06MOSCOW19, 2006 DEFENSE BUDGET AND PROPOSED DEFENSE REFORMS –

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Reference ID Created Released Classification Origin
06MOSCOW19 2006-01-09 12:56 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXRO5965
RR RUEHDBU
DE RUEHMO #0019/01 0091256
ZNY CCCCC ZZH
R 091256Z JAN 06
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 8638
INFO RUCNCIS/CIS COLLECTIVE
RUEHNO/USMISSION USNATO 6696

C O N F I D E N T I A L SECTION 01 OF 05 MOSCOW 000019 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 12/22/2015 
TAGS: MARR MCAP PARM EFIN ECON RS XB
SUBJECT: 2006 DEFENSE BUDGET AND PROPOSED DEFENSE REFORMS - 
DOES MORE MONEY MEAN MORE MUSCLE? 
 
 
Classified By: Minister-Counselor for Political Affairs Kirk Augustine 
for reasons 1.4 (a/b/d). 
 
1. (C)  Summary.  On December 27 President Putin signed a 
defense budget of 666 billion rubles (23 billion dollars) for 
2006, a nominal increase of nearly 26 percent.  It is not 
clear, however, what if any impact on Russian military 
capability that allocation towards defense will have.  The 
highest growth of expenditures under the 2006 Russian defense 
budget will occur in mobilization and reserve training, and 
in training for and participation in collective security and 
peacekeeping efforts.  Putin and Defense Minister Sergey 
Ivanov cite defense reform as a top priority, but recent 
history indicates real reforms come slowly.  In 2008 
conscription is to be lowered to require only one year of 
service, and the goal by 2015 is to have a force of half 
contracted soldiers and half conscripted soldiers. 
Discussions with a Duma member and independent defense 
experts revealed doubts, however, about the effectiveness of 
the reforms that have been declared and about the extent to 
which increased military spending is being translated into a 
more competent military.  End Summary. 
. 
---------------------------- 
DEFENSE BUDGET - THE NUMBERS 
---------------------------- 
 
2. (U)  On December 27 Putin signed the 2006 budget, which 
allocates 4.3 trillion rubles (147 billion dollars), compared 
to the 2005 federal budget of nearly 3 trillion rubles (105 
billion dollars) -- a nomimal growth of over 40 percent.  Of 
that amount, 666 billion rubles (23 billion dollars) are 
allocated for national defense, compared to the 2005 defense 
budget of 529 billion rubles (18.2 billion dollars), an 
increase of almost 26 percent in nominal terms. 
Additionally, the budget for other national security and law 
enforcement activities, which often include military-type 
actions undertaken by organizations such as the Interior 
Ministry, is 541 billion rubles (18 billion dollars). 
 
3. (C)  Analyzing those numbers reveals that the defense 
budget, as a percentage of the federal budget, actually 
decreased in 2006 by 1.8 percent compared to 2005.  If the 
defense budget and the national security and law enforcement 
budget items for 2006 are combined, their portion of the 
federal budget still declines by 2.2 percent compared to 
2005.  However, those figures are nominal (i.e., not adjusted 
for the 11-12 percent yearly inflation rate that Russia has 
been running of late). 
 
4. (U)  According to open sources and analysis from Duma 
Defense Committee staffers Vladimir Evseyev and Petr 
Romashkin, Russian defense budget allocations for 2006 are 
broken down into eight subsections: the Armed Forces of the 
Russian Federation; mobilization and reserve training; 
mobilization readiness of the economy; training for and 
participation in collective security and peacekeeping 
efforts; nuclear weapons; meeting international commitments 
in the area of military and technological cooperation; 
applied scientific research for the national defense; other 
issues related to the national defense.  The following table 
shows how the budget is broken down into those subsections, 
comparing 2006 and 2005 data.  The figures indicate that the 
highest percentage growth of allocations in the Russian 
defense budget is in mobilization and reserve training and 
training for and participating in collective security and 
peacekeeping efforts.  (In 2005 the highest percentage growth 
was in mobilization readiness of the economy, other issues 
related to the national defense, mobilization and reserve 
training, and nuclear weapons.)  All figures are in millions 
of rubles: 
 
 
                       2005         2006      % nominal 
                                                change 
 
 
Def Budget Overall   529,133.4    666,026.6    25.8 
 
Armed Forces of RF   384,043.7    497,771.2    29.6 
 
Mob. & Reserve Trng    1,895.4      5,181.3   173.3 
 
Mob. Readiness Econ    3,500.0      3,500.0     0.0 
 
Coll. Sec & PK            61.1         98.3    60.9 
 
Nuclear Weapons        8,693.1      11,429.6   31.5 
 
Int'l Commitments      6,231.0       6,083.2   -2.4 
 
 
MOSCOW 00000019  002 OF 005 
 
 
Scientific Research   81,175.0      92,917.9   14.4 
 
Other issues          43,341.1      49,045.2   13.1 
 
5. (C)  In recent public statements, Putin and Defense 
Minister Ivanov have spoken about increasing weapons 
procurement by 50 percent.  In his annual State of the 
Russian Armed Forces briefing to the Moscow Attach Corps, 
Russian Chief of the General Staff Yuri Nikolayevich 
Baluyevskiy confirmed that figure.  Often-quoted details by 
the GOR indicate that the state defense procurement 
authorization for 2006 will equip Russia's Armed Forces with 
six new Topol-M in
tercontinental ballistic missiles, six 
space satellites, 12  space-launch vehicles for satellites, 
31 T-90 tanks, 125 armored vehicles, and 3,770 trucks and 
light vehicles.  The new Topol-M missiles are part of 
Russia's program to modernize its nuclear deterrent. While 31 
new T-90 tanks would represent a battalion's worth of new 
equipment, it is a small number compared to Soviet-era 
production numbers.  Similar authorizations of new equipment 
in the last five years have resulted in few actual purchases. 
 In terms of money for those systems, GOR officials say 
budgetary allocations to state defense procurement in 2006 
will amount to nearly 237 billion rubles, including 164 
billion rubles for purchases and repairs of armaments and 
equipment.  That sum represents an increase of over 53 
billion nominal rubles from 2005.  However, it seems the 
promised 50 percent increase is not accurate, since simple 
math shows the proposed real increase in procurement is about 
22 percent.  At the macro-level then, 35 percent of the 
defense budget will go to new purchases and refurbishment, 
while 65 percent will go to day-to-day maintenance.  Putin 
recently said the goal by 2015 is to have 70 percent of the 
defense budget go to "developing the Armed Forces" (i.e., new 
equipment procurement and technological advancement) and 30 
percent to day-to-day maintenance, which is nearly the 
reverse of the current situation. 
 
-------------------------------------------- 
BEZBORODOV: RUSSIAN MILITARY STILL IN CRISIS 
-------------------------------------------- 
 
6. (C)  On December 16 we met with State Duma member General 
Major Nikolay Maksimovich Bezborodov of the United Russia 
party.  Although he acknowledged that the defense budget for 
2006 represents a 22 percent increase (rather than the 26 
percent figure calculated from the table above), he said it 
would be significant only if the Russian military already had 
everything it needed.  He stressed that the military was not 
over the "crisis" of the transition from the Soviet to the 
Russian military and that purchases of a few systems each 
year were not enough to modernize the armed forces.  Noting 
the difference in the size of the Russian defense budget 
compared to that of the U.S., he pointed out that the U.S. 
spends more than 400 billion dollars a year on defense, while 
Russia spends closer to 25 billion dollars.  He emphasized, 
as the above analysis shows, that the military budget as a 
percentage of total federal spending has actually decreased 
for 2006.  Bezborodov stressed that Russia should spend at 
least 3.5 percent of its Gross Domestic Product (GDP) for 
national defense.  According to him, the 2006 defense budget 
will account for only 2.74 percent of GDP, compared to 2.84 
percent of GDP for 2005.  However, he gave no explanation of 
why the target figure should be 3.5 percent of GDP, and could 
not define exactly how the defense budget was developed. 
 
7. (C)  Bezborodov said the key to Russia's defense and 
readiness is its Strategic Rocket Forces, which receive the 
most money for modernization and maintenance.  According to 
him, nuclear weapons are what keep Russia secure in the 
modern world, and if Russia were to give up its nuclear 
weapons, it would be a catastrophe.  He added, however, that 
the battle against terrorism was a top priority, and Russia 
needed to replace outdated conventional weapons systems and 
tactics. 
 
8. (C)  Bezborodov expressed concern about destructive 
processes influencing Russian military readiness that the GOR 
was trying to address in its budget increase for 2006 (and, 
he hoped, 2007) and in reform measures.  One of the most 
destructive factors influencing readiness was the mass exodus 
of young officers from the military, which he said was the 
first and primary indicator of a crisis in the military.  He 
said some possible reasons for unhappiness were low pay and 
loss of prestige.  In 2005 MOD civilian personnel received an 
11 percent increase, while enlisted soldiers received a 200 
ruble (about seven dollars) per month increase.  Salaries for 
officers were not increased in 2005.  Bezborodov said that 
each year of simply increasing the military budget was 
meaningless without real reform, i.e., significant pay 
increases, transition to a military of 50 percent contracted 
 
MOSCOW 00000019  003 OF 005 
 
 
and 50 percent conscripted personnel, reduction of 
conscription to one year, and enhancement of the military's 
image.  One of the main morale problems is that enlisted 
contract soldiers often receive more money than officers, 
causing disillusionment and disdain.  According to Krasnaya 
Zvezda, the MOD's official daily newspaper, contract soldiers 
are slated to receive a 15 percent pay increase in 2006 
without a similar increase going to career officers. 
However, the MoD plans to extend that increase to all service 
personnel by 2008, according to Krasnaya Zvezda.  Bezborodov 
said that if that inequality in pay were addressed, there 
would be far fewer officers leaving the service. 
Additionally, he said officers currently had a five- year 
commitment to serve once trained, but many if not most get 
out before the end of five years for various reasons.  That 
must end, he stressed, and officers who do not finish their 
term of service should pay back their education.  Bezborodov 
seemed nostalgic for Soviet times, mentioning that when he 
entered service in 1967 he had a 25-year commitment. 
 
9. (C)  Bezborodov also highlighted lack of adequate housing 
as a factor affecting officer and troop morale.  He said that 
in 2006 the military would initiate a program for officers to 
pay for housing, and after 10 years they would be able to own 
their housing.  He added that housing for contract soldiers 
would be improved through construction of dorms for single 
soldiers and apartments for married soldiers. 
 
10. (C)  Bezborodov lamented the lack of respect that the 
younger generation had for serving their country.  The age 
group of 18-27, the age of conscription and service, had 
grown up with an attitude that they did not need to serve. 
That had affected societal attitudes as a whole.  According 
to Bezborodov, 91 percent of that eligible age group received 
exemptions or successfully avoided service, while the 
remaining nine percent were often low-quality recruits. 
Thirty percent of that nine percent were illiterate at the 
high school level.  He said the military needed to recruit 
the intelligent and technically smart. 
 
11. (C)  Turning to Putin's proposal that conscription be 
reduced to one year in 2008, Bezborodov reasoned that 176,000 
recruits would be trained every year instead of every two 
years.  That would increase the number of recruits available 
for mobilization.  He also mentioned that exemptions from 
military service would be reduced to only about 24 categories 
from the current 200.  A draft bill to change conscription 
may be submitted to the Duma in the first part of 20
06, he 
said.  Getting the number of exemptions reduced would be a 
tough sell to the Duma and to the public, he noted.  There 
was a need for public outreach on the issue, and U.S. and 
European models were being studied. 
 
12. (C)  Bezborodov did not clearly explain how the Russian 
defense budget was developed, but said it was important to 
first identify the threat.  He identified terrorism in 
general as a threat, but added that it was difficult to say 
who a future enemy might be.  He called NATO enlargement 
worrisome, especially as NATO gets closer to Russia's 
borders.  The "buffer zone" that separated NATO and Russia 
was quickly disappearing.  He considered China a general 
threat as well, saying that any nation with a population of 
1.3 billion and growing on Russia's border was a threat when 
Russia's population was only 142 million people. 
 
--------------------------------------------- ------ 
BELKIN: REFORM SLOW, BUT POINTED IN RIGHT DIRECTION 
--------------------------------------------- ------ 
 
13. (C)  According to Aleksandr Belkin of the Council on 
Foreign and Defense Policy, the road to defense reform in 
Russia is on a zig-zag course, although it is ultimately 
going in the right direction.  He said that Defense Ministers 
going back to Defense Minister Grachev in 1992 had paid at 
least lip service to reform, adding that Defense Minister 
Ivanov's biggest reform problem was modernizing the military. 
 Belin was critical of the current inertia and called 
planning for the defense industry uncoordinated at best, 
noting that Soviet-era defense planning at least had a system 
and direction. 
 
14. (C)  Belkin criticized the Russian General Staff for the 
lack of real defense reform, but praised MOD Ivanov for 
moving in the right direction.  He said Russian generals were 
stuck in a Cold War mindset and nostalgic for the "good old 
days" of the Soviet military.  They were also still 
suspicious of NATO and U.S. intentions.  Belkin noted that 
Yeltsin had feared the Russian military; his overriding goal 
had been to keep it calm, controllable, and out of politics. 
Putin, on the other hand, saw an untrained, under-equipped 
military as a threat to the state and had made military 
 
MOSCOW 00000019  004 OF 005 
 
 
reform a top priority.  He was also skeptical that new 
equipment would actually be procured.  He said the finance 
and budget department of the MOD had a relatively small staff 
(dozens instead of hundreds or thousands like the U.S.) and 
is overwhelmed.  Getting the right money to the right program 
would be a challenge. 
 
15. (C)  Belkin agreed with Bezborodov that the greatest 
security threat to Russia was terrorism from the Caucasus. 
He considered the Beslan school attack of 2004 a turning 
point in Russian attitudes towards terrorism and reform. 
Unlike Bezborodov, however, Belkin did not see NATO, the 
U.S., or China as real security threats.  He expressed 
concern about large arms caches left over from the Soviet 
Union and located throughout the CIS (Commonwealth of 
Independent States) that were difficult to control. 
 
16. (C)  Belkin did not see the reduction of conscription 
service from two years to one year as a positive reform.  He 
said a soldier could not be trained in a year and then be 
expected to be called up in a mobilization without 
significant additional training.  Tying military service to 
civil society was key to ensuring a trained army.  Noting 
that the current attitude of young males was to avoid 
military service at all costs, Belkin argued for no 
exemptions.  He said there was currently little public debate 
on the draft, unlike during the Yeltsin years.  He was unsure 
whether Russia needed an all-contract army or a combination 
of contract and conscription.  He thought the GOR should 
study other nations' military structures, including the Swiss 
or Israeli. 
 
--------------------------------------------- ------ 
GOLTS: PUTIN DOES NOT QUESTION HIS MILITARY EXPERTS 
--------------------------------------------- ------ 
 
17. (C)  Aleksander Golts, First Deputy Editor-in-Chief of 
Yezhenedelniy Zhurnal, was very critical about the 
development of Russia's defense budget, saying the 
information available to the public on the budget and 
military reform was "useless."  He said the MOD consistently 
requested more money but offered no real plan on how to 
address threats to Russian security.  It wanted to spend 
money without setting priorities, from shotguns to Topol-M 
missiles.  In contrast, he said, the U.S. Secretary of 
Defense was willing to cut programs that the U.S. military 
wanted but could not afford in light of other priorities. 
Golts contended that Putin believes whatever his military 
experts tell him, and there is no oversight or discussion. 
He said the Russian budget was fat with money from oil 
profits, but the old Soviet-style planning methods do not 
establish clear priorities.  The figure of 3.5 percent of the 
GDP that Bezborodov argued should be spent on defense had no 
basis in real planning, Golts said, other than that it was 
what Yeltsin wanted in 1996.  There was no system of review 
and no real control over the MOD and how it allocates 
resources.  Most state resources in the Soviet period went to 
military preparedness, which was linked to military 
production.  Although that had changed, the civilian and 
military communities did not communicate and the 
civil-military relationship was dysfunctional. 
 
18. (C)  Golts identified the Caucasus and Central Asia as 
Russia's main security concerns.  He said weak authoritarian 
regimes, poverty, and a growing gap between the rich and the 
poor would breed instability.  There was de facto no border 
control between Russia and Kazakhstan, and that caused both 
an immigration problem and a security threat, since 
terrorists could enter Russia undetected.  He also saw 
Belarus and Ukraine as potential threats because of the 
energy pipelines transiting those countries to Western 
Europe.  Russian military planners preferred not to deal with 
those real threats, he said   They would still rather plan 
against a global adversary, such as NATO.  Golts did not 
highlight China as a major security threat to Russia. 
 
19. (C)  Golts said any "reform" plan that included 
conscription and contracted soldiers was likely to fail.  He 
quoted Defense Minister Ivanov as saying in November 2003 
that "reform is over."  According to Golts, Ivanov meant that 
reduction of the armed forces was over.  Golts said that by 
the end of 2005 there were supposed to be 72 units, not 
clearly defined, in permanent readiness that were to be 
manned by contracted soldiers.  Golts indicated, however, 
that only two divisions had untertaken reform (the 76th 
Paratroop Division at Pskov and the 42nd Motorized Rifle 
Division in Chechnya).  He said 40 other units were in 
various states of readin
ess, but none manned at levels more 
than 70 percent.  He also argued that contracted soldiers 
were little more than conscripts who have been forced to sign 
contracts and said there was no coherent plan to train and 
 
MOSCOW 00000019  005 OF 005 
 
 
maintain a professional non-commissioned officer corps. 
 
------- 
Comment 
------- 
 
20. (C)  More money will be spent on defense in 2006 than in 
2005, but it is not clear that the increase will have a 
significant impact on combat readiness.  For the most part, 
the Russian military has yet to emerge mentally from its 
Soviet past.  It has neither clearly identified the security 
threats it must face in the future nor undertaken the reforms 
necessary to make it a modern fighting force. 
BURNS

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