Posted on 06/15/2005 1:34:30 AM PDT by familyop
Capital flight from Russia is heading towards levels not seen since just before the financial crisis in 1998, according to a leading debt-rating agency.
About $33bn (£18.2bn) was moved abroad last year, underlining concerns about the business climate and the lack of trust in the country's institutions and its property rights, Fitch Ratings said in a report issued yesterday.
The agency calculates that capital flight has reached $100bn over the last four years. "Not only is it [capital flight] unusually large, but it is also rising. Last year's total was the highest since 1997, when Russians headed for the exits before the 1998 default and devaluation," said Edward Parker, senior director in Fitch's sovereign group.
Fitch said Russia's current account surplus and its foreign reserves meant that the extent of the capital flight did not pose a near-term "external financing risk", but it said that if the money had not been sent offshore it could have been usefully invested in Russia.
Fitch notes that while Russians are moving capital out of the country, money is still flowing the other way as Russian companies borrow from abroad. "Private-sector external debt has more than doubled in just two years, from $48bn to $106bn at end 2004," Mr Parker said.
"It is revealing that Russian companies are borrowing on such a scale at the same time as moving retained earnings offshore and out of reach of the state - a trend which has accelerated since the start of the Yukos affair."
Mikhail Khodorkovsky, former boss of oil company Yukos, was sentenced a fortnight ago to nine years' imprisonment for tax evasion and fraud. His arrest in 2003 caused concern among investors, who feared it signalled a change in the Kremlin's attitude towards Russia's business elite.
Economists said it was impossible to tell what proportion of cash was being invested outside Russia to diversify risk and how much was down to lack of confidence.
Bet they'll swing communist within 10 years. All the bad things they said would happen under capitalism have happened. People have short memories and won't care about "little" things like Stalinist gulags.
Ping.
...more on Yukos.
Confiscation of assets always leads to capital flight. Ask Mugabe.
Another reason to stay drunk.
"Analysts say that this will undermine confidence in the banks and could damage the reputation of entire Russian banking system. Companies will now use offshore banks more and more, or conduct smaller transactions."And this article on the Dresdner bank last releasing Yukos documents last October sees a similar outcome:
"...Our investment rating, which not too long ago caused such national euphoria, is nothing more than a derivative of the petroleum situation. No businessman will pay attention to this rating, knowing that he can be cast off, or in general simply used like toilet paper... The West will cease to trust the Kremlin's economic policies, and this trust is needed in the long run. To build a mere 'economy of the pipeline', as in Venezuela, no free market is needed. All that is needed is to manage the labor battalions. "Everyone's predicting it, fill in the blank for the best reason. Perhaps China is simply sucking up all the investments again.
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