Investors withdraw $13 billion from Russia in January
Investors withdrew $13 billion from Russia in January opting instead for safer assets and fleeing economic slowdown and corruption.
“Our estimate of January’s net capital outflow is $13 billion,” deputy Central Bank head Alexei Ulyukayev said. “But it may still be downgraded,” he said during an international symposium the Bank of France held in Paris.
The Central Bank believes investors are retreating into better quality assets. Russian investment abroad exceeded foreign investment in Russia, although flows each way were intensive, Ulyukayev said. Russian investors are keen to diversify their risks, which is part of the global flight to quality assets, he explained.
January’s capital outflow was almost equal to the January-March 2010 level of $14.7 billion. In 2010, the total outflow was $38.2 billion with the fourth quarter accounting for $22.7 billion.
The Central Bank has circulated three different projections for 2011. Under the worst case scenario laid out in its monetary policy for 2011-2013, the average annual oil price will fall to $60 per barrel, GDP will grow 3.6% and net capital outflow will be $15 billion. Their basic scenario includes oil price of $75, 4.2% GDP increment and net capital inflow of $10-$20 billion. The third, optimistic estimate outlines similar investment expectations along with an oil price of $90 and 4.8% GDP increase.
Finance Minister Alexei Kudrin earlier said he expected zero or insignificant capital inflow in 2011.
Economists, however, seem surprised by January’s capital drain. “No large payments of Russia’s sovereign debt were due in January,” said Maria Pomelnikova from Bank Trust. “On the contrary, growing oil prices, ruble appreciation and an expected rise in Central Bank rates should have attracted more cash into ruble-denominated assets.”
Yevgeny Gavrilenkov from Troika Dialog believes the rise was seasonal, caused by the long New Year’s holiday and advance payments for imports.
Capital outflow may also be caused by downward trends in Russia’s economy such as decreasing real incomes and domestic demand, growing unemployment and zero retail growth, said Alexei Devyatov from Uralsib investment bank. The rise in insurance premiums on January 1 certainly upset investors who can now expect their tax burden to grow.
“Emerging markets have lost much of their popularity following recent upheavals in the Middle East,” said Yulia Tseplyayeva, chief economist for Russia and the CIS at BNP Paribas. “Investors are leaving Russia because they want greater transparency.”
“It’s hard to attract capital without improving the business environment, checking corruption and removing political uncertainty,” Pomelnikova added.
Economists differ in their estimates of this year’s capital flow. Their forecasts range from the $10 billion inflow expected by Vladimir Tikhomirov from Otkritie to Tseplyayeva’s $30 billion: “We’ll see some inflow in March because the high oil price makes Russia quite attractive for investors. Russian banks and companies may also adopt aggressive borrowing strategies.”
Bank robbers give up their haul
North Ossetian police have solved the robbery of the Bank of Moscow branch in Vladikavkaz, which took place on March 1. All the stolen cash, 199 million rubles in total, was found at the homes of friends and relatives of two bank tellers who were detained earlier.
The daring robbery of the Bank of Moscow North Ossetian branch took place on Monday evening. At the end of the working day, two armed robbers made their way into the bank building through a window and burst into the vault where two employees, Marina Pukhayeva and Ilona Khodovai, were present, and managed to haul away about 200 million rubles. Then they climbed out through the same window and made their getaway in a white Lada. On the way, the robbers dropped one bag containing a million rubles but did not stop to pick it up.
The two tellers admitted they were involved in the robbery, the North Ossetian police told Kommersant. They said they had planned it with their family members and friends, who entered the bank at an appointed time and stole the money. To throw off any suspicion, the women had gone to the vault to correct a mistake made in the daytime: one of them had filled out a payment document in dollars instead of rubles. As they entered the room, they did not lock the vault door, so the robbers had no difficulty getting in. One of the tellers had alerted their associates that the door was open by SMS. It is not clear if the women helped carry the money out, but they will be indicted as accomplices in any case.
When questioned, the tellers owned up that they acted in collusion with the robbers. Their evidence also led to the arrest of one more suspect, either the fiancé or the cousin of a bank employee, who, according to police, also participated in the robbery. The police searched his apartment and found the bulk of the haul, 149 million rubles. The remaining 50 million, according to investigators, was discovered with other suspects in the case (various sources put the number of robbers now in custody at between four and six). North Ossetia Deputy Interior Minister Dmitry Kopanev promised on Friday that all the money would be returned to the bank.
Part of the money stolen from the Bank of Moscow was intended for South Ossetia and was to be deposited with the republic’s National Bank. On the day of robbery, the money was supposed to be transported by armored vehicle but it did not arrive. According to Kommersant, about 100 million rubles was to be paid out in wages, pensions and benefits.
President streamlines financial sector regulation
Russian President Dmitry Medvedev announced yesterday that he has signed a decree merging the Federal Financial Markets Service and Federal Insurance Supervision Service (Rosstrakhnadzor), effectively dissolving the latter. The Kremlin also reported an upcoming reshuffle to be carried out on a competitive basis.
Yesterday, at a meeting on the creation of an international financial center in Moscow, President Medvedev said that he signed a decree under which the Rosstrakhnadzor will be absorbed into the FFMS. Rosstrakhnadzor will therefore be dissolved and its duties distributed between the FFMS and the Bank of Russia. Medvedev said that the FFMS will take on the “service’s insurance supervisory functions and obtain specific powers, including legal regulation, control, and supervision of the financial markets, with the exception of banking and auditing activity.” Earlier it was reported that most of the FFMS's legislative functions may be transferred to the Finance Ministry.
The Kremlin confirmed that this structural transformation of the FFMS and Rosstrakhnadzor would inevitably involve staff changes.
“The election of a manager for this new body should take place according to strict competitive procedures,” said Arkady Dvorkovich, the president's economic advisor, without specifying the competition criteria. Meanwhile, a source close to the presidential administration said that a new leader would certainly not come from Rosstrakhnadzor, alluding to the fact that Vladimir Milovidov remains a likely candidate for a the post in the new agency.
The FFMS-Rosstrakhnadzor merger is unlikely to proceed quickly, since the regional, as well as the central offices, are to be merged. And this could pose quite a challenge. For example, the Federal Financial Markets Service has two offices in the Southern Federal District, while Rosstrakhnadzor has only one. The restructured agency is expected to include a division that will be engaged in direct monitoring and insurance supervision. The Finance Ministry will assume the greater part of insurance-related regulatory activities.
FFMS head Vladimir Milovidov believes that combining the FFMS with Rosstrakhnadzor is an important step for Russia's financial system.
“It is systemic, its implementation will help strengthen the regulation and supervision of the financial market,” Milovidov told RIA Novosti. “We will carry out this order, and we will try to do so as soon as possible to avoid any disruption.”
He said that the necessary procedures and documents issued by the government should be completed within two months.
FFMS and Finance Ministry officials say that it is premature to comment on the future reshuffle and structural changes in these agencies. Rosstrakhnadzor head Alexander Koval could not be reached yesterday.
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