#6536 #6537 #6538
#16
Drive Against Russian Capital Controls Seen Risky
MOSCOW, Nov 6 (Reuters) - Russia is planning to sweep away many of its rigid exchange and capital controls by 2007 but economists warned on Wednesday that complete freedom of capital movement could prove risky.
Making the rouble fully convertible would create a challenging environment for Russia's fragmented and undercapitalised banking industry and force the central bank to be especially vigilant.
"The record with complete capital account liberalisation in emerging market economies is mixed with some suspicion they may contribute to increased economic volatility," said Christof Ruehl, the World Bank's chief economist in Moscow.
The Russian government is drafting a law to take the edge off a tight foreign currency regime imposed after a 1998 financial meltdown.
It wants to scrap the existing practice of granting case-by-case permission for capital transfer operations and requiring businesses only to notify the authorities.
But the authorities would keep some control over capital transfers abroad until 2007 and may require money earmarked for such operations to be frozen for up to two months.
The bill is expected to be discussed in cabinet this month. The central bank favours a cautious approach because of volatility in the price of oil -- Russia's main export.
"It (the central bank's role) is like the traffic police who want to see speed limits at least in dangerous parts of the road while some drivers prefer to have no restrictions at all," Konstantin Korishchenko, deputy chairman of the central bank, said.
Under pressure from the business lobby, the government has agreed to lower obligatory sales of currency proceeds from exports to 30 percent from 50 percent.
STRONGER BANKS NEEDED
The rule was introduced after the 1998 crisis when the rouble collapsed and companies preferred to hold hard currency in their vaults.
Ruehl said the export revenue surrender requirements were "currently not necessary from an economic stability standpoint and it would be a good thing not to have them." Others said the government should go further.
"It is a positive move but from my point of view not radical enough. They should move faster if they want to attract more foreign direct investments to... secure long term economic growth," said Denis Rodionov at Brunswick UBS Warburg.
Christopher Granville, a strategist at United Financial Group, welcomed the loosening of rules governing capital operations. The current rules were seen by many as a recipe for arbitrary decisions.
But he said that full convertibility on capital accounts and the balance of payments will require a much stronger banking system to withstand external storms.
"The banks have to be well capitalised and extremely well funded to withstand any temporary liquidity shocks arising from outflows of capital because of external shocks or a blow to confidence," Granville said.
"That will require a much better capitalised and supervised banking system than we have at present in Russia. Hopefully it will bring discipline to the banking reform as well," he added.
The new administration of Russia's central bank which took over in March pledged to increase banking transparency and strengthen supervision. It said it would take at least three years to root out bad performers.
Back to the Top Next Article
Nov. 6, 2002:
#6535 #6536 #6537 #6538
- Back to the Top -