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Analysis: The Chechen theater ticket

By SAM VAKNIN, UPI Senior Business Correspondent   |   Oct. 28, 2002 at 10:22 AM   |   Comments

SKOPJE, Macedonia, Oct. 28 (UPI) -- One hundred and eighteen hostages and 34 of their captors died in the storming of the theatre occupied by Chechen rebels last week. This has been only the latest in a series of escalating costs in a war officially terminated in 1997. On Aug. 22, a helicopter carrying 115 Russian servicemen and unauthorized civilians went down in flames.

The Russian military is stretched to its limits. Munitions and spare parts are in short supply. The defense industry shrunk violently following the implosion of the Soviet Union. Restarting production of small-ticket items is prohibitively expensive. Even bigger weapon systems are antiquated. A committee appointed by the Duma, Russia's lower house of parliament, found the average age of the army's helicopters is 20 years. Russia lost dozens of them hitherto and does not have the wherewithal to replace them.

The Russian command acknowledges 3,000 fatalities and 8,000 wounded in the Chechen conflict but the numbers are probably way higher. The Committee of Soldiers' Mothers pegs the number of casualties at 12,000-13,000. Unpaid, disgruntled and under-supplied troops exert pressure on their headquarters to air-strafe Chechnya, to withdraw, or to multiply the money budgeted to support the ill-fated operation.

Russia maintains about 100,000 troops in Chechnya, including 40,000 active soldiers and 60,000 support and logistics personnel. The price tag is sizable though not unsustainable. As early as October 1999, the International Monetary Fund told Radio Free Europe/Radio Liberty: "Yes, we're concerned that it could undermine the progress in improving (Russia's) public finances."

As they did in the first Chechen conflict in 1994-96, both the IMF and the World Bank have reluctantly kept lending billions to Russia throughout the present round of devastation. A $4.5 billion arrangement was signed with Russia in July 1999. Though earmarked, funds are fungible. The IMF has been accused by senior economists, such as Jeffrey Sachs and Marshall Goldman, of financing the Russian war effort against the tiny republic and its 1.5 million destitute or internally displaced citizens. Even the staid Jane's World Armies concurred.

No one knows how much the war has cost Russia hitherto. It is mostly financed from off-budget clandestine bank accounts owned and managed by the Kremlin, the military, and the security services. Miriam Lanskoy, program manager at the Institute for the Study of Conflict, Ideology and Policy at Boston University, estimated for NIS Observed and the Analyst that Russia has spent, by November 2001, about $8 billion on the war, money sorely needed to modernize its army and maintain its presence overseas.

Russia was forced to close, post haste, bases in Vietnam and Cuba, two erstwhile pillars of its geopolitical and geo-strategic presence. It was too feeble to capitalize on its massive, multi-annual assistance to the Afghan Northern Alliance in both arms and manpower. The United States effortlessly reaped the fruits of this continuous Russian support and established a presence in central Asia that Russia will find impossible to dislodge.

The Christian Science Monitor has pegged the cost of each month in the first three months of offensive against the Chechen separatists at $500 million. This guesstimate is supported by the Russians but not by Digby Waller, an economist at the International Institute for Strategic Studies, a London-based military think tank. He put the real, out-of-pocket expense at $110 million a month. Other experts offer comparable figures - $100 million to 150 million a month.

Similarly, Jane's Defense Weekly put the outlay at $40 million to 50 million a day -- but most of it in cost-free munitions produced during Soviet times. A leading Soviet military analyst Pavel Felgengauer itemized the expenditures. The largest articles are transport, fuel, reconstruction of areas shattered by warfare and active duty bonuses to soldiers.

The expenses of this brawl exceed the previous scuffles. The first Chechen war is estimated to have cost at most $5.5 billion and probably between $1.3 billion and $2.6 billion. Russia allocated about $1 billion to this war in its 2000 budget. Another $263 million were funded partly by Russia's behemoth electricity utility, UES. Still, these figures are misleading underestimates. According to the Rosbalt News Agency, last year, for instance, Russia was expected to spend about $516 million on rebuilding Chechnya -- but only $158 million of these resources made it to the budget.

Russia has been lucky to enjoy a serendipitous confluence of an export-enhancing and import-depressing depreciated currency, tax-augmenting inflation, soaring oil prices and Western largesse. It is also a major producer and exporter of weapons. Chechnya serves as testing grounds where proud designers and trigger-craving generals can demonstrate the advantages and capabilities of their latest materiel.

Some -- like the Institute of Global Issues -- say that the war in Chechnya has fully financed itself by reviving the military-industrial complex and adding billions to Russia's exports of armaments. This surely is a wild hyperbole. Chechnya -- a potentially oil-rich territory -- is razed to dust.

Russia is ensnared in an ever-escalating cycle of violence and futile retaliation. Its society is gradually militarized and desensitized to human rights abuses. Corruption is rampant. Russia's Accounting Board disclosed that a whopping 12 percent of the money earmarked to fight the war two years ago has vanished without a trace.

About $45 million in salaries never reached their intended recipients -- the soldiers in the field. Top brass set up oil drilling operations in the ravaged territory. They are said by Rosbalt and The Economist to be extracting up to 2,000 tons of oil daily -- double the amount the state hauls.

Another 7,000 tons go up in smoke due to incompetence and faulty equipment. There are 60 oil wells in Grozny alone. Hence the predilection to pursue the war as leisurely -- and profitably -- as possible. Often in cahoots with their ostensible oppressors, dispossessed and dislocated Chechens export crime and mayhem to Russia's main cities.

The war is a colossal misallocation of scarce economic resources and an opportunity squandered. Russia should have used the oil windfall to reinvent itself -- revamp its dilapidated infrastructure and modernize its institutions. Oil prices are bound to come down one day and when they do Russia will discover the true and most malign cost of war -- the opportunity cost.


Send your comments to: svaknin@upi.com

© 2002 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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