Profit, Loss, and Proliferation

Russia's Continuing Defense Modernization Plan

by Molly Cernicek and Cheryl Rofer

This spring, Russian President Dmitri Medvedev announced a plan to modernize at least 30 percent of Russian military weaponry by 2015. According to Defense Minister Anatoly Serdyukov, only 10 percent of his military’s equipment is up to date, and he plans to spend $43 billion to fix this problem.

Although Russia neglected its military financially in the 1990s, that has not been the case in the past decade. Military spending has risen significantly in an attempt to modernize the army and its armaments. In 1988, the Soviet Union’s military budget was about $33 billion. By 1997, it was one-tenth of that.

Since 2000, Russia has been authorizing more funding to modernize its military, including moving it towards a professional army model and upgrading its weapons systems. In summary, Russia’s military budget climbed from $7 billion in 2000 to close to $50 billion in 2009.

So where did all of the funds go over the past 10 years? Did they buy new weapons systems and technology and transition the Russian army into a professional model with higher salaries and decent housing? How could only 10 percent of the military equipment be up to date after billions of dollars were allocated to new procurements? Either the funds were misused or Medvedev’s current $43 billion plan to modernize 90 percent of his military armaments is far too little. More likely it’s both.

It’s to be expected large sums of budgeted funds would be misspent or ended up in personal bank accounts. The Russian government realizes 1 out of 3 rubles in the economy falls victim to corruption, and many Russians think it is much closer to 1 out of 2 rubles.

But the bigger worry for Medvedev is that orders were placed, despite corruption problems, to the defense industry for modernized equipment and have not been filled year after year. After President Putin privatized much of the massive, inefficient Soviet defense industry in 2006 and 2007, 30 percent of the nearly 400 organizations privatized are facing bankruptcy proceedings. Defense contracts keep these inefficient organizations alive but not producing.

Medvedev should notice that the math is not adding up. For many of the past 10 years, big announcements have been made about the modernization plans of the its military followed by trillions of rubles allocated. But even with those trillions of rubles and global market opportunities for the privatized firms, the defense sector is struggling. In 2009, for $50 billion the government invested in its defense industry, international weapons sales brought in a record $7.4 billion. Not a great ratio of investment to sales.

Medvedev expects this latest modernization program to switch all military communications to digital technologies by 2012. He recently demonstrated an ultramodern prototype radio. A small problem – technologies like this radio and digital technology were designed and manufactured outside Russia. From what country should Russia buy their next-generation secret communication systems and technologies? A topic for a future post perhaps.