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Strategies & Market Trends : Investment in Russia and Eastern Europe

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To: Real Man who wrote (729)10/8/1998 9:03:00 PM
From: CIMA  Read Replies (1) of 1301
 
Russian Army Sells Arms to Pay for Food

On October 7, Russia's "Interfax" news agency reported that
customs officials in the Russian Far East city of Khasan had
intercepted an attempt to sell five Mil Mi-8T (NATO designation
"Hip C") assault transport helicopters to North Korea. The
helicopters bore identification numbers indicating they were the
property of the Russian Army, and were still fitted with weapons
pods and other military equipment. The helicopters, valued at
$300,000 each, were reportedly offered to North Korea for $20,000
each.

Additionally, on September 29, Russia's "ITAR-TASS" news agency
reported that a large amount of weapons had been stolen from a
Russian Pacific Fleet ammunition dump between September 22 and
September 28. According to initial estimates, more than 17,000
rounds of ammunition, several thousand stun grenades, six grenade
launcher rounds, and 10 grenades were missing.

Thefts from Russian arsenals, prevalent since the collapse of the
Soviet Union, have increased in frequency with the deterioration
of the Russian economy. The theft of small arms and ammunition
for use or sale by individual soldiers, criminal groups, or
guerrillas is a matter of concern to the Russian government. But
the attempted sale of large equipment such as helicopters to
pariah regimes like North Korea is a global concern as well.
Moreover, it is a serious commentary on the state of the Russian
military. A private can steal a Kalashnikov, but to steal five
transport helicopters requires the participation of officers.

According to numerous recent reports, the Russian military,
especially in the Far East and other remote backwaters of the
federation, is on the brink of starvation. Russian soldiers have
felt the brunt of the country's economic crisis and are owed
several months of back-wages. Worse still, according to Russian
Public TV, the entire Russian army with the exception of the
General Staff received neither rations nor money to purchase food
during August and, apparently, September. This has left officers
to fend for themselves as they attempt to feed their troops, a
task made official in August by then acting Defense Minister Igor
Sergeyev, when he ordered all ranks of commanders to "look for
additional sources [of sustenance for the winter] and assume
personal control."

The Defense Ministry announced that trips would be organized for
all soldiers and officers to take to the fields to harvest
mushrooms, berries, and other sources of food for the winter. In
the Moscow Military District, 12,000 soldiers were sent to
harvest potatoes around Moscow in exchange for meat and bread.
In the Far East region of Khabarovsk, the territorial
administration has reportedly stopped the provision of bread to
Far East military units, due to non-payment of debts.

The Russian government understands its problem but has been
unable to do much to alleviate it -- hence the orders to scavenge
for mushrooms. The Defense Ministry has calculated that the
actual debt owed the army, adjusted for inflation, is
approximately 120 billion rubles. On September 19, Russian
Defense Minister Sergeyev said that an agreement on the repayment
of the total debt owed to the armed forces, amounting to 4.1
billion rubles, had been reached between himself and President
Boris Yeltsin. Sergeyev said that the plan was to repay the
debts with foodstuffs.

In September, Sergeyev also announced that the Defense Ministry
had proposed a number of measures to the Russian government
"which will enable the armed forces to earn money." Said
Sergeyev, "All we need right now is to do this, using the
experiences of the Chinese armed forces at a difficult period.
Packages of documents to this effect were submitted to First
Deputy Prime Minister Yuri Maslyukov yesterday [September 18] and
I hope they will be approved."

Apparently, some Russian commanders have taken Sergeyev at his
word, assuming "personal control" and following the Chinese model
of entering business -- in this case, the arms trade. Russian
military commanders are facing the potential need to maintain
public order within their regions, and can't be sure which side
their own troops will be on. In an effort to ensure the
integrity of the armed forces prior to the onset of winter and
possible civil unrest, they have apparently resorted to selling
military equipment in exchange for cash to buy food. The arms
proliferation risks inherent in this freelance financing effort
are clear.

Russian customs officials caught this shipment, but what else
haven't they caught? What other types of weapons are on the
market right now? Russian strategic missile troops are
reportedly in the same predicament as the rest of the Russian
armed forces. The potential for everything from assault rifles
to assault helicopters to strategic weapons reaching the arsenals
of countries like North Korea, Iraq, Iran and Libya is
disconcerting enough. But international mercenaries and
terrorist organizations such as Osama Bin Laden's group are also
shopping.

Recent rumors claim that Bin Laden may have received nuclear
weaponry from Central Asian republics. These rumors have yet to
be substantiated, and even in the midst of economic collapse
Russian nuclear arms are kept under closer scrutiny than
helicopters. But even if they can't get nukes, terrorists can do
a great deal of damage with surplus surface to air missiles,
mortars, and plastic explosives.

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