Thursday, May 7, 2015

Economic crisis slows Putin's plans to modernize Russian military

Moscow quietly scales back project to replace Soviet-era armaments amid defense cuts

Thomas Grove, Wall Street Journal
7 May 2015

MOSCOW – Russia’s economic crisis is forcing President Vladimir Putin to quietly scale back plans to build an “indomitable” military, even as Moscow readies one of the largest-ever displays of its might on Red Square this weekend.
When Mr. Putin promised to spend more than 20 trillion rubles to modernize the military in late 2010 – some $650 billion at the time – some senior officials questioned whether Moscow could afford it. Now left with fewer petrodollars and grappling with Western sanctions, the Kremlin is being forced to cut spending and delay other defense plans.
The modernization project was aimed at replacing 70% of Russia’s armaments, much of which dates back to the Soviet era, with hundreds of modern tanks, guns, submarines and fighter jets. In turn, Russian military spending doubled between 2007 and 2013.
Little information is publicly available about the defense expenditures, and where the cuts will fall isn’t clear. But even Mr. Putin has acknowledged that the dates for the modernization plan may need to be shifted.
“This is connected not only with economics, but also with the fact that the [defense] industry is not entirely ready to produce certain types of weapons on time,” Mr. Putin said last month. “But without a doubt, the program will be fulfilled.”
Prime Minister Dmitry Medvedev has also said the defense budget, which rose by one-third this year to 3.3 trillion rubles, needed to be adjusted. Government data show the 2015 defense budget will be cut by almost 5%, some 157 billion rubles.
Russia’s military spending this year has been aimed at replacing 30% of the armed forces’ gear with modern weapons. The plans include 50 new warships for the navy and a contract for the next generation T-14 tank that runs on the Russian-built Armata platform, which the country’s defense industry boasts will produce the best fighting vehicles in the world.
But a report published in April by Moscow-based defense think tank CAST said Russia’s military spending has reached a crisis. “The modern Russian economy just does not generate enough resources to finance the current 2011-2020 rearmament program,” CAST said in the report. “This seriously reduces the ability to efficiently renew the Russian armed forces’ equipment.”
The ruble’s devaluation alone has hit Russia’s military spending, the third-highest in the world in dollars before the crisis, according to a study by the Stockholm International Peace Research Institute.
Now, Russian military spending ranks seventh or eighth globally, Ruslan Pukhov, head of CAST, estimates.
Russia’s economy, which is forecast to contract by as much as 4.6% this year, is struggling with a combination of lower oil prices and Western sanctions that have cut off most sources of long-term financing for some of the country’s largest companies.
Mr. Putin has publicly supported the military spending, protecting it from the 10% cuts that other government programs are facing.
But Dmitry Gorenburg, a senior research scientist at defense think tank CNA Corp., said that cuts or delays were inevitable and that the Kremlin might have to shelve some expenditures initially slated for 2016 until 2018, in the hope that oil prices recover. “With cost overruns, the money allocated may not be sufficient to build what they want to build,” he said.
Mr. Gorenburg added that “regarding what it is they want to build, they won’t get as many of them, they may take longer to build, but the programs will keep running as they are now.”
One such example is the Armata, which has won praise from Russian defense experts for its remote-controlled turret and automatic loading system, will be on display in Saturday’s parade.
Sources close to the Defense Ministry said the military has already cut the number of tanks it planned to buy from defense company UVZ Group because of the ballooning costs of building them, leaving the future of the project in doubt.
“The Armata, like the majority of new-generation weapons systems produced for the Russian Armed Forces, is extremely expensive. It’s angered Russia’s Defense Ministry,” Mr. Pukhov of CAST said.

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