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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

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


Objective
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


Outline
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


Part i russian military expenditures
Part IRussian Military Expenditures

The Institute

for the Economy

in Transition

10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006


Learning the lessons of history
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


Components of military expenditures
Components of Military Expenditures

The Institute

for the Economy

in Transition

10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006


What follows from this
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


Russian military expenditures in current roubles
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


Russian military expenditures in real terms base year 1999
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


Russian military expenditures in current us
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


Russia s defence military burden
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


2005 structure of russia s military expenditures reported to un
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


Part ii underlying institutional factors
Part II to UNUnderlying Institutional Factors

The Institute

for the Economy

in Transition

10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006


What s under the hood
What’s Under the Hood? to UN

The Institute

for the Economy

in Transition

10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006


Under the hood are
Under the Hood are to UN

  • 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


Federal budget and budgeting process
Federal Budget and Budgeting Process to UN

  • 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


Secrecy problem
Secrecy Problem to UN

The Institute

for the Economy

in Transition

10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006


Secrecy in russia s federal expenditures in 2003 2006
Secrecy in Russia’s Federal Expenditures in 2003–2006 to UN

The Institute

for the Economy

in Transition

10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006


Secrecy in federal expenditures for public order and safety in 2003 2006
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


Defence planning
Defence in 2003–2006 Planning

The Institute

for the Economy

in Transition

10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006


Russian military planning
Russian in 2003–2006Military Planning

The Institute

for the Economy

in Transition

10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006


Quasi ppbs
Quasi PPBS in 2003–2006

The Institute

for the Economy

in Transition

10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006


What is state armament program
What is State Armament Program? in 2003–2006

  • 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


Comparison of two military programming systems
Comparison of Two Military Programming Systems in 2003–2006

The Institute

for the Economy

in Transition

10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006


Actors and goals
Actors and goals in 2003–2006

The Institute

for the Economy

in Transition

10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006


Actors on russian defence management stage
Actors on Russian in 2003–2006Defence 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


One more actor
One More Actor in 2003–2006

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


Goals
Goals in 2003–2006

  • 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


Comparative military expenditures in 2004 operating vs capital
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


Part iii prospects for the future
Part III CapitalProspects for the Future

The Institute

for the Economy

in Transition

10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006


Future of military expenditures in russia
Future of Military Expenditures in Russia Capital

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


Tail wagging the dog or limited control over bureaucracy
Tail Wagging the Dog Capitalor Limited Control over Bureaucracy

The Institute

for the Economy

in Transition

10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006


Russia s military industrial complex dreams
Russia’s Military-Industrial Complex Dreams Capital

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


And realization of the dreams
…and Realization of the Dreams Capital

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


Pestilence 2005 or limited information
Pestilence 2005 Capital orLimited Information

The Institute

for the Economy

in Transition

10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006


Mysterious disappearance of russian military pensioners in 2005
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


Conclusion
Conclusion 2005

The Institute

for the Economy

in Transition

10th Annual Conference on Economics & Security, Thessaloniki, Greece, June 2006


Instead of military reform still trying to be as before
Instead of Military Reform Still Trying to Be as Before 2005

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


Any questions
Any Questions? 2005

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