Publication: Monitor Volume: 5 Issue: 201

Prime Minister Vladimir Putin promised yesterday to rebuild Russia’s military power. “The government has undertaken to rebuild and strengthen the military might of the state to respond to new geopolitical realities, both external and internal threats,” Putin told naval officers at a base in Vladivostok, in Russia’s Far East. Putin said that military spending would be increased by 57 percent next year, to 146 billion rubles (US$5.7 billion) (Reuters, October 28). The government has already increased military spending to provide additional means to prosecute the war in Chechnya. On October 7, Deputy Prime Minister Ilya Klebanov said that US$160 million would be added to the 1999 defense budget to purchase planes, helicopters, communications equipment and night-vision goggles for use against Chechen guerrillas (Russian agencies, October 7).

Nevertheless, the International Monetary Fund does not believe that Russia’s military operations in Chechnya are causing budgetary problems for Moscow. Russian agencies yesterday quoted Thomas Dawson, the head of the IMF’s external relations department, as saying that while situations like the current one in the North Caucasus always arouses worry “both in the humanitarian sense and from the point of view of the possible influence on the budget,” there are no signs thus far that the military campaign in Chechnya is having a negative influence on the budget (Russian agencies, October 28). Earlier this month, IMF Managing Director Michel Camdessus said that if Russia’s budget were to go “out of control” due to “an unwise increase in military spending, we will suspend our support” (Russian agencies, October 13).

The IMF’s next scheduled tranche from its US$4.5 billion loan to Russia, worth US$640 million, was supposed to be released in September but was held up due to the scandal surrounding alleged money laundering through the Bank of New York. Some media reports quoted anonymous law enforcement officials as saying that US$200 million from IMF credits may have been among the billions of dollars which passed through several suspect accounts in the bank. The Fund is waiting for an audit carried out by the international auditing firm PricewaterhouseCoopers of the Russian Central Bank’s foreign subsidiaries. These institutions figured in the scandal surrounding FIMACO, the Channel Islands asset management company into which Russia’s Central Bank allegedly parked billions of dollars from the country’s hard currency reserves.

Meanwhile, Viktor Melnikov, deputy chairman of Russia’s Central Bank, told the Washington Post this week that US$70 billion was transferred last year from Russian banks to the accounts of banks chartered on the Pacific island of Nauru (Moscow Times, October 29). Nauru has apparently become a popular offshore haven for money “enroute from taxation,” as well as for proceeds from various criminal activities.