Russian President Vladimir Putin held a government meeting on Wednesday to discuss further reductions in the government's budget as the economic crisis in Russia deepens. With more spending cuts on the way, an issue that has been in the spotlight in recent weeks was missing from the agenda: defense spending. It is a longstanding Russian (and Soviet) tradition to maintain defense spending above all else, even if it means breaking the rest of the budget. Putin seems keen to uphold this tradition.
Russia is entering its second recession in six years. The economy began slowing in 2013, but the combination of sanctions from the West, soured investment sentiment toward Russia and low oil prices has hastened its decline. In January, the Kremlin slashed the 2015 budget by 10 percent across the board — except for defense — but even with that cut Russia still faces a $54 billion deficit this year.
The Finance Ministry proposed a series of budget cuts to the prime minister's office on Monday. RBC News agency published leaks of the proposals. The first would slash another 5 percent, or $17 billion, from the 2016 budget, with minor cuts to subsequent budgets in 2017 and 2018. The second plan would only cut less than a percent, or $1.2 billion, from the 2016 budget, leaving the financial burden for later years. A third proposal would drain the country's Reserve Fund so that the government could cut programs more evenly, and a fourth proposal would have the government launch deep structural reforms, which included steep cuts in social spending.
But still missing from the discussions and leaks is any mention of cutting defense spending. In fact, the original 2015 budget expanded defense spending by 20 percent, then revised it to just a 10 percent expansion from 2014 levels. However, the government has postponed its ambitious $770 billion, 10-year rearmament program yet again. The Kremlin, of course, might eventually be forced to cut defense spending. There are just no indications that it is on the chopping block now.
The debate over defense spending is a heated one for Russia. Currently Russia spends 4.8 percent of its gross domestic product on defense, up from 3.5 percent in 2014. This is more than double what NATO guidelines say members should spend on defense. When Russia began to raise defense spending above 3 percent in 2011, Russian economists and financial circles protested. Then-Finance Minister Alexei Kudrin (known as one of the country's savviest economists) went head to head with then-President Dmitri Medvedev, eventually losing his job over it. Kudrin, like many, argued that Russia simply could not afford such massive defense spending — and he was arguing this point at a time when Russia was flush with cash because of high oil prices.
Again, Russia may eventually cut its defense spending, but Russian economists and financial analysts openly criticizing the Kremlin's decision on defense spending are pressured or silenced. Ahead of the January budget revisions, Finance Minister Anton Siluanov railed against the expanded defense spending, calling for the Kremlin to be "more realistic." Siluanov soon stopped speaking about the issue, avoiding it when questioned by reporters, a clear sign that the Kremlin has brought the minister to heel. Moreover, in recent weeks, a wave of criticism from non-Kremlin economists regarding Moscow's decision to maintain current defense spending levels led one of Russia's leading economists, Konstantin Sorin, to announce Wednesday that he was fleeing the country. A Putin loyalist — the husband of central bank chief Elvira Nabiullina — replaced Sorin at his position at Moscow's Higher School of Economics, a leading think tank on the matter.
The Kremlin's strong-handed tactics against critics are rooted in military imperatives. The 1990s were a lost decade for Moscow and its military machine. Massive underinvestment and a failure to continue the requisite modernization through procurement and maintenance are taking a toll on Russia's military capability. This military stagnation explains why Moscow has increased base defense spending and planned a 10-year splurge designed to nearly double the defense budget and modernize 80 percent of Russia's conventional forces. The 10-year plan was designed to make up for an entire decade of neglect and build a reserve ahead of a larger economic crisis beyond the next decade, during which Russia would not have the same ability to modernize or expand its military. Without such spending, Russia's conventional military capability will decline.
Much of this spending was solely focused on updating equipment, but security concerns are producing unforeseen costs. Most notable is the strong military support and involvement in eastern Ukraine. All of the mass movements of troops and materiel require consistent funding. In addition, the increased tension with the West and NATO has compelled Moscow to increase training, military exercises and security posturing such as combat air patrols and naval movements. Even without a large military movement into its periphery — which Stratfor sees as unlikely — Moscow is still under greater financial burden as it weighs its modernization and military needs against shrinking resources and domestic blowback.
So the Kremlin is muting criticisms and keeping the military at the top of its list of spending priorities, even if it cannot afford its grandiose rearmament. As the economic crisis deepens in Russia, the Kremlin could be forced to cut corners in the defense sector. However, in the Putin government's view, the defense budget is not just about beefing up the military; it is about creating a military that will be able to withstand further declines in Russia years down the road. To the Kremlin, a stronger military is not a wish but an imperative.
