It’s just skuttlebutt, but . . . the Russian economy may be even worse than we imagined

La Russophobe almost never reports information which really amounts to nothing more than unsourced gossip. But this one is just too interesting let slide by. The site IC-Russia, which basically concerns itself with tourism matters, reports (citing Russian language sources Izvestia and D-Pils):

While Russian financiers are proudly reporting about capital influx to the country, their foreign colleagues are calculating outflow of funds from Russia. It has been reported recently that Russians have placed $219.6bn on banks’ deposits abroad, which considerably exceeds deposits with domestic banks as well as the annual budget of the RF.

If so, who are the people placing a quarter of Russian GDP on outlandish accounts? Experts say, many accounts are opened by particular firms operating only to disguise the richest Russians. Funds are rapidly leaving the country: the amount of Russian capital in foreign banks, compared to the same rate last year, has grown by half. A little less than 50% of all funds “flew” to London, which is no wonder by the way, since the city has always been known as an untroubled place for capitals.

However, sums of money that Russians keep on deposits in European banks may get one shocked. $220bn! Which equals to 5.8 trillion rubles. The sum goes 0.8 trillion rubles beyond the revenue side of the Russian budget, or, e.g. it is equal to 24% of Russian GDP. Technically only a little share of funds kept in foreign banks belongs to private individuals: major sums are controlled by Russian firms. Here we should point out how Russian and European companies differ: a foreign company is traditionally controlled by hundreds or thousands of stockholders, whereas owners of a Russian one can be easily counted on fingers. So it turns out, that money held on bank accounts is of private origin but “wrapped legally”.

Not infrequently money of unknown origin comes abroad to be laundered. As for honestly earned capitals, they can often be found in foreign banks: their owners want to keep it safe on the threshold of upcoming elections in 2008.

There are several ways for funds to be brought out of the country. E.g. a businessman sells his company’s assets to foreigners inland, sometimes it’s just a share of the whole business, but it is enough for a company to be given an international status. The money, paid by foreign partners, stay in banks abroad. Another way to take funds to foreign banks is acquisition of assets abroad. There exist other variants, but in any case a business needs an account or a deposit in a foreign bank.

Both types of transactions are quickly getting popular. According to the project Merger.ru, within only 9 months Russian companies got hold of foreign firms to the amount of $4.2bn (data of the same period in 2005 – $2.3bn). Foreigners purchased Russian assets to the amount of $5.8bn ($6.7bn within the same period last year), which means that Russians buy business abroad in increasing frequency, whereas foreigners demonstrate an opposite tendency.

The executive manager of Mergers.ru Yuri Ignatshin sees two reasons for it. The first one – businessmen willing to escape political risk in view of presidential election, want to save their capitals. The second and the main reason implies that Russian companies have been maximally developed in Russia and now try to enter the international market. Especially acute the problem is in the fields of metallurgy industry and fuel and energy complex of Russia. All markets are shared, participants are known and can’t come to the agreement on sale or merger. The only way out is to approach international markets.

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