ffi forum, oslo militære samfund, 26 may 2009 1 russian defense outlays before and after the...

FFI Forum, Oslo Militære Samfund, 26 May 2009

1

Russian Russian defensedefense outlays before and outlays before and after the financial after the financial crisiscrisis

VasilVasiliiii Zatsepin Zatsepin

The Institutefor the Economyin Transition

Russian Military ModernizationRussian Military Modernization


2

Strategy, programs, and budget Strategy, programs, and budget are all aspects of the same are all aspects of the same basic decisions.basic decisions.

Harry S. TrumanHarry S. Truman



3

Looking Back Over ShoulderLooking Back Over Shoulder

CIACIA

WesternWesternAcademiaAcademia

InternationalInternationalOrganizationsOrganizations

The SovietThe Soviet

DefenseDefense

OutlaysOutlays



4

Historically, Russian governments have Historically, Russian governments have often seriously compromised optimal often seriously compromised optimal growth in favor of political control at growth in favor of political control at

home and domination abroad.home and domination abroad.

Anders ÅslundAnders Åslund



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“…“…defense sector:defense sector: 105 billions. This was 105 billions. This was noticeably more than declared… noticeably more than declared… Spending on military matters. You Spending on military matters. You know, I think now that indecision here know, I think now that indecision here ought to be taken more on my own ought to be taken more on my own conscience conscience – – this all is on my mindthis all is on my mind.. It It was possible to cut these 15-20 billions was possible to cut these 15-20 billions down, to release from defense sector, down, to release from defense sector, and we could turn out in this situation and we could turn out in this situation with $80 billions. And to save [Soviet with $80 billions. And to save [Soviet Union].”Union].”

Mikhail GorbachevMikhail GorbachevThe Institutefor the Economyin Transition

SourceSource: Radio FM “Echo : Radio FM “Echo MoskvyMoskvy”, 28 December”, 28 December 2008 2008


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Russian Defense Spending 1999-2008 *Russian Defense Spending 1999-2008 *

* As shown in section “National Defense” of Federal* As shown in section “National Defense” of Federal

Budget Laws and Federal Budget Execution Laws.Budget Laws and Federal Budget Execution Laws.The Institutefor the Economyin Transition

115.6115.6

1 040.81 040.8


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Russian Defense Spending: Alternative EstimatesRussian Defense Spending: Alternative Estimates


SourceSource: RAND Monograph MG768-3.8 : RAND Monograph MG768-3.8


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Russian Military Expenditure vs U.S. Defense Russian Military Expenditure vs U.S. Defense BurdensBurdens


SourceSource: Hillison, J.R. “: Hillison, J.R. “New NATO Members: SecurityNew NATO Members: Security

Consumers or Producers?Consumers or Producers?” ” Pub916, StrategicPub916, Strategic

Studies Institute, U.S. Army War College.Studies Institute, U.S. Army War College.


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How to Deflate It or Is Defense Inflation Really How to Deflate It or Is Defense Inflation Really as High as Claimed?as High as Claimed?


SourceSource: : L’L’ééconomie de la dconomie de la dééfense 2006fense 2006. [Paris]: Conseil. [Paris]: Conseil

ééconomique de la dconomique de la dééfense, [2006]. P.108fense, [2006]. P.108..


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Changes in Deflators for Final Government Changes in Deflators for Final Government Consumption Expenditure and GDP in Russia, %Consumption Expenditure and GDP in Russia, %


SourceSource: : National Accounts of Russia in 1999-2006: Stat.National Accounts of Russia in 1999-2006: Stat.

Compendia. Moscow: Rosstat.Compendia. Moscow: Rosstat.


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Russian Defense Spending 1999-2008 **Russian Defense Spending 1999-2008 **

** Using deflator for final government consumption expenditure** Using deflator for final government consumption expenditure



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Russian Defense Outlays in 1999-2008 Russian Defense Outlays in 1999-2008 as Percentage of GDPas Percentage of GDP



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Russian Defense Outlays 1999-2008 ***Russian Defense Outlays 1999-2008 ***

*** Using*** Using purchasing-power parity and U.S. purchasing-power parity and U.S. composite outlaycomposite outlay

deflator for total defense.deflator for total defense. The Institutefor the Economyin Transition


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Changes in the Dollar Purchasing Power Changes in the Dollar Purchasing Power in Russia from December 2004 to June 2008in Russia from December 2004 to June 2008


Source: Source: Gluschenko, K. (Gluschenko, K. (20082008). ). ““Is the cost of living in Russia really that low?” MPRAIs the cost of living in Russia really that low?” MPRA

Paper No. 13315 (Posted 10 February 2009), Munich Personal RePEc Archive.Paper No. 13315 (Posted 10 February 2009), Munich Personal RePEc Archive.


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Changes in the Structure of Russia’s Military Changes in the Structure of Russia’s Military Outlays in 2000 and 2007 as Reported to UNOutlays in 2000 and 2007 as Reported to UN


Year 2000Year 2000

Year 2007Year 2007


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Disbursement of Federal Budget’s Subsection Disbursement of Federal Budget’s Subsection “Armed Forces of Russian Federation” “Armed Forces of Russian Federation”

in 2006-2008 by Months*in 2006-2008 by Months*


* Subsection in section “National Defense”.* Subsection in section “National Defense”.


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Trying to Keep a Blow of Crisis? Changes Trying to Keep a Blow of Crisis? Changes in 2009 Section “National Defense”in 2009 Section “National Defense”

November 2008 April 2009November 2008 April 2009

Total, Total, blnbln roubles 1 336.4 1 190.6 roubles 1 336.4 1 190.6

Growth to 2008, % 30 15Growth to 2008, % 30 15

Major cuts, bln roublesMajor cuts, bln roubles

Secret total - 99.2Secret total - 99.2

MoD state defense order - 36.5MoD state defense order - 36.5

MoD RnD - 11.3MoD RnD - 11.3



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Remnants of Socialist Deficit EconomyRemnants of Socialist Deficit Economy


Deficit November 2008 April 2009Deficit November 2008 April 2009

POL, % 27 50POL, % 27 50

Uniform, % 64 71Uniform, % 64 71

Food, % 20 25Food, % 20 25


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What’s about the Future of Defense What’s about the Future of Defense Spending in Russia?Spending in Russia?

It will be determined not by external It will be determined not by external threat level but by:threat level but by:

inertiainertia interplay of group interestsinterplay of group interests inefficient defence managementinefficient defence management secrecy obsessionsecrecy obsession lack of high-grade military statisticslack of high-grade military statistics and ongoing economic crisesand ongoing economic crises



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Obstacles for Russian Military Modernization Obstacles for Russian Military Modernization are Still the Sameare Still the Same

FederalFederalAssemblyAssembly Chamber ofChamber of

AccountsAccounts

ExpertExpertCommunityCommunity

RussianRussian

DefenceDefence

OutlaysOutlays



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Any Questions?Any Questions? Vasilii ZatsepinLaboratory for Defense Economy

Phone: +7-(495)-629-0971E-mail: [email protected]

5, Gazetny Lane Moscow 125993 Russian Federation


ffi forum, oslo militære samfund, 26 may 2009 1 russian defense outlays before and after the...

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