"Over the past few years, a lot of money has been invested in the modernization and development of the defense sector. However, the results are not high, I would say," Medvedev was quoted by Russian news agency Interfax as saying. "We continue the hole-mending policy. The outrun technological re-equipment goals have not been reached."

Russia has pledged to modernize its armed forces. Not only does the Kremlin plan to increase soldiers' pay, it also wants to make its forces more mobile by replacing Cold War-era military equipment with modern arms systems.

"The structural reform of the Russian armed forces will end in two months. Then we will have a more complicated mission -- modernization of the armed forces. The defense sector will have to do a lot," Medvedev said. "A foundation of the armed forces modernization must be laid down by 2012."

The problem is that the weapons produced for the domestic Russian market often do not meet the Kremlin's desired standards.

"The quality of military production for the Russian army and foreign exports is causing justified concern from clients," Industry Minister Viktor Khristenko was quoted as saying by Russian news agency Interfax. "We must not give up the position we have had difficulty reaching. It would be a blow to the reputation of Russian weapons and the country."

In spite of this criticism, the domestic industry is performing well.

Russia in 2008 sold arms worth $8.35 billion -- more than ever since the collapse of the Soviet Union. Its procurement will remain strong as well.

Last month Deputy Prime Minister Sergei Ivanov said the country's orders for military equipment will rise by 8 percent to $36.5 billion.

"In the current difficult economic conditions, you can say that this increase is quite considerable," he was quoted as saying by RIA Novosti.

Russia will buy advanced strategic missiles, warships, submarines and Sukhoi warplanes, he said.

This summer Defensenews.com reported that the combined revenue of Russia's Top 10 defense companies grew 26 percent last year, rising from $9.5 billion to almost $12 billion.

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