Capital flight from post‐Soviet Russia

THE ISSUE OF CAPITAL FLIGHT from Russia,' its origins, mechanisms and impact, has become a frequent theme of many publications and reports in recent years. Although a serious problem in itself, capital flight is also indicative of the general political and socio-economic processes taking place in post-communist Russia. From that perspective capital flight might be viewed more as a consequence of these general developments than as a separate problem by itself. That means that any attempts to stop or limit capital flight would hardly be successful without eliminating these general factors that cause it. The latter include such major factors as the level of political stability in society, development of taxation and economic management systems, investment legislation, property rights, and, above all, the question of the level of clarity in and the overall direction of general economic policies of the government. The fact that large amounts of capital are continuing to leave Russia is possibly the best indicator that the business climate there is generally hostile to investment. We would expect that local businessmen would be the first to make use of opportunities in Russia if the investment climate were to change for the better. And at the same time it would be unrealistic to expect any breakthrough in foreign investment in Russia until local capital starts to return. If now, almost five years after the start of the reform, that has not happened yet, this probably means that Russia is following a wrong path in its attempt to reform.