Yakov Moisieyevich, almost one year has elapsed from the moment of reorganization of the Russian military technical cooperation with foreign countries, carried out in August 1997. What is your evaluation of the efficiency of the new system operation during the year that has just ended, is it possible today to say that the decisions enforced have brought the expected positive results?

I positively estimate the operation of the Russian military technical cooperation with foreign countries over the past year. This evaluation is based on objective statistical data. Besides, it coincides with the opinion of the representatives of defense industry community, which, particularly, has been expressed at the last session of the League for assistance to defence enterprises. On this session, among other, was adopted the declaration addressed to the Russia's President, requesting him to desist from doing revisions of the system formed after August 1997. The League is a gathering of persons with independent views, and if they accepted such a declaration, this means that there is a chance, that the system is working better than the former one.

One of the reasons for releasing the August package of the President's decrees was an abrupt deterioration of the system operation efficiency in the first half of 1997. If I am not wrong, the total amount of receipts turned out on the level of about 700 million dollars. For the Russia this is few. After the reform performed till the end of 1997, these arrears were practically completely liquidated and the Russia emerged with the standard index of 2,1-2,2 billion dollars. Today, this is a normal volume of export, that it will be difficult to maintain due to progressive shrinkage of the world market of armaments. A stabilization of armaments sales on this level is a good result, achieved also thanks to improvement of the operation of system, as consequence of the reform. In 1996 our country obtained 2,126 billion dollars, in 1997 -2,129 billion. The portfolio of orders has increased up to 8,5 billion dollars.

Over the past year, still nine enterprises got the right to operate independently. By the way, this license was not given just to the enterprise in general, but to the economic subject on the particular form of foreign trade activity. In the first six month of 1998, these newly licensed nine enterprises have really earned about one hundred million dollars. And we speak not only about manufacturing enterprises, but also about such designers of high technology systems, as the Central Design Bureau of MT "Ruby" or production scientific union "Machine-building" from Reutovo.

Therefore, I consider, that the overall direction of movement was chosen correctly and the overall evaluation must be positive. However, the last year also shed light on several very serious faults inherent to the existing President's vertical hierarchy, the huge number of bureaucratic barriers on the way of increase in export of armament and military technology. For their overcoming, a new Rules of the Military Technical Cooperation have been adopted. When a year ago went out decrees reforming the military technical cooperation system, there were many persons wishing to make them secret, esoteric or only for service use. The same situation has appeared also presently, at adopting the Rules. A year ago and presently, I has adhered to and am presenting now the point of view, that, on the one part, the sphere of weapon sales is the sensible and secret domain, but on the other, the rules of game must be maximally opened and transparent. It would be nonsense to advertise transactions and fictional successes, but the rules of weapon sales can and should he-known to manufacturers, experts and journalists. The rules define the procedure of circulation and approval of documents by all the concerned government departments, from a receipt of the first application to products sale, in virtue of Instructions No. I and No 2 signed by the President. With its implementation will be lifted many bureaucratic barriers, since it fixes the deadlines for approval of all the documents concerning the military technical cooperation. The licensing system will be further simplified.

On the other side, the experience of operation of the new system of MTC has shown, that in the situation, when several organizations got the right to independent access on the foreign markets, until now, it has been impossible to obtain a clear and reliable coordination of actions of the MTC subjects on external markets. The fight for right to obtain an order inside our country is not prohibited, however, once the access to foreign market is obtained, only one Russian organization should operate on it. Over past year have been observed at least two cases of foreign tenders in which competed two Russian organizations.

Thus, the results of reforms in the MTC system operation can be estimated as positive, according to the evidence given by statistics and reaction of factory managers of the military industrial complex, but always remains the problem of bureaucratic obstacles and regulation of relations of Russian organizations on foreign markets.

You have said about the preliminary results of operation on external markets of the enterprises, that have received the right to independent activities after August 1997. But what is the situation with the main weapon and military technology exporters-FGUP GK "Rosvooruzhenie", "Promeksport" and "Russian technologies"?

For a while, "Rosvooruzhenie" is faring at the rhythm of the previous year. Initially, there have been small arrears in sales, but then they have been made up for, but the dynamics of the portfolio of orders is even ahead of results of the previous year. The contracts have been signed with India for the amount of 2,2 billion dollars, with China - for 1,2 billion, Algeria - for 135 millions, Peru - for 120 millions, with Greece - for 93, 7 million dollars. "Promeksport" has only begun its work, the first results were obtained, the contracts concluded for the amount of 130 million dollars, although-this organization is facing objective difficulties: they have no appropriate offices, not enough personnel and so on. As far as I know, within the Defense Ministry the important decisions on intensification of the "Promeksport" activity are being prepared.

What concerns the "Russian technologies", presently, has been completed the registration procedure, they are looking for offices accommodations, for the personnel to complete their staff, and are constituting a corporate capital of the enterprise. The organization of this kind is especially needed presently in Russia. They have to manage two problems - not only to organize the export of technology, but also ensure a protection of rights of Russian organizations to the intellectual property. The second issue is also associated with updating the Russian law on technologies, which has been inherited from the USSR by the former Soviet republics and socialist countries. The work is enormous, the more so that the legislative base concerning this area has many serious blanks. Moreover, in our country, there are only five-six experts, who are in position to begin fully professional preparation the necessary documents.

The fall of volumes of weapons and military technology from Russia in 1997, as compared with 1996, concerns mainly the offset supplies in compensation of Soviet debts and the deliveries paid in clearing currencies. Is it a goal-seeking state politics, having for purpose the increase of the quality of payments or a consequence of encountered economic difficulties?

Indeed, the total weapons and military technology export is estimated on the basis of three components - deliveries paid in hard currency, offset deliveries in compensation of debts and barter deliveries. Unfortunately, in 1997 we did not manage to finance completely the deliveries intended to repay our old debts, and their volume fell, as compared with 1996, about eightfold, corresponding to the fall expressed in the amount of ca. 800 million dollars. However, with extension of the State's credit capacities, this export orientation will be strengthened. We have taken decisions, in order to eliminate armaments deliveries in exchange for low-quality goods. As to deliveries for hard currency, they remained on the level of 1996. The barter operations have been limited by us and we shall further reduce them. If we have really to deliver armaments and military technology paid in other goods deliveries, it would be acceptable only for easily marketable goods, which could be' sold on the market, even on the market of the manufacturer-country. Thus, indeed, one might say that we take measures directed at improvements of the structure of terms of payment, at reduction of barter share and to make deliveries only against payment in efficient clearing currencies.

The impossibility to finance the offset deliveries in compensation of the State's budget debts is associated with deterioration of a general economic situation in the country. In 1996, there was a system of mutual settlements and bills, which permitted to obtain revenues in a real money. In 1997, this system has been gradually abandoned, the deficit of financial resources occurred. For the 1999 budget, I will strive to allocate more considerable amounts in this item, since the deliveries in compensation of national debts, from the economic point of view, are extraordinarily profitable. Therefore, my principal position is to give maximum money to enterprises, which supply the production on account of the national debt. Hereby, we keep the workplaces, enterprises, and reduce the national debt. It is better to finance directly enterprises manufacturing products in compensation of national debts, than make budgetary allocations to regions, which are spent for unknown purposes and by unknown enterprises. Here we use the inspection system, a competitive selection of enterprises, the efficiency coefficient is a little below 0,7.

How can you explain an energetic activity of the GK "Rosvooruzhenie" in regions of our country, which is marked by opening of several agencies of this organization in many States of the Russian Federation. What are the tasks of these agencies?

They have already ten agencies, we are planning to open still five other. They have to develop a close cooperation with defence enterprises of the regions, the coordination of operations on foreign markets, to ensure a rational load of enterprises capacities at placing of export orders, to control execution of orders and to solve other related problems.

What are the prospects of development of the military technical cooperation with countries owing to Russia large debts dating as far back as from the Soviet times?

This is a problem complex enough, because several countries do not recognize debts generated by the deliveries of Soviet weapons. Nonetheless, the negotiations concerning these debts are under way. The purchases of the Russian weapons and military technology by debtor-States are being carried out. So, there are rather good prospects for collaboration with Algeria, Syria, several African and Asian countries.

Is Russia ready to develop the military technical cooperation with Iran in spite of the USA pressures ?
The military technical cooperation of the Russian Federation with Iran is carried out in strict accordance with Russian-American agreements.

There are various opinions concerning a feasibility of creation and successful operation of superstructures in the military industrial complex, such as "MAPO" and AVPK "Sukhoy". What is your opinion on this matter. What is the reason of the crisis observed in the development of this kind of structures?

There is one reason for it - excess capacities of Russian defense enterprises. In all the world exist only two aeronautical' corporations or consortiums, which integrate the complete cycle of production of military airplanes and civil airliners - one in the USA and one in Europe. But in Russia we have five such structures. Here are the problems, which are not due to "Sukhoy" or "MiG", "Ilyushin" or "Tupolev" This is a problem of excess capacities. Appears the temptation to take simple decisions, for example, to establish by the decision of the government of Russia one big company for all our country. I am categorically against such an approach. This is an attempt to use the optimal planning, in which I, being specialist in mathematical models, was involved during twenty years. The creation of a sort of a new MAP is just the attempt of application of a method of optimal planning. But in order to obtain this scheme really operational, God our Lord is needed.

The integration must be natural. It is quite obvious that companies-finalists are needed. They are built in somehow natural way in our industry. It's evident that the companies of second and subsequent levels, for example, the manufacturers of aircraft weapon, avionics, engines are needed. It is possible, they will merge subsequently in one great corporation.

So the attitude to superstructures must be differentiated. In various situations this attitude will be different. For example, we support what Michael Pogosian is presently doing. In fact, there is a normalization of the relationship between the Design Office and production plants, production plants and Ministry of Defense concerning export orders. Nobody can decide which plant will survive, neither I, nor Pogosian, nor the President, but only the operations on the market. The marketing, the internal restructuring of the company will show, what will happen eventually with "Sukhoy" Today we know the needs of the Ministry of Defense fixed in the program of armaments till 2030. On the other part, studies are under way on external markets. Pogosian has presently made the gigantic positive research in market analysis, in strategic forecasting, allowing to know what will be after Chinese KNAAPO order, after Indian IAPO order, what Novosibirsk will have to do, what the Design Office will have to do, is it worth to develop a fighter forward-swept of wing or a super-capacity passenger airplane.

Military industrial complex "MAPO" is an example of a different sort. The vertical integration has led to forcing all the suppliers under the price limit in order to reduce the cost of fighter from thirty to twenty million dollars. Then, the suppliers simply have not been able to support the imposed financial policy and asked the central company to subsidize the difference between the price and prime cost. The defense industry needs a general principle. If to apply the principle, under which the military industrial complex "MAPO" has been established - to assembly all from the beginning to the end, and still to set the price limits on components, this will result in the company failure. The principle of the Pogosian's Design Office, which should be supported by serial production plants, but all remaining should be set free and work on a contractual basis. This principle becomes more efficient. I think that the MiG finally will follow this way, too. The helicopter specialization will be skipped by the military industrial complex "MAPO". The need for capacities restructuring is obvious, it is evident that this much production plants, which exist presently, will not survive. The production must be tuned to the modernization, to MiG-AT model, to general-purpose Korzhuev cockpit. The superstructures are useful, when there is a marketing concept, the analysis of market and its structure, demand, expenses and so on.

By the way, the number of 670 enterprises, which have been included in the program of restructuring and conversion of DSPC is a forecast, the indicative plan, and not the directive. The State orders will be assigned only in competition trial, the right to the foreign deliveries will be given, first of all, to the enterprises, which obtained the state order, the conversion will be only under project financing. Enterprises are aware of the game rules, the work mechanisms, the financial constraints. Everything will be regulated by the market, everything will be solved in a natural way.

Why the law on military technical cooperation denies an independent access to foreign market to the Defense Scientific Production Complex enterprises, in which the control package of shares does not belong to the State or in which a foreign capital participates. Will not the process of integration of Russian defense industry with American, European and Asian companies be blocked by this stipulation?

In my opinion, this was a very unhappy decision, which strips our enterprises of capability to access to foreign markets through Western partners. In meantime, in the whole world just this way is the most efficient. We only began to check the possibilities of this alternative, but now, such work will become impossible. Technically, this decision was the effect of the pressure made by the communist party fraction in the Russian Duma. By the way, general Varennikov was strongly against it, while the spacemen Sevastianov and Nicolai Ryzhkov, on the contrary, actively supported it. Many experts contested this regulation, but our parliamentarians have decided that it is a better solution.

How do you perceive the fact, that banking groups possess large shares of stocks of the defense plants and design offices. Can this trend be considered positive for Defense Scientific Production Complex?

None industrial branch can survive without bank capital, let it be the defense industry, light, food industry or cinematography. Another problem is, that for a long time were established in Russia phony banks, which were crediting its founders with very low interest credits. In the next stage, there was the creation of financial-industrial groups, with participation of a bank and several enterprises only in order to escape VAT payments to consolidate a balance sheet. By the way, it was especially popular in the defence industry. Therefore, the bank capital in defense industry, of course, is really needed, possibly, the financial-industrial groups are useful too, but I prefer to establish different types of holdings, corporations and associations. The financial-industrial group, in my opinion, is not actual, as yet. Last October, when the bank interests have fallen to 25 "/o, immediately, the share of crediting of industry, the share of long-term credit have increased and the share of interbank credit has fallen. I am absolutely confident that the defence industry, and though it sounds unexpectedly, the agrarian sector, are two very attractive spheres for investment of bank capital.

In ONKP "Inkombank" is already actively at work, which, on the one part, has sold the Baltic plants, on the other, sharply increased its investments in several other enterprises. It could make a big profit through selling "Perm motors", but it retained this enterprise and made additional investments. The oil-gas sector is already practically divided between, including its share with participation of Western capitals, here the processes will be running stationary Thus, the most vivid branches will be: the agroindustrial complex, especially the agriculture and the defense scientific industrial complex. Here, very good prospects are opening with involvement of our power resources, our steel, our high-skilled, though very expensive manpower. We have plenty .of unique technologies, beginning by titanium alloys, ending with machine-building and programming. For example, in Izhmash plant a unique decision has just been adopted, which has passed unnoticed. The Volkswagen company has decided to implement here the production of its new leading model. This model is supposed to be produced till 2010, in more than hundred versions, and the manufacturing base will be located in Izhevsk only because the level of professional skills and the enterprise equipment makes possible this production, despite the high risks and high overall cost of manpower.

The press, the circles of experts and industrial management express the opinion that the innovation process in high technology branches of the Russian industry has practically been stopped. Do you share this opinion?

Actually, now, two parallel processes are under way. Indeed, many retrograde teams awaiting always the state defense orders have lost their skilled personnel, continue to manufacture once advanced, but now hopelessly obsolete and the unnecessary production. On the other part, there are about 20 °/o of enterprises and institutes of defense industry, which have managed to find their market niches and continue to make finished products on the basis of basically new, often unique technologies. By the way, in very various fields. For example, the Ekaterinburg optics-mechanical works mastered the incubators for salvaging prematurely born babies, which neither in Russia, nor in the USSR have ever been produced. Moreover, these incubators are certified on the West. Votkinsk, where previously were missiles solely manufactured, now 50% of products are civilian ones, from oil-gas equipment up to metal transformation machine tools. This enterprise has managed to sell 200 grinding machines to the UK. The Production Scientific Union "Machine-building" wins the competition on satellite monitoring of ecological state of Earth using Russian hardware. So survives one who has managed to adapt himself to market conditions of management. Less than hundred enterprises of the military industrial complex have presently more than 50% of military production, all remaining are well below this figure. They are looking on the market for the orders from oil-gas, medical sectors and other branches, while other are waiting for heavenly manna from the share with participation of Western capitals, here the processes will be running stationary Thus, the most vivid branches will be: the agroindustrial complex, especially the agriculture and the defense scientific industrial complex. Here, very good prospects are opening with involvement of our power resources, oiir steel, our high-skilled, though very expensive manpower. We have plenty .of unique technologies, beginning by titanium alloys, ending with machine-building and programming. For example, in Izhmash plant a unique decision has just been adopted, which has passed unnoticed. The Volkswagen company has decided to implement here the production of its new leading model. This model is supposed to be produced till 2010, in more than hundred versions, and the manufacturing base will be located in Izhevsk only because the level of professional skills and the enterprise equipment makes possible this production, despite the high risks and high overall cost of manpower.

The press, the circles of experts and industrial management express the opinion that the innovation process in high technology branches of the Russian industry has practically been stopped. Do you share this opinion?

Actually, now, two parallel processes are under way. Indeed, many retrograde teams awaiting always the state defense orders have lost their skilled personnel, continue to manufacture once advanced, but now hopelessly obsolete and the unnecessary production. On the other part, there are about 20 °/o of enterprises and institutes of defense industry, which have managed to find their market niches and continue to make finished products on the basis of basically new, often unique technologies. By the way, in very various fields. For example, the Ekaterinburg optics-mechanical works mastered the incubators for salvaging prematurely born babies, which neither in Russia, nor in the USSR have ever been produced. Moreover, these incubators are certified on the West. Votkinsk, where previously were missiles solely manufactured, now 50 % of products are civilian ones, from oil-gas equipment up to metal transformation machine tools. This enterprise has managed to sell 200 grinding machines to the UK. The Production Scientific Union "Machine-building" wins the competition on satellite monitoring of ecological state of Earth using Russian hardware. So survives one who has managed to adapt himself to market conditions of management. Less than hundred enterprises of the military industrial complex have presently more than 50 % of military production, all remaining are well below this figure. They are looking on the market for the orders from oil-gas, medical sectors and other branches, while other are waiting for heavenly manna from the State. Where the opportunities offered by the civil market are sought, in the last two-three years, on the contrary, there is a very visible technological advance, in particular in computer engineering. So survives one who has managed to adapt himself to market conditions of management and tries to use a scientific and technical potential for manufacturing not only military technology, but also competitive on internal and external markets civil products.