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EXPERTS PREDICT INCREASED CAPITAL OUTFLOW FROM RUSSIA

MOSCOW, February 1. (RIA Novosti)-The Russian economy continues to attract little interest in terms of capital investment. According to the Central Bank, net private capital outflow totaled $7.8 billion as compared with $2.3 billion in 2003, writes Vremya Novostei.

Economists believe the establishment of a favorable investment climate in the country should be the first step on the way to reversing the situation. Oleg Solntsev, a leading expert at the Center for Macro-Economic Analysis and Short-Term Forecasting, says that a sharp increase in capital outflow through semi-legal channels due to greater investment risks was one of the negative trends of last year. In 2004, $32 billion left the country via these channels (as against $24 billion in 2003 and $19 billion in 2002).

There were also negative trends in capital inflow. Mr. Solntsev says that until the end of 2003 the funds flowing into the banking sector were largely spent on providing loans to enterprises and households, whereas today this money is invested in short-term ruble bonds. "Instead of stimulating growth, capital inflow encourages speculation on foreign exchange rate fluctuations," the analyst says.

However, experts feel particularly pessimistic about the situation with direct foreign investment in Russia. Yevsei Gurvich, the head of the Economic Expert Group, says that in the fourth quarter of 2004, direct foreign investment fell by a third as compared with the first three quarters of the year. The economist says that investment is not expected to grow in 2005 either.

As direct foreign investment has stopped growing, the inflow of capital in the form of borrowed funds is also declining. If this trend persists, the aggregate inflow of financial resources this year may stay at last year's level and from 2006 net capital outflow will start to increase, analysts believe.