June 7th, 2011

Capital outflows continue despite strong ruble and $100 a barrel oil prices

Washington Post reports that massive and unprecedented outflows from Russia signify deep uncertainty about Russia’s future and its ability to provide a stable platform for economic growth. Russia has well-known domestic infrastructure needs and President Dmitry Medvedev has made modernizing and diversifying the economy as a central issue in his presidency. But with $30 billion leaving the country in the first four months of 2011, the loss of confidence in the Russian government to make infrastructure changes and support the rule of law is evident in both domestic and foreign investors.

Russia’s currency reserves are buffered by the high price of oil, but that usually meant a stem in capital outflows. Not so this year. Evsey Gurvich, head of the Economic Expert Group in Moscow cites political uncertainty in the 2012 presidential elections as one of the reasons for capital flight,

In our country, personal guarantees, personal relations, are still more important for big businesses than laws and rules and formal regulation.”

Another reason he cited was the “weak business environment” in Russia due to the pervasive corruption and expropriation of private business by government officials.

That is another way of talking about corruption, bureaucratic capriciousness and courts that take their orders from on high.

The reaffirmation this week of the conviction of Mikhail B. Khodorkovsky, the onetime oil tycoon who lost his company and his freedom after he challenged Putin, probably translates into “several more billion dollars on the run from Russia,” Gontmakher said.

Domodedovo Airport, the only privately owned airport in Moscow, has come under relentless pressure publicly from the authorities, and that, [Yevgeny] Gontmakher, [deputy director of the Institute of Contemporary Development in Moscow] said, sets a very visible and “awful” example.”

  1. No comments yet.
  1. No trackbacks yet.