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Global Crisis Hits Russian Arms Makers, Ivanov Says

Deputy Prime Minister Sergei Ivanov
MOSCOW (Reuters) -- Russian arms manufacturers are experiencing cash flow problems because of the financial crisis and need help from state-controlled banks, the deputy prime minister in charge of the defense sector has said.

Weapons are one of Russia's most lucrative exports, worth $7 billion in 2007 according to officials, and arms makers are benefiting from a sharp rise in defense spending as the Kremlin seeks to restore its military might.

But Deputy Prime Minister Sergei Ivanov said the liquidity crunch had left some manufacturers unable to complete contracts or pay their employees.

"The world financial crisis is hitting certain defense-sector producers quite hard," Interfax news agency quoted Ivanov as saying at a meeting with defense officials. "A whole series of defense producers are experiencing a pressing shortage of cashflow to ensure their finished products are released and handed over to their customers."

He said the government had proposed that banks controlled by the state -- Sberbank, VTB, and Development Bank -- should consider offering credit to defense producers on favorable terms.

"We are talking, in particular, about...providing loans to companies under contract to the Defense Ministry to ensure cash flow, including for paying wages to staff, extending previously agreed credit lines, and subsidizing interest rates," Interfax quoted Ivanov as saying.