Russia in unprecedented Israeli drones purchase

1 day ago

MOSCOW (AFP) — Russia has concluded a contract with an Israeli firm for the sale of drones, a defence official said on Friday, in Moscow's first purchase of military hardware from the Jewish state.

"We have concluded a contract with an Israeli firm on supplying Russia with several drones," Russian Deputy Defence Minister Vladimir Popovkin said after returning from a trip to Israel, quoted by Russian news agencies.

The minister did not name the Israeli company, but press reports have identified it as Israel Aerospace Industries and put the value of the deal at 50 million dollars (37 million euros).

Negotiations with Israel are likely to have been coloured by tensions over Russian ties with some of the Jewish state's Middle Eastern adversaries, such as Iran, say analysts.

Popovkin on Friday echoed earlier dissatisfaction voiced by Russia's military with the drones produced by his country's own defence industry.

The purpose of the latest purchase is "for our manufacturers to see what it is we're talking about," he said.

Moscow began shopping for foreign unmanned aircraft after last year's war in Georgia. Defence analysts say Georgia made effective use of its Israeli drones in the conflict, while Russia's home-made drones turned out to be inferior.

The Georgian side made wide use of such Israeli devices, including in an attack that seriously wounded Russia's commander in the Caucasus, General Anatoly Khrulev.

Russia had refrained from outspoken criticism of Israeli arms supplies to Georgia, despite scathing criticism of Ukraine for the same reason, in a move likely connected to the drone purchase.

Russia is in the midst of an ongoing effort to modernize its military and equip its armed forces with up-to-date technology, despite disagreements among some in the military over the priorities that have been set.

It has also announced a shake-up of its rocket forces, gradually eliminating Soviet era missiles in favour of a new generation of weapons that are currently being tested.

According to Kommersant, Russia is purchasing Bird-Eye 400, I-View MK150 and Search MK II drones from Israel Aerospace Industries.

Weapons trading between Israel and Russia is a touchy subject due to Russian arms ties to Israel's foes in the Middle East, Syria and Iran.

Oil Funds Can't Buy Fannie Bonds

06 March 2009Russia banned on Thursday investment of its $220 billion oil wealth funds in bonds of quasi-sovereign agencies such as Fannie Mae and Freddie Mac, citing needs of its own budget and pension system.

Russia had about $100 billion of its foreign currency reserves invested in U.S. government agencies at the start of 2008 as it sought to broaden its portfolio and chased higher yields.

It has now cut its holdings to zero as its reserves fell by a third to $384 billion on the back of capital outflows and ruble support and as authorities sought to invest the remaining wealth into less riskier assets.

The Finance Ministry said it needed to shift the portfolios in favor of more liquid assets, such as sovereign bonds, as Russia plans to tap the funds to cover budget and pension fund deficits this year.

"The funds will be used for their direct purpose," said Pyotr Kazakevich, head of the ministry's state debt department.

The Finance Ministry holds the funds in foreign currency accounts at the Central Bank, which manages them as part of its forex reserves and pays back returns in line with performance of an index, designed by the ministry's portfolio managers.

The announced changes will affect the composition of the ministry's index, and experts say the Central Bank's foreign currency reserves' portfolio, which is not publicly disclosed, is close to the ministry's index.

But much of the retreat from the quasi-sovereign assets has already occurred.

"This is a case of the practice that has been established being enshrined into law," said Maxim Oreshkin, head of research at Rosbank.

"Last year, when Fannie Mae and Freddie Mac were having problems, the Central Bank, which invests the fund, sharply pared back its investments," Oreshkin said. "It had invested in short-term paper that was gradually redeemed, and it didn't make new investments," he said.

Russia will this year run its first budget deficit in a decade, and the deficit is expected to hit 8 percent of the gross domestic product provided that the price of oil, Russia's main export commodity, averages $41 per barrel.

Russia plans to tap the $136.3 billion Reserve Fund for 2.7 trillion rubles ($74.54 billion) to cover the deficit.

The new rules say 95 percent of the fund should be kept in sovereign bonds.

Russia also plans to tap the $83.7 billion National Welfare Fund, initially earmarked for riskier investments, to cover the pension fund deficit and also to support the banking system.

According to the latest U.S. Treasury data Russia in 2008 boosted its holding of U.S. Treasuries to $116.4 billion from $32.7 billion, becoming the seventh-largest holder of Treasuries globally.