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Russia Suffers While Arming China, Part 1

Thursday, 24 January 2002 12:00 AM

Let's look at the following figures, provided by the Russian Central Bank and some leading non-governmental economists.

Russia's imports are steadily increasing: They gained 17.8 percent in 2000 and another 18.5 percent in 2001.

Russian exports gained 24.6 percent in 2000, but lost 2.1 percent in 2001; the decrease on an annual basis was 2.4 percent in the third quarter of 2001 and 15.6 percent in the fourth quarter.

Monthly export volume fell from $10 billion in October-December 2000 to slightly over $8 billion in October-December 2001 – despite substantial growth in shipments of oil and other raw materials abroad. Falling world oil prices stymied the Kremlin.

As a result, the positive balance in Russia's foreign trade fell from $46.3 billion in 2000 to $34.2 billion in 2001. In the fourth quarter of 2001, this positive balance fell to about $7 billion against approximately $16 billion in the fourth quarter of 2001.

Despite a fall in currency inflows, the unofficial capital outflow was almost the same in 2000 and 2001 – $22 billion compared to $21.1 billion. As a result, the share of "earned capital" leaving Russia rose from about 45 percent in 2000 to 60 percent in 2001.

The dynamics of the Russian Central Bank hard currency reserves perfectly reflect the export-import dynamics, complicated by hard currency outflows.

During 2000, these reserves rose from $12.5 billion to $28.9 billion; by late September 2001 the reserves additionally expanded to $38.6 billion. By the end of 2001, they had fallen to some $36.5 billion.

Without much doubt, the short-term growth of the Russian economy has ended. GDP growth on an annual basis fell to almost zero in fourth quarter 2001.

This growth was based on high world market prices for oil and oil products, natural gas, ferrous and non-ferrous metals and mineral fertilizers, which collectively account for at least 80 percent of Russian exports.

After the Sept. 11 attacks and especially in fourth quarter 2001, prices for these products fell dramatically, thus undercutting Russia's economic base.

Remarkably, total profits of Russian industrial enterprises rose by 90 percent in 2000, but fell by about 8 percent in 2001, including a 15 percent fall in the fourth quarter.

Let's look at how the new situation is reflected in the daily life of Russian citizens.

An increase in the total number of unemployed began in June 2001 and accelerated by year's end. Total unemployment rose from 8.5 percent to about 9 percent. At the same time, total back wages due rose by about 10 percent.

The monthly inflation has surpassed 2 percent and is accompanied by "crawling devaluation" of the ruble. According to Dr. Mikhail Delyagin, considered one of Russia's leading economists, "these tendencies may make the current year, 2002, a pre-crisis one."

Indeed, all of these Russian economic problems are still growing in 2002, and could – barring a miracle boosting world raw materials prices – lead to a full-scale crisis by year's end.

Take into account the fact that Russia has $14 billion for foreign debt principal and interest payments due in 2002 and $19 billion in 2003, and the possibility of a new "August 1998" becomes real.

In December 2001-January 2002, Smolensk, Ulyanovsk, Yekaterinburg and some other Russian cities as well as hundreds of towns had no money to pay for natural gas and other fuel.

In these cities and towns, the temperature in apartments has fallen to 12-14°C (54-57°F) or less, and the length of school lessons has fallen from 45 minutes to 30 minutes, because the children are freezing. That's in addition to chronic brownouts and blackouts in the power supply.

Even in mid-2001, tens of millions of people in Russia are teetering on the brink of survival. This number is steadily growing and will continue to grow during the rest of this year. And what will happen in 2003?

Between mid-1999 (when Russian President Vladimir Putin assumed power) and the end of 2001, Russia's population – despite a narrow flow of immigrants from former Soviet republics – fell by about 2.5 million to 144 million (the same figure as in 1995).

This depopulation is now accelerating, due to worsening socioeconomic conditions. In addition, epidemics of HIV/AIDS, tuberculosis and hepatitis are taking several hundred thousand victims every month – not to mention the horrific spread of alcoholism and drug abuse, which have half-destroyed Russia's infrastructure.

And there is no money – real money, not rubles – to treat all these maladies.

Russia very probably is facing a new financial-economic and sociopolitical catastrophe. The Kremlin knows this perfectly well, and is growing desperate.

For their regime to survive, Russia's rulers need huge volumes of hard currency from abroad. Raw materials have failed them, so the only remaining reserve is the unlimited export of weapons and related technologies.

The authors predicted such a development several times – in articles published by NewsMax in September-December 2001 (see below). Now the worst-case possibilities are becoming a reality.

In 2001, Russia's arms exports officially rose 20 percent, to $4.4 billion, including $3.68 billion provided by Rosoboronexport, the state-owned weapons export monopoly, and $620 million jointly provided by six large defense industry enterprises.

Russian weaponry went to 67 countries, but in quantitative terms at least 80 percent went to China, India and Iran.

According to reliable sources (Jane's Defence Weekly, Jan. 16, 2002, and the Far Eastern Economic Review, Jan. 24, 2002), China accounted for between $2 billion and $2.2 billion out of the above $4.4 billion.

This included the following:

In addition, Sukhoi delivered dozens of complete kits (up to 50) for licensed assembly of Su-27SKs at the Shenyang Aviation Plant in China's northeastern province of Liaoning; these kits may have cost as much as $300 million.

Dr. Thomas J. Torda has been a Chinese linguist specializing in science and technology with FBIS, and a Chinese/Russian defense technology consultant with the Office of Naval Intelligence.

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Let's look at the following figures, provided by the Russian Central Bank and some leading non-governmental economists. Russia's imports are steadily increasing: They gained 17.8 percent in 2000 and another 18.5 percent in 2001. Russian exports gained 24.6 percent in...
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Thursday, 24 January 2002 12:00 AM
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