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However, the problem of increasing the attractiveness of voluntary service under a contract must be solved immediately, without waiting for this new regula tion to become ready, because servicemen will compare the MA of a military man serving under a contract with the average wage at the present day Russian labor market, which has already exceeded 11 thousand roubles. Given the existing level of MA, neither the young people in general nor those who are to decide whether to prolong their contracts will have any financial incentive to serve in the ranks.

Shal'nev, E., Shcheblanin, V. Preiskurant na spravedlivost (A price list for justice) // Krasnaia Zvezda. No. 201. 31.10.2006.

RUSSIAN ECONOMY IN trends and outlooks Figure 21. The size of money allowance of servicemen in accordance with the tariff class Section Institutional Problems Also, there exists a rather specific but very acute personnel problem the training of personnel for the defense industrial complex (DIC). At the present time, its employees of all levels (workers, technicians, engineers, designers of the high est qualification) have, on the average, reached the age limit both with regard to pension parameters and the nominal duration of life in the RF. The search for solu tions to the problem is continuing. One of the most interesting solutions currently under consideration is the creation of university complexes, including vocational training schools, specialized secondary schools, higher educational establish ments, and centers of post graduate education and branch science. As a result, there will emerge a single system of installed educational standards, which will envisage a contest based transition of the students from one stage of education and practical activity to another. However, it is far from being certain that the lead ing educational establishments of the country will be able to rapidly switch over to this corporate system of education. This will require the pooling of the administra tive and financial resources of various agencies and the management of the DICs enterprises with different forms of ownership.

Housing. There is yet another potentially important incentive for military ser vice which is still waiting to be materialized, that is, the provision of housing for the military personnel serving under contracts. This problem is being solved in the RF in a number of ways. Firstly, with the help of state residential construction (SRC) for those who have been dismissed with a commitment to provide them with resi dential property. At present, the average rate of the value of one square meter of housing being used for calculating the cost of SRC amounts to 17,640 roubles. In Moscow, the upward coefficient is 1.2. Many servicemen justly complain that such norms infringe their interests and encroach on their rights. The second way the provision of residential property for those who have been serving in the armed forces for a sufficiently long period of time. The third way is to provide temporary (service) housing for those who have signed their second contract since the year 2004.

In general, so far as the solution of the housing problem is concerned, the year 2006 can be considered more successful than all the previous ones. Even some additional resources were allocated from the reserve fund of the RF Presi dent. While the situation which accompanied the withdrawal of troops from Ger many in the 1990s was clearly lamentable, the personnel of the former garrison of Tbilisi, including 329 servicemen and 220 civilians, were provided with housing this situation can be considered highly positive. Everybody was promised housing, including 92 officers out of 132, 16 warrant officers out of 49, and 28 servicemen serving under contracts who had decided to get demobilized.

The beginning of the materialization of the funded mortgage system (FMS) was disappointing. The Ministry of Defense, who had taken the allotted monies un der its control, did not manage to efficiently place these funds. In 2005, 22.6 thou Ipatov, O. Gde vziat kadry dlia oboronnoi otrasli (Where can we get the personnel for the de fense industry) // Voenno promyshlennyi kurer (The military industrial messenger). No. 43.


RUSSIAN ECONOMY IN trends and outlooks sand persons became participants of the FMS, and 1,031 billion roubles was allot ted for them, but it was only at the very end of 2006 that a contest between the as set managers was organized at the Ministry of Defense for the purpose of conclud ing the agreements of trust management of the servicemens savings.

For the year 2006, it was planned to allocate 3,209 billion roubles to the FMS fund. The leadership of the Ministry of Defense announced that it had selected companies, had divided the savings among them on the principle of equality, and had introduced the index of fixed returns. But by the end of 2006 the Ministry of De fense had not announced any growth of the monetary means coming to the FMS fund. The attractiveness of the FMS in the eyes of the military had fallen sharply. In this connection, the Ministry of Defense and the Ministry of Finance issued a joint decision to the effect that, starting from the year 2007, the funded contribution should be increased to 82,700 roubles per year per each servicemen taking part in the FMS.

The solution of the problem of providing the servicemen with service housing has been altogether postponed to a later period that until 2012. The situation is further aggravated by the fact that, according to the Clearing Houses auditor A.

Piskunov, while the existing demand is for 480 thousand apartments, today the military establishment lists more than 700 thousand apartments in its fixed assets.

But about 70% of these apartments are occupied by persons totally unrelated to the Armed Forces.

5.6.2. The Major Results of the Military Economic Activity Aimed at the Technical Equipment of the Armed Forces The problems of material and technical equipment of the RF military organiza tion and of the DIC development have recently become a major priority for the mili tary and political leadership of the State.

Last year, the ratio between the RF Ministry of Defenses expenditures on the current upkeep of the Armed Forces and on their military equipment amounted, approximately, to 60: 30. In the past, this ratio was 70: 30, and the scope of pro gress makes it possible to hope that the planned level of 55.8: 44.2 can be achieved in 2007. However, as is shown in our report for the year 2005, the reputed optimality of this ratio has never been justified, nor is it confirmed by the practice of development of the armed forces abroad.

One could note a positive dynamics of the priority rates of expenditures on purchasing armaments and military and special equipment. As regards the manu facturing of military purpose products (MPP), the work load of enterprises grew by 40%, and 75 thousand work places were additionally organized during the past Yurov, D. Nakopitelno ipotechnaia sistema vystraevaetsia (The funded mortgage system is tak ing shape) // Krasnaia Zvezda. No. 241. 28.10.05.

Ipotechnye vznosy uvelichatsia [Mortgage contributions will increase] // Voenno promyshlennyi kurer (The military industrial herald). No. 43. 8 November 14 November 2006.

Garavskii, A. U oborony schet osobyi (Defense calculates differently) // Krasnaia Zvezda. No. 3.


Section Institutional Problems five years157. But as in the past, the core of the DIC is represented by approximately 1,280 enterprises and organizations in 72 subjects of the Federation. Of them, fed eral state unitary enterprises account for 58%, joint stock companies with a state owned block of shares of no less than 50% for 19 %, and joint stock companies with a state owned block of shares of less than 50 % for 23 %. The register in cludes 63 enterprises of the RF Federal Agency for Nuclear Power (ROSATOM) and 191 enterprises of the Ministry of Defense.

Nevertheless, the noted positive trends do not prevent the continuing ageing of the complex. The problem of its restructuring, the completion of which had been planned for the year 2006, was not solved. The state of the Defense Industrial Complexs enterprises, the character and rates of their development, and also the methods of building relations with their major customers (the States power structures) are such that they are starting to pose a serious danger to the national security of the country. The technological and personnel degradation of the De fense Industrial Complex can reach such a level that the lagging behind of Russias Armed Forces in the sphere of technical equipment, in conjunction with its enor mous territory and immense natural resources, would create combined precondi tions for the emergence of military threats, which are as yet hidden.

And yet another circumstance should also be noted. The growth in expendi tures on armaments and military equipment from 80 bn roubles in 2002 to 237 bn roubles in 2006, and the planned 302 bn in 2007, is not proportional to the growth in the level of availability of these armaments and equipment to the RF Armed Forces, especially when comparing the expenditures and the growth rate of pro duction in Russia itself. It should be noted, for the sake of justice, that Russian ar maments are still very popular in the world. The share of Russian exports on the in ternational arms market amounts to 15%, or 6 bn USD.

After having noted that the volume of the state order for defense items for the year 2006 nearly by two times exceeds the annual volume of export of Russian ar maments, A. Piskunov, as an auditor of the Clearing House, puts a justified ques tion: Why until now we have been manufacturing more products, and frequently of better quality, for the foreign customer than for our own Armed Forces, whereas the costs are similar The causes of this situation are differently explained by a number of special ists, whose access to information and whose levels of competence and responsibility also differ considerably. Thus, the Chief of the RF General Staff, Baluevskii, considers that the Army is unlikely to obtain armaments it needs, because there is no coherent military technical policy. But if any military Avdeev, Yu. Oboronka poka v oborone (The defense industrial is still on the defensive // Kras naia Zvezda. No. 214 (24734). 21.11.2006.

Chistova, V. E. Ekonomicheskoe upravlenie razvitiem oboronno promyshlennogo kompleksa Rossii (The economic management of Russias defense industrial complex) / Doctor of Economic Sciences V. V. Bandurin, Ed.: Moscow: The Krasnaia Zvezda Publishing House. 2005.

Miasnikov, V. Voenno promyshlennuiu vertikal ukrepili slabym zvenom (The military industrial vertical has been strengthened by a weak link) // Nezavisimoe voennoe obozrenie (The independent military review). 07.04.2006.

RUSSIAN ECONOMY IN trends and outlooks no coherent military technical policy. But if any military technical policy is miss ing, what are the rapidly growing allocations being spent on The number of possi ble answers to this non rhetorical question is limited. Answer 1: the armaments and military equipment are being purchased at enormously inflated prices, and there fore the expenditures are growing much faster than the level of availability of these armaments and equipment. Answer 2: we are witnessing a large scale embez zlement of public funds. According to the RF Clearing House, the total sum of fi nancial violations perpetrated between 1999 and 2002 amounts to 15.8 bn161. In all likelihood, both answers are correct.

At the All Russian Scientific and Practical Conference The Prevention of Bankruptcy of Strategic Enterprises and Organizations: the Practice and Prob lems, held in Moscow on the 25th26th of April, the major cause of the negative fi nancial and economic state of the defense industrys enterprises was found to be the low level of workload, amounting to just 40%. At the same time, in some indus tries, the workload under the state order for defense items amounts to between 9% and 30%. According to the Conferences participants, it is precisely this phenome non that causes the uncontrollable growth in the prices of defense products, be cause all overhead expenses incurred by a given enterprise are included in the value of a limited output of products.

According to the Federal Tax Service, 198 strategic enterprises and organiza tions are displaying some or other signs of bankruptcy, and 170 of them are the DICs enterprises. The tax authorities have issued orders that the arrears accumu lated by 150 strategic enterprises should be recovered from them at the expense of their property. One third of the enterprises in the defense industry which are stra tegic enterprises exceptionally important for Russias security can be sold at auc tions either in whole or in part. The RF Clearing House is also pointing to the clear discrepancy between the results of growth of the countrys military potential and the rise in expenditures on defense163.

There exist some other objective and subjective problems associated with planning and implementation in the sphere of development and production of mili tary purpose products (MPP). The major ones are as follows:

- the hard to predict changes in the forms of ownership of the enterprises and organizations fulfilling the state order for defense items;

Sergeev, O. L. Monopolizm, lobbizm i otsutstvie chetkoi voenno tekhnicheskoi politiki (Mo nopolism, lobbyism and the absence of a clear military technical policy) // Nezavisimoe voennoe obozrenie (The independent military revie). 12.05.2006.

Miasnikov, V. Na vysote v armii vorovstvo (The only thing which is up to the mark in the army is larceny) // Nezavisimoe voennoe obozrenie (The independent military review). No 16 (4114).


Miasnikov, V. Voennaia promyshlennost spolzla za gran bankrotstva (The military industry has slid beyond the verge of bankruptcy) // Nezavisimoe voennoe obozrenie (The independent military review). 28.04.2006.

From the audit of resources to the audit of results // Rossiiskaia Gazeta (The Russian Gazette. No 148 (4114). 11.07.Section Institutional Problems - the vagueness of the prospects of development of the DISs enterprises as such;

- the irregular financing of the state order for defense items (SODI);

- lobbyism in combination with monopolism;

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