“It’s a very dangerous trend, because it shows it’s very massive and on a wide scale,” said Yevgeny Gontmakher, deputy director of the Institute of Contemporary Development in Moscow.
The net outflow of private capital, which started to pick up pace last year, amounted to about $30 billion in the first four months of 2011. “That is a very large figure,” Sergei Ignatyev, chairman of the Central Bank of Russia, told a banking conference Thursday.
And that may represent only about half the actual flight, with the rest coming in informal and illegal transfers.
Money can be moved abroad in the form of substantial investments in foreign firms. Or it can happen when a lone buyer shows up at a real estate office in Latvia or Montenegro with a suitcase full of cash and an intent to purchase a second home. Companies that engage in trade can manipulate prices so as to leave the bulk of their profits outside Russia. Others cook their books with “errors and omissions” — that category amounted to $8 billion worth of fraud in 2010, the commission of the Customs Union of Russia, Belarus and Kazakhstan reported this week — or fictitious securities transactions (another $14 billion).
No one knows when it’s going to stop. The Bank of Russia predicted early this year that capital would be coming back into the country by the end of March. That didn’t happen. Then it estimated that $2 billion left the country in March. Now it reports that the outflow was about $6.2 billion that month — and it increased to $7.8 billion in April.
Thanks largely to its income from high-priced oil, Russia is still running a current account surplus. But in the past, increases in oil revenue have always brought proportional increases in funds available for capital investments, said Evsey Gurvich, head of the Economic Expert Group in Moscow. This time, the tide is still running out, and unless the price of oil keeps going up forever, eventually Russia will have to start drawing down its currency reserves.
Two factors appear to be at work.
The first is political uncertainty. Russia has presidential elections next year, and no one knows if Medvedev or Prime Minister Vladimir V. Putin will take the job. They have said they will decide it between themselves. There are, in fact, few policy differences between them. But any big investment here requires the nod from one or the other, and right now businesses don’t want to put their chips on the wrong candidate.
“In our country, personal guarantees, personal relations, are still more important for big businesses than laws and rules and formal regulation,” Gurvich said.