$5.5Bln Left Russia in First Half of Year

The capital flight that followed October's arrest of oil magnate Mikhail Khodorkovsky continued in the first half of this year, Central Bank data showed Friday.

Net capital flight amounted to $5.5 billion in January-June, compared to a net inflow of $3.9 billion in the same period last year, the Central Bank said, quoting preliminary figures.

The Central Bank said on its web site, www.cbr.ru, that it had revised its first quarter capital flight figure of $200 million to $4.4 billion.

It did not comment on the reasons for the dramatic change.

Pavel Mamai, a Renaissance Capital analyst, said high inflow figures for the first half of 2003 were due to companies' substantial investments.

"It looks like companies are not in a hurry to invest more because of higher political risks," Mamai said.

Last year's net capital flight amounted to $2.3 billion, with most flight occurring after the October arrest of Khodorkovsky, the largest shareholder in Yukos.

The Federal Tax Service later submitted a claim that Yukos had underpaid $3.4 billion of taxes for 2000. Interfax reported Thursday that the Tax Service had slapped Yukos with a further $3.4 billion in taxes for 2001. However, the Tax Service refused to comment on the report until Monday, when its spokesman is due back from vacation.

In March, Finance Minister Alexei Kudrin said Russia might this year experience a net capital inflow, of $3 billion between $4 billion, for the first time in its history.

Mamai said oil firms were reluctant to invest more because of the constrained capacity of Russia's export pipelines, which carry oil to lucrative Western markets.

Another reason was a regulation valid from mid-June under which the Central Bank won the right to oblige foreign companies to reserve some of their short-term investment in Russia.

The Central Bank has yet to impose restrictions, but said last year it was worried by the amount of "hot" money flowing into Russian local debt and the appreciating ruble.

HERE