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Russian Military Expenditures: What’s Behind the Curtain

Russian Military Expenditures: What’s Behind the Curtain. Vasily Zatsepin. The Institute for the Economy in Transition. Objective.

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Russian Military Expenditures: What’s Behind the Curtain

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  1. Russian Military Expenditures:What’s Behind the Curtain Vasily Zatsepin The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  2. Objective To present an analysis of Russia’s current practice in military expenditures field based on experience accumulated by the Institute for the Economy in Transition (Moscow) The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  3. Outline • Russian military expenditures • Underlying institutional factors • Prospects for the future The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  4. Part IRussian Military Expenditures The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  5. Learning the Lessons of History International CIA Organizations The Soviet Defence Enigma Western Academia The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  6. Components of Military Expenditures The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  7. What Follows from This? Conformity equation*: DefExtill1998 – MPtill1998  DefEx1999–2004 DefExafter2004+ CTExafter2004, where MP – military pensions; CTEx – civilian-type expenditures. * Valid for any from index years at least since 1994. Civilian-type expenditures size problem: 1998 Military Health & Education  0.01% GDP 2006 Military Health, Sport & Education  0.26% GDP The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  8. Russian Military Expenditures in Current Roubles Average annual nominal growth rate 34.1% (DefEx) * * The Institute for the Economy in Transition * in 2004 budgetary classification. 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  9. Russian Military Expenditures in Real Terms (Base Year 1999) Average annual real growth rate 11.3% (DefEx) * * * in 2004 budgetary classification, using GDP deflator for 2005 = 119.7%, for 2006 = 123.3 % (own estimate). The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  10. Russian Military Expenditures in Current US $ Calculated using official 1999–2004 purchasing power parity data Own PPP estimates for 2005 = 13.09 roubles/$,2006 = 14.34 roubles/$ * * The Institute for the Economy in Transition * in 2004 budgetary classification. 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  11. Russia’s Defence & Military Burden * * * in 2004 budgetary classification. The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  12. 2005 Structure of Russia’s Military Expenditures Reported to UN The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  13. Part IIUnderlying Institutional Factors The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  14. What’s Under the Hood? The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  15. Under the Hood are • Federal budget and budgeting process • Secrecy problem • Defence planning • Quasi PPBS • Actors and goals The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  16. Federal Budget and Budgeting Process • The budget system is a subject to annual changes in its legal framework • Formal and openly published budget request of the Ministry of Defence is lacking • Weak or lacking parliamentary control The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  17. Secrecy Problem The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  18. Secrecy in Russia’s Federal Expenditures in 2003–2006 The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  19. Secrecy in Federal Expenditures for Public Order and Safety in 2003–2006 The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  20. Defence Planning The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  21. Russian Military Planning The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  22. Quasi PPBS The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  23. What is State Armament Program? • Inherited from Soviet times • Introduced in 1980s when Soviet leadership had to react to PPBS success in the US • Instead being a means of control over military-industrial complex became a tool of special interest groups for control over considerable share of military expenditures The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  24. Comparison of Two Military Programming Systems The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  25. Actors and goals The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  26. Actors on Russian Defence Management Stage Not only size of military expenditures but its structure are determined by: • Ministry of Finance; • Ministry of Economic Development and Trade; • and at last Ministry of Defence The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  27. One More Actor Chief of Russian General Staff Yuri Balouevski in November 2005: “All the world develops according to the outline: about 60 per cent is spent on procurement, research and development; and about 30–40 per cent—on salaries and matters, connected with logistics and combat training of forces”. Source: Rossiyskaya gazeta, 1st November, 2005, translated. The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  28. Goals • Back in 2000 the Security Council of Russian Federation has set a prospective goal for the MoD to achieve 50% share of capital costs in defence budget by 2010 following “best international practices” • In 2005 the goal was extended: to achieve 75% share of capital costs by 2015 The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  29. Comparative Military Expenditures in 2004: Operating vs. Capital The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  30. Part IIIProspects for the Future The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  31. Future of Military Expenditures in Russia Military expenditures in observable future will be determined not by level of threats or international environment but by interplay of group interests and inefficient defence management due to secrecy obsession and lack of high-grade military statistics i.e. by government failures The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  32. Tail Wagging the Dog or Limited Control over Bureaucracy The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  33. Russia’s Military-Industrial Complex Dreams Prospective structure of RF expenditure for Armed Forces Source: Russian Military Review, 2006, № 1, p.18, translated. The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  34. …and Realization of the Dreams Source: Military Industrial Courier, 2006, № 12, p.6, translated. The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  35. Pestilence 2005 orLimited Information The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  36. Mysterious Disappearance of Russian Military Pensioners in 2005 (according to publications in mass media) Sources: Rossiyskaya gazeta, 4th May; Independent Military Review, 20th May; Red Star, 19th October; Red Star, 29th December The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  37. Conclusion The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  38. Instead of Military Reform Still Trying to Be as Before Federal Russian Assembly Chamber of Accounts Defence Enigma Expert Community The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

  39. Any Questions? Vasily B. Zatsepin Senior Research Fellow Department for Military Economics Phone: +7-(495)-629-0971 E-mail: Zatsepin@iet.ru www.iet.ru 5, Gazetny Lane Moscow 125993 Russian Federation The Institute for the Economy in Transition 10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006

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