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Russia: Asian Financial Crisis Influences Arms Sales

Moscow, 29 January 1998 (RFE/RL) -- Russia's government has begun assessing the impact of the Asian financial crisis on exports of Russian-made arms, amid pessimistic forecasts that the Indonesian government will cancel last year's $500 million order for aircraft and armored vehicles.

"I think that the contracts, especially with Indonesia, are lost for the time being, " says Ruslan Pukhov, director of Moscow's Center for Analysis of Strategies and Technologies (AST). "Everything will depend on how fast and efficiently (Asian) countries will deal with the consequences of the financial crisis, and whether Russia will be able to propose them armaments in two-to-four years' time at prices as good as they are now."

Citing officials, who won't agree to identify themselves or their agencies, the Russian press has suggested that the Indonesian government came under intense pressure during a recent visit to Djakarta by U.S. Defense Secretary, William Cohen. The Russians believe Cohen made American support of a financial bailout for Indonesia conditional on cancellation of Indonesia's purchase of 12 Sukhoi-30K fighter-bombers, eight Mikoyan-17 combat helicopters, along with 50 BMP-3 armored personnel carriers and additional armored commando vehicles.

The Indonesian agreement to buy the Su-30 aircraft followed criticism by Washington of Indonesia's human rights record, and the Djakarta government's decision to cancel a planned purchase of nine American-made F-16 fighters.

The deal Indonesia signed last year with Russia was reported to price the Sukhoi aircraft at $34 million apiece, and the entire contract is estimated to be worth about $500 million. Indonesian officials told RFE/RL the terms of the agreement call for a 20 percent cash payment, with the balance to be repaid in the form of Indonesian exports to Russia. A list of 40 trade items was submitted to Moscow for negotiations that have not yet taken place.

An Indonesian Embassy official told RFE/RL a proposal to postpone the Russian agreement has been made by Djakarta's military chiefs. But he said the government has made no decision yet, and there has been no communication with the Russian government on the matter.

"The proposal is not for canceling, but for postponing (the agreement)," the Indonesian official told RFE/RL. The reason, he added, "is the economic problem. There is no other reason." He said there is "no truth" in Russian suspicion of American intervention to stop the arms deal.

The Indonesian agreement was a breakthrough for Sukhoi in the Southeast Asian market, just as Malaysia's purchase of Mikoyan-29 fighter-bombers three years earlier was the first Russian combat aircraft sale in a market hitherto dominated by Western suppliers, predominantly the U.S. Traditional Asian buyers of Sukhoi and MiG include China, India, and Vietnam. China signed agreements last year to buy $2,5 billion worth of Russian weaponry and military technology, including 70 Sukhoi-27s and the license to manufacture 200 of the aircraft.

Since 1993, state figures indicate rapid growth of Russia's military exports. In 1994, the export total was $1.7 billion; in 1996 it was up to $3.4 billion. In 1997, military trade officials claim they prepared agreements for deliveries worth $7 billion over several years.