A long-term turf war over defense spending, between factions within President Vladimir Putin’s entourage, has raged for more than a year in Moscow. The so called “party of peace”—Putin’s liberal-inclined economic advisors and officials, led by former finance minister Aleksei Kudrin—is promoting defense spending cuts to generate sustainable economic growth. Kudrin has called for a de-escalation of the present confrontation with the West and to divert resources from defense to education, medicine and infrastructure. This summer, the Kudrin-led think tank Center for Strategic Research (TsSR) presented Putin with a program of economic reform until 2024—which would line up with the end of Putin’s next apparent six-year presidential term after he almost certainly wins the pro forma elections this March. The TsSR program will not be disclosed without Putin’s consent. But in published extracts, Kudrin argues that tontinued high defense spending will lead to economic stagnation and eventual financial ruin (Vedomosti, September 6).
In September 2016, Finance Minister Anatoly Siluanov openly clashed with Defense Minister Sergei Shoigu—the designated leader of the so-called “party of war” in Moscow—about the financing of the rearmament program until 2025. Shoigu demanded some 22 trillion rubles ($400 billion), while Syluanov argued the country could only afford 12 trillion ($207 billion) (Kommersant, September 17, 2016). This month, in a public lecture in the Russian capital, Siluanov warned that overextended defense spending, combined with a fall in oil prices, led to the breakup of the Soviet Union in 1991. Moreover, he implied present-day Russia may suffer comparable “serious consequences” (RIA Novosti, October 6).
For months, President Putin seemed to waver on what to do: slash defense spending and deescalate the present acute confrontation with the West, or follow the path of the “party of war?” This summer, Putin announced plans to cap defense spending at the level of 2.7–2.8 percent of GDP “in three years” (Militarynews.ru, June 15). In addition, he declared that, in 2018 “defense spending will be cut, but arms procurement plans will not be affected” (Kremlin.ru, August 15). Yet, it is difficult to figure out how both goals can be achieved simultaneously. In mid-July a Kremlin insider told this author, on the condition of unanimity, “The ‘party of peace’ is winning.” But Putin’s attempt to have his cake and eat it did not work out. The arguments of the “party of war” carried the day: cutting defense spending became tantamount to treason because North Atlantic Treaty Organization (NATO) legions are supposedly poised on Russia’s doorstep.
Addressing a session of the Federation Council (upper chamber of the Russian parliament), Shoigu, apparently referring to the members of the liberal “party of peace,” called on the Russian people “not to be blind” to the growing menace “of NATO activities on the borders of Russia” (Mil.ru, May 24). Last week (October 17), Finance Minister Siluanov—one of those who were evidently “blind” to the Western military threat—did see the light. At a meeting in the State Duma (lower chamber of parliament), Siluanov declared, “I fully understand—in the present situation we cannot cut defense spending. We spend about one third of the budget [over 6 percent of GDP] on defense and security, and that is a large share.” Siluanov continued, “These expenditures are needed because we are a nuclear power and are forced to repel all those foreign political attacks. Strong and modernized armed forces make Russia strong” (Interfax, October 17).
With the “party of war” apparently victorious, Putin’s Russia is entering the presidential election campaign with a budget deficit of 2.2 percent of GDP, with depleted national reserve funds that were used since 2014 to finance the deficit, and with a limited ability to borrow money for further deficit financing (Kommersant, October 19). The Kremlin is keen to control spending, and Putin seemed ready to cut defense costs. But he eventually decided otherwise. Now the price of austerity must be paid by the Russian people. For a fourth consecutive year, household incomes have declined, despite optimistic government announcements about the economy growing again (Gks.ru, October 18). More austerity apparently seems on the way, with cuts to social expenditures and tax increases. In those circumstances, Putin has seemingly decided to scale up anti-American rhetoric.
On October 19, Putin met in Sochi with a gathering of selected, mostly pro-Russian, foreign political scientists and dignitaries—the Valdai Club. There, he delivered a speech and participated in a lengthy question-and-answer session (see EDM, October 23). The remarks were perhaps his most anti-American and anti-Western to date. Putin implied that Russia was guilty of again trusting the West, which in turn used this trust to spy and impose its will on the country; but this will never be allowed to happen again (Bfm.ru, October 20).
Putin denounced the so-called “Megatons to Megawatts” program, initiated in 1993 and completed in December 2013. That program had allowed Russia to enter the lucrative commercial nuclear reactor fuel market in the United States and sell some 500 tons of arms-grade uranium—enough to make around 20,000 nuclear warheads—that was converted into 15,000 tons of low-enriched reactor-fuel uranium. The Russian arms-grade uranium was no longer needed because of the massive disarmament after the end of the Cold War. And yet, Putin argued the deal was “one-sided” since the US was able to use up less of its own stored cache of Cold War–era arms-grade uranium; but he neglected to mention that Russia received some $17 billion for those sales, of which $13 billion went directly into the state budget (Kremlin.ru, October 19).
Putin also attacked the Cooperative Threat Reduction (CTR) Program, better known as the Nunn-Lugar Act, which provided Russia with billions of dollars of US aid to improve nuclear security. He asserted that Nunn-Lugar allowed US spies to enter Russia’s nuclear facilities and figure out Russian weaknesses. Finally, Putin declared the 1987 Intermediate-Range Nuclear Forces (INF)—which eliminated intermediate- and shorter-range land-based missiles—to be “one-sided.” He added that if the INF collapses because of the Americans, “our response will be immediate and reciprocal” (Kremlin.ru, October 19). Washington accuses Moscow of violating the INF by developing and probably partially deploying banned intermediate-range land-based missiles. It would seem Putin’s promise of a highly immediate “response” could indicate such missiles have, indeed, been developed and are ready for deployment.
The budgetary battle in Moscow may be over, but Putin’s reelection campaign appears based on anti-Americanism and a siege mentality. The Russian public will be called on to accept social austerity and costly rearmament as a price worth paying to defend the country. Seemingly little scope exists for any serious détente between Moscow and Washington anytime soon.