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Russian Prime Minister Dmitry Medvedev called for an increase in the pace of Russian rearmament on Monday – a move analysts say could draw a new line in the sand and make a new battle over military spending inevitable. Russia needs “a different pace of rearmament, which is especially important considering the adoption of a unified system of pricing for weapons," Medvedev told industry executives during a visit to an arms-producing plant. His call came as Finance Minister Anton Siluanov tries to persuade cabinet colleagues to back significant cuts in military spending.
The Kremlin’s plans to boost defense spending and modernize the country's aging military infrastructure and weaponry over the next three years may have to be revised, Siluanov said on Friday. The Finance Ministry is currently pushing for a 20-percent cut in planned defense spending between 2013 and 2015, Siluanov said, adding that the ministry’s proposals involve deferring some expenditures while making use of unspecified credit schemes to finance the others. "I think we will soon come to an agreement on how much funding allocated for defense between 2013 and 2015 should be slashed," Siluanov was quoted by Interfax as saying. “Such a decision will most likely be made.”
Military experts have said the military program, which costs more than one percent of the gross domestic product, exerts "colossal" pressure on the budget. Yet Siluanov’s push for cuts in military spending is a departure from the Kremlin’s oft-repeated promise to hike defense spending. The finance minister said he is against the recent budget reshuffle proposal, which could have seen defense spending increased manifold. However, both President Dmitry Medvedev and Prime Minster Vladimir Putin have defended high military spending, saying it was in sync with the country’s super power status. The Russian government also expects that the rearmament of the army will boost the growth of the entire Russian industry, former Presidential Aide Arkady Dvorkovich told RIA Novosti.
Siluanov’s statements came just two days after his ministry published a draft federal fiscal policy for 2012 to 2015, which envisages a cut in budgetary expenses. But while cutting costs in practically all areas, the draft envisages significant increases in military spending over the next three years. In 2013, military expenditures will grow by 25.8 percent to 2.35 trillion rubles ($71.7 billion). In 2014, the figure will increase to 2.77 trillion rubles ($84.5 billion), an 18 percent growth over the previous year. By 2015, military spending is expected to grow another 3.4 percent to hit 2.86 trillion rubles ($87.2 billion), bringing the overall increase in military expenditures to 53.6 percent.
By comparison, social spending will grow over the next three years by just 6.8 percent to reach 4.2 trillion rubles ($128.1 billion). The preliminary spending bill would slash 30.9 percent on healthcare spending, which is projected at 383.3 billion rubles ($11.6 billion) in 2015. State spending on education will drop 6.7 percent to 573 billion rubles ($17.4 billion), while the government will reduce its expenditures on the national economy to 1.6 trillion rubles, a 7.1 percent reduction. The government also hopes to save money in the housing and communal services sector by reducing expenditures by 15.7 percent to 115.4 billion rubles ($3.52 billion).
Prime Minister Medvedev announced a massive 20 trillion ruble ($610.2 billion) spending program on the military-industrial complex by 2020 when he was president. Many economists, including the outspoken former Finance Minister Alexei Kudrin, have warned that military overspending would require either tax increases or spending cuts in other sectors. Kudrin ended his career in government after a public disagreement with Medvedev over plans to jack up defense spending.
However, Siluanov, who was sworn in as finance minister in December, three months after Kudrin was fired, appeared to have picked up the mantle of the former finance minister. "They have made a decision not to cut spending, but, at the same time, they couldn’t find money for everything,” said Yelena Penukhina, an analyst with the Center of Macroeconomic Analysis and Short-Term Prognosis. “The government may simply decide to make cuts in the least painful areas such as defense spending. At any rate, Putin has never excluded the possibility of readjustment to the military spending in any of his pre-election articles.”
The government endorsed the draft federal fiscal policy early last month, leaving individual ministries to sort out the details and submit proposals to the Finance Ministry before August 1. The idea is to develop a list of priority projects for which funding would not be cut, and place other non-essential projects in a secondary group. Items not prioritized are, however, subject to cuts. "Almost every day the work schedule of Dmitry Medvedev includes a meeting on various aspect of fiscal policy," Medvedev's Spokeswoman Natalia Timakova told Gazeta.ru. "A final decision will be made when all the agencies send in their proposals on expenditures."
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