Capital outflow from Russia stops, wages reach German and French level

Russian Finance Minister claims that the state is unable to make any reasonable investments at all

Russian Finance Minister Aleksey Kudrin announced during a press conference on Monday that the outflow of capital from Russia stopped in the fourth quarter of the current year. According to forecasts from finance ministry specialists, the rate of foreign investments in Russia during the fourth quarter of 2004 exceeded the rate of the capital outflow by two billion dollars.

It was not the first optimistic forecast from the finance minister. Kudrin stated in March that foreign investments in Russia would make up $3-4 billion in 2004. However, the outflow of capital from Russia continues despite successful results achieved over the recent three months: the Russian economy will lose about $9 billion.

Specialists believe that the notorious Yukos case became one of the main reasons, which cut the volume of foreign investments in Russia. Aleksei Kudrin, however, disagreed with such an opinion. The minister stated that the capital outflow had been caused with more attractive interest rates abroad. In addition, the Central Bank of Russia has been hampering the ruble rate. The bank crisis in summer has also played a negative role at this point.

Aleksei Kudrin is especially concerned about the fact that the Russian government was trying to deprive the Finance Ministry of the Stabilization Fund and its financial sources due to the reduction of foreign investments. The minister reminded that his department would struggle for every ruble of the Stabilization Fund: “The Stabilization Fund is a built-in stabilizer of the Russian stability!” the minister exclaimed. Kudrin is certain that the spending of the fund's money may result in uncontrollable inflation. The head of the finance ministry emphasized during the press conference that the state was unable to make any reasonable investments at all. Kudrin exemplified his statement with the $600-million debt that the state had saved with one of Russia's largest automobile companies, known for its initials as AZLK. According to the administration of the company, AZLK received 350 million rubles in the 1980s for the engine production development. The project went into the wastebasket, when the Soviet Union collapsed. The acquired equipment was plundered, and the debt of the enterprise reached $600 million.

Aleksei Kudrin is certain that Russia is not the only country that experiences such a situation. It was Japan that provoked the Asian financial crisis in 1997-1998, when state-funded enterprises did not bring the expected profit. The transport infrastructure (roads, ports and airports) is the only field, which the Finance Ministry may perceive as an investment object.

Aleksei Kudrin believes that the Stabilization Fund can be used in unprofitable economic sectors, such as science, medicine or libraries, for example. To crown it all, the minister is determined to use the fund to pay the state's foreign debt. According to the Finance Ministry, the Stabilization Fund will be estimated at 574 billion rubles and will reach 719 billion by the end of 2005. The fund's excessive sources (the normative limit was set on the level of 500 billion rubles) can be spent for paying the state debt of Russia. Up to $10 billion may be assigned next year, in addition to the scheduled debt payment. Russia's creditors, however, have not said anything about their willingness to accept the money ahead of the appointed time.

The minister's reluctance to spend the money of the Stabilization Fund within the country is easy to understand: the inflation rate is to reach 11.5 percent this year. Nevertheless, Aleksei Kudrin believes, the average wages in Russia in 2025 will be comparable to the one in France in 2003. The minister added that in 2028 Russian citizens would be paid as much as German employees can make now.