Out of Russia: Free-for-all in Moscow's arms bazaar

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RUSSIA is about to sell South Korea Scud missiles - the lumbering, unpredictable giant rockets the Iraqis used against Israel in the Gulf war. Such a move will no doubt alarm the military analysts, but before they launch into forecasts of a new 'region of destabilisation', I can reveal the deal is strictly limited: Seoul is buying only two Scuds.

No military advantage is sought. South Korea wants the Scuds for purely defensive purposes. Its old enemy, North Korea, has them in large quantities and South Korea would like to know exactly how the rockets are built so that they can devise the best defensive measures against them.

Officials in the Russian Ministry of Defence readily agreed and asked for dollars 3m ( pounds 1.57m), which is much more than they could get on the open arms market because the Gulf war showed what a dud the Scud can be. The rich South Koreans paid up and will soon take delivery of their samples.

Unimportant as this sale may be from the geo-strategic viewpoint, it is an excellent example of the free-for-all developing in the sale of stockpiled Russian military equipment, currently valued at more than dollars 20bn. Russia, desperate for hard currency, is selling anything at any price to almost anybody.

The rush to sell has meant Russians have dropped their prices to well below the world market levels and they are causing havoc in the arms trade. There is also a furious row within the Russian government about who should be allowed to sell what and to whom.

An article that will appear in tomorrow's independent newspaper Nezavisimaya Gazeta reveals the extent of the competition inside the government. Defence officials, army officers, and the managers of the missiles, tank and airplane factories are battling against Foreign Ministry officials who still want to name the price and the clients to suit their policies.

Stuck in the middle, of course, is Boris Yeltsin. From the military side he is buffeted by defence advisers who say arms are the only ready source of cash urgently needed by military and defence plants - to boost the morale of the dejected officer corps and to prevent the defence factories from going bust.

From the Foreign Ministry, Mr Yeltsin receives memos saying it is madness to try and sell large quantities of sophisticated fighter planes to Pakistan and South Africa (deals are in the offing) because it would upset relations with black African countries and with India. The diplomats are telling Mr Yeltsin that if Russia sells to Malaysia (a dollars 1bn deal for MiG-29s is nearing completion) Washington and London, also trying to sell arms to Malaysia, will be upset. They also point out that a sale to Taiwan would trouble relations with China.

Trying to keep the warring parties under control is proving difficult. In his pragmatic way, Mr Yeltsin has given permission for sales to occur through several different channels, causing a price war even within the government itself.

One day the Foreign Ministry wants to sell a MiG-29 for dollars 20m, the next day a defence official, who bought the planes for the former Soviet air forces at a ludicrously low state-subsidised price, will be ready to sell for dollars 6m. Neither can agree on what the real price should be.

There is little time for the Russian government to evolve a sales strategy. Competition from the former eastern bloc is hot. Poland and Czechoslovakia have been dumping their stocks of T- 72 tanks, the main battle tank used by the Warsaw Pact forces, making it hard for Russia to find markets for its even larger stocks.

In Ukraine's rush to find sources of hard currency, it is making its own sales without consulting Russia. It is negotiating with Iran over T-72 sales and there are rumours that Ukraine has already exported some tanks to Iran through a Black Sea port once used by the Kremlin to supply its ideological clients abroad.

The market in Soviet helicopters is now almost closed because Poland has undercut Russian producers.

Under pressure, Mr Yeltsin has tried to please everyone. He has allowed all three banches of the armed services to set up their own arms sales organisations. But the imperative to sell is such that agreement is almost impossible. One example is Libya. The Foreign Ministry says no sales to Gaddafi; but some generals and managers of defence plants say go ahead, sell to Libya. It's our only way to remain independent.