FINANCIAL PROBLEMS PLAGUE RUSSIA

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During the recent meeting of the government, the Defense Minister reported to the President that servicemen of the Armed Forces fully received the increased wages. Sergei Ivanov emphasized that, “According to reports of all commanders, by August 1 this money was not only received, but also paid to servicemen and civil employees. There were no delays. Of course, there were difficulties. Of course, we transferred the money late, but as a result of such hard labor of, first of all, military accountants, who worked in emergency mode during entire July, we ensured payment of all money.”

Of course, servicemen of the Armed Forces are glad with such a state of affairs in general. Two weeks ago, they mostly received money just for June. Now the Defense Ministry reports that it has paid the wages for July too. This means that literally in a few days, the Finance Ministry transferred at least 6-8 billion rubles to accounts of the Defense Ministry. Questions arise at this point.

It is known that the Finance Ministry is the main curator of stable financing of security agencies. Due to introduction of the treasury system in the troops, cash flows became transparent. The role of the Defense Ministry in distribution of money is minimized, but somehow it was the Defense Minister who reported about the situation with wages payment to the military. Definitely, the Defense Minister is responsible for reception of the money transferred from the Finance Ministry to the Defense Ministry, but, by and large, assignment of money to security agencies is a prerogative of the Finance Ministry. If it assigns money to the Defense Ministry, the Defense Ministry and its Minister have something to control and distribute. If there is no money or it does not come on time, everything is totally different.

The President evidently knows these details. However, during the governmental meeting, he criticized only Sergei Ivanov in presence of journalists. Speaking about the report of Ivanov on transfer of money for payment of increased wages to servicemen, Putin noted, “Let’s do this without emergencies – we have all necessary conditions for this. The decision has been made, the money has been assigned; there is no need for heroism. Concerted, rhythmical, systematic work in all directions, and first of all financing issues, is needed. What has been done is good, but it is not right that it has been done in emergency mode.”

Of course, saying these words, Vladimir Putin meant the Finance Ministry, but outwardly it looked as if only Ivanov was to blame for emergency methods of military personnel financing. Meanwhile, the governmental resolution that approved the increase of money allowances for servicemen from July 1 was issued only on June 28, or just two days before the beginning of the month during which the State had to start paying increased wages. According to Deputy Defense Minister Lubov Kudelina, due to this circumstance, re-calculation of wages for officers and warrant officers according to new parameters was done in two days; that is, by the end of June. Of course, this was the job done in emergency mode. Probably Ivanov wanted to stress this very point. But somehow, Ivanov did not dare to criticize the government and especially the Finance Ministry.

Meanwhile, analysis of the aforementioned events reveals not only the bulky bureaucratic mechanism of military personnel financing, but also shows that the State still does not have enough money for the needs of the Armed Forces. Ivanov said that only 25-30% of servicemen would be able to go on vacations at the expense of the Defense Ministry, although all have such a right. It is understandable why the Defense Ministry has not assigned money for this purpose. Problems with financing are also highlighted by the fact that the Minister of Industry, Science and Technology, Ilya Klebanov, announced during his meeting with President Putin on August 6 that the security agencies would pay off the major part of debts to the military industrial complex in 2002, and the remaining part would be postponed until 2003.

In the past Klebanov promised to pay off all debts to the military industrial complex back in 2001, then everything was postponed until 2002, and this time until 2003. So far the State has a “spare” year and is going to spend the money primarily on return of debts to other countries. These debts are big, and that is why the Armed Forces will hardly receive more than 2.6% of GDP. Meanwhile, due to an unstable economy and its dependence on world prices of energy resources, availability of spare money in Russia’s treasury will always be doubtful. If oil prices fall significantly, problems with financing of defense expenditures will continue in the future.

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