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Election fears in Russia fuel capital flight

June 19, 2011

Russian President Dmitry Medvedev speaks at the St. Petersburg International Economic Forum in St. Petersburg, Russia, Friday, June 17, 2011. Neither President Dmitry Medvedev nor Prime Minister Vladimir Putin have indicated if they plan to run in the 2012 election. – AP Photo

ST. PETERSBURG: Russia's finance minister on Saturday acknowledged that the country's growing capital flight is fuelled by investors' anxiety nine months before the presidential election.

Neither President Dmitry Medvedev nor Prime Minister Vladimir Putin have indicated if they plan to run in the 2012 election.

Capital outflows from Russia reached $30 billion in the first four months of the year, perplexing observers as the price for oil, the backbone of Russia's economy, is well above $90 per barrel.

Speaking on the sidelines of an economic forum in St. Petersburg, Finance Minister Alexei Kudrin admitted that investors are pulling out and withdrawing money on the back of anxiety about the presidential election in March.

“In a moment like this and when the political system is still imperfect, (investors) are trying to safeguard their reserves and investment,” he said.

The Central Bank expects some inflows in the second half of the year that would set the total capital flight between $30 and 35 billion at the end of the year, a forecast Kudrin supports.

Medvedev dodged the issue of whether he will run, saying at the forum that “when the moment comes that I consider right to announce it, I'll do it.”

But in a passionate address to the forum Friday, Medvedev outlined his vision for the future of Russia, condemning corruption and the heavy hand of the government in the economy and called for more state-owned assets to be sold on the market. He also criticized the centralization of power that took place under Putin's eight-year presidency.

Kudrin, a highly respected figure for foreign investors, has been finance minister since 2000 and has overseen all key financial reforms of the decade.

He told reporters on Saturday that he expects the pace of reforms to accelerate after the election.

Russia is not likely to return to the pre-crisis growth levels of 7 to 8 per cent in the next three years, Kudrin warned. That it will be possible in three years' time if Russia carries out economic reform or if its “non-oil and gas sectors of the economy” grow by about 10 per cent a year.

Putin said this week that the country's gross domestic product is still one-third below the pre-crisis levels.

Kudrin noted that things like privatization of state assets and the improvement of investment climate “are long overdue and they will be carried by the leaders who will come to power” in 2012.—AP