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. Last Updated: 07/27/2016

Capital Flight Drops by 80%

The Finance Ministry said Wednesday that capital flight plummeted 80 percent to $2.1 billion in the first half of the year, in a sign that businessmen are finding Russia's investment climate more attractive and putting their money to work at home.

Although the ministry cautioned that capital flight might surge in the second half, it said the year-end total would still be lower than the $9 billion previously forecast for 2002.

The ministry puts capital flight in the first half of 2001 at $10.5 billion.

"We plan to reduce capital flight this year, and the money will work in Russia," said Anton Saluanov, the head of the ministry's macroeconomics and banking policies department, Interfax reported.

He said the forecast jump in capital flight in the second half of this year will be triggered in part by a higher seasonal demand for foreign currency. Although many of these funds never leave Russia, they affect the balance sheets.

Capital flight -- the large-scale removal of individual and corporate investment capital and income from a country -- has been steadily declining over the past three years, according to government figures. The amount of money spirited abroad in 2001 came to $16 billion, compared to $24 billion the previous year.

A long-running government fight to keep money at home got a shot in the arm in June when President Vladimir Putin made capital flight a priority. He urged businessmen and individuals to keep their money in Russia and bring back the billions of dollars funneled abroad during the chaotic 1990s.

No one knows how much money fled the country over the past decade. Various government agencies and observers put the amount at anywhere from $50 billion to $400 billion.

Alexei Moiseyev, a vice president at Renaissance Capital investment bank, said he has tracked a decline in capital flight over the past year, although on a smaller scale than that declared by the Finance Ministry.

"But the figures aside, the tendency is a good one," Moiseyev said.

He estimated that capital flight fell to $8.5 billion in the first half of 2002 from $12 billion in the same period last year.

The decrease was most likely based on an improvement of the domestic investment climate coupled with lower profit margins in a number of industries, he said.

Deputy Central Bank head Oleg Vyugin also has his own figures. He said last week that capital flight would fall to $11 billion this year from $16 billion in 2001, Interfax reported.

He said companies have been showing a stronger interest in investing domestically because they are realizing it is more profitable to spend their money at home than abroad.

Vyugin added, however, that a large amount of money was continuing to leave the country in the form of state debt payments, which are reaching a peak in 2002-03.

Commercial banks are also helping curtail capital flight, said Oksana Dynnikova, an economist at the Economic Expert Group think tank. She said Russian commercial banks over the past year have been diverting more funds into assets.

Yevgeny Gavrilenkov, the chief economist at Troika Dialog, said the reduction in capital outflow could in part be caused by shaky global market conditions. Lower interest rates are prompting Russian companies to borrow abroad, which in turn increases capital inflow, he said.

"About three years ago, in 1999, nobody would have given Russian companies the money," he said.