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. Last Updated: 07/27/2016

Capital Flight Said To Reach a 4-Year High

The country's economic health may have vastly improved over the past year but capital flight reached its highest levels since 1996, a leading independent analyst said Wednesday.

Some $24.6 billion fled the country in 2000, an increase of about 30 percent compared with the previous year, Mikhail Delyagin, head of the Institute for the Problems of Globalization, said in a telephone interview.

"Capital flight is just a symptom that shows investors cannot find safe and profitable investment opportunities at home," said Delyagin.

"However, capital flight numbers should not be examined out of context," he added.

The context Delyagin refers to includes looking at Russia's overall trade balance that the Central Bank publishes quarterly. In 1999, the trade surplus amounted to $34 billion while capital flight was estimated at about 55 percent, or $18.6 billion.

In 2000, capital flight — the funneling of money outside the country — totaled about 46 percent of the trade surplus, which is expected to ring in at about $60 billion.

Analysts are welcoming the narrowing difference as a sign of recovering investor confidence.

"Obviously, when the trade balance is increasing, you expect capital flight to grow as well," said Christopher Granville, strategist at United Financial Group. "But the fact that it decreased as a proportion of the trade balance means that the propensity to get the money out of the country is declining."

More of Russia's wealth is being invested at home than in years past as the Kremlin moves to push through economic reforms, according to official numbers released by the government. The State Statistics Committee estimates that domestic investments increased in 2000 by about 18 percent year-over-year.

Some of the most recent examples of reinvesting capital at home include Siberian Aluminum's decision to buy into troubled car maker GAZ and Tyumen Oil Co.'s purchase of an 85 percent stake in state-owned oil company Onako for just over $1 billion.

"When the economy is stable, even if some enterprises continue to bank offshore is not so tragic," said Granville. "In this case, the motive for banking abroad is the inefficiency of the banking system or the desire to avoid taxes, not the need to get the hell out of the country."

While Delyagin concedes Russia's rebounding economy has smoothed the effects of capital flight, he argued that it will continue, especially when commodity prices decline.

"It is only a matter of time before world prices for oil, gas and precision metals drop," he said. "That's when the capital flight will reach catastrophic proportions."

The International Finance Institute, which comprises nearly 300 representatives of foreign financial institutions, estimates more than $140 billion has been funneled out of Russia over the past 10 years.

Delyagin said government attempts to fight semi-legal channels for taking money out of the country simply pushes people to use illegal channels.

"Those who want to take the money and run will find a way to do it," he said.