The goals of Russian President Vladimir Putin remain a mystery to observers in the West, but it appears that he is relying on shady money to pursue them.

Never before have such huge amounts of secret funds been used in the Russian economy, and Putin is using the money to drive Russia’s largest military buildup since the end of the Cold War. The money is put into a part of the Russian budget which is authorized but not itemized, writes Andrey Biryukov for Bloomberg.

Putin Using Secret Funds To Drive Russian War Economy

Secret part of budget increasing in size

The Gaidar Institute, an independent think tank in Moscow, estimates that this “black” part of the federal budget has doubled in size since 2010 and now represents 21% of the total budget, or $60 billion. It appears that Putin has boosted defense spending to boost the Russian economy and mitigate the effect of western sanctions.

New tanks, missiles and uniforms have contributed to a growing deficit, and are placing increasing pressure on other services such as health care. In a groundbreaking move, thousands of army conscripts have been assigned to commercial enterprises in order to drive the rearmament effort.

“The government has two urgent tasks: strengthening security at all levels of society and promoting innovation to end the macroeconomic stagnation,” said Ruslan Pukhov, director of the Center for Analysis of Strategies and Technologies, who also advises the Defense Ministry in Moscow. “The solution to both problems is to intensify the development of the military-industrial complex.”

Putin increased defense spending driving war economy

Putin was responsible for saving Russia from bankruptcy 15 years ago, and has overseen a 20-fold increase in defense spending in ruble terms. Last year Russia spent $84 billion on defense last year, a larger amount than any nation other than the U.S. and China.

34% of Russia’s budget is taken up by defense and the closely related national security and law enforcement category, a ratio which has more than doubled since 2010. Last year the U.S. spent 18% of its budget on defense, or $615 billion.

According to the National Defense Academy of Latvia, Russia’s recent actions are evidence of its desire to make “a state of permanent war as the natural condition in national life.”

“We can and must do for the defense industry what we did for Sochi,” Putin said in reference to the $50 billion Russia invested in the city in order to host the 2014 Winter Olympics there. “All questions relating to adequate resource allocation have been resolved.”

Conscripts can now work in defense companies

Putin has also signed documents related to the creation of a program of “industrial battalions,” which allow draftees to choose to work in defense companies rather than join the military.

Russia has started paying weapons makers before they produce their products, ending years of funding problems. The industry consists of over 1,300 organizations and 2.5 million workers.

The International Monetary Fund believes that Russia’s secret budget may make up 25% of the total by 2016, citing a continued military buildup and the prediction that “more agencies and activities (such as border protection) are classified as national security.” In contrast, other Group of 20 members hide the spending of under 1% of their budget.

Although the Russian public may not be aware of what their government is spending its money on, they are certainly aware of the increasing number of people in uniform. Igor Sutyagin, senior research fellow at the Royal United Services Institute in London, says that it is “perhaps the most palpable sign of Russia’s military transformation.”

“While uniformed manpower has declined in every Western nation since 2011, the number of Russian personnel increased by 25 percent to 850,000 between 2011 and mid-2014 — although this was still short of the 1-million manpower target set in 2010,” read a research note written by Sutyagin.

Military hardware large proportion of Russian exports

Moscow can also call on approximately 2.5 million active reservists from a total population of 143 million. The figures are provided by Global Firepower, which ranks Russia second in terms of conventional war making capabilities, after the U.S.

As well as being its nearest rival in terms of conventional firepower, Russia is also the biggest challenger to the U.S. in the arms market. Last year it delivered $16 billion worth of military technology to clients from around the world, a figure which represents approximately 3.2% of total exports.

Western leaders, and NATO, are puzzled by Putin’s actions. “We cannot fully grasp Putin’s intent,” said NATO’s top military commander, U.S. Air Force General Philip Breedlove in April. “What we can do is learn from his actions, and what we see suggests growing Russian capabilities, significant military modernization and an ambitious strategic intent.”

Although it seems likely that the military buildup in Russia will continue, quite what Putin plans to do with his new military equipment remains a mystery.