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Russia: Capital Flight Continuing

When the citizens and businesses in a country are not confident of the future of their economy or their currency, they tend to send their savings outside of the country for safe-keeping. That's called capital flight. RFE/RL's Robert Lyle reports from Washington that Russia continues to suffer from it in a big way.

Washington, 25 January 2000 (RFE/RL) -- The global organization of commercial banks, investment firms and insurance companies -- the Institute of International Finance (IIF) -- says that capital flight from Russia continues to be substantial and should be around $20 billion again this year.

The institute says the flight of capital from Russia has been at about that level annually for the past year or two.

Charles Dallara, managing director of the institute, told reporters in Washington on Monday that the problem for Moscow continues to be a lack of solid reforms and stable policies:

"Obviously, it will be important for Russia to find some policy framework that will stabilize and turn around that situation at some point, but we don't have a clear sense that that's in the cards."

The director of research for the IIF, Kevin Barnes, says there was some reduction in the amount of capital flight from Russia in December. But he says even if that continues it will not have a major impact on the forecast of $20 billion fleeing this year.

Overall, says Barnes, there are a lot of uncertainties ahead for Russia.

"Perhaps the removal of some of the political uncertainty that we fear through a prolonged election period could make the situation even more difficult. That will not happen. We are having to reevaluate a number of developments. Russia has been helped by strong oil prices, still very uncertain on capital flight and what will happen on the debt picture."

The institute says Russia's capital flight and other problems will turn private capital flows into the country from positive to negative this year -- with more money leaving than coming in.

For the rest of what the IIF calls "emerging Europe" -- Bulgaria, the Czech Republic, Hungary, Poland, Romania, Slovakia, and Turkey -- the picture is very positive. Private capital flows, which had dropped markedly during the 1998 crisis, are beginning to return and are estimated to have hit nearly $32 billion in 1999. They should climb another $500 million this year.

Barnes says these countries are drawing external financing because of their progress in reforms:

"We've seen some encouraging steps, such as in Bulgaria. But there needs to be continued efforts in that area to work toward the goal of convergence with the European union. In several of those economies, we see encouraging progress, but still more to be done."

Capital flows into all of the emerging economies in the world are expected to increase from just below $150 billion in 1999 to nearly $200 billion this year. That all depends, of course, says the IIF, on a continued strong U.S. economy and no major crises anywhere in the world this year.