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Capital flight from Russia continues to weaken – EBRD expert

Among key priorities for Russia bank specialists named diversification of economy, more equal distribution of benefits from economic growth and development between regions

LONDON, November 8 (Itar-Tass) — Capital flight from Russia continues to weaken, Chief Economist of the European Bank for Reconstruction and Development (EBRD) Erik Berfglof told Itar-Tass on Wednesday at a press conference on the occasion of the publication of the new annual report Transition Period 2012, prepared by the international financial institution. The capital flight volume is decreasing, he said.

Headquartered in London, the EBRD is now owned by 63 countries and two intergovernmental institutions. Despite its public sector shareholders, it invests mainly in private enterprises, usually together with commercial partners. EBRD provides project financing for banks, industries and businesses, both new ventures and investments in existing companies. It also works with publicly owned companies to support privatisation, restructuring state-owned firms and improvement of municipal services. The EBRD’s mandate stipulates that it must only work in countries that are committed to democratic principles.

“In terms of long-term reversal (of net capital flight), Russia has very large net gains from the resources that currently cannot be absorbed within the country,” Berglof said. “But in the long term (the country) has the task of building an investment climate that is attractive both for Russians – so that they would keep money in the country, and for foreign investors to come and invest in Russia.”

Among the “key priorities for 2013” for Russia the bank specialists named three aspects: “diversification of the economy (requires economic modernisation and serious improvement in productivity and investment climate), more equal distribution of the benefits from economic growth and development between regions (along with fiscal transfers it requires a significant improvement of business environment in the regions to attract more private investment).”

In addition, the EBRD experts pointed to “the need to continue to reduce the role of the state in the economy.” In their view, “a more rapid progress towards privatisation can improve the productivity and competitiveness of the country (which is especially important following accession to the World Trade Organisation), provided that the privatisation process will be transparent and aimed at intensifying competition.”

The EBRD in late October raised its economic growth forecasts for Russia this year – up to 3.2 percent. Last July, it predicted Russia’s GDP growth on the year at 3.1 percent. However, the EBRD forecast for 2013 in Russia has remained unchanged: the economy growth will be 3.3 percent, according to bank experts. “Inflation on the year results is expected to reach 6.8 percent,” economists of the financial institution noted.

The bank’s analysts in October left unchanged their forecast that were adjusted this July, also for 29 countries of Central and Eastern Europe, the Caucasus and Central Asia where the EBRD works. The experts expect that the average growth of their GDP will be 2.7 percent this year and 3.1 percent next year. The publication of EBRD’s next economic forecasts is expected in January 2013, the bank said.

The EBRD, the shareholders of which are the governments of 63 states, as well as the EU and the European Investment Bank, was established in 1991 to assist the countries of Eastern Europe and the former Soviet Union in the transition from a planned to a market economy.