Publication: Monitor Volume: 8 Issue: 41

Russian and Western news sources have described the recent demotion of Ilya Klebanov as part of a broader shakeup that has strengthened the authority of Prime Minister Mikhail Kasyanov. Reduced in rank on February 18 from deputy prime minister to minister of Industry, Science and Technology (see the Monitor, February 25), Klebanov was stripped of a number of responsibilities. But in one area–defense industrial policy–he appears to have retained a considerable array of powers. The recent events in Moscow have thus triggered intense speculation within Russia’s defense industrial sector: What impact is Klebanov’s demotion likely to have on the country’s defense industrial policy? The issue is especially important for many Russian defense enterprise leaders, because Klebanov has overseen the drafting of a major reorganization of the country’s defense industrial complex, one much criticized and only now being implemented. He has also played a key role over the past year or so in a parallel restructuring of Russia’s arms export system. The extent to which his powers in this area have–or have not–been altered will also be of keen interest to both defense industrial leaders and a host of other interest groups in the country’s defense and political establishments.

The centrality of Klebanov’s role in formulating and carrying out Russian defense industrial and arms export policy is testified to by the fact that so many news accounts have pointed to his performance in precisely these areas as a likely reason for his demotion. Russian commentaries, for example, have highlighted the bitter way in which defense industrial leaders have greeted a Klebanov-drafted plan that aims to cut by roughly one-half the total number of defense enterprises receiving state funding in Russia and to administratively subordinate those firms remaining to several dozen newly created defense holding complexes (see the Monitor, August 2, 2001). The plan has also generated opposition from many Russian regional leaders, who see it as a threat to jobs and to the tax revenues they have up to now gathered from locally based defense production facilities. According to the Moscow Times, defense industrial leaders have also objected to a move by Klebanov to force leading arms makers to finance new arms research and development projects from their arms export revenues. The newspaper quotes defense industrial sources as saying that Klebanov’s handling of this pair of issues could have cost him his prime minister post. “The industry is jubilant,” these same sources were quoted as saying. “Everything he has been doing in the past was against the industry’s interests.”

Russian news sources have also pointed to what they say has been Klebanov’s mishandling of certain specific arms transactions as a possible reason for his dismissal. Some, for example, have highlighted problems that arose recently in finalizing a package of potentially lucrative arms deals between Russia and India. Klebanov heads an Indian-Russian military-technical cooperation commission, and led a high-level Russian delegation to New Delhi earlier this month. The visit did help to boost Indian-Russian cooperation in this area, but failed despite high expectations to finalize several of the most important arms proposals (see the Monitor, February 12). Russian sources have also pointed to several problematic arms transactions between Russia and China, and especially to one in which the then Russian deputy prime minister reportedly crossed up both his Chinese partners and one St. Petersburg shipbuilding concern. The incident involved a US$1.4 billion deal by which Russia was to supply two destroyers to the Chinese Navy. Klebanov reportedly transferred the contract unexpectedly to a competing St. Petersburg plant–one that by chance also builds frigates for the Indian navy. According to one Russian source, the legally suspect move managed to alienate both India and China–who preferred that their shipbuilding projects be conducted at different plants–and also led Kasyanov to review the terms of the contract.

It is difficult to say how much Kasyanov’s recent demotion will weaken him politically in these areas. Kremlin sources went out of their way last week to make the point that the Russian minister will now be able to devote his full attention to resolving problems within the defense industrial complex, and also to improving interaction between the defense industries and Russia’s Defense Ministry in properly fulfilling defense procurement orders. In addition, sources in Moscow said that Klebanov would retain his post as deputy head of a government Committee on Military-Technical Cooperation. That suggests Klebanov will continue to exercise responsibilities in the area of arms exports, although some observers have suggested that his loss of the deputy prime minister post will deprive him of control over the hundreds of millions of dollars in arms export revenues that flow into the sector. It is unclear whether Klebanov will continue as the Russian co-chair of the military-technical cooperation commissions that oversee arms trading between Russia and both China and India. Those posts are key because India and China are, by far, Russia’s two largest arms clients and the source of its largest revenues. But there has been no announcement suggesting that he will no longer hold those posts.

A commentary published last week on the Kremlin-backed Strana.ru website, meanwhile, linked the reordering of Klebanov’s responsibilities with President Vladimir Putin’s recent criticism of the Defense Ministry for its poor performance both with respect to the timely paying of pensions and wages and for ensuring that military bases and garrisons are provided with adequate power supplies. The commentary also reminded readers that Russian lawmakers had recently launched an inquiry into the Defense Ministry’s use of state procurement funds (see the Monitor, February 22). Against this background, the commentary intimated that the government’s decision forcing Klebanov to focus his energies on problems in the defense industrial sector and on its interaction with the Defense Ministry could actually increase his influence in this area. At the same time, the commentary appeared also to say that, having now been relieved of a host of other responsibilities, Klebanov’s future as minister of Industry, Science and Technology would depend upon how well he performed these more narrowly defined functions. But that is likely to be no easy task. As has already been suggested, resentment is already running high in the defense industrial sector over Klebanov’s painful restructuring proposals. Things are likely to be no better in his dealing with the Defense Ministry, which has been embittered by the government’s failure to significantly raise defense expenditures, and which seems incapable of properly handling even the small amounts of money it does receive (Moscow Times, Nezavisimaya Gazeta, Vremya Novostei, Izvestia, February 19; Strana.ru, February 18; Kommersant, February 19; Trud, Obshchaya Gazeta, February 21).