The government announced measures against the outflow of capital from Russia: what will be banned
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Analyst Belyaev: “We need steps to stimulate the economy”
The government and the Central Bank are preparing a package of measures to limit the outflow of capital from the country, said presidential aide Maxim Oreshkin, without going into details. Last year, a record $243 billion was transferred outside Russia. Apparently, the fact that this gigantic amount could have served the economy, but in the end did not, largely prompted officials to take some action. At the same time, independent experts fear that the state will take steps that are not stimulating, but purely prohibitive.
The Central Bank confirmed that a discussion has begun at the top on the transformation of the currency regulation system. In particular, there is a proposal to introduce a limit on the transfer of funds abroad in rubles, setting it at 100 million rubles per month. Previously, TsMAKP analysts identified four main channels of capital outflow last year. Firstly, it is associated with the withdrawal of foreign direct investment, with the “moving” of funds to other jurisdictions. Including as part of transactions for the acquisition of former Russian assets owned by foreign companies. The volume of outflow through this channel amounted to about $40 billion.
Second, the model of foreign trade financing has changed: “Most imports began to be prepaid, and export lending largely shifted from foreign banks to domestic organizations,” the researchers wrote. The volume of outflow is $66 billion. Thirdly, a significant contribution to the situation was made by individuals who transferred $33 billion to accounts in foreign banks and invested another $14 billion in foreign currency cash. As of July 2023, Russians held a total of $73 billion (6.36 trillion rubles) in foreign deposits. Finally, fourthly, the state allocated approximately $62 billion to repay loans taken by domestic banks and non-financial enterprises. According to TsMAKP estimates, this year the intensity of outflow has decreased significantly across all channels of abnormal growth: in January-June it amounted to $27 billion.
In principle, capital flight should not be confused with capital flight. In the first case, we are talking about legal financial transactions related to investments by residents of the Russian Federation – citizens and companies – in foreign assets and securities, transfers of funds to foreign banks, and the purchase of cash currency. And capital flight is the withdrawal of money abroad illegally in order to hide shadow income and evade taxation. In the country’s balance of payments this is listed as “Doubtful transactions”. However, there is little good for the economy in either case.
“I think officials will introduce some kind of prohibitive measures; they don’t have enough imagination for more,” says Candidate of Economic Sciences, financial analyst Mikhail Belyaev. – Meanwhile, in order for capital not to go elsewhere, but to remain in Russia, steps are needed to stimulate the economy, first of all, to improve the overall investment and business climate. For example, you can reduce income tax rates. If you follow the path of prohibitions, capital will certainly find loopholes to escape. There is an old English proverb: You can lead a horse to water, but you cannot force it to drink. Our key rate of 12% is strangling the economy and making loans catastrophically inaccessible to businesses. Moreover, all the talk now is only that the rate will be raised.”
The package of measures being developed by the government and the Central Bank will be radical in nature, and in some elements will coincide with the restrictions adopted at different times last year, says Igor Nikolaev, chief researcher at the Institute of Economics of the Russian Academy of Sciences. In March 2022, the interlocutor of MK recalls, the regulator limited the transfers of individuals abroad to the amount of $5 thousand per month, in April it increased the threshold to $10 thousand, in mid-May – to $50 thousand, and in July – to $1 million. Plus financial the authorities may reintroduce the rule of mandatory sale of export proceeds. Of course, some effect will be achieved, but it’s another matter that business activity will suffer: such steps will only disincentivize business.
“Since the beginning of the 90s, Russia has become a confident net exporter of capital,” notes BitRiver Communications Director and economist Andrei Loboda. – According to the most conservative estimates, more than $1.3 trillion has been withdrawn from the country over the past 30 years. The problem must be solved not through administrative and prohibitive means, but at the level of management of the financial system: the ruble must acquire the status of an investment instrument and finally stop depreciating. The withdrawal of currency continues through channels that have long been worked out and understandable to regulators. The reason is the same – money is uncomfortable in the Russian economy, which has long been in need of radical changes.”
Newspaper headline:
Ruble under the cap
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