Besides, among the expenditures under section 0400 “National Economy”, no less than 13.6 billion roubles (0.04 % of the GDP, or 0.25% of the total expenditure of the federal budget), to be spent on the utilization of armaments, as well as on construction and maintenance of special objects, should be placed within the category of expenditures relating to current and past military activity.
Table Indirect military expenditures related to previous defense activity Sum in FB- Difference in Share of expenditures, in % / 07, million expenditures of growth by comparison with Code Sections and subsections roubles / FB-07 and FB-06, 2006, in p. p.
same in 2006 million roubles / to FB-prices growth in % 1001 Pension provision to military 87 062 1 390 1,59 0,by Ministry of Defense 79 873 1,74 –0,18 –0,1001 Material allowances to staff of 1 650 96 0,03 0,nuclear weapons complex 1 514 6,36 – – 1003 Subsidies for acquisition of 17 934 476 0,33 0,housing to military and per- 16 453 2,89 –0,03 – sons equated to them Note. Italics mark the analytical groups of expenditures singled out within a given subsection.
Table The aggregate indices of military and associated expenditures Difference in Share of expenditures, in % / Sum in FBexpenditures of growth by comparison with No 07, million FB-07 and FB- 2006, in p. p.
of Sections and subsections roubles / 06, million rouitem same in bles / growth in to FB-prices % 1 Aggregate direct military expendi- 1 082 239 85 844 19.81 3.tures 992 880 8.65 –0.66 0.2 Aggregate direct and indirect mili- 1 188 885 87 805 21.76 3.tary expenditures related to current 1 090 720 8.05 –0.87 0.and previous defense activity 3 Total expenditure on national de- 1 484 903 119 811 21.18 4.fense, security and law – enforce- 1 362 296 8.79 –0.88 0.ment activity 4 Total direct and indirect federal 1 642 551 121 120 30.06 5.expenditure related to current and 1 506 927 8.04 –1.21 0.previous defense and law – enforcement activity and ensuring of state security Thus, general direct military and associated expenditures (Table 5) will grow, although their growth will be smaller than that of the total expenditure of the federal budget, which has been increased by comparison with 2006 by 13.1 %. Therefore, their share in the total expenditure of the federal budget will be lower, while at the same time being slightly higher in relation to GDP because of the accelerated growth of the 2007 budget expenditure by comparison with the national economy’s growth.
The sum of direct and indirect military expenditures of the Russian Federation in 2007 (being the closest to the index determined according to the NATO methodology) will constitute 3.81 % of GDP; however, the presence of the afore-listed military expenditures hidden in other sections of the federal budget will make it possible to raise this value to 4.15 % (with due regard for the 15.4 billion roubles of military expenditures under section 0500 “Housing and utilities complex”, or 0.05 % of GDP and 0.28 % of the total expenditure of the federal budget). When estimated by parity of purchasing capacities 25, this value will become equal to 15.59 Rrb./USD for 2007 — author’s own estimate.
approximately $ 83 billion, which is less than the amount requested by the Pentagon for 2008 ($ 623 billion) by 7.5 times. Our estimates cites here are, no doubt, different from those being referred to in the official speeches of Russian political VIPs, but after the recent acknowledgement by the Minister of Defense26 of the existence of military expenditures hidden in non-military sections of the budget this can hardly be shocking to anybody.
As before, the modernization of the Armed Forces and social protection of the military personnel are pointed out as the main priorities of the military budget. One consequence of the orientation to modernization is the constant growth of the state defense order, which in 2007 will be increased in real terms by 18 % and exceed 730 billion roubles. 27 The state defense order for the Ministry of Defense28 will, on the whole, amount to 303 billion roubles. (total growth by 17.3 %, including research and development — by 18.5 %), and therefore the loud declarations of the Ministry of Defense 29 that it is going to switch over to mass-scale serial purchases cannot but give rise to certain doubts, and not only because the armaments of a new generation are quite often simply lacking. An additional analysis of the dynamics of defense expenditures has demonstrated, for example, that their quite smooth growth in real terms, noticeable when GDP deflator is applied (see Fig.), simply disappears when one applies the deflator of expenditures on final consumption of state administration.
The emphasized social orientation of military expenditures is not confirmed by the results of analysis, either, because the growth of expenditures on the upkeep of the military personnel of the Armed Forces and pension provision by the Ministry of Defense in 2007 will be no higher than 5 % in real terms. The accelerated provision of solutions to the housing problem faced by the Armed Forces will be ensured through the Presidential Program “15 + 15” and the application of the so-called “investment schemes”, that is, by making use of the state-owned lands belonging to the Ministry of Defense, and not at the expense of the military expenditures of the federal budget.
On the whole, the structure of the Russian military expenditures is determined by factors related to inertia, and no significant shifts can therefore be expected. One of the main goals of the Russian military-political leadership remains that of achieving, by 2011, of 50 % of expenditures being earmarked to development, which will result in a growing disbalance in the financing of the current expenditures of the Armed Forces.
Thus, although the growth of the Ministry’s expenditures earmarked to purchases of fuels and lubricants in real terms must become, in 2007, 14.8 % higher than last year’s level, this, nevertheless, will not make it possible to ensure even a minimum level of adequate provision for the combat training program, while the annually growing number of maneuvers will consume the already limited reserves of motor fuel and result in further shortages being felt by the ordinary daily combat-training activities. Thus, no significant changes can be expected in the number of flight hours in Russian aviation or in sea operations by the navy.
No doubt that, in absence of real military threats, the Russian military-political leadership may well afford some rather advanced modernization experiments at the expense of current combat readiness of the army and navy. But one cannot expect such a situation to last long enough to enable Russia to catch up with the leading military powers in its level of armaments. And, finally, this chase after phantoms is fraught with the danger of no personnel being left available for managing the new modernized armaments – because so far, wars are being waged by people, and not by machines, and so human capital still represents a decisive factor in the military sphere.
V. B. Zatsepin Issues considered at the meetings of the RF Government on 31 January At the meeting of the RF Government on 31 January30 2007, the following issues were among the questions under consideration: on the introduction of alterations, in legislation of the Russian Federation, with regard to the participation of foreign investors in the capital of Russian strategic organizations, and on the draft concept of actions on the labor market for the years 2007 – 2010.
Speech of Deputy Chairman of the RF Government – RF Minister of Defense S. B. Ivanov at the meeting of the FA of the RF State Duma within the framework of “The Government’s Hour” (stenographic transcript). 7 February 2007.
Voenno – promyshlennyi kur’er (The military – industrial herald). 2007. 7 — 13 February (No 5).
Gazeta (Gazette). 2006. 10 May (No 78).
Krasnaia Zvezda. 2005. 11 November (No 208); 2007. 7 — 13 February (No 20).
A review of the issues discussed on 31 January 2007 at the meeting of the RF Government was not included in the January monthly review of the issues considered at the meetings of the RF Government.
*** Also discussed at the meeting of the RF Government on 31 January 2007 was the Draft Federal Law “On the procedure for making foreign investments in commercial organizations strategically important for the national security of the Russian Federation”.
The draft law envisages the introduction of a procedure for implementation, in the Russian Federation, direct investments in commercial organizations strategically important for the national security of the Russian Federation, which would make it possible to create such legal conditions and mechanisms for the participation of foreign investors in the capital of Russian strategic organizations that, on the one hand, would ensure the protection of national interests of the Russian Federation, and on the other hand, would conduce to the formation, in the Russian Federation, of a predictable and transparent business climate for foreign investors.
The draft law materializes the principle of “permissive” making, in Russia, of direct investments in commercial organizations of strategic importance for the national security of the country. The said principle is applied in legislation of a number of foreign countries such as the USA, Spain, France, Finland, etc.
The Russian organizations, into which direct foreign investments can be made on application, must meet the following criteria:
1. the Russian commercial organization should be engaged in certain types of activity;
2. the Russian strategic organization will come under the control of a foreign investor as a result of the latter’s participation in the said organization.
In the event of a simultaneous presence of the two aforesaid criteria, a foreign investor will be obliged to address an authorized agency for the permission to effect the transaction of purchasing the shares in the commercial organization of strategic importance for the national security of the Russian Federation, or for permission to effect another transaction, as a result of which the foreign investor will acquire control over the Russian strategic organization.
Also discussed at this meeting were the draft laws designed to eliminate the contradictions in Russian legislation, which would emerge as a result of the adoption of the Federal Law “On the procedure for making, in the Russian Federation, foreign investments in commercial organizations of strategic importance for the national security of the Russian Federation”.
Also discussed at the meeting of the RF Government was the Draft Decree of the Government of the Russian Federation “On the introduction of alterations in the Statute on the Federal Antimonopoly Service”.
This draft had been developed for purposes of realization of Federal Law, of 21 July 2005, No 94 – FZ, “On the placement of orders for state and municipal needs” (hereinafter to be referred to as the Law on the Placement of Orders), and in accordance with Decree of the Government of the Russian Federation, of February 2006, No 94, “On the federal agency of executive power authorized to exercise control in the sphere of placement of orders for the delivery of goods, the performance of work, and the provision of services for federal state needs”.
The draft decree establishes the following powers to be vested in Russia’s Federal Antimonopoly Service (FAS) with regard to the aforesaid sphere of activity:
– the execution of control in the sphere of placement of orders for the delivery of goods, the performance of work, and the provision of services for state and municipal needs (in the part of the legislatively established powers of the federal agency of executive power authorized to execute control in the sphere of placement of orders), excepting the powers to execute control in the sphere of placement of orders for the delivery of goods, the performance of work, and the provision of services under the state order for defense items (Decree of the Government of the Russian Federation, of 20 February 2006, No 94);
– the execution of supervision over the implementation of the Russian Federation’s legislation and (or) other normative legal acts of the Russian Federation on the placement of orders for the delivery of goods, the performance of work, and the provision of services for state and municipal needs (in the part of the legislatively established powers of the federal agency of executive power, authorized to execute control in the sphere of placement of orders), excepting the powers to execute control in the sphere of placement of orders for the delivery of goods, performance of work, and the provision of services under the state order for defense items (Article 17 of the Law on the Placement of Orders), and a number of other powers.
Bearing in mind that the right of Russia’s FAS to initiate court proceedings and to consider cases of administrative violations is envisaged by Law of the RSFSR, of 22 March 1991, No 117 – FZ, “On the Protection of Competition in the Commodity Markets”; by Federal Law, of 26 July 2006, No 135 – FZ, “On the Protection of Competition”; by Federal Law, of 18 July 1995, No 147 – FZ, “On Natural Monopolies”; and by the Law on the Placement of Orders, the Draft Decree suggests that the said powers should be stipulated by the Statute on the FAS of Russia.
Also, the Draft Decree suggests that the powers of the FAS of Russia to conclude amicable agreements should be provided for.
M. P.Goldin An overview of economic legislation adopted in February In February, the following changes were introduced in existing legislation: alterations were made to the law on the fundamental principles of tourist activity; a model concession agreement concerning objects of socio-cultural importance was approved; the rate of refinancing of the Bank of Russia was lowered; the data for January 2007, to be applied for computing the tax on the extraction of mineral resources with regard to oil, were published.
I. FEDERAL LAWS of the Russian Federation 1. “ON MAKING ALTERATIONS TO FEDERAL LAW “ON THE FUNDAMENTAL PRINCIPLES OF TOURIST ACTIVITY IN THE RUSSIAN FEDERATION”” of 5 February 2007, No 12-FZ The Law is to enter into force from 1 July 2007, with the exception of some norms which will come in force from 1 June 2008.