Russia: Capital outflows accelerate in 2011
Overview:
It is no surprise given high oil and gas prices that Russia recorded a massive current account surplus in 2011. However, capital outflows continued. As a result the level of FX reserves hardly rose last year and the ruble ended 2011 somewhat weaker against the US$/Euro basket than it started it. There is no immediate problem. The level of FX reserves is very high and few people see oil prices falling anytime soon given the geo-political situation. However, this capital outflow – which accelerated in 2011 – does point to some shortcomings in the Russian economic model. It is hard to identify the exact reasons for the outflow. Part of it may be a wish to reduce exposure to external debt. However, it seems very likely that it also reflects dissatisfaction with the economic and political environment.