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Russia: Sky Cloudy For Defense Industry

Moscow, 14 April 1997 (RFE/RL) -- The Russian defense industry, despite scoring record export sales, fears that output will continue to fall this year, along with the already meager state subsidies.

RFE/RL's defense correspondent reports from Moscow that the industry is feeling the loss of its main defender and lobbyist, the Defense Industry Ministry, or Miniboronprom, which was disbanded earlier this year during a series of cuts in the federal government. Its responsibilities were transferred to an expanded Ministry of Economics.

Former Minboronprom official Yuri Chervakov told our correspondent there's a widespread feeling that the crisis cannot be overcome in the near future. But why is Russia's massive defense industry plunged into gloom when overseas sales are booming? A dramatic expansion of arms sales is expected to provide this year the equivalent of $4 billion.

Chervakov explains that domestic business has dried up and that is hitting hard the many non-export defense enterprises. Even in cases where the Russian military is still placing orders with enterprises, Chervakov says, it ends up paying for less than half of the equipment it actually receives. Tens of thousands of defense industry workers have gone without wages for months, and the number of defense enterprises has shrunk more than three-fold in the last few years to just 500 today.

Even those companies which have converted their production to civil goods are troubled. Last year such converted companies, which mostly focus on consumer goods, saw their output fall by 24 percent, as they could not compete against cheap imports.

Official figures show that Russia has cut its military spending from 7.9 percent of gross domestic product in 1990 to the current 3.7 percent. Chervakov and other former Minoboronprom officials who talked to our correspondent said they are pessimistic about the government's recent promises to increase funding for the 1997 defense orders and to pay wage arrears.

The orders include specific contracts for military research and development, design, construction, production and arms purchases. The government managed to fund only 50 percent of last year's orders.

The state is so impoverished that it is currently funding construction of only one prototype of each type of advanced weaponry in its arms development program. That federal program is intended to revamp the Russian military's ageing arsenal by the year 2005.

Chervakov said in addition that he believes Minoboronprom's demise will doom the sweeping defense industry reforms that had been planned and already partly implemented by Miniboronprom. That agency had planned to unite more than 320 defense production facilities, research institutes and design bureaus into 30 state-controlled corporations. He said that at least five such conglomerates have been set up, but that prospects for further consolidations now seem distant. He also said the Ministry of Economics will find great difficulty in taking over many aspects of defense equipment procurement because of a lack of specialists.

Of course, not all analysts paint such a gloomy picture as the Miniboronprom experts. Our correspondent quotes Yaroslav Lissovolik of the Russian-European Centre for Economic Reforms as offering a different perspective. He said he expects the government to allocate enough resources to preserve advanced technologies until an economic recovery enables it to support full military production. According to the Economics Ministry, the country by early next century will be able to resume spending 5.5 percent of GDP on the military.