Published: “Export of Arms”, No. 5, September/October 1998, AST Centre
 

Marat Kenzhetayev
 Center for Arms Control Studies
Moscow Institute of Physics and Technology 

"Units and Parameters of Military and Technical Cooperation"

//"Quasi-official results of Russian Arms Trade in 1997"

At the beginning, it is necessary to remember, that all open information supplied to public has its integral feature - a degree of authenticity. During examination of the export of conventional armaments, it is necessary to take into account this fact. Even today, one has to have in mind, that many published data concerning armaments export, deliveries of military technology and military technical cooperation as a whole, are characterized by certain range of accuracy (1), which can vary within considerable limits (sometimes from ten to hundred percent). Therefore, when we come to evaluation of volume and prospects of state's (2) military technical cooperation 2), it is necessary to be aware, that it can be done only within a definite range of accuracy.

Characteristics, trends and volumes of military technical cooperation and world market of armaments usually are described using a substantial number of concepts, which can fall into two groups (3):

  • The first group, which we will conventionally call "liabilities" (4);

  • The second, "execution".

To the first group belong the following concepts : contracts, agreements, treaties, programs (5), protocols of intentions, orders (6) and proposals, tenders, offers

To the second group: delivery, displacement, material transfer (7), export/import, export/import, payment (8), financial transfer (9).

All the above listed concepts have rather the extensive definitions, which can differ depending on the sphere of activity they are applied to. We shall use definitions, which, firstly, are sufficiently general, but have a direct relation to the sphere of military technical cooperation and world market of armaments.
"Liabilities" Group

  • Contract - agreement following which one party (contractor) is obliged to fulfil a definite work on request of the other party (customer), and the customer is obliged to accept and pay executed work.

  • Contract, agreement - a document containing all terms of the transaction of purchase / sale (price, delivery place, date of delivery etc.).

  • Agreement - contract, agreement determining mutual rights and obligations of contracting parties.

Some concepts existing and used in the sphere of the military technical cooperation:

  • contract for the supply of products (execution of works, services) of military purpose;

  • contract for mutual deliveries of products;

We will introduce the unified concept of "contract", under which we understand "contract, agreement according to which one party is obliged to execute a definite work (to deliver the products / works, services of military purpose) on request of other party-customer, and the customer is obliged to accept and pay in definite way the executed works ".

The concept of " contract" is a universal term for description of trends and characteristic of the world market of armaments as a whole and the volumes of state's military technical cooperation (10).

  • Order - organizational and economic legal form of execution and regulation of economic activity of firms and enterprises; a more important form of orders are state production orders on manufacturing and delivery of products, among others for foreign markets.

  • Tender - proposal, request, offer, the concurrent form of purchasing, such that the customer declares the competition for vendors of goods featuring precise technical-economical characteristics. An invitation of suppliers to propose goods or equipment meeting
    specified requirements.

  • Offer - a formal proposal submitted to a definite person (11) to make a deal with specification of all the conditions necessary for its conclusion.

"Execution" Group

  • Delivery - execution of obligation of vendor to product transfer (execution of works, services): handing over of goods to customer, and/or leaving goods at the disposal of customer. From viewpoint of definition of delivery and physical displacement of goods and handing over to customer, " delivery " is a general term used in description of trends and characteristics of the world market of armaments as a whole and the military technical cooperation volumes of each state (12), however, they are often classified in function of the method of payment (for example: "barter deliveries", "deliveries on account of state debt") and the attempts to analyze "economic effectiveness" proper for each "type" of delivery are made, that of course "has" a quite fundamental importance for possible evaluation of financial amounts obtained by legal (13) persons, but actually has no incidence on analysis and estimation of volumes of state's military technical cooperation and world market of armaments.

  • Export/import - the definitions of these concepts are given above.

  • Payment, financial transfer, instalment - execution by customer of obligation to pay for products (executed works, services). There is a substantial number of types of "execution of customer's obligations" depending on time parameters ("advance payment", "payment after delivery", "delivery on credit", payment in instalments") and on payment methods. Without going into details of all possible definitions of type and forms of "execution of obligations" (or more exactly forms of payment) we will notice, that in the sphere of the military technical cooperation (14), the following forms are most currently used : payment in hard currency, in clearing currency, in barter, on account of mutual liabilities etc.. All these forms of payment can be divided into two groups: first group - payments made with real move of financial resources to book-keeping/currency account and the second group - "offset payments ". From financial book-keeping point of view and from the viewpoint of analysis of volumes of state's military technical cooperation both groups are absolutely equivalent.

As it has already been said above, deliveries and contracts are classified following the method of payment - "contract paid in currency", "barter contract", "offset contract", "clearing contract", "contract in compensation of state's debt" etc. That is why it is useful to introduce appropriate definitions:

  • Contract paid in currency - contract, agreement in which the execution (15) of customer's obligation to pay products is done in currency units guaranteed by gold or other values stable in relation to their nominal value, as well as to the exchange rate of currencies of other states (16).

  • Barter contract - contract in which execution of customer's obligation is carried out by the currency free exchange of goods and services.

  • Offset contract - contract in which execution of customer's obligation is carried out in exchange of goods and services and medium/long-term investment of capital asset in the economy, industry. Extended form of "barter contract".

  • Clearing contract - contract based on a system of cashless accountancy of mutual cash claims to provide the parity of goods deliveries and payments between two countries, with annual balancing.

  • Contract "in compensation of the state's debt" - contract in which execution of customer's obligation is done by reducing the external state's debt.

It should be noted that today's trend on the world market of armaments is such, that the above types of contracts seldom appear in pure form. In majority of them, military equipment delivery contracts are combination of two-three types of contracts. For example, well-known 1994 contract (17) on delivery to Malaysia 16 MiG-298 and two fighter-trainers M1G-29UB, initially became the result of "remakes" of contracts and agreements of 1989-91 (18), next, it really was composed of agreements (19) of several types - "paid in currency", "offset" and "barter" (20).

It is necessary to notice, that the world market of armaments as a whole, and any separate contract or delivery of armaments and military technology is characterized by a wide range of parameters. An ordinary contract on the shipment of some number of units of equipment can comprise the following parameters:

T - time parameters (date of the contract (21)), duration, schedule of deliveries, schedule of payments etc.);
N - quantitative parameters;
G - geographic parameters (recipient country, supplying country, intermediate location);
F - financial parameters (price, type and form of payment, terms of payment);
W - technical parameters (designation and type of weapons, model, state, resource, equipment).

One should say, that now, none of analytical centers or institutional organizations dealing with problems of weapons trade and military technical cooperation can say that it is informed about all the above listed parameters. With good degree of confidence it is possible to evaluate only quantitative and geographic parameters; the technical and time parameters are less reliable and finally, the most contradictory information available to public concerns financial characteristic.

Besides, very often, precise and clear definitions of the above listed parameters (22) are not available, which conducts to considerable differences in description of some trends, characteristics of the world market of armaments, the military technical cooperation of individual state, and separately evaluated contract/delivery. For example, concerning already mentioned Malaysian contract, which was repeatedly mentioned and described in open information sources, one might say that still significant differences in parameter specifications of referenced contract are observed: "contract price" is evaluated differently by various sources - from "560-600 million dollars " to "1,8 milliard Malaysian ringgits". This last figure converted at the exchange rate quoted (23) on the world exchange markets gives from 480 to 720 million US dollars. As we see, the divergences are quite considerable, however, not surprisingly, this price is computed artificially, and, without definition of contract parameters and contract price cannot exist also the values describing them financially with acceptable accuracy. Moreover, the time characteristics, which in theory should be sufficiently reliable, are also variable. This is especially pertinent when using words "sales, has sold, was purchased ". For example, in the press can be found the sentence "in 1995, Russia has sold Malaysia 18 fighters MiG-29". If we suppose that "has sold" means "has signed contract", contradictions emerge with the other information asserting, that the contract had been concluded in 1994. If we suppose, that "has sold" means "has delivered", in this case the situation is closer to truth. Other example: "in 1995-96, Peking bought 48 fighters Su-27 through the state's company "Rosvooruzhenie". In this example the situation is still more complicated: assuming that" has bought" means "concluded contract(s)", we obtain the contradiction with the fact that the substantial part of them (precisely 26 units (24)) from "48 Su-27 bought in 1995-96" had been delivered in 1992 (25), i.e. materially prior to date of "contract conclusion". If we suppose that "has bought " means "imported, was supplied)) or "were delivered", there are divergences with the fact, that only 22 combat aircraft were delivered to China and only in 1996 (26).

The divergences in time characteristics occur even on international and official nationwide level. If we compare data forwarded to the official register of conventional armaments of the United Nations Organization by countries-exporters, and corresponding data of the same countries, we will encounter some divergences, connected namely with erroneous definition of "delivery date" "export/import date". For example, according to the 1996 United Nations Organization register, Russian Federation "exported" to the Republic of Korea 33 battle tanks (27) and 23 armored combat vehicles (28). The Korean Republic reports " imports of 6 battle tanks T-80U and 13 armored combat vehicles BMP-3. This divergence is provoked by definition of dates - Russia determines "delivery/export date" as "unloading date" or "date or exit abroad from national customs area" (29), while the South Korea - "import date" or "date of entry to national customs area". Thus, the armored equipment delivery (26 T-80U tanks (30) and 13 BMP-3), shipped from Russia at the end of December 1996 is classified as "exported in 1996" and recorded by Korea as "imported in 1997" (31).

The definition of time parameters is especially important in case of evaluation of such concepts as "portfolio of orders" and "contract liabilities". For example, the "portfolio of orders" of GK "Rosvooruzhenie" was estimated by A. Kotelkin in August 1997 at 7,3 mlrd dollars, whereby its increase of 3,25 mlrd dollars in the next two months was planned, i.e. up to 10,55 milliard dollars. Later in April 1998, the "portfolio of orders", according to general director of "Rosvooruzhenie" was 8,5 mlrd dollars, although after August 1997, contracts of ca.3 mlrd dollars have been signed. Besides, the " contractual liabilities of this company at the beginning of 1997 were 3 mird dollars. By comparing these figures we obtain the divergences:

at the beginning of 1997 - 3 mlrd dollars, and in August - 7,3, i.e. in the interval between these dates, have been concluded (32) contracts for the amount of 4,3 mlrd dollars ? Secondly - the difference between 8,5 mlrd dollars in April 1998 and 7,3 in August 1997 is 1,2 mlrd dollars, and not three? Actually, there are no differences, since in the first case, absolutely different concepts are referred to, and in the second case - the figures concern different instants of time. The above referred to "3 milliard dollars contractual liabilities of the company at the beginning of 1997" can be interpreted only as:

  • the total financial expression of company obligations concerning deliveries of products (works, services) of military purpose to be performed in 1997 financial year. This figure is constant in reference to deliveries (33) under way and concluded medium/long term contracts (34) during period in question - the year 1997.

"Portfolio of orders" can be defined in quite another way :

  • the total financial expression of non executed obligations of the company concerning deliveries of products (works, services) of military purpose at the precise instant of time. This value has a strong binding with the instant of time (35) and respectively to deliveries under way and concluded contracts (36). I.e. the "portfolio of orders" value is floating throughout the period and is increasing in case of conclusion of new contract, diminishing with execution of subsequent delivery.

Thus, the difference between 8,5 mlrd dollars in April 1998 and 7,3 in August 1997 is 1,2 mlrd dollars, and not three milliard, which can be explained by the fact that the increase of "portfolio of orders" by contracts concluded for three milliard dollars had been compensated by the deliveries (37) executed in this period (August 97-April 98). Other possible explanation of this difference is that "in reality the portfolio of orders of 7,3-10,55 milliard dollars did not exist"; this explanation circulating in the press after changing the "Rosvooruzhenie" direction is refuted by evaluations of "the total value of non executed financial liabilities/contracts under way, orders from foreign countries/ military technical cooperation of Russian Federation for the period of time corresponding to mid-1997 - mid-1998" (38), which claims that the value of" the probable portfolio of orders " exceeds 10 mlrd dollars, and may well be true.

A special attention should be paid to some concepts used to describe characteristics, trends and military technical cooperation results of one or several states, as well as the world market of armaments.

First and basic concept - a characteristic time All the authoritative analytical organizations (39) and official state institutes (40) are using normally the financial or calendar year. All the remaining concepts are applicable in reference to a characteristic time period.

Further, the following concepts are used - export, export revenue, import, deliveries, armaments sale, products (works, services) of military purpose, armaments, weapons, main types of conventional armaments in the year N,..., Although the definitions of these concepts have already been cited above, it is necessary to notice, that the semantic content of all of them is very considerably depending on the context in which they are used, and on what they describe. For example, the analytical sentences-conclusions of type "Russian armaments export in 1996 achieved 3,52 mlrd dollars according to data of GK "Rosvooruzhenie"" and "According to data of Congressional Research Service, Russia exported/delivered armaments for 2,9 milliard dollars" , "According to SIPRI data, the Russian export of primary armaments in 1996 achieved 4,512 milliard dollars" are absolutely different in content, in units, in objects of evaluation and this is especially important for primary nature of goals of analytical conclusions (41). The differences in content are seen from differences of figures; in units - SIPRI estimates the volumes of export/import of country in units of measurement :

  • "trend-indicator" US dollars in prices of definite year, the Congressional Service - in US dollars in constant or current prices, "Rosvooruzhenie" - also in US dollars, however, apparently without precise, correct and continuous definition of this unit of measurement (42);

in evaluation objects - each organization make use of its definition of "armaments". Finally, one should point out that official Russian organizations describe the volumes of export of armaments from viewpoint of "export" and "income", i.e. from the financial-economic point of view of exporter, while analytical organizations describe them from the political, military-technical points of view - with importer being the focus of interest. The sentence "according to data of GK "Rosvooruzhenie", the Russian export of armaments in 1996 achieved 3.52 milliard dollars" means only that:

  • Russia in 1996 delivered armaments and military technology, carried out works and services on behalf of foreign states within frameworks of the military technical cooperation for a total sum being a financial equivalent of 3,52 milliard dollars.

SIPRI's conclusion that "Russian export of primary armaments in 1996 achieved 4.512 mlrd dollars/3.455 mlrd dollars in 1997 means that:

  • in 1996/1997, foreign states imported primary armaments and "obtained military-technical power" from Russia, the financial equivalent of which corresponds to 4.512/3.455 milliard dollars.

In the absence of precise, correct and unified definitions in the sphere of the military technical cooperation, Russian officials and informal informers (43) are describing the volumes of export of armaments from the financial-economic point of view, i.e., at first sight objectively, in reality in their conclusions about Russian/Soviet MT cooperation results, efficiency and trends at different moments periods of time strongly diverge. As example can serve the following facts:

  • the opinion prevailing in late 80s - beginning 90s about absolute non-profitability of Soviet armament export, which today is again used in new "evaluations" (44), allowing to review "anew" today's military technical cooperation of Russian Federation (45); opinions expressed at the beginning of 90's about necessity of liberalization and abrupt increase of defense products export in order to finance the conversion of military and industrial complex; finally, numerous differences in opinions of different persons about Russian Federation military technical cooperation results of 1997 and comparisons with preceding years (46). It is useful to examine the last example in more details, since it explicitly demonstrates the fact that evaluation of full volumes, efficiency and results of MTC of state are very strongly dependent on subjective positions of authors, and the absence of correct definitions, concepts and terms used to describe and understand the military-technical cooperation.

According to data of GK "Rosvooruzhenie" (in mid-1997) Russian export of armaments achieved in 1994 1,7 mlrd dollars, in 1995 - 3,07 mlrd dollars and in 1996 - 3,52 milliard dollars. Later on, the figures have been a little bit changed - the volume of Russian armaments export in 1996 "achieved" 3,3 mlrd dollars. The volume of the armaments export in 1997 is estimated in many ways: by using an optimistic sentence - "some drop in volume of armaments export in 1997 occurred, whereby, the share of payments in hard currency (47) substantially increased" and "specialists claim that the total volume of real income (in hard currency) from weapon sales in 1997 remained on the level of the previous year - slightly more 2,1 mlrd dollars" (48), or absolutely opposite "in 1997 export of Russian weapon dropped by 700 million dollars" and "Russia lost about one milliard dollars" These divergences are originating from, first of all, assessments of the authors concerning Russian armaments deliveries abroad executed on the basis of other forms of payment - delivery in compensation of national debt of Russian Federation owed to foreign states (ca. 800 million dollars in 1996) and deliveries paid in so-called "clearing" currency ("350 million dollars obtained in 1996"). Other divergences can be associated with absence (or misunderstanding) of correct definitions and free interpretation of terms such as "delivered", "earned", "income", "clearing" deliveries, on account of "state's debt" and many others.

The sentences such as "armament export amounted in 1996 to ..." income from export in 1996,..", "Russia has earned"... have quite different meanings. The statement saying that Russia in 1996 delivered armaments abroad for 3, 52 mlrd dollars, can mean only this: Russia in 1996 financial years delivered armaments, military technology and services to foreign states within frameworks of the military technical cooperation for a total amount, the financial equivalent of which corresponds to 3,52 milliard of US dollars. Hereby, a total sum is defined, most likely, summing up cost prices of delivered units of equipment /services/, which correspond to contract /delivery prices, but by no means are values and total amount of financial incomes/ transfers in currency obtained by Russia in 1996 financial year. Further, if one claims that "real income from armaments trade" is defined by the payments in freely convertible currency, and "it would be erroneous to include clearing deliveries and those made in compensation of state's debt directly in the income", because "clearing operations seldom bring enterprises more than 50 % of the nominal value of contract, and budget has no financial resources to pay enterprises for deliveries in compensation state's debt", then it would be logical to deduct, that, firstly, "the real income" from weapon sales is quite different from the value paid in hard currency (49), secondly, the value of deliveries made on the basis of clearing, barter, compensation of state's debt should be deducted from the total amount of armaments delivered, and also it is certainly erroneous to call it "the real income ". In the third place, the determination of economic /financial efficiency of all the types of deliveries is a rather complex question, and it is quite probable that the economic efficiency of barter/or different other types (compensation, offset)/deliveries is substantially higher than that of deliveries executed exclusively against hard currency payments. In the fourth place, the price share of the nominal value of contract paid to enterprises has nothing to do with the nationwide volume of Russian armaments export in definite year. And if one insists that there is some relation between these last values, then it is necessary to distinguish clearly "definitions" of "the real income" of enterprise, "the real income" of state and the volume of armaments deliveries. And finally, if "the budget has no financial resources to pay enterprises for deliveries in compensation of state's debt", then respectively it has no resources to disburse the national debt with interests, penalties etc. (to be paid in freely convertible currencies to foreign states and not in rubles to Russian enterprise)?

It would be useful to bring some citations of state officials concerning "results of the Russian military technical cooperation in 1997:

  1. In the interview published by Interfax agency, the minister of foreign economic relations, Mikhail Fradkov acknowledged that in last year (1997) the deliveries of Russian military equipment abroad were reduced by more than a quarter (50)... In 1998, to the list of 64 countries, with which the inter-governmental military cooperation agreements are signed, it is expected to add further 13 states... When making comments on the 1997 results, the head of MFER underscored that it has been possible to considerably improve the armaments deliveries payment structure. Hereby, the share of payments in freely convertible currencies has substantially grown. In 1997, the weapon export paid in hard currency made up 75 % from the total volume.

  2. In the past year, according to accounts of GK "Rosvooruzhenie " the export generated 2,5 mlrd dollars flow from abroad. By the way, the share of currency earnings over the past year has grown from 85.5 % to 90 % (51).

  3. The volumes of deliveries of Russian armament scheduled for the export market in 1998 can be 3,5 mlrd dollars, that is 1 mlrd dollars more than in 1997 52). E. Ananiev informed that the volume of net currency earnings according to 1997 results remained on the planned level, that is about 2,4 mird dollars. As reported by sources from the lower house of parliament, the general director of the national company "giving precise examples and figures has refuted the myth spread about possible reduction of currency earnings from weapon sales". The head of "Rosvooruzhenie" stressed that today "has been stopped the free of charge delivery of armaments and military technology, previously practiced and accounted to results of yearly balance-sheets". As compared with 1996, when 49 countries were recipients, Russian Federations sells the armaments and military technology to 58 countries of the world.

  4. In 1997, the company "Rosvooruzhenie" brought to the country over 2 mlrd dollars "in convertible currency" as a payment for executed deliveries and 2,5 mird dollars was the value of products sent on the market to 58 countries of the world (53). In the years 1996-97 defense products export from Russia brought annually about 2 mlrd dollars, therefore "all declaration about supposed slump, after August 1997, in Russian export of armaments are speculative and do not correspond to the reality" underlined E. Ananiev, According to his words, the former USSR expanded its markets by free-of-charge deliveries of weapons and armaments to countries with very limited financial capacities... and in 1990 the former USSR delivered weapons for the amount exceeding 16 mlrd dollars, but was paid in hard currency less than 900 millions dollars. In 1991, Russia delivered armaments for 7 mlrd dollars, but received in hard currency 1.4 milliard dollars. Hereby, in 1991 the total debt owed to Moscow for delivered armaments reached about 1.5 trillion dollars (54). As the general director has claimed, the market of the former Warsaw Pact states "belonged to us at the expense of free-of-charge deliveries of armaments".

  5. In 1998, GK "Rosvooruzhenie" intends to deliver weapons abroad to 58 countries of the world for the amount of about 3.5 mlrd dollars and to ensure incomes to national industrial enterprises to the amount of about 2.5 mlrd dollars (55).

First of all, it is necessary to make comments on some figures cited in the sentence 4. The "total debt owed to Moscow for the delivered armaments", assessed at 0,5-1,5 trillion dollars in 1991, is an absolutely incredible figure for the following reasons: firstly, this amount approaches the total value of all the theoretic deliveries of weapons and military equipment "executed" by the Soviet Union during 20-100 years, thus, if it is considered that a part of deliveries "has been paid" (56) and, respectively, cannot be included in the mass of debt, then the period of 20-100 years can be extended 2-3 times; secondly, this value is tenfold greater than the total world market of armaments in 1987, which was maximal in the period of the cold war and is estimated by different analytical centers to 40-80 mlrd dollars (57); finally, this figure explicitly exceeds 3-10 times the total debt (58) of 12 former socialist and 49 developing countries as of 1 November 1989, which was 85,9 milliard roubles (59), according to official data of Finance Ministry of the USSR (60).

The use of deliveries and hard currency payment data for 1990-91 in the context of characteristic trend for all the military technical cooperation of USSR is erroneous, since namely during these years the share of so-called ((financially capable and absolutely financially capable states" (61) in the total supplied volumes of armaments and military equipment to foreign states is minor as compared with the previous years (62), which could be considered characteristic for the Soviet military technical cooperation, and some of "political" (63) states began to obtain tenfold more weapons than during the years of preceding decade.

The expression about "free-of-charge deliveries of armaments to former Warsaw Pact countries " is refuted by declarations of the previous administration of "Rosvooruzhenie", that deliveries of armaments to the Warsaw treaty countries were paid in transfer roubles (goods, services)".

Remaining citations must be examined in comparison with each other and in the context of real or fictional reduction of armaments delivery volumes of Russian Federation in 1997.

Thus, we "have" several available figures cited by official sources in relation to 1997 results:
2.5 mlrd dollars, about 2.5 mlrd dollars, 2,4 mlrd dollars, over 2 mlrd dollars, about 2 mlrd dollars, "drop by more than a quarter", 75%, increase from 85.5% to 90%, 58 and 49 countries; and there are several concepts used, which one must "understand" (64) and bring into harmony with figures: "volume of deliveries of armaments and military equipment in 1997", "the share of total supply volume of armaments and military equipment in 1997 paid in hard currencies", "the total paid for deliveries in 1997", "the total and share of payment in hard currency in 1997", "the total of hard currency earnings in results of the year 1997".

First, as to number of countries: it is claimed, that as compared with 1996, the Russian Federations sells now armaments and military equipment no longer to 49, but 58 countries of the world; further it is reported that in 1997 the production had been delivered to 58 countries;

and in 1998 it is planned a delivery of weapons to 58 countries. If to use the quantitative comparison of the number of countries-customers of the military technical cooperation with Russian Federation in 1996 and "now" as an evident progress, then several questions appear: firstly, why the progress in the number of countries-customers in 1997 is not accompanied by the analogous progress in 1998? Secondly, why the increase of this number from 49 in 1996 to 58 in 1997 gives the decrease of "the absolute volumes" of deliveries by more than a quarter, while in the absence of increase of the number of countries-customers in 1998 "it is intended to deliver abroad armaments" for the amount by one milliard bigger than in 1997? These facts can guide to the quite definite conclusion: there is no evident and direct relationship between the number of countries-customers and the volumes of armaments delivery /amounts paid/.

Further - "the absolute volumes of armaments and military equipment deliveries: the information furnished by E. Ananiev that the volumes /value/ of deliveries of Russian armament to the export market in 1997 made up 2.5 mlrd dollars (3.5 minuses 1), relatively exactly coincide with the information given by the minister Fradkov about the decrease of deliveries volumes by a quarter as compared with 1996 giving values from 2.475 to 2.64 mlrd dollars (with 3.3-3.52 billions as reference figures), whereby these are upper limits of deliveries volume in 1997, because the original information was "more by a quarter", i.e. "according" to declarations of the minister of foreign economic relations Michail Fradkov, "the Russian military technology deliveries volumes abroad in previous year have been less than 2.475-2.64 milliard dollars".

Next concept - "the share and total supplied volume of armaments and military equipment paid in convertible currencies in 1997". This concept and figures related to it are vague in declarations of officials. This is due perhaps to confusion of this concept with "the share and amount paid for deliveries in convertible currencies " concept. For example, the sentence "E. Ananiev declared that the amount of net currency earnings in 1997 results remained on planned level, that is about 2.4 mlrd dollars" does not allow determine clearly enough what "is the volume of 1997 armaments and military equipment deliveries, which should be paid in convertible currency/hard currency/,or else about "value of net currency earnings in 1997? If one supposes, that this is the value of net currency earnings, then contradictions emerge with the other declaration of the general director of "Rosvooruzhenie" - "in 1997, for armament export was obtained the amount of about 2 milliard dollars in hard currency" (65); if one supposes, that this is the value of deliveries "paid in convertible currencies", this would contradict the information of minister M. Fradkov : "in 1997 the weapon export paid in hard currency made up 75 % of the total volume", i.e. 1.86-1.98 mlrd dollars, which is evidently less than 2.4 milliard dollars (66). Moreover, if we apply the figure 75 % to the other value of deliveries in 1997 published in the press - 2.2-2.3 mlrd dollars - we obtain the export values paid in hard currency ca. 1.65-1.73 mlrd dollars, which is less than previously cited 2 mlrd dollars in 1996, and in 1997. It is interesting, that the 75% share of supplies paid in hard currency declared by Fradkov coincide rather exactly with author's evaluation - "the share of executed, possible and scheduled deliveries of armaments and military equipment in 1997 according to contracts paid in convertible currencies is 70-75 % of the total volume of deliveries (67),

The figures quoted in the citation No. 2 "the share of currency earnings for the previous year has grown from 85.5 % to 90 %", if we look at the context, correspond most likely to the concept of "the share of currency earnings in the total amount paid for the fiscal year". Detailed information about the amounts paid, payment schedules, their structure seems to be most difficult to obtain; generally it shall fall into the category of information "for inner use" and it is probable that the information of this nature has been purposefully (68) leaked. Nevertheless, we are able to compare these figures (85,5 and 90%) with other values being a financial equivalent of executed deliveries (69) (see. table). As the table shows, that the corresponding figures of "the share of convertible currencies earnings in the total amount paid for the years 1996 and 1997" disclosed by "Rosvooruzhenie" rather exactly coincide with computed "shares of deliveries paid in convertible currencies in the total amount for deliveries paid "in cash" in 1996 and 1997". Differences are only 0.5-2.7% (!). This fact is rather strange (taking into account that these are absolutely different concepts), and allows to make two hypotheses:

  • two different concept were mingled : "the shares of currency earnings in the total amount paid" with "the shares of deliveries paid in convertible currencies in the total amount of deliveries paid in cash";

  • or in the Russian military technical cooperation is existing a very close correlation between schedules of armaments deliveries and payment schedules concerning the same deliveries, such that the armaments deliveries and corresponding payment are executed in one and the same financial period, and their relative parameters computed on the basis of these values are equal to each other with the one percent precision.

In the second case, the absolute value of deliveries for hard currency in the definite year should correspond to the absolute total amount paid in hard currency in the same the year. However, the table shows that all the possible deliveries volumes for hard currency in 1997 are substantially lower than "the planned at the level of amount about 2.4 mlrd dollars of hard currency earnings in 1997 results" (70) and almost all (71) of them are lower than "over 2 milliard dollar of "hard currency" obtained in payment of deliveries executed in 1997" (72). Of course, it can be assumed that the general director of "Rosvooruzhenie" included clearing currency in "hard currency", however, in this case the corresponding figures of "hard currency" for 1996 would be 2.5-2.7 mlrd dollars, which is evidently exceeding "about 2 mlrd dollars for export of defense products in 1996 " (73).

Total deliveries 1996 (million $) 3300 3400 3520 2200 2300 2500 2640 2200 2300 2500 2640
State's debt (million $) 80074 800 800 360 360 360 360 250 250 250 250
Clearing (million $)  350 350 350 175 175 175 175 175 175 175 175
Convertible currencies (million $) 2150 2250 2370 1665 1765 1965 2105 1775 1875 2075 2215
Convertible currencies as % of the total 65,2 66,2 67,3 75,7 76,7 78,6 79,7 80,7 81,5 83,0 83,9
Convertible currencies as % of paid in cash 86,0 86,5 87,1 90,5 91,0 91,8 92,3 91,0 91,5 92,2 92,7

Note: in the table are shown the total volumes of Russian deliveries of armaments and military equipment in the years 1996 and 1997 ("Total deliveries"), the values of clearing deliveries and deliveries on account of State's debt. Column "Convertible currencies as % of the total" corresponds to the share of supplies for hard currency in the total volume, "Convertible currencies as % of paid in cash" - the share of deliveries for hard currency in total volume of deliveries paid "in cash" (75).

It is necessary to notice, that the comparison of "the shares of deliveries for hard currency in the total volume of armaments deliveries" given in table with the data of M. Fradkov (76) shows that the relative value of weapons paid in hard currency constituting 75% of their total volume in 1997" coincides rather exactly with corresponding computed values: 75.7-78.6%. The table shows also that other information given by Fradkov is confirmed: "in 1997, it has been possible to considerably improve the structure of payments executed by customers for armaments delivery, with significant increase of the share of payments made in convertible currency". Indeed, the share of supplies for hard currency has grown from 65-67 % in 1996 to 75-79% in 1997, however, in this case 1996 is compared with 1997 in relative values;

nevertheless, in absolute values an abrupt fall of deliveries for hard currency, from 2.15-2.37 (77) to 1.67-1.97 milliard dollars. In that connection, the only explanation is possible for "over 2 milliard dollars obtained in hard currency in 1997" and "the increase of the share of hard currency earnings from 85.5 % to 90 %: the payment of 1996 armaments deliveries has been executed in 1997.
It is necessary to notice, that this situation is standard in the sphere of the military technical cooperation (78), therefore the description and analysis of the real picture of military cooperation trends (79) on the basis of "payments" is rather difficult or impossible (80), and sometimes absolutely erroneous (81). The accounting of volumes and structure of payments for analysis and description of the military technical cooperation is necessary, but not for description of its evolution trends and development within frame of the entire state, but for several other purposes: for example, in evaluation of the military technical cooperation on the financial situation of defense enterprises, in analysis of economic factors and evaluation of financial efficiency the military technical cooperation of the state as a whole or its subjects. This analysis and estimation, in order to avoid any possible erroneous conclusions, should not be made as a simple comparison of amounts of money earned in two years, but first of all, for a substantial time period longer than two years, secondly, taking also into account a complete analysis of any kinds and types of current and past deliveries (82).

Thus, on the basis of the all aforementioned we conclude, that for the quantitative evaluation of volumes of military technical cooperation and Russian export of armaments in 1997 and for analysis of trends and development, it would be more correct to use terms "delivery" and "for the amount" meaning "transfer/transmission/of armaments and military equipment, services of military purpose (to be more exact, all items included in the term "military technical cooperation") and "corresponding financial equivalent", without precise definition of payment terms and economic efficiency of "delivery".
On the basis of "delivery" concept the following picture of 1997 results is obtained, as compared with previous descriptions:

  • according to official data, the total volume of armaments deliveries in 1997 (2.5 mlrd dollars) has been reduced as compared with 1996 (3.3-3.5 mlrd dollars) more than by a quarter, which in absolute figures means the reduction of deliveries by 800-1000 million dollars. Other possible (non-official) evaluations of the deliveries in 1997 (2.2, 2.3, 2.6, 2.7) show somewhat different picture, nevertheless, the general tendency to downfall by a quarter in total 83) volumes of armaments deliveries in 1997 in relative values and about one milliard dollars in absolute figures is preserved.

  • "Significant improvement in payments structure" has nothing to do with the real results of the military technical cooperation, since in absolute values the downfall in all the categories of deliveries : twofold in the clearing deliveries, more than twofold in deliveries on account of State's debt (84), is observed and, finally, the most "actual" (85) deliveries for hard currency have also decreased in absolute values, only it is not known how much actually, however, non-official evaluations show the decrease "by several hundreds, from 200 to 700, millions of dollars" - from 2.15-2.37 mlrd dollars in 1996 to 1.67-1.97 mlrd dollars in 1997. Thus, the deliveries for hard currency, according to analysis of official data, have decreased by 185-405 million of dollars.

  • The amount paid "in hard currency", term especially often used by officials, does not reflect the real picture of results of MTC activities in 1997, because, first, by definition (86) it cannot describe the real picture of results; second, this figure is computed artificially for varieties of reasons (87); in the third place, the analysis of available information about payments indicates that the real situation is such, that according to absolute figures of amounts and payments structure in 1997 a possible loss can be noted, as compared with 1996, or at least the level nearly equal to or slightly lower.

Notes
1) it can be said, with "a confidence degree"
2) or the armaments world market as a whole,
3) these groups correspond very exactly to the financial accountancy terms: balance-sheet "debit" and "credit";
4) here could be added "juridical, financial, military-technical, international etc..
5) in foreign literature are usually used corresponding (often more wide) concepts : contracts, agreements, programs;
6) in foreign literature the " order " concept is used, which is often wider than Russian "order";
7) Ibid.: deliveries, transfers;
8) Ibid.: payments, transfers;
9) nowadays, in mass media the "instalment" concept is widely used, which means "financial transfer, payment of a portion of price, group transfer, etc.. (the financial analogue of the "transfer" concept), however, in Russian context its use is often incorrect;
10) international analytical centers are using the concept of "agreement";
11) legal or physical
12) this is made by the largest international analytical centers;
13) and physical!!!
14) to be more exact, this is true not only in the military technical cooperation sphere;
15) and measured, unlike in other cases, where it is not measured!
16) these currency units can be so-called "basic currency " or "freely convertible currency "
17) July 1994
18) Interview with V. Trofimov, director of GK " Mashinoeksoprt", "Moskovskiye Novosti", 02-09 /11 / 97, p. 12; "VTS" No 45,1997, p. 7. ITAR-TASS "Profil", 26/01/98, pp. 58-62; "VTS" No 4, 1998, p. 22, ITAR-TASS.
19) which are being executed also today (according to available information at least until year 2000)
20) The total contract was estimated at 1.8 milliard of Malaysian ringgits (560-600 million dollars US), wherein 220 million dollars US constituted the "offset part", which means mutual barter deliveries of goods for 150 million dollars, multistage program of modernization of delivered fighters and construction of joint MAPO- Malaysian technical repair center (ATSC-Aerospace technology system corporation).
21) for the world market and State's military technical cooperation - some characteristic period of time, usually are used financial or calendar year.
22) usually, there are a limited understanding and the subjective idea of picture, sometimes rather distant from truth,
23) the dependence on a date in this context is not essential.
24) According to SIPRI, 24 units;
25) Director of Information and Press Department of the Russian MFA, Grigoriy Karasin, " VTS " Nol7, p. 25, ITAR-TASS.
26) United Nations Organization register 1996.
27) Category I, United Nations Organization register "Battle tanks"
28) Category n. United Nations Organization register "Armoured combat vehicles"
29) Refer to the above definition of "export";
30) It is necessary to mention, that in this case, there is a divergence, which in no way not can be connected with time parameters: difference between 33 battle tanks and 6 T-U80 tanks is 27, and not 26 battle tanks, i.e. one battle tank is missing.
31) According to ITAR-TASS, "the transport of military equipment left the Russian port on 26th December 1996, and arrived to South Korea on 4th January 1997", "VTS" No2, p. 15,1997.
32) "promised" in a sense that Kotelkin reported about planned signature of a contract of 3.25 mlrd dollars with three countries, and the new direction has signed contracts of "the total price of three milliards" with two countries;
33) i. e. does not depend on the schedule of deliveries
34) to be more exact, besides short-term contracts, which can be executed in the current financial period;
35) and not periods;
36) with contracts of all types: short-term, medium-term and long term;
37) Of course, the value of deliveries (S 1.8 milliards.) executed within this period is rather high, however, it can be regarded as true, because a substantial number of armaments deliveries abroad in 1997-98 are executed in this period: at least four fighters to Vietnam, ack missiles to Finland, unknown quantity of artillery systems and cruise missiles to China, two submarines, one to India and one to China, helicopters to Colombia, Egypt, and possibly to China, armored vehicles to South Korea and possibly to Cyprus, and soon;
38) See chapter "Military technical cooperation of Russia... ", Marat Kendjetayev, " VTS " No 26,1998, ITAR-TASS.
39) SIPRI, London international institute of strategic research. Til group, etc. (Center of studies of disarmament problems)
40) Congressional Research Service of the Library of Congress of the USA, American agency of armaments control, different ministries (eg. Russian Ministry of Foreign Economic Relations), state companies...,
41) Sufficiently detailed description and analysis of methods used by international analytical centers is given in article "Evaluation methods of world export of conventional armaments. Review, analysis and comparison", Marat Kendjetayev, journal "Armaments export" ,No 2,1997;
42) To this conclusion are leading the numerous subjective "changes" of exported Russian/Soviet armaments volumes in the different moments/periods/times
43) legal and physical
44) for example, widely diffused "evaluations" pretending, that the Soviet Union in years 80s delivered abroad the armaments for the amounts of approximately 15-20 mlrd dollars annually, while having received from this activity about 1 mlrd dollars; these figures "have been disclosed first" by B. Kuzyk, Russian Federation President's assistant for military technical cooperation and are currently used by E. Ananiev, today's general director of GK "Rosvooruzhenie".
45) analysis of these "evaluations" of the Soviet export in the years 80s and the comparison of effectiveness of the Soviet and Russian Federation military technical cooperation is given in article "Export of the Soviet military equipment in years 1980-1990: "real" figures and amounts", Marat Kendjetayev, " Military technical cooperation " No52,1997, GK "Rosvooruzhenie" ITAR-TASS.
46) The analysis of results and evaluation of volumes of Russian Federation military technical cooperation for 1997 is given in article "Military technical cooperation of Russia..." , Marat Kendjetayev, " VTS " No26, 1998, ITAR-TASS; see also database "Register of deliveries of armaments and military equipment"
47) Report of G.K. "Rosvooruzhenie"
48) "Armaments export is not so profitable, as they say about it", Pavel Felgengauer "Sevodnia", 26/12 /97; "VTS" No52,1997, p.5, ITAR-TASS
49) one of financial-economic determinations of "income": "income is the revenue from sales equal to the unit price multiplied by the number of units sold";
50) "MTC", No. 10, 1998, p. 5, ITAR-TASS
51) "Russia loses her positions on the world market of armaments", Victor Litovkin, Anatoliy Sautin with reference to data published by GK "Rosvooruzhenie", "Finansovyie izvietia""No26,14/04/98, p. 2; "VTS" Nol5,1998, p. 7, ITAR-TASS
52) Report made by E.Ananiev during the session of Defense Committee of State Duma ; "VTS" Nol5,16, 1998, p. 6,7, ITAR-TASS
53) Press conference of the general director of "Rosvooruzhenie" company on the 28th April; "VTS" Nol7,1998, p. 18, ITAR-TASS; in the same publication about press conference of the general director E. Ananiev of 28th April in "Nezavisimaya Gazeta" from 29/04/98 it is said in some other way: "In 1997, from armament export were obtained about 2 mlrd dollars in hard currency, and the total sales abroad amounted to about 2.5 mlrd dollars.
54) in "Nezavisimaya Gazeta" of 29/04/98 appears other figure of "500 milliard dollars"
55) Statement made by the GK general director during the press conference on 20th April in St Petersburg; "VTS", Nol6,1998, p. 6, ITAR-TASS.
56) not necessarily in convertible currency
57) Mr. Ananiev himself estimates the "total capacity of world market of armaments in 1998 at 41 milliard dollars, this figure is tenfold smaller than "the total debt of customers of the USSR for the armaments delivered".
58) the total debt of customers of the USSR, not only for the armaments delivered;
59) About 150 mlrd dollars at the exchange rate of dollar against rouble equivalent
60) See Yu. E. Pinchukov, T.U. Farnasov, "Drop in international sales and deliveries of armaments", collection "On the watershed of the security...", Russian Academy of Sciences IMEMO, 1992 60) i.e. the deliveries to the states which were executed for financial-economic purposes, or the states having obtained the deliveries on politico-military motives and were paid or compensated in some definite way, for example, barter deliveries; a detailed list of countries, groups of customers of the USSR, and evaluations of amounts paid to the USSR for deliveries, are given in article "Export of Soviet military equipment in 1980-1990: "real" figures and volumes", Marat Kendjatayev, "Military technical cooperation" No52,1997, GK "Rosvoornzhenie" ITAR-TASS.
62) i.e. including years 80;
63) i.e. states, the deliveries to which were being realized on purely political motives; for example Afghanistan;
64) i.e. to understand what it means
65) alternative information : "... Russia has obtained over 2 milliard dollars in "hard currency" as a payment for the executed deliveries"
66) whereby, assuming that these figures are maximal, we will see that they will also contradict "amounts of net earnings in currency", which is equal to about / over / 2 milliard dollars.
67) refer to article of Marat Kendjetayev, " VTS " No, 1998, ITAR-TASS; as well as database "Register of Armaments and Military Equipment Deliveries".
68) Apparently, with the only purpose, as we shall see later on, to prove that " all declarations about a deep slump in Russian export of armaments, which was supposed to occur after August 1997, are speculative and do not correspond to the real situation" (E. Ananiev).
69) here, it is necessary to remark that in this case absolutely different concepts are developed:
"deliveries" and "payments", which constitute "obligations of different parties" and are characterized by parameters, as a rule, different in magnitude from corresponding parameters used by the other party. For example: let's see a characteristic time parameter of some deliveries - "2-year delivery period - 1995-96", the time parameter of payments in this case can be quite different - "2-year 1995-96", "2-year 1996-97", "3-year 1994-96", "3-year 1995-97", and so on, i.e. there are several payment periods, and only one coincides with the deliveries period;
70) see Citation No3
71) except for 2,64 milliard dollars computed on the basis of the maximal value of total supply volume, which exceed even the official two and half milliard dollars.
72) see Citation No4
73) see Citation No4
74) Values of clearing deliveries and those executed on account of the State's debt are published in articles "Armaments export is not so profitable, as they say", Pavel Felgengauer "Sevodnia", 26/12/97 ("VTS" No52,1997) and "Holes in the Russian armaments market", Victor Safonov, database INFO-TASS "Vega", 05/03/98; "VTS" No9,1998, p.p. 5-11)
75) There are many terms used : "settlement in cash", "in cash"; in this case we shall include all the deliveries except for those made free of charge or on account of state's debt, i.e. deliveries payable in money, in "currency" (not necessarily in hard currency).
76) see Citation No 1
77) this figure for 1996 is very close in magnitude to "2,4 milliard dollars are the planned volume of net currency earnings in results 1997"; see Citation No3
78) it is possible that a part of 1997 deliveries is paid in 1998; generally in any financial and economic activity
79) generally, in a description and analysis of world market
80) due to the impossibility to distinguish payments and to determine a corresponding part of deliveries volume paid in the current and next year.
81) for example in the case of repayment of a credit, debts, i.e. payment for deliveries materially executed in the past; if, for example, Iraq in 1998 pays its debt of 6-7 mlrd dollars due for the armaments delivered in 1980s, this would mean, that , "the volume of Russian Federation military technical cooperation in 1998 would be 8-10 milliard dollars?". Using this method allows to realize prognoses concerning bringing the volume of armaments trade to 10 mlrd dollars per year?
82) deliveries executed in past years must be included in order to avoid possible situations distorting the real picture, say "Today, Iraq has paid the deliveries of 80th"; deliveries of any kind and types must be included, in order to include in analysis the non linear economic effect due to some of them, for example, far later than in the year of delivery. This is especially pertinent in deliveries such as "free of charge", "leasing", some of "political" ones. For example, the economic effect of the 1996 deliveries to Bulgaria comprising 100 T-72 and 100 BMP, can appear in different way: firstly, if the equipment was written off, then its prime cost can be "O", secondly, after some time period will arise the need for spare parts deliveries for that equipment, thirdly, a binding to Russian/Soviet-manufactured equipment has a definite strategic and political significance, which can have direct impact on the possible subsequent deliveries of armaments and military equipment, but no longer "free of charge" (the precedent already has been made - the 1997 negotiations concerning deliveries to Bulgaria of a large lot of aviation equipment).
83) Both for hard currency, clearing, and on account of state's debt
84) see table
85) i.e. presented as a proof of "successes" and "achievements"
86) see the above description and the note concerning a possibility to describe the military technical cooperation on the basis of "payments"
87) for example, due to impossibility to assess the authenticity of "real image", or because of the fact that the indices on the basis of "hard currency" incomes are the only ones not reflecting "a real picture of the slump".