2006 DEFENSE BUDGET AND PROPOSED DEFENSE REFORMS -

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.
.
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DEFENSE BUDGET - THE NUMBERS
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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


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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 intercontinental 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.

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BEZBORODOV: RUSSIAN MILITARY STILL IN CRISIS
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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

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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 2006, 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.

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BELKIN: REFORM SLOW, BUT POINTED IN RIGHT DIRECTION
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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

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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.

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GOLTS: PUTIN DOES NOT QUESTION HIS MILITARY EXPERTS
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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 readiness, 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

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maintain a professional non-commissioned officer corps.

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Comment
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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