Russia’s Defense Industry Hit by Credit Crunch, Ivanov Says

Russia’s defense industry is facing difficulties in meeting orders from the state because of the global credit crunch, Deputy Prime Minister Sergei Ivanov said.

Sergei Ivanov

Many companies are suffering from cash-flow problems, Ivanov said in remarks carried on state television. The financial crisis is “hitting some defense companies quite hard,” and the situation could prove “troublesome” for the industry, he said.

 
AFP/Ntv

Above: This Russian submarine had an on board non nuclear accident that killed 20 this week.  She was on sea trials and scheduled to be tranferred to India.  She is now emblematic of Russia’s failing defense industry.

By Sebastian Alison, Bloomberg

Banks in which the state holds a large stake, including OAO Sberbank, Russia’s biggest bank, VTB Group, the second largest, and state development bank Vnesheconombank, should consider lending to defense contractors, he said.

Ivanov was speaking today at a meeting in Moscow of a government commission on strategic enterprises and the defense industry.

“We’re talking about an industry with a lot of expenses and not too much revenue,” said Masha Lipman, an analyst at the Moscow Carnegie Center. She noted that Russia has recently made major arms sales to countries like Venezuela on credit with no repayments due for years.

Lipman said Russia’s Defense Ministry has been sending out mixed signals, for example by announcing cuts in military staffing numbers. This will produce tens of thousands of unemployed officers and the cost of retraining them for civilian jobs will be high, she said.

“Probably we will see that no such cuts will be made, because if you cut expenses in one place, you create them in another place,” she said.

Georgia War

Russia approved 344 billion rubles ($13 billion) in new defense spending last month following its five-day war with Georgia in August, Ivanov said on Oct. 16.

“Additional funds will be spent on purchases of modern weaponry, especially aircraft,” Ivanov, a former defense minister, said during a meeting with President Dmitry Medvedev.

At the same time, Russian state revenue may slump as the price of oil, its biggest export, plunges and capital flight accelerates on concern the global economy is entering a recession.

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