Capital runs into the woodwork from Russia

The real inflow of investments in the Russian economy is not as large as we would like it to be, President Dmitry Medvedev said on Monday during the meeting with entrepreneurs. According to the Central Bank of the Russian Federation, the outflow of capital from the country in 2011will make up up to $35 billion, which is approximately the same as in 2010.

"To put it mildly, the investment climate in our country is far from being perfect, in spite of the fact that foreign partners are ready to invest in our economy," RIA Novosti quoted Medvedev as saying.

Speaking about the reasons of Russia's low investment appeal, the president said that there are several factors that determine this situation. Among others, he mentioned "those unfavorable things that exist in our economy and in the legal field," he said. At the same time, Medvedev said that some of his measures to improve the investment climate in Russia are already working. In particular, the authorities are executing a number of bills to narrow the sphere of control over strategic foreign investments.

In addition, top officials at boards of directors at large state-run corporations are being replaced with independent supervisors. "The process is to be completed at all state-controlled joint-stock enterprises by autumn," the president said.

Medvedev also said that the establishment of the international financial center in Moscow will show a positive influence on the Russian economy in general.

The president reminded that Russia simplified the circulation of Russian securities at international platforms. In addition, new legislative measures have been taken to simplify the visa regime for foreign specialists. "Little has been done at this point anyway, and we must continue working in this direction," Medvedev said.

In May, Arkady Dvorkovich, economic aide to Medvedev, acknowledged the failure of Russia's policies to attract foreign capital in the country. "The president said that we have not reached real progress in improving the investment climate. We need the results quickly. The investment level is very low, whereas the outflow of capital is on a high level," Dvorkovich said.

According to the Central Bank, the net outflow of private capital from the Russian Federation in the second quarter of this year has halved - to $9.9 from $21.3 billion in the first quarter. The net inflow of capital was registered for the first time this year in June.

Sergei Ignatyev, the chairman of the Central Bank, said at the end of June that the considerable outflow of capital from Russia in the first six months of 2011 was based on the possible weakening of the Russian ruble.

The bank sector of the Russian Federation showed the net outflow of capital in the amount of $4.2 billion (vs. net outflow of $7.7 billion in the first quarter) as of the results of the second quarter of 2011. The non-financial sector of the economy reported the net outflow of capital on the level of $5.7 billion in April-June (vs. $13.7 billion in the first quarter).

It is worthy of note that at the end of 2010, the Central Bank said that the investment climate in Russia would improve if oil prices exceeded the level of $75 per barrel. The inflow of capital would make up $10-15 billion, officials said. However, oil prices have grown, but the capital is not flowing in. The Central Bank has not been that optimistic anymore recently.

Mikhail Zadornov, the former finance minister, believe that the outflow of capital from Russia is a vestige of distrust towards Russian laws. Other experts name other reasons, though. They say that investors are disappointed with Dmitry Medvedev's presidency, that there is political uncertainty and growing corruption in the country. According to Transparency International, which analyzes the level of corruption in the world, Russia has slipped to the 154^th position on the list of 178 countries.

Anatoly Boltunov.