1. FFI Forum, Oslo Militære Samfund, 26 May 2009 1 Russian defense outlays before and after the financial crisis Vasilii Zatsepin The Institute for the Economy in Transition Russian Military Modernization

2. FFI Forum, Oslo Militære Samfund, 26 May 2009 2 Strategy, programs, and budget are all aspects of the same basic decisions. Strategy, programs, and budget are all aspects of the same basic decisions. Harry S. Truman Harry S. Truman The Institute for the Economy in Transition

3. FFI Forum, Oslo Militære Samfund, 26 May 2009 3 Looking Back Over Shoulder CIA Western Academia International Organizations The Soviet Defense Outlays The Institute for the Economy in Transition

4. FFI Forum, Oslo Militære Samfund, 26 May 2009 4 Historically, Russian governments have often seriously compromised optimal growth in favor of political control at home and domination abroad. Historically, Russian governments have often seriously compromised optimal growth in favor of political control at home and domination abroad. Anders Åslund Anders Åslund The Institute for the Economy in Transition

5. FFI Forum, Oslo Militære Samfund, 26 May 2009 5 “…defense sector: 105 billions. This was noticeably more than declared… Spending on military matters. You know, I think now that indecision here ought to be taken more on my own conscience – this all is on my mind. It was possible to cut these 15-20 billions down, to release from defense sector, and we could turn out in this situation with $80 billions. And to save [Soviet Union].” Mikhail Gorbachev Mikhail Gorbachev The Institute for the Economy in Transition Source: Radio FM “Echo Moskvy”, 28 December 2008

6. FFI Forum, Oslo Militære Samfund, 26 May 2009 6 Russian Defense Spending 1999-2008 * * As shown in section “National Defense” of Federal Budget Laws and Federal Budget Execution Laws. Budget Laws and Federal Budget Execution Laws. The Institute for the Economy in Transition 115.6 1 040.8

7. FFI Forum, Oslo Militære Samfund, 26 May 2009 7 Russian Defense Spending: Alternative Estimates The Institute for the Economy in Transition Source: RAND Monograph MG768-3.8

8. FFI Forum, Oslo Militære Samfund, 26 May 2009 8 Russian Military Expenditure vs U.S. Defense Burdens The Institute for the Economy in Transition Source: Hillison, J.R. “New NATO Members: Security Consumers or Producers?” Pub916, Strategic Consumers or Producers?” Pub916, Strategic Studies Institute, U.S. Army War College. Studies Institute, U.S. Army War College.

9. FFI Forum, Oslo Militære Samfund, 26 May 2009 9 How to Deflate It or Is Defense Inflation Really as High as Claimed? The Institute for the Economy in Transition Source: L’économie de la défense 2006. [Paris]: Conseil économique de la défense, [2006]. P.108. économique de la défense, [2006]. P.108.

10. FFI Forum, Oslo Militære Samfund, 26 May 2009 10 Changes in Deflators for Final Government Consumption Expenditure and GDP in Russia, % The Institute for the Economy in Transition Source: National Accounts of Russia in 1999-2006: Stat. Compendia. Moscow: Rosstat. Compendia. Moscow: Rosstat.

11. FFI Forum, Oslo Militære Samfund, 26 May 2009 11 Russian Defense Spending 1999-2008 ** ** Using deflator for final government consumption expenditure The Institute for the Economy in Transition

12. FFI Forum, Oslo Militære Samfund, 26 May 2009 12 Russian Defense Outlays in 1999-2008 as Percentage of GDP The Institute for the Economy in Transition

13. FFI Forum, Oslo Militære Samfund, 26 May 2009 13 Russian Defense Outlays 1999-2008 *** *** Using purchasing-power parity and U.S. composite outlay deflator for total defense. deflator for total defense. The Institute for the Economy in Transition

14. FFI Forum, Oslo Militære Samfund, 26 May 2009 14 Changes in the Dollar Purchasing Power in Russia from December 2004 to June 2008 The Institute for the Economy in Transition Source: Gluschenko, K. (2008). “Is the cost of living in Russia really that low?” MPRA Paper No. 13315 (Posted 10 February 2009), Munich Personal RePEc Archive. Paper No. 13315 (Posted 10 February 2009), Munich Personal RePEc Archive.

15. FFI Forum, Oslo Militære Samfund, 26 May 2009 15 Changes in the Structure of Russia’s Military Outlays in 2000 and 2007 as Reported to UN The Institute for the Economy in Transition Year 2000 Year 2007

16. FFI Forum, Oslo Militære Samfund, 26 May 2009 16 Disbursement of Federal Budget’s Subsection “Armed Forces of Russian Federation” in 2006-2008 by Months* The Institute for the Economy in Transition * Subsection in section “National Defense”.

17. FFI Forum, Oslo Militære Samfund, 26 May 2009 17 Trying to Keep a Blow of Crisis? Changes in 2009 Section “National Defense” November 2008 April 2009 November 2008 April 2009 Total, bln roubles 1 336.4 1 190.6 Growth to 2008, % 30 15 Major cuts, bln roubles Major cuts, bln roubles Secret total - 99.2 Secret total - 99.2 MoD state defense order - 36.5 MoD state defense order - 36.5 MoD RnD - 11.3 MoD RnD - 11.3 The Institute for the Economy in Transition

18. FFI Forum, Oslo Militære Samfund, 26 May 2009 18 Remnants of Socialist Deficit Economy The Institute for the Economy in Transition Deficit November 2008 April 2009 POL, % 27 50 Uniform, % 64 71 Food, % 20 25

19. FFI Forum, Oslo Militære Samfund, 26 May 2009 19 What’s about the Future of Defense Spending in Russia? It will be determined not by external threat level but by:  inertia  interplay of group interests  inefficient defence management  secrecy obsession  lack of high-grade military statistics  and ongoing economic crises The Institute for the Economy in Transition

20. FFI Forum, Oslo Militære Samfund, 26 May 2009 20 Obstacles for Russian Military Modernization are Still the Same Federal Assembly Chamber of Accounts Expert Community Russian Defence Outlays The Institute for the Economy in Transition

21. FFI Forum, Oslo Militære Samfund, 26 May 2009 21 Any Questions? Vasilii Zatsepin Laboratory for Defense Economy Phone: +7-(495)-629-0971 E-mail: Zatsepin@iet.ruZatsepin@iet.ru www.iet.ru 5, Gazetny Lane Moscow 125993 Russian Federation The Institute for the Economy in Transition