Sun, Jul 02, 2006 - Page 11 News List

Russia removes currency controls in sign of stability

VOTE OF CONFIDENCE The government's move to lift controls could spur investment and stimulate an economy that eight years ago was in crisis

AFP , MOSCOW

Russia lifted currency controls yesterday in a sign of new-found economic confidence less than eight years after the country defaulted on its massive domestic debt, devalued its currency and wiped out Russians' savings.

The controls were lifted in accordance with a government decision taken on Thursday.

"Now it will be more attractive to invest in Russia -- this will increase investors' interest in Russia," Finance Minister Alexei Kudrin said on national television.

"On the other hand, Russian businesses can freely, without worry, without any special permit or burden, participate in investments" in other countries of the former Soviet Union or elsewhere, Kudrin said.

Deputy Prime Minister Alexander Zhukov said that bringing forward the reform was justified because Russia's macroeconomic situation was stable, large gold reserves had been built up (worth US$247 billion by June 23), the ruble was stable, the budget was balanced and foreign investment exceeded capital outflows.

Recent moves to begin trading oil and gas in rubles would help build confidence and increase demand for the Russian currency, Zhukov added.

Several analysts pointed out earlier that some points in the reform remained unclear and some controls would stay in place such as a limit on transfers intended to combat money-laundering.

However analysts had mostly welcomed the abolition of currency controls.

"By relinquishing control over the flow of capital into and out of Russia, the Kremlin is effectively taking more responsibility for its actions," the Troika Dialog investment house said in a report.

"To attract funds into Russia and keep them there, economic policy will have to be favorable and more stable. In this respect, the upcoming move seems very positive," the report said.

Convertibility is also part of a "a line-up of positive news on Russia" ahead of the July 15 to June 17 G8 summit in Saint Petersburg, including a deal with the Paris Club of creditor countries on repayment of a US$22 billion debt, said Alexei Bulgakov of the Aton Capital investment group.

Analysts agreed that capital inflows should go up, particularly since the ruble has appreciated considerably against the US dollar, rising in value by more than 10 percent over the last 12 months alone.

Foreign interest will be focused particularly on the state bond market that had been under strict controls following the 1998 financial crisis.

But capital outflows from Russia will also go up as a result of the reform, with Russians keen to diversify their investments by buying up stakes in companies, taking out loans or setting up deposits abroad, Troika Dialog said.

There has been concern over a possible increase in speculation on the ruble but Bulgakov of Aton Capital said this was an unlikely risk since "the central bank is far stronger than 10 years ago if only in reserve terms."

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