Russia capital outflows pick up pace

AP News
Posted: May 16, 2012 7:47 AM
Russia capital outflows pick up pace

Russia saw $42 billion worth of net capital outflows in the first four months of the year but there are hopes in the markets that may ease and turnaround over the coming months as a new government is installed.

The figure reported by Sergei Ignatyev to the Russian Parliament on Wednesday means the country has already seen half of the capital flight posted last year.

Officials last year assured that the outflow would decrease this year as they blamed worries over political instability in Russia linked to the December parliamentary and March presidential elections.

Analysts said investors are withdrawing money from Russia because they are losing faith in economic reforms that Russia badly needs to continue growing.

And Boris Kashin, a member of the Communist party, said growing public discontent with authorities is speeding up the outflow.

"The problem of capital outflow has grown into a political one," he said.

He added that it would persist "if elections keep on being rigged and political opinions are still stifled."

Russian financial officials have assured that Russia would start seeing capital inflows in the second half of the year after the new government is formed. Prime Minister Dmitry Medvedev has submitted candidates for the cabinet to President Vladimir Putin for him to sign on the list of new ministers by the end of the month.

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Yulia Tsyplyayeva, chief economist at BNP Paribas in Moscow, said she shares the Central Bank's expectation of inflows in May and June _ after Russia gets a new government. BNP expects an inflow of between $5 and 10 billion at the end of the year.

Russia still has economic advantages. Its economy grew by 4.3 percent last year and the country has 1.8 trillion rubles ($58 billion) in a reserve fund, created from oil revenues that the government tucked away when prices were high.