Russia Manages Without Western Funds To Finance Chechen Assault

Even when a war is called an 'anti-terrorism operation', as the Russian authorities call their current works in Chechnya, it still has to be paid for.

No one can put a precise figure on the costs of the military operation raging since August, when the Russian army forced Chechen forces out of Dagestan before moving on Chechnya itself.

All that is known is that in October the defence ministry broke its 1999 spending limit and turned to the Kremlin for more cash. Clearly, we are not talking about petty cash here.

Which is to say that while there was enough money for things like ammunition and fuel for jet bombers, the army was falling behind on the timely payment of salaries to its officers and men. To meet the shortfall, a few days ago the finance ministry 'found' another nine billion roubles (335 million dollars) from additional state income.

These funds come from more efficient collection of taxation and custom duties and a one-third greater than expected fall in the value of the rouble that makes state expenditure cheaper in real terms.

However, the biggest cash boost to the Russian treasury has been the rise in world prices for oil, of which Russia exports 120 million tonnes a year, have reached their nine-year highest. On Wednesday the government doubled the export duty, which was expected to add yet another 1.8 billion roubles (67 million dollars) to the total.

In short, Russia is fighting out of its own wallet. And the International Monetary Fund is wrong to say - when refusing to forward scheduled loan tranches to Moscow - that the country is funding the operation in Chechnya with Western money.

In fact Moscow received only 640 million dollars from the IMF in June and a 375 million dollar credit from the Japanese government at the end of November - not enough on its own to fund an operation of the scale of Russia's Chechen assault, now in its fifth month.

Russia's behaviour - when it stretches out one hand in search of IMF loans, while punishing rebels with the other hand, forcing streams of refugees out into the snow - causes strong protest in the West.

The government of Prime Minister Vladimir Putin regards the operation as an internal affair, and it has no intention of allowing the IMF to investigate the financing of the Chechnya operation. Officials say, "we signed an agreement with the IMF, envisaging only the monitoring of macro-economic parameters. We did not make any kind of political agreement with the IMF."

And plenty of Russians note wryly that the IMF should congratulate Russia for tackling the Chechen issue, as millions of dollars worth of budget funds have disappeared into the hands of organised crime, which they believe has strong roots in Chechnya.

In fact independent Russian experts estimated that the operation is some costing Russia some 4-5 billion (149-186 million dollars) a month, assuming that the Russian army has been using mainly ammunitions and weapons from old stocks.

Thus at present, Russia is able to turn its nose at threats of economic sanctions. But as fighting intensifies new munitions and equipment will be needed, fresh orders will go to Russia's arms factories and the cost of crushing the militants will increase.

Taking this into account, the State Duma has increased the military's 2000 budget, recently increased funds envisaged for the defence ministry in next year's budget. It allocates 141 billion roubles (5.25 billion dollars) to the defence ministry, 24 billion roubles more than the government had expected during the summer, before the start of the Chechen crisis.

So the IMF is right to a certain extent to claim that money spent on attacking Chechnya is money that will not be spent on meeting the Russian Central Bank's targets. Not least, as its economic resources burn in the Chechen war, it will clearly become more difficult for Russia to service its foreign debt.

Aleksandr Bekker is macro-economic correspondent for the daily Vedemosti.