Zee Beam News

//For the first time since 2004, Russia is facing an outflow of capital
10-23-2008 - RBC News - For the first time in four years, capital flight from Russia will exceed its inflow in 2008, Finance Minister Alexei Kudrin announced yesterday. The net outflow could actually be insignificant, he said. Experts, however, are less optimistic, saying that a radical change in international financial markets was needed to ensure a net inflow of capital into Russia in November and December. “The net outflow of capital from Russia in August and September reached $33 billion, and we had a zero result from January-September,” Kudrin said at a finance ministerial meeting of the CIS on Tuesday. “We did not lose as there was no net outflow, but we have to conclude that we will have a net outflow by the end of the year. If the situation stabilizes, it will be small,” he said. The last time Russia had a net outflow of capital was in 2004, when it stood at $8.9 billion. This time, financial difficulties have been aggravated by political problems, comments Tatyana Orlova, an economist at ING Bank. It started with the criticism of pricing methods used by the Mechel mining and metals company, then the military operation in Georgia, the worsening of relations with the United States - all this has frightened investors, according to Orlova. The government’s initial forecast for the net inflow of capital in 2008 was between $30 billion and $40 billion. Global economic outlooks worsened in September as the crisis spilled over into emerging markets and investors began to withdraw, relying on the dollar instead. Russia was seen by many as the riskiest among the BRIC economies. Tatyana Orlova expects capital flight to reach $10 billion - $15 billion in 2008. Julia Tseplyayeva, chief economist at Merrill Lynch, is more pessimistic, projecting a higher outflow of $30 billion to $40 billion. “To hope for a small outflow, of say $20 billion, means to expect an inflow of capital in November and December. I don’t know what needs to happen to change the situation so radically in favor of Russian assets: everything depends on the global market now, not on internal factors,” she argued. The shift from rubles to dollars also adds to capital flight. “The Central Bank’s priority right now is to calm the market,” believes Natalya Orlova, chief economist at Alfa-Bank. In an effort to allay fears yesterday, Alexei Kudrin promised that the ruble would remain stable thanks to Russia’s huge international reserves.