The Russian government embraces capital outflow

Deputy economy minister Andrei Klepach raised capital outflow estimates

Last week Ministry of Economic Development of the Russian Federation doubled its estimates for net capital outflow from Russia in 2012. The new official forecast is about $50 billion.

Huge capital outflow is not a surprise for Russian economy. The news is the officials’ tone on commenting the issue. Less than two months ago they pledged a capital inflow in the second half of 2012. Now they adopted more gloomy view on the future economic conditions. Wisely enough, the government economists don’t want to be responsible for the country’s inability to attract new investments. External conditions on the global markets and the Russia’s lack of competitiveness almost guarantee stagnation of investments in the foreseeable future.

Deputy Finance Minister Alexey Moiseev explained in his recent interview to Vedomosti, a Russian business daily, that capital outflow is a normal and even positive process. Capital outflow triggers national currency devaluation, which increases the ruble-nominated government’s incomes from export duties and improves the competitiveness of domestic business. In line with that, the Central Bank of Russia recently intervened heavily on the currency market when the ruble was gaining value, but stayed cool when the national currency was falling. In their turn, the market expectations for continuing devaluation stimulate further capital outflow.

Chicago Tribune