Tag Archives: Defense Budget

Medvedev Signs Pay Law

Medvedev's Meeting on Pay Law

Monday President Medvedev met an unusual group — the Defense Minister, General Staff Chief, and MD / OSK commanders (but no service CINCs or branch commanders) — to announce he signed the long-discussed law on military pay that becomes effective on January 1, 2012.

The increased military pay in this law was a key goal for Anatoliy Serdyukov when he arrived at the Defense Ministry nearly five years ago.  Premium pay was just a stopgap.  So this is a success for his reform program.  His idea was to cut half (or more) of the officer corps and raise the pay of those remaining.  Of course, he had to back off somewhat on cutting down to 150,000 officers.

Why did it take so long to enact an increase in military pay?  Was it hard to find the money?  Maybe, given the global financial crisis of the late 2000s.  Was it hard to overcome former Finance Minister Kudrin’s resistance to higher defense outlays?  

Newsru.com, Svpressa.ru, and others see the pay increase as timed to coincide with Duma and presidential elections, and designed to engender the military’s goodwill toward the current leadership at the ballot box.  It’s worth noting the reduction in conscription from two years to one came in the context of the last national elections in 2008.

According to Kremlin.ru’s account, Medvedev indicated he wanted to congratulate those assembled on their long, hard effort to raise military pay to its new level, on average 2.5 or 3 times above today’s pay.  RIA Novosti provides the standard example of lieutenants rising from 19 to 50 thousand a month. 

In addition to higher base pay, the usual supplements will remain in effect, including additional pay for special duties, class qualifications, and difficult service conditions.  Premiums of up to three times base pay for outstanding performance will also continue.  Military pensions will increase at least 50 percent to 17,000 on average.  Read more about pay calculations here.

Addressing his small audience, Medvedev said:

“In such a way, servicemen have a very serious stimulus to carry out their service duties well and improve their professional training.”

He was careful to say those without duty posts (the so-called распоряженцы) won’t be left behind:

“It also includes important provisions, which, in principle, allow us to prevent worsening of the material situation of different categories of servicemen, citizens, dismissed from military service, their family members, if the amount of pay given them is reduced in connection with introducing the new system, then here there is an established mechanism of compensation and balancing out of these payments that is also an important guarantee of financial stability for our servicemen.”

Not reassuring.  But those guys won’t vote for United Russia and Putin anyway. 

The president continued:

“I won’t conceal that many drafts were ripped up around it, there were many discussions about whether we were prepared to raise pay to such a degree, whether the state had the resources for this, whether this wouldn’t drain our budget, wouldn’t create some kind of problems in the future?”

“I want to tell those present and, naturally, all servicemen of the Armed Force to hear me:  it won’t drain us, everything will be normal, and all required payments by the government will be made because this is the most important guarantee of raising the professional preparation of servicemen and improving the quality and effectiveness of the Armed Forces.  Therefore, the decisions, proposed several years ago, are being executed and put into action by this law.”

Thanking Medvedev, Serdyukov said:

“For us, in a complete sense, this resolves all earlier problems:  this is manning with both officers and contractees; this is serving; this is the attractiveness of military service, the fact is this is the entire complex of issues which weren’t practically resolved for us.”

Medvedev completed his remarks with this:

“But the main thing the state, by adopting this law, its signing and, accordingly, its entry into force, shows is that decisions once given voice are subject to unconditional fulfillment, whether someone likes them or not, if depending on them is the social condition of a huge number of people:  these are servicemen and their family members.”

“And further, we will do this so that our Armed Forces will be highly effective, and service in them will be prestigious and highly professional.”

So Medvedev declared it a test of governmental capability, and swiped at dear departed Kudrin who opposed the extent of defense budget increases in view of priorities like education and health (not to mention the pension fund).

It takes capability to implement a decision, yes, but it takes even more to stick with it over the long term.  Will the Russian government be able to continue the new level of military pay when the elections are over, economic conditions less favorable, oil prices and revenues lower, and budgets tighter?  That’ll be the true test of capability.

P.S.  We shouldn’t forget that the Defense Ministry has also semi-obligated itself to paying 425,000 professional enlisted contractees 25,000 rubles or more a month in the future.  That will probably equal the bill for paying officers.  Let’s estimate this total cost at 500 billion rubles a year.  The non-procurement defense budget in 2009 was only 670 billion.

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For Most Corrupt . . .

The winner is . . . the Ministry of Defense.  Novaya gazeta assembled respected independent experts to judge which of the Russian government’s 35 ministries and departments is most corrupt.

The Defense Ministry edged out the Transportation and Economic Development Ministries.  The experts said the five most corrupt (Health and Social Development is fourth and Finance fifth) have the opportunity to “saw off” 100 million to 1 trillion rubles per year (including budget money, and money that doesn’t reach the budget).

A little context.  Recall Defense Minister Anatoliy Serdyukov arrived four plus years ago promising to bring the Armed Forces’ notorious “financial flows” under strict control.  But corruption scandals have only continued to flare around the Arbat Military District.  Just a casual recent look:  the Main Military Prosecutor says 20 percent of GOZ money is being stolen, Lipetsk highlights widespread premium pay extortion, the Chief of the Main Military-Medical Directorate is arrested for corruption.  The list could go on.

Look at the Novaya story in the vernacular for links to its original sources.  Its experts focused on the closed nature of the defense budget, the impossibility of accounting for money allegedly spent on military R&D, the inability to confirm that work was actually performed, inflated prices, and a high rate of kickbacks.

But they also focused on the simple fact that no one is officially in charge of significant amounts of defense money in the federal budget.  Just by looking at budget lines, it’s clear to them that 600 billion rubles in defense spending (and perhaps much more) are simply unaccounted for.

They also focused on Defense Ministry FGUPs that haul in enormous profits but remit little into the budget.  And lastly they noted that fake health deferments from Voyenkomaty amount to an illicit 150-billion-ruble business every year. 

This is how they summarize the corruption situation in the Defense Ministry (below распил or saw cut, a share or cut of illegally obtained money, is translated as sawed off): 

“1.  Anatoliy Serdyukov’s Defense Ministry is the richest and also the most closed of Russian ministries and departments.  This is precisely why the experts considered it the ‘goldmine of the corrupt,’ that is absolute leader in the volume of money which it’s possible to write off  without supervision as ‘expenses,’ the reality of which society doesn’t have the slightest chance of verifying.  The first corruption scandal in the new (Yeltsin-Putin) Russia is directly connected with the Defense Ministry – the plunder of Western Group of Forces property which broke out in 1992-93.”

“In the opinion of experts polled, ‘today’s army purchases and especially ‘development,’ ‘research and development work’ for the army is that sphere where it’s possible to put up to 90% or more of state financing in your own pocket peacefully and where there’s no kind of limit at all.  Not even comparable is civilian construction done at state budget expense, where it would seem there should be the greatest percentage of corruption, but there is a limit there:  in construction it’s necessary to present a final result – a finished facility, therefore here it’s possible to put a maximum of 70% of state resources in your pocket without punishment.  In army ‘development’ there’s no accounting, everything’s classified, and this means it’s impossible to check, therefore in the Defense Ministry they ‘lose’ fantastic sums.  This comes to light only rarely, when military journalists make note of ‘new developments’ at Defense Ministry exhibitions which they already saw several years before.  Meanwhile, the Defense Ministry objects to this:  no, this isn’t old, it’s new, but meticulous military journalists show photos from previous years in which even the serial numbers are the very same as in the new exhibition.”

“Such expert evaluations are largely supported by the not numerous checks of the Main Military Prosecutor when they conduct them.  So, not long ago, the results of checks into the Defense Ministry’s 13th GNII and the Main Military-Medical Directorate, where ‘large-scale thefts of financial resources’ were revealed, were substantiated.  ‘Just in several instances of criminal activity by officials of the 13th GNII and ZAO ‘Kulon’ the theft of more than 40 million rubles was revealed – this is the amount of work which was never fulfilled.  A criminal case in relation to a group of Defense Ministry Main Military-Medical Directorate and State Order Directorate personnel was launched:  they concluded a state contract with a commercial firm to supply medical equipment for more than 26 million rubles, the cost of the equipment purchased from the businessmen was inflated more than 3 times, and the state took a loss of more than 17 million,’ acknowledged the Chief of the Second Directorate of the Main Military Procuracy General-Major of Justice Aleksandr Nikitin.”

“In Kirill Kabanov’s estimation, ‘the figure of 1 trillion rubles which the budget loses in purchases could be understated.  Kickbacks in our state procurement system are 30-40%, in open areas kickbacks are 20%, but in closed, monopolistic ones they go up to 60% — in the Defense Ministry, for example.’

“‘The Defense Ministry, of course, is the kingdom of the fearlessly corrupt.  The ability to classify everything in the world powerfully helps in ‘sawing off’ activity,’ – states Aleksey Navalnyy.”

“The potential corruption of ‘defense expenditures’ lies not just on the fact that society can’t concretely check the designation of every billion of military spending, but it doesn’t even have chances to find out precisely which ministry or department exactly bears responsibility for a good half of ‘defense’ expenditures.  For example, in 2010, the expenditures of the RF federal budget were 10.116 trillion rubles – both the Finance Ministry official site and the Rostat official site attest to this.  But of these only 9.052 was officially distributed among ministries and departments, and more than 1.06 trillion rubles was used by someone unknown, meanwhile more than half of them (0.6 trillion) went to ‘defense expenditures!’  An even more outrageous situation was planned in the RF budget laws for the following years:  in 2011, expenditures are 10.65 trillion, only 9.35 of which are signed off to a departmental structure, in 2012 — 11.3 trillion and 9.4 trillion, in 2013 — 12.2 trillion and 9.5 trillion accordingly, that is with every year the share of ‘no one’s’ expenditures will grow even larger . . .”

“In 2010, budget expenditures ‘on defense’ were 1.28 trillion (!) rubles.  Meanwhile, the Defense Ministry spent 0.98 trillion, of which 0.64 trillion were ‘on defense,’ but the remaining 0.34 trillion — on communal services, education, health, film, TV and pensions.  Spending of the remaining departments ‘on defense’ was in the amount of 0.041 trillion (Minpromtorg –32.4 billion, Rosatom –3.7 billion, Roskosmos — 0.9 billion, Rosaviatsiya — 0.6 billion, etc.; the Defense Ministry’s departments:  Spetsstroy — 1.8 billion, Rosoboronpostavka — 0.5 billion, Rosoboronzakaz — 0.3 billion, FSVTS — 0.3 billion, FSTEK — 0.0 [sic] billion rubles), the total expenditures of all departments ‘on defense’ — 0.68 trillion rubles.  But it’s unknown who — unknown even which ministry or department spent all of 0.6 trillion rubles ‘on defense!!’  It’s understandable that they were spent on the Defense Ministry’s business, but why hide this (no ‘military secret’ really suffers, if the Defense Ministry acknowledges that it spent not 1 trillion, but an entire 1.6 trillion in a year), isn’t it because it’s so much easier to steal ‘no one’s’ 600 billion in defense money?”

“It’s not known which departments spend not just 0.6 trillion in expenditures ‘on defense,’ but also 0.46 trillion of other spending — a number of experts believe they are almost all under the Defense Ministry’s control, the real budget of which is twice as much as the official one and amounts to 2 trillion a year.  So half of this (or even more), in experts’ opinions, gets ‘sawed off.'”

“However, the ‘fat’ life of the Defense Ministry leadership doesn’t end with this.  It turns out to be unknown how and why 15 thousand pieces of property belong to the Defense Ministry.  Where and to whom the proceeds from the use of them go – God only knows.  But on the other hand it is known that they are still also gathering up money for housing construction on these Defense Ministry lands from simple people who then turn into deceived investors.”

“Moreover, the Defense Ministry directs 352 FGUPs (Federal State Unitary Enterprises), from which even in the crisis year 2008, the Defense Ministry received 39.3 billion rubles in proceeds, but there are problems with remitting the profits into the federal budget:  it remitted only 0.092 billion of them.  Another 126 FGUPs are directed by Defense Ministry subordinate Spetsstroy and there’s the same situation with it:  proceeds in 2008 were 62.4 billion, and only 0.017 billion in profits remitted to the federal budget.  Defense Ministry subordinates FSTEK and Rosoboronzakaz direct 4 and 3 FGUPs respectively, their proceeds are 0.8 and 0.2 billion respectively, profits remitted to the budget are 0.001 and 0.0002 billion respectively.”

“The Defense Ministry and its subordinate Rosoboronpostavka glorified themselves with outrageous expenditures of dozens of budget millions to buy furniture for their leadership – certainly made of gold, beautiful wood and natural buffalo hide.  The main defender of the Motherland wouldn’t sit or work on any other furniture . . .  Just three such orders for the leadership cost the budget 60 million rubles, and at the same time 7 million was spent for furniture for average Defense Ministry and Rosoboronpostavka personnel. The Defense Ministry made it known that it also wrote off 45 million on ‘media monitoring’ in 2010(!).”

“The Defense Ministry’s subordinate Spetsstroy has been highlighted in corruption scandals:  in 2010, just one of its FGUPs tried to ‘con’ four banks out of more than 500 million rubles, by not returning credits taken from them and attempting to organize the ‘bankruptcy’ of Spetsstroy FGUPs . . .”

“Besides, in the experts’ opinion, ‘the main preoccupation of voyenkomaty in the last two decades has become the collection of bribes from conscripts,’ since ‘from 80% to 90% of deferments for health are given by voyenkomaty for bribes – exactly for this reason the Defense Ministry is demanding the lifting of student deferments, lifting deferments for the fathers of newborns, but never demands lifting deferments for health.’  Every year nearly 600 thousand deferments ‘for health’ are issued, almost all are for bribes which run in various RF regions from 200 to 400 thousand rubles, so, the overall trade in voyenkomat bribes is nearly 150 billion rubles a year, the experts believe.”

Medvedev Talks to Brigade Commanders

Medvedev Speaks at Brigade Commanders' Assembly

According to Kremlin.ru, President Dmitriy Medvedev traveled to the Gorokhovets training ground near Nizhniy Novgorod today to observe battalion-level ground and air maneuvers.  It’s a modern twist on an old tradition of presidential speeches before end-of-training-year assemblies in Moscow. 

Medvedev inspected a new field camp, different weapons and equipment, and watched a Tunguska demonstration.

Afterward he met brigade commanders observing the exercise, and addressed them about the process of reforming the armed forces.

Medvedev said for two years Russia has been actively modernizing its armed forces to make them more compact, effective, and better equipped, and completing ‘org-shtat’ measures [i.e. TO&E changes] to achieve a ‘new profile.’  Flanked by Defense Minister Serdyukov and General Staff Chief Makarov, he promised the assembled commanders a defense budget worth 2.8 percent of Russia’s GDP every year until 2020, but he said getting this level of spending will not be easy, and it requires adjustments and cuts elsewhere.

He particularly emphasized establishing the new system of higher pay to replace earlier ad hoc measures like premium pay.  He seemed to say extra money will be squeezed out for this, but people will be watching how it’s spent.  Kremlin.ru posted some of Medvedev’s opening remarks:

“This is creating the conditions to equip the troops with new equipment in accordance with the current edition of the State Program of Armaments and, what is a no less important task and really no less complex, to resolve all social issues which exist for servicemen.  This issues are also well-known.”

 “First and foremost is the indexation of pay which we are already now conducting, and implementation of the housing construction program.  From 2012, the planned reform of the military pay system not according to those fragmentary pieces which exist at present, not according to those selective approaches which exist, but a full reform of pay.”

“In the final accounting, we should get so that base salary, monetary salary of servicemen will be increased practically three times. And in the process to preserve and to extend to all the Armed Forces that which we talked about in the past, that which we did according to groundwork laid in bounds of order 400 and some other Defense Ministry documents.”

“All planned measures, reform measures should be calculated and materially supported in the most rigorous way.  An adjustment in the military budget is being conducted and oversight of the use of resources is being organized for this.  I promise the attention of all Defense Ministry leaders on this:  all these processes need to be completed in coordination with other government structures in order that we should have absolute precision here.”

“A high level of financial support for the Armed Forces allows, I hope, for freeing servicemen from noncore housekeeping functions – that, in fact, was done long ago in the armies of other countries.  The troops need first and foremost to put their attention on operational training, combat exercises, to concentrate exclusively on these issues.  Security duties (firstly, perhaps not even security, but cleaning), everyday support, food preparation should be transferred to civilian organizations.”

Medvedev told the commanders their brigades should be self-sufficient, modern, balanced, and capable of fulfilling missions given them, and he invited their feedback because, as he said, the success of the military’s transformation depends on it.

“It would also be useful for me to know your opinion on the quality of the reform, on the organizational changes, what, in your view, has proven itself useful, and where there are problems.”

Despite soliciting their honest opinions, one doubts the Supreme CINC will hear many complaints from this audience.  They are, after all, winners in the reform process since they managed to continue serving in command positions.

Grinyayev and Fomin’s Conclusion

This is a downpayment on Russia’s Armed Forces:  Year 2010.  You can read about the authors here.  The report’s not great, but it has interesting information not printed elsewhere.

This picks up on Fomin’s earlier interview.  Next look for their chapter on the OPK.

The gist of the conclusion is this.  There’s been no rebirth of the armed forces, in fact, many negative trends are now irreversible.  There’s been no real rearmament despite higher budgets.  The military doesn’t know how to set clear goals, and is planning to fight abstract threats like terrorism, instead of real ones like the U.S.  Russia has money, but has invested it in currency reserves instead of its armed forces.

Here’s a translation of their conclusion:

Conclusion

There’s a myth that in the last ten years an incredible militarization of the country and rebirth of military power not quite to the level of the Soviet Union has occurred.  As the analysis conducted showed, this does not correspond to reality – in reality a degradation of the Russian VS [Armed Forces] has taken place.

Negative processes which began in the 1990s have reached their apogee today and are close to completion, because many negative tendencies in army development have taken on an irreversible character.  Numerous reforms are confirmation of this:  when everything is normal, reforms are not required.  With growing expenditures, real rearmament is not happening and new equipment is not entering the forces as a practical matter.  The defense-industrial complex is still relying on developments from Soviet times and no substantially new developments in post-Soviet times have been made that could even go into experimental, much less into production use.

The analysis showed that the degradation of the Russian VS is conditioned on two main causes.

  1. The absence of a distinct system of goal establishment for the functioning and development of the VS.  The affair has gone to the point that many military experts and analysts (not speaking of officials) are completely ashamed to clearly designate possible military enemies, and are trying to implement military organizational development under abstract sources of danger and threats.  Any ordinary person understands that today and in the near future, there are only three such enemies:  the U.S., NATO, and China.  International terrorism is not an independent force, but only an instrument in the hands of the mentioned groups of countries.  It should be clearly understood that ambiguity in goal establishment is just as ruinous for the condition and development of a system as a lack of resources.
  2. Nor is everything right when it comes to resources.  More precisely, it is obvious they are insufficient even to hold a steady position.  Miracles do not happen in program planning:  if the amount of allocated resources drops to such a critical level, no improvement in the command and control system or reforms can make up for this.

One does not need to speak of the country’s difficult financial problems.  The country has money.  In 2006 and 2007, $125-175 billion was transferred to the country’s hard currency reserves, respectively.  $175 billion is, at the year average rate of 25 rubles/$, approximately 4.36 trillion rubles, that is 5 times more than all MO [Ministry of Defense] expenditures in 2007.  This money was transferred into long-term, low-interest, and ‘highly reliable’ U.S. securities.  So they assert.  It is simpler to say an unreimbursed investment in the American economy.  For this money, it would have been possible to maintain another five armies like the current Russian one.  Even in the crisis of 2009, when we experienced a federal budget deficit, from the middle of March until the end of the year, nearly $60  billion was transferred into hard currency reserves, i.e. nearly 2 trillion is the volume of financing for another 1.5 such armies like Russia’s. 

But the financing of the Russian VS is not happening on the necessary scale.  As a result, the real possibilities of Russia are being cut by leaps and bounds.  This affects both military power and political influence abroad.

Dollar’s Inevitable Collapse Threatens Russia

Segodnia.ru recently publicized a report entitled Armed Forces:  Year 2010, prepared by the Center for Strategic Assessments and Forecasts (TsSOiP or ЦСОиП).  It interviewed one of the report’s authors – retired Colonel and Doctor of Technical Sciences, Aleksandr Fomin – about the state of Russia’s military and threats to Russia.

How does one characterize Colonel Fomin?  In this interview, his thoughts range from a little far right to far left / neo-Marxist.  Yet he sounds like President Medvedev in 2009 calling for a new world financial order to break the dollar’s hold on the international economy.  But that resemblance disappears once he starts excoriating Russia’s elite — co-conspirator in U.S. domination of Russia.

He generally argues the dollar’s inevitable collapse will lead to conflict or war, for which Russia is poorly prepared.  His arguments will appeal to some, but they represent a somewhat simplistic view of international economics and finance.  The rest is a short geopolitical treatise we’ve heard many times about how Russia arrived in its current condition.

Take heart, however, the analytical report is more interesting and original, but it’s 40-odd pages, so some patience on your part will be required.

By way of foretaste, on with Fomin’s interview . . .

Asked simply what’s going on in the Russian Army, Fomin answers:

“There’s a myth that the incredible militarization of the country and rebirth of its military might almost to the level of the Soviet Union has happened in recent years.  This doesn’t correspond to reality – in reality, as the analysis shows, the Russian Armed Forces have degraded.”  

“If we look at the trend of general financing of the Armed Forces for the last 10 years , adjusted for inflation, then we get as a true expression of the financing volume are 4% increases per annum on average.  At such a growth rate, it’s possible only to offset depreciation, but not guarantee the development of the armaments system.  Now recall corruption, and you find that in reality the Armed Forces didn’t develop, but degraded.”

“Today, in the spirit of political correctness, it’s believed that Russia’s main military enemy is international terrorism. They’re ashamed to identify the U.S., NATO, and China as the real potential enemies.  But if we call things by their names, then today Russia is inferior to these probable enemies in the size of its Armed Forces by 20 times in the West and 35 times in the East.”

We’ll have to read his full report to figure out how he came up with these numbers. 

Fomin goes on to say that Russia’s nuclear weapons won’t save it either, since Moscow’s elite keep its money, and educates its children, in the West.  He concludes flatly:

“It is very probable that Russian nuclear weapons will never be employed.”

Next Fomin constructs his scenarios for future wars and threats to Russia:

“In the coming decades, and possibly, years the U.S. and EU’s problems with China will inevitably sharpen, the cause of them is the struggle for energy resources.  Iran, Pakistan and . . . Russia will be drawn into this confrontation.  They will start to use our country as a buffer in the military resolution of the China problem.”

The interviewer asks Fomin what threatens Russia externally, what geopolitical positions has it lost, which ones does it still hold?

“The main threat not just to Russia, but also the world as a whole comes from the virtual world financial system, based on the American dollar, which for a long time already hasn’t been supported by real assets and is held up only by U.S. military might, the potential of which allows them to oppose everyone else in the world.  But sooner or later this system will collapse, for internal reasons.  But however the collapse occurs, its agony (possibly the current financial crisis is the beginning of this agony) could plunge the world into the Third World War.”

“As already said above, today Russia is practically undefended.  Its political leadership, like the appanage princes of Rus in the 12th -13th centuries, are trying to hold off threats  by means of multibillion tribute payments allegedly into international reserves.  However, in Russia the easily accessible oil, could soon be gone:  according to expert evaluations, 30% of wells are already unprofitable.  Then Russia will simply be of no interest to the rest of the world . . . .”

“If we talk about Russia’s lost geopolitical positions, then of course – this is NATO’s expansion to the East, the reinforced U.S. role to Russia’s south (Afghanistan, Iran, Pakistan, Georgia).  It’s possible to add the real threat of losing the Far East and Siberia to this.  They [NATO and U.S.] managed to spoil [Russia’s] relations with Ukraine, Belorussia, and Iran.”

Asked about the threat that Russia is becoming ensnared in U.S. “anti-Iran” policy, Fomin responds:

“. . . the U.S., economy of which is based on proliferating the dollar throughout the world and managing oil prices, has a very painful relationship to [Iran’s] nuclear energy development – to oil’s energy competitiveness.  Especially in the Near East.  In its relationship with Iran, Russia turns out to be hostage to its own financial system:  if the country holds its reserves in other countries’ hard currency, then it can’t oppose them on their main positions in the military-political sphere.  Some disagreements are possible, but there can’t be a lengthy tendency toward the complication of relations – in the case of a sharp worsening it would be easy to block hard currency accounts.”

“And, Russia for 20 years already has been unable to conduct an independent foreign policy, since it is tightly integrated into the world economic system dominated by the U.S.”

“Russia risks losing the remains of its authority among Muslim countries, after abrogating its earlier agreed supply of defensive weapons (in the first place, S-300 surface-to-air missile systems) to Iran.” 

Asked again about threats, Fomin says:

“External threats have been discussed above.  To this it’s possible to add that, as a result of the actions of the financial authorities of the G20 countries, the fundamental bases of the current crisis haven’t been eliminated.  Because of the fact that some paper (toxic assets) has been traded for others (newly printed dollars, euros, and pounds), the situation hasn’t changed principally.  The disease has been driven inside and its symptoms are still appearing to a lesser degree.  But it definitely will crawl outside again.  Therefore, the financial-economic crises will continue further.  Sooner or later the American dollar unsupported by real assets, as a world currency, must collapse.  Several types of dollar exist already now — for internal and external demand.  The Americans are trying to do everything possible meanwhile to ‘save face.’  Provoking situations to create the objective appearance of a reason for the collapse of the dollar are possible:  a terrorist attack on the U.S., war in the Near East, aggravation of the situation in the Far East.  A new world war which will be catastrophic for Russia as an extreme case.”

“Now about internal threats.  For clarity, in every case, we are distinguishing two understandings:  country and state.  It’s possible to love your country while being critical toward the state, which imagines itself as society’s management apparatus.”

“If we talk about the country as a whole, then the main internal threats are well-known:  complex demographic situation, a lopsided well-developed raw materials economy, low labor productivity, conditioned by the low wage level of labor, proliferation of narcotics, brain drain abroad, degradation of science, culture, education, health care, pensions, national defense, law and order, agricultural economy, neglected transportation and ecological problems, corruption.  In the coming decade, the aggravation of energy problems, connected with the exhaustion of easily accessible supplies of Russian oil.”

“But there is still one more serious problem which is the source of all the rest.  This is the multibillion outflow of capital from Russia, including into so-called international reserves (it’s simpler to say into the financial systems of Western countries).  It bleeds the entire economy, and doesn’t allow for moving off a dead stop in solving the majority of urgent problems.  If there were no capital outflow, many internal Russian threats would be eliminated in some time.”

Fomin goes on to argue that current capital outflow (legal and otherwise) is more burdensome and damaging to Russia’s economy than tribute paid to the Mongols centuries ago.  He says international reserves accumulated in 2010 could have plugged the gap in Russia’s pension fund.

Fomin now turns to internal threats to the state.  Number one is the populace’s increased protest activity.  He says the average Russian understands clearly that the state exists not to improve his welfare, but only the quality of life of 1 percent of Russians, without, of course, provoking large-scale protests from the other 99 percent. 

Among other threats, he cites hypertrophic centralization and underdeveloped local government, inflation caused by capital outflow, low wages, and unemployment all leading back to protest activity.

Fomin notes that Russia dropped to 154th (from 146th) on TI’s international corruption index this year.

He observes that the Russian government failed the test of August’s forest fires, causing a mortality spike equal to the number of men lost by the USSR in Afghanistan.  He calls Prime Minister Putin’s web cameras for monitoring the rebuilding of housing a symptom of the level of Russia’s corruption and ungovernability.

Fomin goes on to label major internal problems — education, health care, agriculture, housing, national defense, culture, science, ecology — the first four he notes are ‘national projects.’  Agriculture he puts on the level of military security in importance.  But rather than develop it, the country’s elite chooses to buy food abroad with oil and gas profits.  Agricultural imports support the livelihood of many middlemen in the process.

Fomin has one last assessment of Russia’s current elite class:

“At present, Russian state authorities and the so-called ‘elite’ view the country as a private firm working solely to get profits and the sooner, the better.  Profit is the main goal of the private firm.  It’s not for the realization of long-term goals.  Its main mission:  collect capital, send money abroad, make itself comfortable, and invest the money in a profitable business.” 

Chistova Goes with Sobyanin

Effective today Vera Chistova will head the Moscow city government’s finance department under new Mayor Sergey Sobyanin.  She served for about a year and a half as Deputy Defense Minister for Finance-Economic Work.  Defense Minister Anatoliy Serdyukov picked Chistova to replace Ivanov-era appointee Lyubov Kudelina in April 2009.

Look for Serdyukov to elevate another of his tax service minions into Chistova’s job . . . or he could move one of his current deputy defense ministers into the post.  Chistova and Kudelina both came from the Minfin’s Department of Budget Policy for Military and Law Enforcement Services, and State Defense Order.

Deputy Defense Minister Shevtsova

Tatyana Shevtsova at the FNS

Last Friday, Tatyana Shevtsova became the newest deputy defense minister – the ninth overall, seventh civilian, second female.  By all accounts, Shevtsova will oversee and audit Defense Ministry spending and other activities.  Kommersant calls her an ‘oversight and monitoring specialist.’  The Defense Ministry’s spokesman has said as much, according to Vedomosti (read it in Moscow Times as well).  Shevtsova’s another member of Defense Minister Serdyukov’s former team at the Federal Tax Service (FNS or ФНС).  Kommersant describes her as a ‘trusted individual’ who will help Serdyukov supervise all but the Defense Ministry’s purely military functions.  In particular, several commentators believe Shevtsova will track outsourced service and support activities paid for in the state defense order (GOZ).

The 41-year-old Shevtsova was born in Kozelsk, Kaluga Oblast, and graduated from the Leningrad Financial-Economic Institute in 1991.  She’s a candidate of economic sciences (Ph.D.). 

She started in the tax service in 1991 as an inspector in the central rayon of St. Petersburg, eventually heading the tax service’s St. Petersburg directorate.  Kommersant reminds that Serdyukov was a deputy director in the St. Petersburg directorate during Shevtsova’s time there in the early 2000s. 

Shevtsova went to Moscow to head the tax service’s large taxpayer department in early 2004.  In mid-2004, Serdyukov became Director of the FNS, and Shevtsova became one of his deputies. 

Shevtsova stayed at the tax service under Mikhail Mokretsov after Serdyukov left for the Defense Ministry in early 2007.  She was in charge of the oversight directorate and all nine inter-regional inspectorates for large taxpayers.

When Mokretsov and others members of Serdyukov’s FNS team departed for the Defense Ministry in mid-2010, Shevtsova did likewise, becoming an advisor.  According to one official who spoke to Kommersant, she spent the last few months ‘studying the situation’ in the Defense Ministry.

A former Defense Ministry official told Vedomosti Shevtsova is “a talented economist as well as an exacting official, whose subordinates at the Federal Tax Service were very afraid of her.”  She reportedly will turn ten Defense Ministry oversight bodies into a system.

Kommersant said Shevtsova will direct oversight organs for administrative, organizational, and financial activities as well as military housing.  The paper’s source says this could translate into oversight over everything except military command and control and operations.  The ninth deputy minister will reportedly gain some responsibilities once discharged by the chiefs of the ministry’s apparatus, Rear Services, and Housing and Construction Service.

Radio Svoboda was kind enough to interview Aleksandr Golts who concluded:

“It’s more or less obvious Anatoliy Eduardovich Serdyukov rapidly gathers his team in those areas important to him.  As we know, at present a so-called second civilian branch of the Defense Ministry is being formed.  Operational troop command and control, combat training remain with the Genshtab.  At the same time, a very strong area which will withdraw from the ministry a great number of functions connected with service and support of all Defense Ministry units and formations is being formed.  This is very complex work in the realm of the state defense order and the like.  Evidently, Ms. Shevtsova will work in this area.”

 Asked about her first steps, Golts commented:

 “If there will be first steps, we haven’t found out anything about them.  The Defense Ministry very precisely hides the most important directions of its activity from any public scrutiny.  Everything happens very quietly.”

Radio Svoboda also asked Viktor Baranets about ‘civilianization’ and the appointment of a reported 50 women to high posts under Serdyukov:

“They are already sarcastically joking  in the army about the ‘feminization’ of the Defense Ministry leadership.  A large number of women who’ve appeared in key Defense Ministry posts, at various times crossed paths with Serdyukov, and with Putin, and with Medvedev.  Of course, they’re Petersburg natives . . . .  There are unofficial reports that [Shevtsova] actively assisted Serdyukov in destroying Khodorkovskiy’s empire.”

Baranets’ sources in the Defense Ministry also say Shevtsova will be responsible for large sums of service and support funding being directed to contractors.  His general and colonel friends joke:

“We only have one vacant post left – deputy defense minister for corruption.  Because all the other jobs are filled.”

 Or anti-corruption one supposes . . . .

Igor Korotchenko told Vedomosti the Defense Ministry’s growing civilian component is designed to supervise the generals’ spending and accounting, especially in the GOZ.  Ruslan Pukhov calls the ‘invasion’ of former tax officials perfectly normal since Western defense ministries are full of civilian auditors who scrutinize massive military budgets.