"Many businesses in the defence industry are experiencing a serious shortage of working capital needed to ensure production and to deliver products to clients," Interfax news agency quoted Ivanov as saying at a meeting with defence officials.

"The global financial problems are already hitting some businesses badly. This could be a very painful situation for the industry," he added.

Ivanov said that in order to reverse the trend, the government would ask state-controlled banks - Sberbank, VTB and Vneshekonombank - to grant sector producers credit.

The companies could use the loans to "pay employees' wages", said Ivanov.

But former senior defence ministry official Leonid Ivashov told Moscow's Echo radio station that Ivanov's statement was an "attempt to justify" the fact that Russia's weapons industry had been in decline since the fall of the Soviet Union.

"The military industry has been crumbling for the past 15 years," Ivashov, who is a defence expert and president of the Academy of Geopolitical Problems, said.

Ivashov also denounced the lack of specialists and technology in Russia's arms market.

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