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Apr. 16, 2008
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Algerian Scheme for Libyan Market
Russia is going to apply the Algerian scheme drawing up contracts on military supplies to Libya, which envisages the importers debt relief, with the purchase of Russian goods (arms, in the first place) made at the sum that is at least equal to the debt value. Russias Finance Ministry and some experts were critical of this aspect of the 2006 Algerian agreements in their time. Nonetheless, the Algerian experience proves that this scheme has been quite an efficient tool of promoting Russian arms in the markets traditionally occupied by the Soviet Union but lost in the 1990s for some certain reasons.
This mechanisms performance can be compared with another marketing windfall widely used in the 1990s. Russian military supplies for debt relief allowed Moscow to retain its presence in the markets of Central and Eastern Europe, entering the new South Korean market at the same time. Military supplies for debt relief in some years amounted to a quarter of the overall arms export.

More to the point, by the time a packet deal was made March, 2006, the value of the contracts signed with Algeria (some $7 bln) had far exceeded the debt to be relieved. According to some sources, 2007 Algeria placed new orders worth several million dollars, so now Algerias stock of contracts is twice as big as its debt. Account taken of the Algerian militarys high demands to the technical characteristics of the arms purchased, this can be referred to as quite an achievement. With this said, debt relief was key to entering the promising and capacious, though politically challenging market.

Paying off the debt directly to the Russian budget could have had a less positive impact on Russias economy, compared with Algeria placing military orders. In case paid off, this money would have filled the bottomless coffers of the Finance Ministry, whereas now it provides for the functioning of dozens of enterprises, virtually deprived of state defence orders.

Though the stock of export contracts has reached a record point, one shouldnt underestimate the significance of the Libyan market. The era of big Chinese contracts is far behind, the Indian market becomes more competitive, and when trading with Venezuela, one has to bear in mind the high political risks. And as to Libya, it can become the first country to purchase some arms systems.

Similarly, one shouldnt overestimate the challenges of the Libyan market, already penetrated by European, namely French, exporters. After the infamy of Frances defeat in Morocco, Singapore and South Korea, the selling of the Rafale fighter to Libya can be reputed critical Russias Rosoboronexport must get ready for severe competition. Using the proven scheme of military supplies for debt relief seems inevitable.

Konstantin Makienko, Deputy Director of Moscows Center for Analysis of Strategies & Technologies

All the Article in Russian as of Apr. 16, 2008

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