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Russian Procurement Budget Soars Amid Uncertain Strategic Posture

NEWTOWN, Conn. - The cliché that "Timing Is Everything" is applicable to Russia's State Defense Order, its three-year military procurement budget. While the Kremlin's coffers are hemorrhaging billions of dollars as a result of deficit spending necessitated by oil prices under $40 per barrel and the need to infuse cash into insolvent industrial sectors, the military's procurement budget has been bolstered. That the Russian military has fared so well financially is a function of good timing, needed industrial assistance, and the Kremlin's priorities.

On December 23, Vladislav Putilin, First Deputy Chairman of the Military Industrial Commission, announced that the State Defense Order (SDO) for the 2009-11 period would be RUB4,000 billion ($142 billion). Putilin noted that the SDO represents a considerable increase over current levels of defense procurement spending, adding, "The [SDO] has been increased considerably compared with the current one: by 28 percent for 2009, and by 20 percent for 2010. As for 2011, the increase will be RUB41 billion compared with 2010." The surging defense procurement budget will fund the acquisition of 48 military aircraft, six UAVs and ground-support systems, over 60 attack and transport helicopters, 14 naval vessels including submarines, approximately 300 tanks, and over 2,000 tactical and transport vehicles.

That the Russian Ministry of Defense was able to secure a procurement budget of such unprecedented size and scope is partially a function of timing. The SDO was finalized by the MoD in late August 2008. Likewise, its acquisition priorities reflect lessons learned from the Russian-Georgian War that demonstrated capability gaps in Russia's airpower, tactical mobility, and C4ISR capabilities. In addition, the SDO was also shaped by Russian strategic policy calling for a renewed investment in a submarine-based nuclear deterrent. In the context of this policy environment and with oil prices hovering between $115 and $125 per barrel, the SDO was approved and passed onto the State Duma, which effectively served only to rubber-stamp the procurement plan developed according to the objectives of Prime Minister Vladimir Putin.

In the months since the SDO was taken up for consideration by the State Duma, the Russian economy has changed considerably and so has the political rationale for the inflated procurement budget. The Russian economy has entered a recessionary period and the industrial sectors responsible for earning foreign reserves, including the energy, automotive, minerals, and aerospace sectors, are all requiring government assistance to continue operations. Likewise, the SDO is now being re-branded as a part of a stimulus plan for the beleaguered defense sector. Putin has suggested that the SDO will "render assistance to enterprises that supply armaments." Specifically, Putin suggested that the long-term contracts associated with the SDO will, "help the enterprises' work: they will be able to order raw and other materials and parts for the entire consignment in advance; and also to be flexible in regulating prices and conducting dialogue with suppliers." While envisioned as a way to infuse investment vertically throughout the aerospace and defense sector, the SDO may fail to accomplish this task, as Russian defense enterprises may be unable to maintain solvency until March 2009, when the funds are set to be appropriated.

While the guise of defense industry stimulus may have some validity, the Kremlin's decision to continue to allocate large sums of its dwindling wealth for the purpose of acquiring additional armaments illustrates where its priorities lie. The armaments highlighted in the SDO are geared toward power-projection. The acquisition of new fighter aircraft, nuclear submarines, advanced main battle tanks, and new intermediate and short-range ballistic missile systems is designed to demonstrate that Russia is again a global military power. In reality, Russian security and foreign policy, which calls for consolidating influence in the near-abroad and regaining influence globally, is predicated on its ability to posture as a military power. As the Russian economy comes to terms with the realities that it once boasted to be immune from, the Kremlin is loosing the economic element of its strategic posture. With this dynamic unfolding, Moscow has no choice but to invest in the one asset of influence it has remaining: its perception as a military power.

Source:  Forecast International

Associated URL: www.forecastinternational.com

Source Date: December 23, 2008

Author: M. Ritchie, Analyst

Posted: 12/31/2008