The Latest Russian Expatriate: Hard CashBy and
Like many other post-Communist Russian executives, Vladimir Kulistikov understands the true value of a ruble: zilch.
A senior official with the trading company Russian House Ltd., Kulistikov gains hard currencies exporting oil, timber, and metals from the Urals. He ships back consumer goods from South Korea and Taiwan. But when it comes to profits, the flow is largely one-way. Disheartened by spiraling inflation, mounting taxes, and political turmoil, Russian House is stashing its foreign-currency earnings in Budapest's Central European International Bank Ltd. "Everybody," says Kulistikov, "wants to keep their money abroad."
Kulistikov isn't exaggerating. While Russian President Boris Yeltsin searches abroad for billions to prop up the ruble, U.S. and European bankers estimate that at least $5 billion--and perhaps $25 billion or more--has fled the country since 1990.
Growing awareness of this overseas cash hoard held by Russians and other residents of the Commonwealth of Independent States will stiffen Western resistance to Yeltsin's pleas for massive stabilization aid from the Group of Seven industrial countries. But even more cash may flee unless Yeltsin clamps down on government spending and deflates the money supply. "It just isn't profitable to invest in Russia now," complains Moscow retailer Igor V. Zubkov, who is putting the profits from his family's seven Moscow general stores into new shops and restaurants in Frankfurt. "It's frightening that in poor and hungry Russia, everything that's being earned is going to the West."
SHOPPING SPREES. Russia's capital flight began with entrepreneurs depositing earnings in the U.S. and Europe. Communist functionaries, parking party funds abroad for safekeeping, added to the trove. The outflow picked up last year after former Soviet President Mikhail Gorbachev ordered exporters to sell 40% of their hard-currency earnings to the state at 58c to the ruble. With the ruble worth barely 2c on the official market--and less than half that on the street--the move was widely ignored.
Yeltsin has since eased some of the restrictions, but he still insists that exporters sell some of their hard-currency earnings to the state at unfavorable rates. The near collapse of Moscow's Vnesheconombank, once the sole legal depository for hard currencies, has also been a powerful disincentive for keeping cash at home. And Russian Deputy Prime Minister Yegor Gaidar's attempts to balance his budget by imposing a 28% value-added tax, 35% profits tax, and 45% levy on business deals is prompting many residents to export cash.
One Russian entrepreneur estimates his circle of friends has bought $50 million worth of foreign currency. They have sent the cash abroad through bank transfers and by packing it into suitcases when they go on business trips. With Russia barely enforcing foreign-exchange regulations, capital flight is no harder for companies. One joint venture with a Western investor, for example, deposits part of its Russian employees' salaries into a Hamburg bank. Every few months, the workers fly out, pick up their paychecks, and go on shopping sprees. Bankers say that other joint ventures keep the Commonwealth partners' share of their profits offshore, some under phony names to avoid detection.
Some Russian enterprises do it in the open. The TASS news agency in January began advising Western clients to pay their bills to an account at Dresdner Bank in Bonn, rather than to the Vnesheconombank. "We're eliminating the middleman," says TASS Bonn Bureau Chief Sergej Sosnovsky. "We need every pfennig we can get."
Even Russia's new commercial banks are sending dollars abroad, to accounts at Bank of America, Barclays Bank, and Credit Lyonnais. Moscow's foreign-exchange reserves have dwindled so rapidly that the Russians in December were forced to ask Western creditors to let them defer $6 billion in foreign-debt payments. "Control over [foreign] currency has been lost," concedes Yuri Petrov of Russia's Committee on Foreign Economic Relations.
Yeltsin has threatened to confiscate unauthorized offshore bank accounts, and Central Bank Chairman Georgy Matykhin hopes to intervene in currency markets to keep the ruble afloat. But they may lack the means to do so. Indeed, some think capital flight has driven the ruble down so far that Russia now is the bargain of the century.
If that's true, says analyst Jan Vanous of Washington's PlanEcon Inc., Russians might be well advised to "bring their dollars home and exchange them on the black market," much as savvy Poles did just before the beleaguered zloty turned around in 1990. Trouble is, few in the Commonwealth are ready to buy that line. "When the situation stabilizes," says Kulistikov, "we will transfer our money back. But we're not in a hurry." Many Russians feel the same way.
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