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Major capital outflow from Russia not to stop, experts say

August 22, 2012, 14:42 UTC+3
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The large-scale capital outflow from Russia will not stop, analysts of the Financial Corporation Otkrytiye believe. The Vedomosti newspaper writes that more than half of the outflow is debt payments, which will continue, and the money will not flow back: it is of no use in the inflexible, inefficient and corrupt economy.

The capital outflow from Russia has been going on for almost 20 years, emphasises the publication. The 2006 - first half of 2008 period, when owing to foreign loans the country had an influx of an average of 16 billion US dollars per quarter, is an exception, Vladimir Tikhomirov and Polina Badasen from the Financial Corporation Otkrytiye pointed out in their study “Capital Outflow from Russia Will Continue.” During this time, the external debt of the private sector has increased five-fold to nearly 500 billion US dollars.

Now it’s time of reckoning, says Tikhomirov, and the continuing outflow of capital is caused by this. The debt payments in 2008-2011 reached 730 billion US dollars, compared with 10 billion dollars in 2007, but even this has not resulted in the debt reduction. On the contrary, rescheduling increased it from 495 billion dollars at the beginning of 2008 to 545 billion dollars by 2012.

Companies attract much less new loans. In 2011, the net outflow of capital amounted to 80.5 billion US dollars or 56 percent of gross external debt payments. This ratio will most likely be maintained, believe analysts of FC Otkrytiye, and then the net capital outflow this year will reach about 80 billion dollars, and in 2013, according to the payment schedule, could be reduced to 40-50 billion dollars.

In other words, barring miracles, the net outflow of capital from Russia in the coming years will not stop, Tikhomirov summarises.

The second part of the outflow is caused by the inability of the national economy to digest investment. The outdated economic structures, dominated by the state, as well as inflexible, inefficient and corrupt authority bodies are the impediment, the analysts write. It is necessary to change the investment climate in order to replace the net outflow with an inflow changed, they stressed.

Russia has enough own sources of capital that could be used for investment growth - provided that the government will launch reform and take steps to meet investors, the analysts write.

Russia for the past two decades has been one of the world’s largest exporters of capital. Apart from the payment of debt, it is the capital flight - for reasons not so much economic as political, Tikhomirov believes. If residents do not want to invest in the country, it is strange to expect the non-residents to do the contrary. Foreign investment has never been a driving force of capital inflows.



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