This year, the investment and credit boom in Russia will continue, and the private sector will import $10 billion more into the country than it exports, the United Financial Group (UFG) predicts. Even the barriers that the Central Bank may put in the way of capital will not cool the ardor of foreign investors.

Deutsche Bank recently raised its forecast for the average price of Brent oil in 2004 from $24 to $28 per barrel. Immediately after this, DB's Russian partner, the United Financial Group, revised its economic forecast for key Russian indicators. UFG increased its estimate for GDP growth from 5.7% to 6.2%, and for investments from 13.8% to 14%. The group's analysts assume that the economic growth that accelerated last year is continuing at the same pace. And favorable external factors - high oil prices, a strong euro, low interest rates in the US and Europe - give hope that 2004 will be another good year for Russia, UFG economist Vladislav Oreshkin emphasizes.

According to his estimates, in 2004 the net inflow of capital into private accounts will amount to $10.1 billion (in 2003 - $3.2 billion).

According to the Central Bank, net capital outflow has been steadily decreasing since 2000, when it amounted to $24.8 billion, and in 2003 it reached a record low of $2.9 billion. OFG estimates 2003 somewhat more optimistically, interpreting most of the net errors and omissions as unrecorded imports rather than shadow capital outflows. According to the OFG forecast, in 2004 exports of goods and services will exceed imports by $24.7 billion (in 2003 - by $39.1 billion), and the deficit in the capital and financial account (taking into account payments on the state external debt) will decrease from $8.6 billion to $1 billion.

Russia's balance of payments will strengthen this year thanks to further repatriation of previously exported Russian capital and de-dollarization of household savings, Oreshkin explains. According to his estimates, in January-February alone, net capital imports from the private sector amounted to about $5 billion, and if the inflow does not weaken in the second and third quarters, then the annual inflow will amount to not $10 billion, but all of $18 billion. In this case, Russian producers will find it difficult to compete with imports (the ruble will cost 26 rubles/$ by the end of the year), and the Central Bank will have to introduce restrictions on the import of short-term capital. "A significant influx of 'hot' money under this scenario carries a serious risk to economic stability: financial markets will overheat, and then an inevitable correction will occur," says Oreshkin. According to the law on currency control, from July 1 the Central Bank may require investors to reserve 20% of imported funds for a period of one year and 100% if the money is imported into the country for less than two months.

Deputy Chairman of the Central Bank Konstantin Korishchenko does not rule out that restrictions will indeed have to be resorted to: "We see that capital outflow is decreasing, and government borrowing is not expected yet, and we will look at the current balance and capital inflow."

According to Oleg Solntsev from the Center for Macroeconomic Analysis and Short-Term Forecasting, in January alone, the inflow of private capital exceeded the outflow by $5.4 billion, so this year "the most unrealistic forecasts may come true." He believes that the OFG forecast is quite feasible, and the Central Bank may resort to restrictions on the inflow of currency after July 1, "if it sees that there is no seasonal outflow of capital in the second half of the year." But Dmitry Panov, an economist at Chelindbank, believes that the January inflow of currency, which forced the Central Bank to increase its gold and foreign exchange reserves by $7.1 billion, was a "one-off phenomenon": in February, reserves grew by only $2.3 billion, so the growth dynamics of reserves may approach last year's.

The Central Bank is powerless against capital