ON FINANCING THE RUSSIAN ARMED FORCES

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According to the federal law n the federal budget for 1998 this year the volume of expenses for national defense should amount to some 3.5% of the gross domestic product. This figure is a bit less than that forecast by the budget of 1997. However last year’s budget was sequestrated, which is why the share of the defense expenses in 1997 did not exceed 3% of the gross domestic product.

For the first time the defense budget of 1998 does not take into account the pensions of the former servicemen. They are mentioned in section Social policy. Overall section National defense of federal law On the federal budget for 1998 is has more details than in previous years.

The budget is strict. The state plans to allot as much money for defense as it can afford. Along with this it is specially stressed that the assignments for the troops reduction and repayment of money allowances for released officers and warrant officers will be sufficient, in case if the money is transferred completely and in due time.

However the Defense Ministry calculated that to solve the housing problem it will be necessary to find 2.9 billion rubles additionally. Besides additional funds are necessary for the financing of expenses, appearing in connection with the released objects of military infrastructure, armament, combat equipment, ammunition and other property.

Where is it planned to take these funds from? To find these sums the government and the State Duma suggested the provision in the law on the federal budget for 1998, according to which besides the assignments, suggested for the national defense, the budget fund for assistance to the military reform will be organized, amounting to 1% of the federal budget expenses (except for the defense expenses and state debt servicing).

Part of the income from the development of customs systems and part of the money, received from the federal property privatization at bids and auctions, will also be spent on financing the construction of housing for the released servicemen. Meanwhile the problem of indexing the servicemen’s money allowances still remains unsolved. As is known, the federal government (the Finance Ministry) offered the President that it raise the servicemen’s money allowances by 1.06% since November 1 of 1998, as well as canceling of some benefits: 25% increase of the wages for those serving in the Armed Forces, pension bonuses, money compensation for sanitarium and resort treatment, bonuses for fulfilling service duties well. These suggestions are currently being considered by the state bodies. The press published information that the Defense Ministry is against the servicemen’s benefits cancellation and support raising their money allowances. For this purpose suggestions were sent to the Finance Ministry, signed by Defense Minister Igor Sergeev, about a gradual raising of the servicemen’s money allowances. In particular, during this stage (by July 1 of 1998) the government has offered to raise the money allowances according to the military posts by 0.65% and the money allowances according to the military ranks by some 100% without cancellation of benefits. Suggestions, coordinated with all interested federal executive organs will be represented to the government chairman and to the President.

This will probably be done on account of the extra-budget funds: foreign credits and state property sales. A special law or presidential decree about this may be issued. There are many ways of solving this problem. We would like to hope that since the President promised the servicemen to raise their money allowances, he will find the money for this, although the situation is very difficult.

According to the Defense Ministry, as of January 1 1998 the total debts of the Defense Ministry to the suppliers amounted to 37.1 billion rubles. 10.6 billion of debts are planned to be repaid deferred after the final calculation of the debts. Meanwhile the Defense Ministry is very much concerned about the growth of its debts concerning the personnel wages and benefits. Now this sum amounts to some 10 billion rubles, including 4 billion of the money allowances and wages for February-March, 5.7 billion of social and compensation benefits and 2 billion of the annual bonus for 1997.

These are very big figures, if we take into account that the state collects no more than 13 billion rubles of taxes monthly. Probably due to this, for example, in March only 3.4 billion rubles were transferred to the Armed Forces instead of the planned 6.75 billion. Along with this the combat training expenses were not financed at all. Overall, in the first quarter of 1998 only 1/3 of the budget assignments was transferred to the Armed Forces.

The government is evidently looking for ways to solve this problem. Last week during his meeting with Defense Minister Igor Sergeev Acting Prime Minister Sergei Kirienko said that the financial problems of the Armed Forces will be solved: by finding the additional incomes sources on account of the sale of released military property and a reduction of expenses for Armed Forces maintenance, being currently carried out by the Defense Ministry”.

On January 27 of 1998 the defense Ministry signed the order on gradual transition to the accountability over the spending of budget and extra-budget funds. By January 1 the new accounting system should be completely established in the troops. This will allow more strict control over the spending of money in the troops and allow savings to be made. Along with this all actions for introduction of the accounting personnel posts will be carried out within the current authorized strength of the Armed Forces. Along with this the status of the accountants will be raised.

However many military experts think that these are half measures, and that in the future the financing of the Armed Forces will worsen, and the debts will grow. The Armed Forces’ reduction demands money. The budget does not have enough. The full-scale sale of the released military property by the State Property Ministry has not started yet. However the existing experience of the Defense Ministry in this sphere demonstrates that the defense budget will be refilled by only 0.1-0.3% on account of this. Reduction of expenses for the Armed Forces maintenance in 1998 is not suggested as well, since we can expect financial profit from the current troops reduction only within 2-3 years, when the state completely repays its debts to the released officers and warrant officers.

Thus, in the near future the Armed Forces financing will hardly be improved. The huge debts to the Armed Forces demonstrate a severe economic crisis in the country. Comparing the Armed Forces financial problems with the analogous problems of the state, some competent military experts suggest that in 1998 the federal budget will be sequestrated, and if the economic situation continues to be aggravated due to the international economic crisis, the de-evaluation of the ruble is possible. Against this background many experienced officers consider the assurances of some leaders on the rapid repayment of debts to the Armed Forces as another populist step, connected with the formation of the new government.

The fact that the Armed Forces social problems are not solved, can negatively influence not only their controllability and combat-readiness, but can even result in protest and disobedience among the troops. The radical parties and movements, who have decided to demand the impeachment of the President, call for this.

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