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CAPITAL FLIGHT TO REACH $9 BILLION THIS YEAR

MOSCOW, November 29 (RIA Novosti) -Capital flight from Russia will reach $9 billion in 2004, reaching a high in the fourth quarter, Russian Finance Minister Alexei Kudrin said today at a RIA Novosti press conference.

Capital flight in the first three quarters was due to a series of negative factors in the Russian and world economy, such as changes to interest rates for attracting capital on the world market and changes to the Central Bank's policy on strengthening the ruble's exchange rate, Mr. Kudrin explained.

In his opinion, although some negative effects of these factors have not been overcome, capital will begin to return to Russia by the end of the year.

Mr. Kudrin also said that from January 1, 2005 a number of taxes, such as the single social tax, would be cut. "The run-up to 2005 and, hopefully, the beginning of it will hopefully bring the first results," he said.

Mr. Kudrin also thinks state investment in the economy is inefficient.

"We kill stimuli and motivation in the private sector," the minister said.

Mr. Kudrin also pointed out that wages had increased by 75.8% in 2000-2004. "This growth is in real terms and with account for inflation," he noted.

He promised that in 2025 Russians would enjoy the living standards that the French did in 2003. The comparison was made according to purchasing power parity, he said.

Inflation will be 11.5% at the end of 2004, Mr. Kudrin said.

The Economic Development and Trade Ministry's initial forecast, which was the basis for the 2004 budget, put inflation at 10%. The forecast was later revised to over 11%.

According to Mr. Kudrin, the high inflation rate is due to increased prices for communal services, gasoline, baked products and meat. While the prices for gasoline and baked products are a global trend, meat prices "are a home-grown problem that we have produced ourselves," the minister said.

The increases in meat and poultry prices have added 1-2% to inflation, he said. This has happened due to Russia's introduction of quotas on imports.

According to the Finance Ministry, beef prices have already increased by 14% and will reach 16% by the end of this year. "It is a considerable increase and these measures are not bringing us closer to doubling GDP or defeating poverty. This calls for serious analysis and additional solutions," he said. He added that this was important from the standpoint of securing the planned 8.5% level of inflation in 2005.