plans to shrink and rationalize the military, to bring its structure into line with its modest resources.

For Russia’s arms industry, military reform means a smaller domestic market with less tolerance for junk and more scrupulous attention to where the money goes. With opportunities for sales and graft reduced at home, exports will be vital to the industry’s survival.

In the 1980s, Russian arms exports were recorded at $15 billion-$20 billion a year. As late as 1995, Russia was still second only to the United States in arms sales. By 1998, however, Russian arms exports were down to $2.6 billion. Sales rose to $3.6 billion in 1999 but will probably not exceed $4.0 billion this year. Markets are limited: Over 70 percent of exports go to China and India.

As Boris Yeltsin did before him, President Vladimir Putin is restructuring the arms-export business and putting his own people in charge. Yeltsin and then Prime Minister Viktor Chernomyrdin created specially licensed arms exporters who sold under commercial contracts ostensibly free of government controls. That arrangement let the Kremlin deny knowledge of sales to Iran and others.

President Putin seems more interested in efficiency and control than in subterfuge. Earlier this month he issued a series of decrees merging the two remaining licensed exporters to form a new company, Rosoboroneksport, and he put his own man, former intelligence officer