January 15, 2003
Capital Flight Soared in 2002, Most Economists Say
By Victoria Lavrentieva
Capital flight totaled $25 billion last year, or $13 billion, or somewhere in between.
Although new Central Bank data show that the pace of net capital outflows surged in the fourth quarter to $5 billion, bringing the total for the year to $12.5 billion, the bank does not calculate capital flight, leaving economists to guess about a crucial indicator of investor confidence.
The difference between capital outflow and capital flight is that while the former is legal, the latter is often illegal, making it virtually impossible to gauge with any certainty.
"The problem here is that there is no common methodology to calculate capital flight, so all analysts use their own approach based on the Central Bank's numbers," Natalia Orlova, an economist with Alfa Bank, said Tuesday.
The Finance Ministry-affiliated Economic Expert Group says capital flight rose $3 billion to $25.1 billion. But some put the figure at half that.
In fact, economists are not even in agreement over whether the trend is going up or down. In fact, the only thing they seem to agree on is that companies continue to export too much cash because of the dearth of investment opportunities at home.
Of seven economists from major investment banks polled Tuesday, five said capital flight is increasing and two said it is declining.
Alexei Moiseyev, an economist with Renaissance Capital, said that by his estimates, capital flight unexpectedly rose to $7.5 billion in the fourth quarter -- more than double the figure for the third quarter and nearly double year on year.
"I think that such an increase can be explained by high oil prices, which always push up capital flight," he said.
Al Breach, chief economist with Brunswick UBS Warburg, said capital flight is at its lowest level since the economic implosion of 1998.
"People have not gotten used to keeping money in Russia, but the trend is positive, so in the medium term it's only a question of doing things right," he said.
"It has to be a steady process because if it turns around quickly it would be accompanied by a very fast appreciation of the ruble, which is not in the interests of Russian producers," he said. "I think that's the track we are on at the moment."
Anton Strutchenevsky of Troika Dialog said that since 1996, capital flight has been fluctuating between $20 billion and $30 billion annually, with little difference from year to year.
Aton chief economist Peter Westin said that in relative terms, capital flight has been constant over the last two years at about 5.5 percent of GDP.
Most experts, however, agree that the structure of the capital outflow has changed.
Before the crisis it was mainly financed by foreign portfolio investments, but now most of the outflow consists of corporate money and is largely due to the increase of foreign loans.
Russian companies borrowed $7.5 billion abroad in 2002, compared with $800 million the previous year.
"In general, the flight became more legalized," Westin said.
Strutchenevsky, however, said that "now we see an interesting picture: Companies are attracting capital abroad to invest it back in the country, while others continue to export capital from Russia."