RUSSIAN FINANCIAL SECTOR SWIMMING IN DOLLARS…

Last month the Central Bank of Russia (CBR) released preliminary data on Russia’s balance of payments during the first half of 2000. They indicate that Russia is heading for a record current account surplus, and that capital flight shows no signs of letting up.

Russia’s current account balance–the difference between the exports of goods and services, as well as remittances–registered a gigantic US$23.0 billion surplus at mid-year. According to the national income figures released by the State Statistical Committee for the first half of the year, this figure amounted to 22 percent of Russia’s GDP. This figure is only slightly below the “record” US$25.3 billion figure (14 percent of GDP) recorded for all of last year. The mid-2000 current account surplus was driven by the merchandise trade balance, on which a US$28.8 billion surplus was reported. This was in large measure due to higher oil prices: The average price of a ton of exported crude oil was reported at US$23 during the first half of the year, compared to only US$12 during the first half of 1999. The price of 1,000 cubic meters of exported natural gas likewise rose sharply during this time, from US$50 to US$86. Thanks to these high energy prices, oil and gas accounted for more than half of Russia’s export revenues at mid-year, up from 40 percent last year and 37 percent in 1998. Exports as of mid-2000 had soared to US$49.0 billion, compared to US$32.5 billion during the first half of 1999. In contrast to exports, imports grew by only 5 percent during the first half of the year, to US$20.3 billion. The sharp devaluation of the ruble after the August 1998 financial crisis continues to make imports too expensive for many Russian households and businesses.

In contrast to late 1998 and early 1999, however, Russia is no longer suffering from a shortage of dollars. The CBR on November 16 reported that its foreign exchange reserves had risen to US$26 billion, compared to only US$12 billion at the start of the year (Reuters, November 16). Russian commercial banks–many of which defaulted on their foreign loans during 1998-1999–by the end of August were reporting US$15.9 billion in foreign-currency assets, more than double their US$7.7 billion in foreign-currency liabilities. Both CBR and commercial bank reserves are now well above their pre-August 1998 levels. Russia’s financial sector is literally swimming in dollars.

…BUT FOREIGN INVESTORS CONTINUE TO AVOID RUSSIA LIKE THE PLAGUE.