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Russia: Institute Estimates That $2 Billion A Month Leaves Country

  • Robert Lyle

Aside from allegations of criminal profits and illegal gains being spirited out of Russia, it's been little secret that large amounts of legitimate money -- capital -- have been leaving the country. Few have estimated the total amount, but RFE/RL's Robert Lyle reports from Washington that the head of the global organization of commercial financial firms believes the figure is astronomical.

Washington, 27 September 1999 (RFE/RL) -- Charles Dallara, the Managing Director of the Institute of International Finance (IIF), says a careful study made by his group shows that money leaving Russia -- it's called capital flight -- has averaged between $1.5 billion and $2 billion every single month since 1992.

Dallara told reporters yesterday that while the total fluctuates each month, it has averaged close to $2 billion every month for nearly seven years.

That would total around $168 billion -- a figure more than eight times larger than all the money the IMF has ever lent to Russia.

Dallara said this clearly shows that it is "critical" for Russia to put policies into place which will encourage its citizens to keep their money at home and to repatriate that which has already fled the country. Without that, he said, Russia has little chance of building a future on normal economic development.

The International Monetary Fund says the large capital outflows from Russia have been due primarily to the enormous uncertainty and risk that investors -- both foreign and domestic -- associate with keeping money in Russia.

The fund says that this uncertainty reflects a number of factors, including overall economic instability, weak enforcement of property rights, an arbitrary and confiscatory tax system, and a poorly functioning banking system which has inadequate supervision and regulation.

Adding to the capital flight as well, says the IMF, is money being moved to evade taxes, a problem that has long plagued Russia.

The question about capital flight arises again because of recent allegations surrounding the discovery that huge sums of money have been moving through private Russian bank accounts in western countries. U.S., British, Swiss and other national authorities are investigating to see if that money is organized crime profits being laundered -- moved through a series of accounts to make it indistinguishable from legal profits -- or something else, including capital flight.

The IMF points out that capital transferred abroad from Russia may represent such legal activities as exports. But it says, because money is fungible -- that is one unit of currency is like any other -- it is impossible to determine whether specific capital flows from Russia, whether legal or illegal, come from any particular source.

The fund says that Russia's exports of goods and services have averaged about $80 billion a year in recent years.

The IIF, the organization of commercial bankers and other financial firms, says what Russia needs to convince its own people to keep their money at home is a sustained period of sound economic policies and structural reforms.

Dallara said that although there have been some periods of stability and actual times of progress by Russian authorities over the past number of years, there has not been a sustained period of stability accompanied by the "kind of robust structural reforms" that are needed to lift Russia out of this morass.

The IIF says it expects other countries will provide net financing to Russia of around $2 billion both this year and next, but that a great deal of that will be in the form of interest on Soviet-era debt which has been rescheduled by the Paris club of official creditors.