809.1 796.8 784.2 792.3 964.2 957.1 930.Military expenditures, according to UNO 1,173.1 1,109.6 913.9 987.8 925.0 1,029.8 1,030.1 Direct military expenditures 1,033.5 1,565.5 1,068.1 990.2 1,008.8 1,009.3 1,176.4 1,243.6 1,201.Overall direct and indirect military expendi- 1,154.7 1,763.5 1,242.1 1,277.7 1,313.9 1,169.1 1,307.8 1,352.0 1,362.tures related to current and previous military activities 3. In real terms (in 1999 prices), billion rubles Execution of FBs expenditures under Section 115.6 124.8 120.0 112.8 113.9 115.0 125.8 117.8 114.National Defense in current budget classification FBs allocations under Section National 93.7 136.4 104.0 108.5 113.7 114.3 125.2 118.5 115.Defense:

in current budget classification withdrawn to other sections of budget 9.6 13.4 12.classification in comparable budget classification 93.7 136.4 104.0 108.5 113.7 114.3 134.8 132.0 128.Military expenditures, according to UNO 131.9 142.6 124.4 143.1 133.5 143.9 142.0 Overall direct military expenditures 128.9 176.1 137.3 134.8 146.2 145.7 164.4 171.5 165.Overall direct and indirect military expendi- 144.0 198.3 159.6 173.9 190.4 168.7 182.8 186.4 187.tures related to current and previous military activities 4. Military burden borne by national economy, as % of GDP Execution of FBs expenditures under Section 2.40 2.62 2.77 2.73 2.69 2.52 2.69 2.54 2.National Defense in current budget classification FBs allocations under Section National 1.94 2.87 2.40 2.62 2.68 2.51 2.67 2.55 2.Defense in current budget classification withdrawn to other sections of budget 0.20 0.29 0.classification in a comparable budget classification 1.94 2.87 2.40 2.62 2.68 2.51 2.88 2.84 2.Military expenditures, according to UNO 2.77 3.29 3.01 3.38 2.93 3.08 3.06 RUSSIAN ECONOMY IN trends and outlooks Table 34 (continued) 1 2 3 4 5 6 7 8 9 Overall direct military expenditures 2.67 3.70 3.17 3.26 3.45 3.19 3.51 3.69 3.Overall direct and indirect military expendi- 2.99 4.17 3.69 4.21 4.49 3.70 3.91 4.01 4.tures related to current and previous military activities 5. By parity of purchasing capacity (current prices), billion USD Execution of FBs expenditures under Section 21.9 26.8 30.2 31.9 34.2 36.2 44.4 47.5 53.National Defense in current budget classification FBs allocations under Section National 17.7 29.3 26.2 30.7 34.1 35.9 44.2 47.9 53.Defense in current budget classification withdrawn to other sections of budget 3.4 5.4 5.classification in comparable budget classification 17.7 29.3 26.2 30.7 34.1 35.9 47.6 53.3 59.Military expenditures, according to UNO 28.3 35.9 35.2 42.9 42.0 50.8 57.3 Overall direct military expenditures 24.4 37.8 34.6 38.1 43.9 45.8 58.0 69.2 77.Overall direct and indirect military expendi- 27.2 42.6 40.2 49.2 57.1 53.0 64.5 75.2 87.tures related to current and previous military activities For reference Deflator of GDP, as % of a previous year 172.5 137.6 116.5 115.5 114.0 120.1 119.2 115.7 113.Deflator of expenditures on final consump- 138.5 153.6 134.4 126.9 119.2 119.7 123.6 125.3 125.tion of state administrationg as % of previous year Parity of purchasing capacityh, rub / USD 5.29 7.15 8.19 9.27 10.41 11.89 13.09 14.34 15. For 20062007 the preliminary data on the execution of federal budgets, released by the Federal Treasury.

b The aggregate expenditures of the Ministry of Defense plus the classified expenditures under sections 04-and 11 of the 200507 federal budgets.

c The data for 1999 were not submitted by the RF Government to the UNO; the data for 2007 will be submitted in 2008, including the expenditures on the upkeep of the Internal Service Forces, frontier guards and civil defense.

d Including on the upkeep of Internal Service Forces, frontier guards, civil defense, and other elements of the military organization.

e Including pensions paid to ex-servicemen.

f Deflated by applying final consumption deflator to state administration expenditures.

g For 2007 the IETs estimates.

h For 20052007 the linear trend of values for previous years (the IETs estimates).

Sources: The Federal Laws on the 19992007 Federal Budgets and on the execution of the 19992005 Federal Budgets; Natsionalnye shcheta Rossii v 19972006 godakh. Statisticheskii sbornik. [Russias national accounts in 19972006. Collection of Essays on Statistics]. Moscow: Rosstat, 20052007; Obektivnaia informatsiia po voennym voprosam, vkliuchaia transparentnost voennykh raskhodov. Doklady Generalnogo sekretaria OON 20012007 [Objective information on military issues including the transparency of military expenditures. The reports of the UNO Secretary General, 20012007]; Rosstat; the Federal Treasury.

Section Institutional Problems 5. 5. 4. The Trends and Outlooks of Development of Russias Military Economy Although the implementation of the FTP The Switchover of a Number of Formations and Military Units to the System of Manning by Servicemen Enlisted for Military Service under Contracts, adopted in 2003, was formally completed in December 2007, in fact, the plan for its implementation has been foiled. From time to time the mass media publish information133 that the Program should be supplementarily implemented in 2008, after which it would become possible to initiate, in 2009, a new FTP aimed at the switchover of the whole NCO component of the RF military organization to the system of manning by volunteers enlisted for military service under contracts.

The undisputed successes achieved in recent years have confirmed once again, especially in the struggle against terrorists and armed bands in the North Caucasus, that the military security of this country should be ensured by professionals. The most successful changes have taken place in the Border Service of the FSB, where the draft was completely discarded, while some lesser, although still very substantial, changes occurred in the Interior troops of the Ministry of Internal Affairs. The worst situation is observed in the RF Armed Forces.

However, due to the outflow of contractees from the military units not included in the list of military units of permanent readiness and their replacement with draftees, the overall capability of the RF Armed Forces will decline, this being the result of the lower combat efficiency of the present-day draftees, and especially of those draftees who will serve one year only.

The attractiveness of military service under contracts will not increase either, as proved by the attitude towards it displayed by the Ministry of Defenses leadership during the FTPs implementation. Over that period, the program was adjusted four times. The expenditures on the FTP rose by almost 20 billion rubles in the 2003 prices. The number of positions to be filled by contractees diminished by almost 9 thousand. Not a single penny of the additional (with respect to the initial plan) allocations was spent on increasing the increment to money allowance, although it is this increment that largely determines the attractiveness of military service under contracts. Despite the fact that the overall rise in expenditure amounted to 20%, the expenditures on capital construction and repairs grew by 44% against the initially set amount; the expenditures on scientific research increased by 15%; and the other expenditures by 7%, the increment to money allowance introduced in order to increase the attractiveness of military service under contracts has not been indexed since 2003. As inflation rose to more than 46% over the past four years, this increment has by now been depreciated by almost 75%. Neither the 15% rise in payments from 1 December 2007, nor their increase in 2008 promised by the President will be able to change the situation.

The socially significant results expected from the FTP, which are more important for society than for the army, cannot be considered to have been fully implemented either. The case in point is the following task of the FTP, declared in its certificate: the reduction of societys dissatisfaction with the existing system of manning the RF Armed Forces and other troops, military formations and organs, and with these servicemen being dispatched for military service in the hot spots. The cancellation of the socially significant draft deferrals (car See Iuzbashev, V. Intellekt staviat pod ruzhe. [Intellect under arms] // Nezavisimoe voennoe obozrenie [The independent military review], 2007, 2127 December (No. 45), p. 3.

RUSSIAN ECONOMY IN trends and outlooks ried out simultaneously with the reduction of the term of service) will produce a reverse effect the growth of societys dissatisfaction; or, to be more specific, it will result:

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