Russia Reform Monitor: No. 1625

February 27:

The global economic crisis is ravaging Russia's beleaguered defense industry. The St. Petersburg Times reports that a third of Russia's arms manufacturers are now in danger of bankruptcy. “The financial and economic condition of only 36 percent of strategic organizations in the military industrial complex can be seen as stable,” Sergei Chemezov, head of the state-controlled Russian Technologies conglomerate, has told legislators in Moscow. “About 30 percent of organizations [in the military industrial sector] have signs of bankruptcy," while roughly half of the country's ammunition and explosives sector is "potentially bankrupt."

In response, according to Chemezov, Russia's arms industry is looking westward. “Credit is the most painful topic," says the arms czar. "With such high [domestic] interest rates, we are simply unable to develop industry. In the end, we will have to get these credits in the West, and we are holding talks because the cost of credit there is much less, several times less." The current situation, Chemezov says, is spurred by a "crisis of demand."


March 2:

As part of his administration's efforts to "reset" diplomatic relations between Washington and Moscow, President Barack Obama is reported to have sent a letter to Russian president Dmitry Medvedev in February seeking the Kremlin's cooperation on curbing Iran's WMD and ballistic missile capabilities. In exchange, the New York Times reports, the secret letter contained an oblique offer to roll back the Bush administration's long-standing plans to deploy missile defenses in Europe. The offer, however, is not a quid pro quo, Administration officials have been quick to make clear. “It’s almost saying to them, put up or shut up,” one senior administration official has told the Times. “It’s not that the Russians get to say, ‘We’ll try and therefore you have to suspend.’ It says the threat has to go away.”


March 3:

The global financial crisis is taking its toll on Kremlin unity, as rival clans within the Russian government increasingly vie for supremacy. According to the Guardian, the fault line lies between "a powerful group of military and security officials" centered around prime minister Vladimir Putin and "economic liberals" surrounding President Dmitry Medvedev. The tensions, political scientists say, have been exacerbated by Russia's plummeting economic fortunes. "Putin used to act as an arbiter standing above the two main clans - the siloviki and the rational economists," says political scientist Dmitry Oreshkin. "Now he's been dragged down into the fight and he's under fire from both sides. The siloviki say he's a weakling incapable of imposing his will and showing the economists their place, while the economists in turn are consolidating around Medvedev."


March 5:

Russian president Dmitry Medvedev has ordered the country's Central Election Commission to launch a probe into the results of recent regional elections amid opposition charges of widespread vote tampering, Reuters reports. "If there are signs of violations, they should be dealt with and looked at and perhaps some election laws and rules need to be changed," Medvedev has told Election Commission Chief Vladimir Churov. The ruling United Russia party had won handily in most of the nine races for regional parliamentary seats that took place on March 1st.


March 7:

In the former Soviet republic of Kyrgyzstan, strongman Kurmanbek Bakiyev is now sitting pretty - thanks to the Kremlin's support. Earlier this year, Bakiyev's government dealt a very public blow to U.S. strategy in Central Asia when it ordered Washington to vacate the Manas air base, located outside the capital city of Bishkek. That move was ascribed by many to a hefty lobbying effort from Russia, which has pledged to provide its former satellite with $2.3 billion in aid and loans - greatly strengthening Bakiyev's hold on power in the process. "The Kyrgyz population saw the Russian credit as personal support from the Russian leadership for Bakiyev," one independent political analyst tells the Agence France Presse. "The two billion dollars in Russian credit and the expulsion of the American military base play right into the president's hands."