The Kremlin appears to be preparing for a protracted war in Ukraine by increasing defense spending by 70% next year, a move that promises to benefit depressed Russian regions and sectors linked to the war effort.
During a highly choreographed awards ceremony for Army personnel in the Kremlin's gilded St. George Hall, Russian President Vladimir Putin announced his candidacy for a fifth presidential term in the 2024 elections.
The announcement came as the full-scale Russian invasion of Ukraine approaches its second anniversary. “They (the Russian government) initially hoped this war would be short,” said Andrei Yakovlev, an economist at Harvard University's Davis Center for Russian and Eurasian Studies.
The Kremlin now plans to increase defense spending by almost 70% in 2024 compared to 2023. Both state-owned and private food, construction and pharmaceutical manufacturers, which receive contracts from the military sector, will benefit.
On December 1, Putin ordered the country's military to increase troop numbers by nearly 170,000 to a total of 1.32 million.
“All of these people need to be armed, fed and provided with uniforms,” said Galia Ackerman, a historian and Russia specialist, adding that companies that provide prosthetics and funeral services would also benefit as the war progresses.
Bonanza for remote regions of Russia
The remote and depressed regions where many of these industries are located have boomed since the Russian invasion of Ukraine in February 2022.
Since Soviet times, many defense industries have not been located in St. Petersburg or Moscow but in small cities,” Yakovlev said.
Another source of wartime income for Russia's depressed industrial regions comes from the financial compensation the government offers to entice men to sign up to fight.
“The families of men hired or recruited into the Army last year receive about 200,000 rubles (about $2,100) a month,” Yakovlev said. “This is four times the average salary in small cities and two to three times the average salary in large cities,” he added.
The men enlisting come mainly from places like Buryatia, Tyva or Novgorod, regions that have not experienced much prosperity in the past two decades, Yakovlev noted.
The boom caused by government spending in the defense sector has also led to increased spending in other sectors of the economy, including construction, domestic tourism, and restaurants and hotels.
The Kremlin has at the same time managed to continue paying public workers in the education and health sectors. Its huge oil and gas revenues have allowed it to continue the war in Ukraine while keeping domestic spending under control.
Doubts about the sustainability of the Russian economy
Before US and EU sanctions took effect at the end of 2022, Russia's oil and gas revenues were soaring: revenues were up 28% compared to 2021 and Russia was able to offset the reduction in exports increasing prices.
The Western-driven restrictions “had the opposite effect as expected,” Yakovlev said, noting that Russian companies and even ordinary Russians kept their money in Russia.
“After the initial ‘shock’ of February 2022, the Russian Central Bank helped stabilize the situation, and both the Russian government and the banking system had enough money to lend to private companies,” which would otherwise have suffered from being isolated. from the West, he said.
But the Russian wartime economy could be unsustainable. “The government still has some reserves for next year, but there are doubts whether it will be able to cover the budget deficit after 2024,” Yakovlev said.
He also cited an imbalance between supply and demand in the country. “Ordinary people come to the market with demands for consumer goods and housing,” Yakovlev said, noting that there is not enough labor or production capacity to meet the growing demand.
“Russia is moving forward, but the country is in decline and is being 're-Sovietized,'” said Russian historian Wladimir Berelowitch. “As the Kremlin has enough reserves at the moment, it is buying soldiers and deaths,” he added.
The big cities, far from war
The Russian Government also relies on prisoners on the battlefield to sustain its war. The incentive to join the fighting is strong for convicts, who are being pardoned in exchange for fighting in Ukraine.
“Men who are suddenly released from prison to fight in the war come home as heroes because they fought for their country,” Ackerman said, noting that those who die are buried with military honors while their families receive financial compensation.
Meanwhile, residents of large metropolitan cities like Moscow and St. Petersburg, so far unaffected by conscription, have barely felt the effects of Western sanctions or the war.
“You could say that prices have gone up, but there are still shows and exhibitions in Moscow,” said Polina, a curator at a Moscow museum whose name has been changed to protect her identity, when asked to describe the atmosphere in the capital. From Russia.
“The only difference is that GPS (Global Positioning System) and Google Maps no longer work, as protection against drones and due to Western sanctions.”
His 20-year-old son, who is currently studying film, cannot be mobilized to the front due to his status as a student. But Polina worries that one day he will be recruited into the Army. “The laws are not respected, everything can change from one day to the next,” she said.
Adapted from hisEnglish Version
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