KUALA LUMPUR DOWNPLAYS REPORTS OF QUICK MILITARY FIGHTER DEAL.

Russian hopes of realizing a major sale of military aircraft to Malaysia suffered at least a temporary setback earlier this month when government sources in Kuala Lumpur indicated that Prime Minister Mahathir Mohamad would not sign the proposed sale agreement during a visit to Moscow that had been planned for September 12-15. Mahathir was unexpectedly forced to cancel his visit to Russia, as well subsequent stops in Germany and Britain, following the September 11 terrorist attacks in the United States. A Malaysian government official was quoted on September 13 as saying that the visits would be rescheduled following fresh consultations with the Russian and German governments.

Mahathir’s four-day visit to the Russian capital was to have included a meeting with President Vladimir Putin. Malaysian Defense Minister Najib Razak, who was to have accompanied Mahathir to Moscow, focused attention on the prospective aircraft deal when he told reporters on September 7 that his country might revive an earlier plan under which it was to buy a fleet of Russian-made Su-30MK combat aircraft. The proposed 1997 deal was shelved by Malaysian authorities following the onset of the Asian economic crisis.

The Kremlin and Russian arms export officials can be counted on to lobby hard for the proposed new aircraft sale. Under Putin, the Russian authorities have sought to peddle their military hardware more aggressively abroad, and they have targeted the Southeast Asian market as one that might help them diversify Russia’s currently limited client base (the vast majority of all Russian arms are sold to China and India). Malaysia, moreover, is to date the only Southeast Asian country to make a major purchase of Russian military aircraft. In the mid-1990s Moscow sold eighteen MiG-29 jet fighters to Kuala Lumpur in a deal estimated at US$600 million. Russian arms exporters also profited from a follow-up agreement signed in the fall of 1997. Estimated to be worth US$34.4 million, the deal called for Russia to upgrade the MiGs by equipping them with mid-air refueling systems, strengthening them to carry a heavier ordnance load and arming them with the newest Russian air-to-air missiles (see the Monitor, October 20, 1997).

Against this background, Russian arms export authorities have reportedly offered to sell Kuala Lumpur the new package of Su-30s at about US$35 million per aircraft. Amid rumors that the deal might be finalized during the planned mid-September Malaysian-Russian talks, however, Foreign Minister Syed Hamid Albar told the Bernama news agency that “there is no intention to go there [Moscow] in order to finalize any purchase, acquisition or procurement, that is not the purpose of the visit.” Defense Minister Najib Razak has also indicated that Malaysian authorities will make no final decision on the arms deal until at least after an international maritime and aerospace fair to be held in Malaysia on October 9-14. The government has already sent a Malaysian air force team to Russia to evaluate the Su-30s, Najib said, but as of earlier this month they had reached no concrete decisions.

At present, the major sticking points in the arms negotiations appear to center on how the deal is to be financed and on Malaysian concerns about the capabilities of the Su-30s. In the 1994 deal under which Russia sold Malaysia the MiG-29s, Kuala Lumpur reportedly paid roughly US$95 million of the total US$600 million cost with shipments of palm oil. The Malaysian authorities are apparently asking once again that shipments of palm oil be used to help defray the costs of any new aircraft purchase from Moscow, but it is unclear what portion of the total cost they would like to pay in this fashion. The Russian government has shown itself willing in the recent past to consider barter as one form of payment for its military hardware, but Russia’s own economic difficulties have to some degree constrained the government’s range of movement in this area. Malaysian officials, meanwhile, appear also to be raising questions about the capabilities of the Su-30 aircraft in question. Reports provide few details, but Najib was quoted as saying that the Russian sale offer “needs studying not only from the commercial aspect but also from the aircraft’s combat capability.” The Malaysian air force would have to identify areas for possible technology transfer before deciding on the deal, he said as well (Bernama, DPA, September 10; Economic Times Online, September 8; AFP, September 7, 10; New Straits Times, September 11).

Since the 1997 MiG-29 upgrade deal, Russian hopes of locking in expanding defense ties with Malaysia have largely been frustrated. In the spring of last year, for example, Russian Deputy Minister Ilya Klebanov announced during a visit to Kuala Lumpur that Russia had proposed the sale of several diesel-electric submarines to Malaysia. He also spoke of Russia’s more general readiness “to cooperate with the Malaysian defense complex in many spheres, ranging from the transfer of technology to the production of parts and units for weapons systems.” Indeed, Klebanov made clear Russia’s willingness to “to conduct joint research and development with Malaysia in the sphere of the manufacturing of armaments, which our two countries could supply to the world market” (Itar-Tass, April 11, 2000). Those projects have not come to fruition, however, and it remains to be seen whether the new Su-30 deal will fare any better.

One document that presumably will be signed when the Malaysian leader finally does get to Moscow is an agreement under which Kuala Lumpur is to extend Russia a US$50 million credit to buy about 200,000 tons of palm oil. Mahathir and Putin were slated to sign the Palm Oil Credit Payment Arrangement during Mahathir’s earlier scheduled visit. Malaysia had exported 350,000-400,000 tons of palm oil annually to the former Soviet Union–the vast majority of it consumed in Russia. Since 1993, however, Russian purchases have fallen to 40,000-60,000 tons per year. Bilateral trade between the two countries was valued last year at US$265.6 million (New Straits Times, September 17; AFP, September 10).

RUSSIA’S FOREIGN TRADE AND CURRENT ACCOUNT SURPLUSES NARROWING.