Publication: Monitor Volume: 6 Issue: 4

Russia’s balance of payments data also show large capital outflows continuing in 1999. An unbroken string of net capital inflows, averaging US$6.7 billion per quarter, were reported from the second quarter of 1997 through the third quarter of 1998. Since then, net outflows on Russia’s capital and financial accounts have averaged some US$3.5 billion per quarter. Because Russia since 1997 has attracted only paltry amounts of foreign direct and portfolio investment, this turnaround in capital flows reflects the fact that Russia is no longer able to borrow abroad. Whereas Russia had attracted US$9.2 billion in foreign credits during the first three quarters of 1998, the value of foreign loans actually shrank by US$600 million during the first three quarters of 1999. Even though it did not repay any of the principal on its pre-1992 state debt, Russia still retired more of its old loans in 1999 than it received in new credits.

These numbers also provide a measure of illicit capital flight from Russia–as opposed to capital outflows devoted to the repayment of debt principal or the winding down of Russian investments by foreigners. While there are many different indicators of illicit capital flight, one measure involves adding: (1) official purchases of dollars by Russian businesses and households; (2) the value of Russian exports delivered but not paid for; (3) the value of imports purchased but not delivered; and (4) “errors and omissions” in the balance of payments. By this measure, “only” US$8.7 billion left Russia during the first three quarters of 1999, well below the US$15.3 billion outflow recorded during the first nine months of 1999. While US$8.7 billion is still a lot of money, this figure suggests that the authorities’ efforts to crack down on illicit capital flight may not be completely ineffective. But it could also mean that Russians are increasingly finding legal ways to get their money out of the country (Bank of Russia, December 31, 1999).