Transcript Performance-oriented defence budgeting: a Russian perspective

Russian Military
Expenditures:
What’s Behind
the Curtain
Vasily Zatsepin
The Institute
for the Economy
in Transition
10th Annual Conference on
Economics & Security,
Thessaloniki, Greece, June 2006
1
Objective
To present an analysis of Russia’s current
practice in military expenditures field
based on experience accumulated by the
Institute for the Economy in Transition
(Moscow)
The Institute
for the Economy
in Transition
10th Annual Conference on
Economics & Security,
Thessaloniki, Greece, June 2006
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Outline
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The Institute
for the Economy
in Transition
Russian military
expenditures
Underlying institutional
factors
Prospects for the future
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Thessaloniki, Greece, June 2006
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Part I
Russian Military
Expenditures
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Learning the Lessons of History
International
Organizations
The Soviet
CIA
Defence
Enigma
Western
Academia
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Components of Military Expenditures
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What Follows from This?
Conformity equation*:
DefExtill1998 – MPtill1998  DefEx1999–
2004  DefExafter2004 + CTExafter2004,

where MP – military pensions;
CTEx – civilian-type expenditures.
* Valid for any from index years at least since 1994.

Civilian-type expenditures
size problem:
1998 Military Health & Education  0.01% GDP
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2006 Military Health, Sport & Education  0.26%
GDP
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Russian Military Expenditures
in Current Roubles
Average annual nominal growth
rate 34.1% (DefEx)
*
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*
* in 2004 budgetary classification.
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Russian Military Expenditures in
Real Terms (Base Year 1999)
Average annual real growth
rate 11.3% (DefEx)
*
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*
* in 2004 budgetary classification, using GDP deflator
for 2005 = 119.7%, for 2006 = 123.3 % (own estimate).
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Russian Military Expenditures
in Current US $
Calculated
using official
1999–2004
purchasing
power parity
data
Own PPP
estimates for
2005 = 13.09
roubles/$,
2006 = 14.34
roubles/$

*
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*
* in 2004 budgetary classification.
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Russia’s Defence & Military
Burden
*
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*
* in 2004 budgetary classification.
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2005 Structure of Russia’s Military
Expenditures Reported to UN
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Part II
Underlying
Institutional Factors
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What’s Under the Hood?
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Under the Hood are
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Federal budget and budgeting
process
Secrecy problem
Defence planning
Quasi PPBS
Actors and goals
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Federal Budget and
Budgeting Process
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The budget system is a subject to
annual changes in its legal
framework
Formal and openly published
budget request of the Ministry of
Defence is lacking
Weak or lacking parliamentary
control
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Secrecy Problem
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Secrecy in Russia’s Federal
Expenditures in 2003–2006
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Secrecy in Federal Expenditures for
Public Order and Safety in 2003–2006
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Defence Planning
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Russian Military Planning
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Quasi PPBS
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What is State Armament
Program?
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Inherited from Soviet times
Introduced in 1980s when Soviet
leadership had to react to PPBS
success in the US
Instead being a means of control
over military-industrial complex
became a tool of special interest
groups for control over considerable
share of military expenditures
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Comparison of Two Military
Programming Systems
PPBES (USA) State Armament
Program (Russia)
Cycle duration, years
2 (was 1)
5
Depth, years
4 (was 5)
10
Yes
No
Transparent
Opaque
Minimal
Full
Moving time horizon
Accountability
Secrecy
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Actors and goals
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Actors on Russian Defence
Management Stage
Not only size of military expenditures but
its structure are determined by:
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Ministry of Finance;
Ministry of Economic Development
and Trade;
and at last Ministry of Defence
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One More Actor
Chief of Russian General Staff Yuri
Balouevski in November 2005:
“All the world develops according to the
outline: about 60 per cent is spent on
procurement, research and
development; and about 30–40 per
cent—on salaries and matters,
connected with logistics and combat
training of forces”.
Source: Rossiyskaya gazeta, 1st November, 2005,
translated.
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Goals
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Back in 2000 the Security Council
of Russian Federation has set a
prospective goal for the MoD to
achieve 50% share of capital costs
in defence budget by 2010
following “best international
practices”
In 2005 the goal was extended: to
achieve 75% share of capital costs
by 2015
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Comparative Military Expenditures in
2004: Operating vs. Capital
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Part III
Prospects for the Future
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Future of Military
Expenditures in Russia
Military expenditures in observable
future will be determined not by level
of threats or international environment
but by interplay of group interests and
inefficient defence management due
to secrecy obsession and lack of highgrade military statistics i.e. by
government failures
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Tail Wagging the Dog
or
Limited Control over
Bureaucracy
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Russia’s Military-Industrial
Complex Dreams
Prospective structure of RF expenditure for Armed Forces
Source: Russian Military Review, 2006, № 1, p.18,
translated.
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…and Realization of the Dreams
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Source: Military Industrial Courier, 2006, № 12, p.6,
translated.
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Pestilence 2005
or
Limited Information
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Mysterious Disappearance of
Russian Military Pensioners in 2005
(according to publications in mass media)
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Sources: Rossiyskaya gazeta, 4th May; Independent Military Review,
20th May; Red Star, 19th October; Red Star, 29th December
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Conclusion
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Instead of Military Reform
Still Trying to Be as Before
Federal
Assembly
Russian
Defence
Chamber of
Accounts
Enigma
Expert
Community
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Any Questions?
Vasily B. Zatsepin
Senior Research Fellow
Department for Military Economics
Phone: +7-(495)-629-0971
E-mail: [email protected]
www.iet.ru
5, Gazetny Lane
Moscow 125993
Russian Federation
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