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. Last Updated: 07/27/2016

Capital Outflows Linked To Oil Price, Ruble Rate

Capital outflows look likely to continue in 2009, particularly in the first quarter, as Russian companies make payments on their hefty foreign debt and people convert their ruble savings into foreign currencies.

Finance Minister Alexei Kudrin predicted on Friday that capital outflows could reach $110 billion this year.

Ultimately, the figure will depend on the oil price, the global credit market and the ruble's exchange rate, analysts said. Russian companies have about $120 billion in foreign debt due in 2009, and individuals will likely continue converting their savings from rubles to dollars and euros.

The conversion of rubles into foreign currencies is the primary reason why liquidity is so tight right now, said Tatyana Orlova, an economist at ING. While major firms may still gain access to the syndicated loan market this year, some of Russia's short-term debt will have to be repaid, she said.

Last year saw $129.9 billion in capital outflows, brought on by a plummeting fourth quarter, when $130.5 billion left Russia, according to Central Bank data. At least a portion of the assets acquired in this period will be used to pay back external debt this year, analysts said.

"The rise in foreign currency assets in the past four months is comparable to the total amount of short-term debt that is due this year," Orlova said.

Companies that are not scheduled to pay back foreign debt until September or October are expected to still try to convert their money into dollars in the first quarter before the ruble declines further, economists said.

Plummeting oil prices in the second half of 2008 contributed to last year's capital flight, and as long is the price remains low the country will have a hard time attracting the same level of foreign investment. Russia's Urals blend crude fell from its high of $142.50 in July to a low of $32.34 in December. It traded at $43.72 on Friday.

Net capital outflow could be as low as $30 billion if oil reaches $50 per barrel, said Yevgeny Nadorshin, chief economist at Trust National Bank. An average oil price of $30 per barrel would put net capital outflow at about $70 billion.

The flight to foreign currencies this year may depend on the credibility of the Central Bank's defense of the ruble's trading corridor. Currency speculators are likely to contest the lower limits of the trading band and, if weakness is found, will channel more and more capital into dollars and euros.

Citibank chief economist Yelena Rybakova, who estimated that net capital outflow would reach $110 billion, said she believed that currency speculation would continue throughout 2009.

Nadorshin, however, said Russians were downplaying the forex game and that while international investors might shy away for a while individuals would return to the ruble. "In the fourth quarter, Russians themselves created net private capital outflow, and if the [private capital outflow] trend reverses they will be the first to bring their capital back to Russia," he said.