Putin's economic strategist takes helm at Defence Ministry

Gen. Sergey Shoigu is no longer heading the Ministry of Defence of the Russian Federation. He has been replaced by Andrey Belousov, a technocrat and economist. From Russia's perspective, this could be one of Putin's best moves in recent months.

Andrey Belousov has never served in the army. He was exempt from mandatory military service as a student of the Economics Department at Lomonosov Moscow State University and later at the Central Economic-Mathematical Institute of the USSR Academy of Sciences. Instead, he focused on mathematics, physics, and finance, particularly economic forecasting.

He inherited his interest in economics from his father, Rem, who worked on the famous economic reform of the USSR. This reform expanded the independence of enterprises and limited the Central Committee's central control of the economy. Initially, Andrey kept his distance from politics, focusing on academic work.

This changed in 1999 when he became a board member of the Ministry of Economic Development of the Russian Federation. Since then, he started getting involved in politics. By 2006, he was the Deputy Minister of Economic Development and Trade. Later, he became the head of this ministry. Since 2020, he has additionally served as the First Deputy Prime Minister.

Why did a man who had nothing to do with the army become the head of the most important ministry in Russia today?

Vladimir Putin, starting his next presidential term, announced a new deal and a change of priorities in the Federation's internal and external policies. This "new" at the Ministry of Defense meant a change in leadership. Putin's dark horse became Andrey Belousov.

Belousov is against militarizing the industry and increasing defence spending. He does not want a repeat of the USSR era when excessive militarization led to the economic collapse of the entire state. On the other hand, he strongly supports state interventionism and imposes strict regulations by the state.

As a resource management specialist, he primarily organizes the defence industry and partially shifts the civilian industry to a wartime footing. Additionally, given his excellent economic contacts, he will likely need to clear trade channels through which the defence industry can receive necessary products. This is currently a significant problem.

At the start of the war, the Russians lost nearly 30% of their tank reserves, with more than 50% being frontline machines. Vehicle production cannot keep up with the needs. For example, the production of T-90Ms and the modernization of T-72s barely cover combat losses, and these machines leave factories with limited combat capabilities. This is because they lack sufficient electronic equipment and fire control systems. These were previously imported from abroad, but that source has dried up.

Vehicles labelled as "modernized" are pulled from deep reserves and repaired after frontline damage. In both cases, they are in very poor technical condition.

Here, Belousov will have a large field to prove himself. However, he must learn to balance the front's needs with a budget stretched to the limit. For now, the minister is trying to win the favour of soldiers. He announced additional financial benefits and improved housing conditions.

"I believe it is scandalous when participants of a special military operation, who return on leave, are sent from civilian medical facilities to hospitals that are often simply overcrowded. This problem must be resolved," said Belousov in his inaugural speech.

Belousov overreached: he must hold off on implementing his announcements because the budget does not ensure the appropriate funds. However, billions of rubles continue to flow into industry and the army. In 2023, Russia's defence spending increased by 36% compared to 2022. Russia allocated over 6% of its GDP to defence. The Kremlin last spent this much during the arms race in the 1970s.

Thanks to colossal spending, it was possible to increase arms production significantly, although it was still insufficient. Kremlin news agency TASS reported that the defence conglomerate Rostec increased tank production sevenfold last year and the production of infantry fighting vehicles and wheeled transporters by 4.5 times. These numbers will increase as the industry almost entirely transitions to wartime mode.

Next year, the Kremlin plans to spend CAD 172 billion on army modernization, new defence factories, and weapon production. By comparison, the entire budget for the Polish Ministry of Defense this year is CAD 40 billion.

Putin has long announced that the Russian economy must be "mobilized" as the war has reached a stalemate. The Kremlin believes that a war of attrition can only be won on the home front. Russia has a much more developed defence industry, vast energy resources, and a large pool of manpower that it can utilize freely. The only question is whether it can produce new missiles and repair damaged equipment. If the Russians can do this, they can wage war for years.

Estonian intelligence reports that, according to Putin's estimates, ravaging Ukraine and "overloading" the war production of Western economies will eventually force Kyiv and its allies to negotiate. Thus, the future of the war plays out far from the front. And that is precisely why Belousov replaced Shoigu. In a war of economic attrition, an economist is a better head of the defence ministry than a soldier.