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Russia likely to boost defense-related expenditures

      RBC, 18.06.2004, Moscow 11:16:32.Russia plans to boost spending on domestic arms purchases by a third in 2005 to $6bn to help the defense sector recover from a post-Soviet slump, the Russia Journal reported citing industry sources. But a big player in the industry said the measure may not yield immediate results as the government remained divided over which sectors the money should favor. The arms industry shrank in the 1990s. The sector started to pick up three years ago but production remains below Soviet levels. The 2005 budget would likely allocate about RUR180bn (about $6.20bn) to arms purchases - a rise of about RUR45bn from 2004, the daily said citing media sources.

      Total defense spending, including security and emergencies, will rise RUR146bn to RUR894bn (about $30.8bn) in 2005 - or about five percent of the economy - according to a draft budget. The rise is in line with a longstanding plan to bolster military capability by reforming the ill-equipped and demoralized army, reorganizing the nuclear sector and increasing exports to Asia to offset decrease in sales to Eastern Europe.

      Defense officials have hinted the government wants to concentrate on researching next-generation technology rather than purchasing modified versions of existing stocks. Aviation, growing at double-digit rates due to rising exports, hopes to get the largest slice. Jet sales form the backbone of arms exports and the government could give it priority due to the industry's high profitability. Russia's best combat jet producers like Sukhoi and MiG - which have brought in billions of dollars in export revenues in recent years - need cash to develop new-generation jets as existing models will become obsolete in about 10 years. But some analysts say the lion's share of the budget could go to the government's pet project - development of new technology for its strategic rocket forces.

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