Venezuela, Russia in $1 Billion Accord

Venezuelan President Hugo Chávez, left, and Russian President Dmitry Medvedev announced agreements intended to boost energy cooperation between the two countries.
Venezuelan President Hugo Chávez, left, and Russian President Dmitry Medvedev announced agreements intended to boost energy cooperation between the two countries. (By Dmitry Astakhov -- Presidential Press Service Via Associated Press)

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By Philip P. Pan
Washington Post Foreign Service
Saturday, September 27, 2008

MOSCOW, Sept. 26 -- Russia announced ambitious plans Friday to enhance its armed forces and nuclear arsenal while extending a $1 billion loan to Venezuela to purchase arms and exploring the possibility of forming a gas cartel with the Latin American nation.

Speaking during a meeting with commanders following military exercises in southern Russia, President Dmitry Medvedev cited the nation's recent war with Georgia in calling for an urgent drive to upgrade Russian military capabilities within 12 years, including the country's ability to deter nuclear attacks.

Medvedev pledged to improve pay for soldiers, mass produce nuclear submarines carrying cruise missiles and build "an air- and space-defense system," according to a statement released by the Kremlin. "The developments in South Ossetia made the acuteness of these issues more apparent," he said, referring to the breakaway Georgian region at the center of last month's war.

The Russian government had previously announced plans to boost military spending 26 percent next year to a new high in the post-Soviet era.

Earlier in the day, Medvedev met with visiting President Hugo Chávez of Venezuela and announced agreements intended to boost energy cooperation between the two countries, both of which have significant oil and gas reserves and have sought to challenge U.S. influence in the world.

Medvedev and Chávez discussed the possibility of establishing a cartel, the Interfax news agency reported, but analysts said neither nation had the resources or technology needed to dominate global markets.

In a separate statement, the Kremlin also disclosed plans to lend $1 billion to Venezuela for the purchase of Russian arms. The state-run news agency RIA Novosti reported that talks were underway on the sale of antiaircraft systems and armored personnel carriers to Venezuela.

Since 2005, Venezuela has signed contracts to buy more than $4.4 billion worth of arms from Russia, including fighter jets, helicopters and assault rifles, according to the Kremlin. The arms sales have caused alarm in the United States and Colombia, which has accused neighboring Venezuela of supporting leftist insurgents.

The visit to Russia by Chávez, his second in two months, comes shortly after two Russian bombers made a brief training visit to Venezuela and as Russian warships are sailing to the Caribbean Sea for joint exercises with the Venezuelan navy.

Secretary of State Condoleezza Rice ridiculed the exercises as an outdated attempt by the Kremlin to assert its military power that only highlighted Russia's increasing isolation in the international community.

The United States and the European Union have condemned Russia's invasion of Georgia and said its recognition of South Ossetia and another separatist enclave, Abkhazia, as independent states represented an attempt to redraw international borders by military force. Russia has vigorously defended its actions, saying it attacked Georgia only after a Georgian offensive against South Ossetia that left Russian peacekeepers dead and amounted to "genocide" against residents.

Since the start of the U.S. financial crisis, however, Medvedev and the powerful prime minister, Vladimir Putin, have sought to soothe the fears of investors who fled the Russian economy. Nearly $57 billion was withdrawn from Russia between Aug. 8, the day after the war began, and Sept. 19, according to an analysis by the BNP Paribas bank. Meanwhile, the Russian stock market is down more than 40 percent for the year.

Arkady Dvorkovich, Medvedev's chief economic adviser, said in an interview that the financial crisis underscored the degree to which Russia is linked to the global economy. "Clearly, there's more understanding in the world, and in Russia, about how much we're integrated in the world, and that's good," he said. "This will lead to more responsible behavior on all sides."

Dvorkovich said that Russia was counting on China to fuel global growth in the event of a recession in the United States but that growth rates in Russia could slip as low as 5 percent from the 7 percent average of the past eight years. Still, with more than $700 billion in various reserve funds, the government was positioned to prevent any serious damage to the economy.

"From the financial point of view, we are prepared. We are confident there's no possibility of a currency crisis, debt crisis or fiscal crisis," he said.

Dvorkovich added that the government's decision to inject as much as $100 billion into the banking system and the stock markets to prevent a credit crisis should not be seen as a shift by the Kremlin toward greater state intervention in the economy. Almost all the emergency funds were issued as short-term loans, he said, and the government may not need to use any of the $20 billion set aside to buy shares on the stock market. If the downturn continues and the government needs to buy shares, he said, it would sell them later "at the earliest possible moment," and within no more than a year.

"We're not going to follow the United States," he said, referring to the Bush administration's bailout plan. "We've given clear signals that we will continue with policies" aimed at implementing market-oriented reforms.


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