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.

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

  1. Interesting – although no idea how accurate it is with regard to numbers, but capital flight is certainly a major issue for the Russian economy.

    It’s just struck me that I’ve read dozens and dozens of news reports about capital flight from Russia, and never seen any about where people from other countries bank their money.

    It would be fascinating to read a comparison of how much currency non-Russians deposit with banks outside their home state, compared with how much curency Russians deposit outside of Russia.

  2. Interesting – although no idea how accurate it is with regard to numbers, but capital flight is certainly a major issue for the Russian economy.

    It’s just struck me that I’ve read dozens and dozens of news reports about capital flight from Russia, and never seen any about where people from other countries bank their money.

    It would be fascinating to read a comparison of how much currency non-Russians deposit with banks outside their home state, compared with how much curency Russians deposit outside of Russia.

  3. I agree. The problem is that the soviety is fundamentally unable to generate reliable, objective information of this kind. The mass media is ever more under the Kremlin’s thumb and the Kremlin is, in any case, the sole source of most information of this kind. It’s run by a clan of proud KGB spies who certainly wouldn’t publicize information that would tend to undercut their authority.

    In the end, nobody in his right mind would leave substantial sums in Russia after Khodorkovskay and Politkovskaya. Ask not for whom the bell tolls!

  4. I agree. The problem is that the soviety is fundamentally unable to generate reliable, objective information of this kind. The mass media is ever more under the Kremlin’s thumb and the Kremlin is, in any case, the sole source of most information of this kind. It’s run by a clan of proud KGB spies who certainly wouldn’t publicize information that would tend to undercut their authority.

    In the end, nobody in his right mind would leave substantial sums in Russia after Khodorkovskay and Politkovskaya. Ask not for whom the bell tolls!

  5. I also agree with you dear La Russophobe.
    Nobody in his right mind would leave his nest-egg in Russia after Khodorkovsky. Notedly in view of fact that Mr Khodorkovsky was keeping his saving anywhere but not in russian banks.
    You are also right talking about russian MSM. They are so deseitful in comparison with Western media which are telling about Russia the real truth for so many years(waiting for the collapse of the evil putinomik).
    May be your mass media are not telling you something important? How do the russian get all this money which they are spending so unpatrioticly. They must have growing them on their birch trees. Don’t be so credent. Russian economic will not fall even though as long as they have their oil and gas.
    And what about spending money abroad? Call to mind their deal with Uranium One.
    But by saying “halva, halva” the mouth does not become sweet.

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