$19 Billion in Dirty Money Left Russia

[FaGal]

non male

$19 Billion in Dirty Money Left Russia
www.kommersant.com - April 28, 2005

The Ministry of Economic Development and Trade solved a riddle on Wednesday. Two contradictory figures were published in its quarterly report on the state of the economy in the first three months of the year. In the “Main Tendencies in the First Quarter” section, it is claimed that “enterprises and banks exported a new high in the modern history of Russia of about $19 billion in this period.” In the section “Payment Balance (Estimated by the Bank of Russia),” it is claimed that “Indicators characterizing the net result of cross-border movement show a notable decrease in the pure outflow of capital ($900 million versus $4.2 billion in a comparable period).”

It is not hard to solve the Economics Ministry's riddle. The key is in the phrase “pure outflow.” The difference between those figures can be explained if $19 billion is taken as gross outflow. Arithmetically, the figures do not work out any way but, according to Central Bank information cited by the Economic Ministry, it says, “The foreign assets under question grew by $17.1 billion.” If $17.1 billion is taken away from $19 billion, the result is $900 million and then some.

The main question in the Economic Ministry account is an estimate of the outflow of cash. The “new high in the modern history of Russia” is $19 billion. Then the next question is whether or not the YUKOS case is really over. Based on net outflow, the Russian economy has almost gotten over that trauma; judging from gross outflow, it has only just begun.

The overall picture is more than just odd. The native holders of capital are moving at an all-time fast pace. Newcomer holders of foreign capital have “suddenly” decided that the Russian economy is worth investing in. The situation becomes even more confused when we consider that, among the countries from which capital enters Russia, Cyprus is in first place, followed by other countries that were, until recently, offshore territories where Russian capital was hidden. That is to say that money that might be called ethnically Russian returns to Russia in the guise of foreign capital. Why is it returning when domestic capital is fleeing the country? One possible answer is that the closure of all offshore zones has had an influence on the owners of what was until recently offshore capital. That is to say, that the matter is not one of faith in the bright future of the Russian economy.

At least two conclusions can be drawn at this point. The first is that the president has to be given his due. The very timely announced a capital amnesty. There is a hitch here, however. The presidential administration has a very negative attitude toward the word “amnesty.” There, they prefer to say “legalization” of capital. But “amnesty” has certain clear advantages. “Legalization” is much closer to “laundering.” In other words, it is clear that, in order to make this amnesty/legalization a fact, certain legal efforts will have to be undertaken, one of which will be to create a filter against the laundering of capital. That means that the amnesty/legalization will not be come about soon.

The second conclusion is that isles optimistic. Obviously, the situation cannot last for long when record amounts of capital move in both directions. A preponderance will be felt on one side or the other. The sentencing of Mikhail Khodorkovsky and Platon Lebedev is likely to be the swing factor. Thus, the YUKOS case is far from over for the Russian economy.

[FaGal]

Russian economy falters as spenders go elsewhere
www.gulf-times.com - May 1, 2005


MOSCOW - Russia’s economy slowed sharply in the first quarter, sapped by under-investment, weak global demand and a population increasingly choosing imported goods, the Economy Ministry has said.

Gross domestic product growth faded to an annual 4.9% in the first three months of the year, below the 7.3% posted in the same period of 2004.

However, the ministry is sticking to its guns and promising full year growth of 6.5%, down from last year’s 7.1%.

“Despite these numbers we are changing nothing. Everything remains as before. For the time being it’s impossible to draw conclusions from the first quarter,” Economy Minister German Gref told reporters.

A plan to double the size of the economy by early next decade, which requires growth above 7%, was markedly absent from President Vladimir Putin’s annual keynote speech earlier this week.

Russia’s oil output growth has stagnated in the last six months after five years of impressive growth.

The Economy Ministry had no illusions about where the problems lie.

A report published on its Web site (www.economy.gov.ru) on Wednesday said Russia needed to improve the investment climate and mend fences between business and the state.

Potential investors turned tail after watching the travails of oil magnate Mikhail Khodorkovsky and his company Yukos, the one facing up to 10 years in jail on fraud and tax evasion charges, the other crushed under $27.5bn back tax claims.

Although Putin made reassuring noises during his annual keynote speech earlier this week, telling the taxman not to “terrorise” business, the government expects capital flight to continue, at least for this year.

Russia’s economy was also suffering from weaker global demand, the report said.

“As well as that there is a continuing decline in the competitiveness of local producers and the rise in domestic demand is increasingly covered by imports,” it added.

The rouble, underpinned by Russia’s oil earnings, hit 5-year highs against the dollar last month and could appreciate in real, trade-weighted terms by as much as 9% this year, a central bank official said on Wednesday.

And the pull of imports is visible everywhere.

Shoppers in Moscow supermarkets pick through basic supplies - from yoghurt to pickled cucumbers - shipped in from all over Europe, with Russian labels slapped over the original French, German or Polish.

[FaGal]

Russians may be keeping up to $30Bln at home - IMF adviser
www.interfax.ru - May 6, 2005


MOSCOW - International Monetary Fund adviser to the Russian Central Bank Arnaud de Villepoix has expressed the view that Russians may be keeping savings of between $25 billion and $50 billion in their homes and another $150 billion to $200 billion abroad.

This gives Russian banks serious potential for deposit growth, de Villepoix said.

The proportion of personal money deposited in Russian banks increased 30% in 2004, reaching 2 trillion rubles, de Villepoix said.

He said personal deposits had been very small in volume before they started to grow.

De Villepoix said the main reason for growing deposits were higher real per capita incomes. He said a deposit insurance system that is in the making would sustain the growth.

Many experts argue that the more banks gain access to the deposit insurance system, the greater risks may arise. For this reason, de Villepoix called for thorough solvency audits of Russian banks.