MOSCOW, October 17 (RIA Novosti) - Russian arms manufacturers should enjoy advance payments and five-year tax breaks as part of state defense contracts, Deputy Prime Minister Sergei Ivanov said on Friday.

"The government plans to propose advance payment (up to 100% in priority projects) in deals under federal programs and state defense contracts," Ivanov said.

He also called for tax breaks up to five years for producers working on state contracts.

He said the government has proposed offering loans at interest rates of 8-9% to hi-tech state defense enterprises and organizations.

"The government is proposing that companies producing hi-tech goods as part of state defense contracts could receive loans to cover the shortage in current capital at reasonable interest rates," Sergei Ivanov told an economic forum.

Ivanov said on Thursday that Russia's military spending will reach 1.3 trillion rubles ($50 billion) in 2009.

He also said that following the events in the Caucasus, the targets had been reviewed and the defense budget for 2009 had been increased by 60 billion rubles ($2.3 billion), "in addition to the 20 billion rubles allocated for the establishment of two new military bases in South Ossetia and Abkhazia."

The deputy prime minister said on Friday that the Russian government has moved to provide financial assistance to high-tech companies by buying up their stock.

He added that the government was not seeking to nationalize these companies, but only to help improve their performance.