Is Russia Getting
into the International Financial Market?: An
Analysis of the Balance of Payments Statistics

Akira Uegaki
Introduction

In February 1992, the balance of payments statistics of the
USSR and the RSFSR for the years 1990 and 1991 were released
after a 56 year interruption of the publication of such data. In
March 1993, the Russian Official Statistical Office (Goskomstat)published the balance of payments related to the transactions
between the Russian Federation and so-called "Distant Foreign
Countries (hereafter DFCs)" for the first nine months of 1992.
After that, the balance of payments statistics of the RussianFederation have been available every three months, though they
are only related to DFCs*1. Since the balance of payments
represents the flows of goods, service and capital of a country
within a certain period, it shows the country's economic status in
the international arena. Therefore, we now have a strong method
for constructing an exact picture of the Russian economy fromthe international point of view.
Reliability of the Statistics(l)From 1990 to 1992
Despite their availability some of the published statistics are
not reliable for use in scientific analysis. The RSFSR's balance of
payments for 1990 and 1991 are only figures estimated byresearchers based on the assumption that Russia's exports are
78% of that of the USSR and that 67% of the mined gold in the
USSR belongs to Russia and so on*2. Moreover, the RSFSR's

78

Is Russia Gettingbalance of payments for 1990 and 1991 do not take into
consideration the amount of postponed or unpaid debt service
and an amendment concerning non-equivalent barter trade,*3both of which are critically important items of the capital flow of
Russia. We can use the RSFSR's balance of payments for 1990
and 1991 only as reference figures.
Russia's balance of payments for 1992, compiled by theCentral Bank of the Russian Federation and Goskomstat, is amore reliable statistic because it maintains strict consistency
among figures and takes the two above mentioned items into
careful consideration. One of the problems that remains in thebalance of payments for 1992 is the fact that it excludes
humanitarian assistance from commodity import and service
import. Therefore, the positive balance of commodity trade andservice trade are too large*4.
The second problem is that the amendment concerning thenon-equivalent barter is too large. The balance of payments for1992 names it as an amendment to export. The note attached tothe balance explains it as an amendment which represents "thenon-equivalent amount of international barter trade which isrelated to the price of the exported goods discounted by the
Russian exporters as compared with the world standard"*5. Thismeans the following: the amount of barter trade under theclearing agreement is recorded on the items of commodity
export and commodity import by the world standard price, but
the value of the Russian exported goods is higher than that ofimported goods on every barter transaction. Therefore, Russia
exchanges valuable things for less valuable things, because thequality of Russian goods is not competitive and because theRussian authorities have some political consideration.
Consequently, the difference must be recorded somewhere in thebalance of payments and is called an amendment to export*6.
Considering the special characteristics of Russian trade, theintention of introducing such an item in the balance of pay ments
is understandable. But if the amount of this item is too large, ananalyst must take a very careful approach to the figures, since it isAkira Uegaki79

not easytodeterminetheinternational
standard
prices, especially those of complicated industrial
products.
In the case of 1992, the amendment to export is US$ -6,414
million which is large enough to reverse the current account frompositive to negative. This means that whether the current accountis positive or negative depends on the estimation of the prices of
Russia's exported goods on barter trade. The balance of
payments of 1992 is more reliable than that of 1990 and 1991, but
still has some problems.
(2) 1993 and after
The balance of payments of the Russian Federation for 1993
has two items of amendment to import instead of an amendment
to export. One is exactly the same as the amendment to export,
which is US$ -1204 million. The other is an un-calculated
amount of import based on the foreign trade data of thecounterpart countries. Although the former is a factor whichmakes the statistics unreliable, as is pointed out above, the latter
is a result of the efforts of the Russian statisticians to make thebalance of payments more realistic. Therefore, the balance of
payments for 1993 has improved as compared to 1992.
Russia's balance of payments for 1994 is, as far as we cantell from newspapers and journals, fundamentally different fromthose for preceding years. That is, it omits debit and credit figuresof every item, thereby only presenting a net balance. This is aninconvenient change for researchers, especially for analyzing thefinancial flows of the Russian Federation. However, it has someindisputable merit because it includes Russia's economictransaction both with DFCs and with CIS. Up to the end of 1993,"in the balance of payments is calculated the balance with
Luxembourg and Western Samoa, but not included thetransaction with Ukraine, Kazakhstan, Uzbekistan orKirghizia"*7. This problem is solved by the changes made in
1994. Besides, 1994's balance includes only a small amount of
amendment concerning non-equivalent barter trade, which mightmake the statistics more reliable.

80

Is Russia Getting

1995's balance of payments of the Russian Federation
which was published in newspapers and journals was similar instyle to the 1994 balance. That is, it omits debit and credit figures
but includes the transaction with CIS. The important change in1995 balance is the fact that it strictly follows the newest 5thversion of the IMF's Balance of Payments Manual, which does
not include the notion of factor service and distinguishes current
transfer from capital transfer and so on. It makes international
comparison easier.
Without access to the original materials for the balance of
payments, an exact estimation of the reliability of the statistics
cannot be made. From the argument above, however, it isgenerally accepted that the reliability of the balance of pay ments
statistics of the Russian Federation has been improving year byyear.
Why Is the Current Account Surplus So Large?

(1) Special character of the Russian economy?
Hereafter, I will examine the international economic
relations of the Russian Federation only with DFCs. Table 1
shows the balance of payments of the RSFSR and the RussianFederation. Due to the reasons mentioned above the figures of
1990-1992 are not reliable, so let us examine the figures from1993 to 1995. The most striking aspect is that the current
account surplus is very large. On the other hand, capital andfinancial account has remained negative from 1993 to 1995. Thismeans that Russia has earned many dollars from her tradeactivities and re-invested it abroad or kept it in her pocket asinternational reserve assets. Considering the fact that theeconomy of the Russian Federation is in crisis and that theRussian government is calling for international assistance, thelarge amount of current account surplus warrants sufficientinterest to investigate in detail. It seems that the basis of Russia's
economy is fundamentally different from developing countries
that are also seeking international assistance.

Akira Uegaki

81

Table 1

Balance of Payments of the RSFSR (1990-1) and the Russian Federation(1992-5)(with distant foreigncountries) (millions of US$)
1990
1994
1991
1992 1993
1995( 1 )Current account

-4300

7100

-2702

6058

4836

12617

( 2)Commodity tradebalance(3)Export(4)Import( 5 )Non-factor service(6)Compensation of
employees(7 )Investment income(8)Transfer

-2000

9100

-1372

10394

13913

22578

80900
-82900-600

54700-45600-200

35493-36865-2377

42149-32959-2533

50671 64913-36758 -42335-6862 -1215

-2500
-1000

-2100
-2200

-1990
3037

-2923
2324

-2015
-200

(9 )Capital and financial
account(10)Investment(11 )Direct investment(12 )Reserve assets(l3)Errors& omissions

4 3 00 -7100
2700

-400
1600
1200

1100

2702
7168

-6058
-2188

-87
-3005
406
-4836

-12617
3461

-7087

-100

-112

682

-8200

160

-1346

1547

-9310

-4626

-2524

704

-6768

-1700

-169

1916

Sources)Ekonomika i Zhizn', No. 6, 1992, p. 11.
Goskomstat Rossii, Rossiiskii Statisticheskii Ezhegodnik, 1995, pp. 427-428. Goskomstat
Rossii, Ekonomika Rossii, lanvar' - АргеГ , 1996., pp. 68-72. All the figures except
1990 and 1991 are recalculated by the author to the effect that (1) + (9) =0,(9) = (10) +(12) + (13). Asfor 1990 and 1991, because о f inconsistency of the figures
recalculation cannot be made. Notes)(l)-(4): All kinds of amendment to export or import are included in export andtherefore added in commodity trade balance and current account.
(8): From 1995 transfer means current transfer(10): (10) = (9) - (12) - (13) = direct investment + portfolio investment + otherinvestment + capital account (capital transfer and others) in the system of 5
Balance of payments manual of the IMF. But since the amount of capital
account is negligible, the item (10) represents long-term and short-term
investment(12): Amendment to reserve assets is included in reserve assets (13): Amendment tore export in convertible currency to the countries of CIS is included in errors &omissions in 1994 and 1995.

82

Is Russia Getting(2) Commodity structure of the Russian trade
Since most of the surplus has been earned by commodity
trade surplus (Table 1), we need to study the trend and structureof Russia's commodity trade. As is shown in Figure 1 (not basedon the balance of payments statistics), Russia's export and importdecreased sharply in 1991. The important thing is that importsuffered a greater loss than export. Besides, export has recoveredat a higher speed than that of import. All of these things made thecommodity trade surplus large.
Figure 1
Figure 1 Russia's Trade with DFCs

1990

1991

1992

1993

1994

1995

Source) Goskomstat Rossii,Rossiiskii Statisticheskii Ezhegodnik, 1995, p.
432 (corrected by the balance of payments Data) and Goskomstat Rossii,
Ekonomika Rossii, lanvar' - Aprel', 1996., pp. 68-72.

Why did import suffer a greater loss and why has export
recovered at a higher speed? This problem is connected to thestructural change of the Russian trade, which is shown in Table 2
and Table 3. According to Table 2, the commodity structure of
Russia's export has changed significantly over the past several
years. "Machine" has become a negligible item of the Russian
export. This was mainly caused by the collapse of the CMEA
trade, where Russia (the USSR) had a considerable share ofMachine trade in the trade agreement arrangements. Of course,Akira Uegaki83

the decline of machine industry in Russia was one of the reasonsfor this change. In contrast, "Mineral" and "Metal" havemaintained their status as main items of the Russian export andhave even raised their share. This reflects the fact that under thecircumstance of declining industries in Russia, only the
resource-related sectors are maintaining their production.
Table 2
Commodity Structure of Export of Russia with DFCs
(billions of US$ and % [in parentheses])

Machine, Equipment& Transportation Vehicle
Mineral Products

1990 1991
12.5
5.2(17.6) (10.2)
32.3
26.3
(45.4) (51.7)
9.2
7.3(12.9) (14.3)

1992
3.8
(8.9)
22.0
(52.1)
7.0(16.4)

1993
1994
2.9
2.5
(6.5)
(4-9)
20.7
21.9
(46.7) (43.8)
10.3 13.1(23.2) (26.3)

Metals, Precious Stones& Their Products
Source)Goskomstat Rossii, Rossiiskii Statisticheskii Ezhegodnik, 1995, p. 432
Table 3
Commodity Structure of Import of Russia with DFCs
(billions of US$ and % [in parentheses])

Machine, Equipment& Transportation Vehicle
Food Stuffs & Agricultural
Materials (without Textile
Goods)

1990 1991
36.3 15.8(44.3) (35.6)
16.6 12.4(20.3) (27.9)

1992
13.9
(37.7)

9.6(26.0)

1993

1994

9.1
(33.8)
5.9(22.2)

10.6(37.6)
8.6(30.4)

Source)Goskomstat Rossii, Rossiiskii Statisticheskii Ezhegodnik, 1995, p. 432

With respect to import, it is noteworthy that the amount of"Machine" import has been declining sharply, as is shown in
Table 3. One reason for that is also the collapse of the CMEA.
After the collapse of the transferable ruble trade, where Russia

84

Is Russia Getting(the USSR) had imported a lot of machinery from Eastern Europe
in the system of the international division of labor of the CMEA,
machine import of Russia from Eastern Europe declined sharply.
The other reason is the reduction in the demand for investment
goods as a result of the depression of the system transformation.
The import of "Foodstuffs and Agricultural Material" could notcompensate for this decline; instead it also declined until 1993*8.
This might be related to the anxiety of the Russian citizens
concerning their real disposable income in the near future*9.
(3) Regional structure of trade
In order to make clear the effect of the collapse of the CMEA
the regional structure of trade must be examined. Table 4 shows
the change of the USSR's trade with the European CMEA
countries from 1990 to 1991.
Table 4USSR's Trade with European CMEA
(millions of ruble)
1990
(a)
(b)
7492.0
6.3
Bulgaira (ex*)
9907.87.2(im)6927.0
5.8
Hungary (ex)7125.85.2(im)7908.3
6.6
Poland(ex)
12763.7
9.3(im)4731.0
3.9
Romania (ex)1784.21.3(im)8803.6
7.3
Czechoslovakia (ex)10031.0
7.3(im)35861.9 29.9
Total (ex)41612.5 30.3
Total (im)-5750.6
Total (balance)

1991
(a)
(b)
2243.9 2.8
3741.5 4.73032.1 3.7
2312.0 2.9
4036.8 5.0
3473.2 4.4
1717.3 2.1
1571.1 2.0
5081.6 6.2
4197.8 5.3
16111.7 19.8
15295.6 19.3
816.1

(c)
-70.0
-62.2
-56.2
-67.6
-49.0
-72.8
-63.7
-11.9
-42.3
-58.2
-55.1
-63.2

Source) Statisticheskii Komitet SNG, Vneshne-Ekonomicheskie Sviazi v
1991, pp. 5-7, pp. 12-13. Notes) * = export of CIS(a) = amount of trade in millions of ruble(b) = share in the trade with all (not only CMEA) European countries (%)(c) = change of (a) from 1990 to 1991 (%)

Akira Uegaki

85

From this table, the trend of Russia's trade can be seen. Itshows that the USSR's trade with the European CMEAcountries
fell sharply in 1991 to less than half of its previous level. It isinteresting that the loss of USSR's import is greater than that of its
export. Therefore, in 1990 there was a considerable trade deficit
in the USSR's trade with European CMEA, whereas there was asmall amount of surplus in 1991.
The share of trade with European CMEA relative to the tradewith overall Europe fell by about 10 % point. This made Russia's
current account surplus so large. It is true that the transferable
ruble was overestimated and that the decline of intra-CMEA trademust not be overestimated in the analysis of the real Russian
economy. From an accountant's point of view, however, the factthat the deficit of trade balance with European CMEA wasreversed into surplus is noteworthy.
(4) The current account surplus will disappear in the long run
Thus, the collapse of the CMEA, the systemic depression of
the Russian economy and the relative maintenance of the
production level of the resource-related sectors are the main
reasons for the large amount of current account surplus. But allof these are just temporary. First of all, the collapse of the CMEA
was a shock which will be compensated for by the growth of
trade with other countries or by the restoration of trade with
Eastern Europe. Second, the systemic depression will and must
be replaced by some industrial boom in the near future that will
create a demand for imported goods. Third, the resource-related
sectors cannot maintain their production level in the long run
unless the equipment in these sectors is improved. In order toimprove the equipment it will be necessary to import a lot of
capital goods.
Regarding one of the other aspects of the current account,that is, the service trade, Russia will continue to have a deficit
because the service sector is far less advanced in Russia than in
the western industrialized countries. For example, Russia will
have to pay high fees for telecommunications or license fees for86

Is Russia Getting

newly invented products*10. Therefore, the surplus in the current
account of the Russian Federation will disappear in the long run.
Analysis of Financial Account(1) Real financial resource flow calculatedby the method of theWorld Bank
Behind the export and import of commodities and services
there must be financial flow. Since the current account was
positive from 1993 to 1995, the capital and financial account
was negative by definition. Reserve assets and errors &omissions are included in the capital and financial account inTable 1, so if we want to examine the real financial flow, we muststudy the item of investment, which has been calculated in thetable (see the note (9) of Table 1). According to Table 1,
investment was negative in 1993 and 1994. Even though it may
curious, it is apparent that Russia "exported" capital in theseyears. In order to solve this problem, we must investigate thecontents of investment.
World Debt Tables of the World Bank presents thefollowing framework for studying the debt problem (all of theitems are long-term).
• Loan disbursements - Loan amortizations = Net resource
flows on debt
• Net resource flows on debt - Loan interest = Net transfers on
debt• Net resource flows on debt + Official grants, foreign direct
investment and portfolio equity flows = Aggregatenetresource flows• Aggregate net resource flows - Loan interest and profit of
fóréig direct investment = Aggregate net transfers*11
Using this framework, analysts can study the real long term
financial inflow and outflow of a country. For example, Net

Akira Uegaki87transfers on debt is the net receipt of financial resources of acountry in some kind of loan arrangement. While they can beused for the country's industrialization or improvement of thewelfare of the people, they must be repaid in the future.
Aggregate net transfers are more stable resources, because they
consist of semi-permanent capital.
The framework of World Debt Tables, however, is notsuitable for Russia, because it has been formulated for the
analysis of the debt problem of developing countries and it does
not consider the debits side of the balance of payments statistics.
It supposes that the country being analyzed has no capital toexport abroad. On the contrary, Russia has offered a large
amount of capital to other countries. Therefore, in the case of
Russia, the debits side of the balance of payments must be taken
into consideration.
The second point that we must pay attention to is the
postponed or unpaid principal and interest. This item is verylarge in Russia's balance of payments, at US$ 5659 million in
1993. Under the system of Russia's balance of payments, anytransaction must be recorded at the time of transaction, not at thetime of settlement. If Russia borrowed money in 1992, with theunderstanding that Russia would repay it starting in 1995, theamount of money that is to be repaid in 1995 must be recorded in
the balance of payments for 1995 as a loan amortization. If
Russia failed to repay the money in 1995, the unpaid money
must be recorded in the capital and financial account as unpaid
principal and/or unpaid interest. Therefore, in the calculation of
the net resource flows on debt, postponed or unpaid principal
must be taken into consideration. Likewise, the postponed or
unpaid interest must be taken into consideration in thecalculation of net transfers on debt and aggregate net transfers.
Thus, the framework for analyzing Russia's financial flow is thefollowing.
•

Net disbursements = Utilization of acceptedloan by residents - Utilization bv nonresidents of loanoffered by

88

Is Russia Getting

residents• Net loan amortization = Amortization of accepted loan byresidents - Amortization by nonresidents of loan offered byresidents• Net resource flows on debt = Net disbursements - Net
amortization + Postponed or unpaid principal• Net transfers on debt = Net resource flows on debt - Loaninterest + Postponed or unpaid interest• Net resource flows on debt + Official grants, foreign direct
investment and portfolio equity flows = Aggregatenetresource flows• Aggregate net resource flows - Loan interest and Foreign
direct investment profit + Postponed or unpaid interest =Aggregate net transfers
where
Postponed or unpaid principal: excess of paymentsbyresidents is negative
Postponed or unpaid
interest: excessofpayments
byresidents is negative
Loan interest: excess of payments by residents is positive
Official grants, foreign direct investment and portfolio equity
flows: excess of payments by residents is negative
Loan interest and Foreign direct investment profit: excess of
payments by residents is positive
Here we can study the long-term financial resource flow of
Russia instead of using the item of investment in Table 1 which
includes capital transfer and other short-term credit*12. Tables
5-7 show Russia's long-term financial resource flow. It isinteresting that there is an apparent difference between
government and non-government financial resource flow.
Whereas the government sector had positive resource inflow
both on debt and investment during these three years, the nongovernment sector made financial resource outflows in 1994 and1995. What made such a difference is the structure of the net loanamortization and the postponed or unpaid principal and interest.

Akira Uegaki89

In 1993 and 1994, a large amount of planned amortization orloan interest payments by nonresidents was offset by the
postponed or unpaid principal and interest in the government
sector. In 1995, the net disbursement was so large that the net
resource flow on debt was positive in spite of a large amount of
positive net loan amortization. But in 1993 the aggregate net
transfer was about 3 billion which was as much as in 1995 andlarge enough for Russia's balance. The official grants in 1993
made it possible
Table 5
Analysis of financial resource flow of Russia (millions of US$)(government)
1993
1994
Net disbursements
139
73
Net loan amortization
-9745
-9106
Postponed or unpaid principal
-9717
-9152
Net resource flows on debt
167
27
Loan interest
-1869
-2411
Postponed or unpaid interest
-1399
-2209
Net transfers on debt
637
229
Official grants, FDI and
2324
-200
portfolio equity flows
Aggregate net resource flows
2491
-173
Loan interest, portfolio interest and FDI profit
-1869
-2411
Aggregate net transfers
2961
29

1995
8192
3886
989
5295
3565
1189
2919
353
5648
3565
3272

Sources) Calculated by the author on the data of [1993] Goskomstat Rossii,
Rossiiskii Statisticheskii Ezhegodnik, 1995, pp. 527-428; [1994-95]
Goskomstat Rossii, Ekonomika Rossii , lanvar' - ApreF, 1996, pp. 68-70;
Ekonomika i Zhizn', No. 22, 1996, pp. 4-9. Notes)
1. Official grants, FDI and portfolio equity flows= official grants (government)= FDI and portfolio equity (non-government)
2. Official grants include payment to international organizations
3. Government transaction excludes private transaction guaranteed by thegovernment in 1993 and 1994, but includes it in 1995.

90

Is Russia Getting

Table 6
Analysis of financial resource flow of Russia (millions of US$)
(Non-government)

1993
Net disbursement's Net loanamortization Postponed or
unpaid principal
Net resource flows on debt
Loan interest Postponed or
unpaid interest
Net transfers on debt
Official grants, FDI and
portfolio equity flows
Aggregate net resource flows
Loan interest, portfolio interest and FDI profit
Aggregate net transfers

6107
16239
12570
2438
4792
4205
1851
-276
2162
4292
2075

1994
2105
13671
11705
4426
3199
-1088
-1135

1995
-24110-19156
-24
-4978
-628
0
-4350
1882

-996
4426
-2223

-3096
-561
-2535

139

Sources) Same as Table 5
Table 7 Analysis of financial resource flow of Russia (millions ofUS$) (Consolidated)
1993
1994
Net disbursements Net loan
2178
6246
amortization Postponed or
4565
6494
unpaid principal
2553
2853
Net resource flows on debt
166
2605
Loan interest Postponed or
2923
2015
unpaid interest
2806
990
Net transfer on debt
2488
-859
2048 -1335
Official grants, FDI and
portfolio equity flows
Aggregate net resource flows
4653
-1169
Loan interest, portfolio interest and FDI profit
2423
2015
Aggregate net transfer
5036 -2194

1995-15918-15270
965
317

2937
1189
-1431
2235
2552
3004

Sources) Same as Table 5

In the non-government sector, a large amount of net loanamortization to be paid by the residents (Russians) was offs etbya large amount of postponed or unpaid principal in 1993 and737

Akira Uegaki

91

1994. Loan interest to be paid by the residents was also offset by
postponed or unpaid interest in the same years. The mostremarkable thing about the non-government sector is that atremendous amount of negative net disbursements was recorded
in 1995 and that it was mostly offset by net loan amortization
paid by nonresidents. This means that there was a huge outflow
and inflow of Russia's non-government financial resources.
In brief, both in the government and non-government sector,
postponed or unpaid principal and interest played an importantrole in the balance of payments of Russia in 1993 and 1994.
Because of them there was not so much inflow and outflow ofreal financial resources. On the contrary, in 1995 postponed or
unpaid principal and interest did not play an important role andthere was a substantial amount of real inflow and outflow offinancial resources. Therefore the year of 1995 was a turning
point of Russia from the view point of international finance.
(2) Short-term financial flows
Now we must investigate the trend of the items of othershort-term credit (1993 and 1994) or foreign cash currency anddeposit(l995) which are excluded from the analysis in Tables 5-7,
as mentioned in note 12. It is also necessary to study reserve
assets here. All of these are items which are short-term andfluctuate automatically as a result of current transactions.
Table 8Long-term and short-terra financial resource flows(millions of US$)
1993
1994
1995
Current account
6416
4836
12617
2488
-859
Net transfer on debt
-1431
5036
-2194
Aggregate net transfers
737
-933
-7107
Other short-term capital(1)
-7323
-9310
3924
Reserve assets-3356
Sources) Same as table 5Note) 1. Foreign cash currency and deposit + unreceived export charge andreceived export charge which had not been received before

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Is Russia Getting

Table 8 shows the relation between long-term financial resource
flow*1* analyzed in Tables 5-7 (net transfers on debt andaggregate net transfers) and short-term financial resource flow(other short-term capital and reserve assets). In 1993, the inflow
of long-term financial resources was offset by short-term
financial outflow. In 1994, both long-term financial resources
and short-term financial resources flowed out. In 1995, theoutflow of long-term financial resource flow was not so large,
whereas two thirds of the surplus of the current account wasabsorbed by the item of reserve assets*14 instead.
In these three years other short-term capital (or foreign
cash currency) and/or reserve assets played a decisive role in
upsetting the surplus of the current account. This means that alarge amount of the surplus of the current account in these years
was not used for productive financial operation which would
bear fruit in the future but flowed into short-term financial
resources.
Since other short-term capital represents "current account(in banks) and deposit", "increase of foreign cash currency
accumulation outside banks", "foreign currency account inbanks" and others, an increase of it reflects the actions of theRussian commercial banks to keep earned money in foreignbanks (it is usually considered capital flight) or dollarization of
the Russian economy. In both cases, hyper-inflation of theRussian Federation prevented the effective utilization of a large
amount of the surplus of the current account.
The policy change of the government and the central bankafter the sudden fall of the ruble rate in October 1994 made thesituation fundamentally different. From February 1995, thedemand for dollar decreased relative to the supply in the market
and the difference was absorbed into the central bank. This isshown in the column for 1995 in Table 8. Consequently, official
reserve assets reached US$ 17.2 billion on January 1, 1996,
which is 2.6 times more than it was at the beginning of 1995*15.
This gave the central bank of Russia a strong means to regulate
the currency market of the ruble.

Akira Uegaki

93(3) Capital flight?
It is widely believed that a large amount of capital is leaking
out across the Russian border. But we need to take a cáréiul
approach to this problem, because the amount of fled capitaldepends on the definition of capital flight. If the total amount of
net capital outflow (for example, Net disbursements in Table 5) isregarded as capital flight, Japan is suprisingly a country of capitalflight.
Mikhail Sarafanov, Director of VNIKI, explains that there
are three kinds of capital flight. The first one is legal capital flightwhich is created by the increase of the Russian commercial
banks' active in foreign banks. The second type is illegal but
included in the item of errors & omissions. This can be madethrough the non-transfer of earned foreign currency by the
Russian exporters or advance for goods to be imported but notimported in fact, or by other ways. The third is illegal and notrecorded anywhere. This is the result of underground smuggling.
All of this is connected with the limited opportunities forinvestment in the Russian economy*16.
Table 9 shows the amount of financial resources that could
be estimated as capital flight. Since some specialists point out
that 50% of errors & omissions is "un-reported export" or"smuggling" (by false report of export), 50% of errors &omissions are added in the table here*17. In addition to thesefigures, underground smuggling which was not reported
anywhere must be considered.
Whether "increase of cash foreign currency accumulation
outside banks" is to be included in capital flight or not is a matterof debate, because this can be absorbed into the central bankeasily by an effective financial policy of the government and thecentral bank and because the figure for this item depends on a
doubtful estimation.
The amount of capital flight in Table 9 is different from thatof EBRD's estimation*18. In any case, it is necessary to note thatthe calculation of capital flight is not an easy task. But if thecapital flight was more than US$ 7 billion a year, as is shown in94

Is Russia Getting

Table 9, the Russian
been undermined.

economymight haveactually

Table 9
Capital Right ( million US$)
Current account* and deposit
Increase of cash foreign currency
accumulation outside banks
Other capital
Foreign currency account in banks
Unpaid charge of export***
50% of errors & omission
Total

1993
1994
-1068
2095
-5700
-6000
-555

-1271
-8594

1995
3989

61

-2954
-247
_**

-7106

-71
-4829
-2290
-3140

sources) Goskomstat, Rossiiskii Stalisticheskii Ezhegodnik, 1995 , p. 428
Ekonomika i Zhizn , No. 22, 1996, pp. 8-9.
notes) * = current account in banks**= errors & omission in 1994 is +, so omitted. ***= this item isincluded in "Other capital" in 1993 and 1994

(4) Movement of financial resources
From the discussion above, the main characteristics of the
movement of financial resources around Russia are thefollowing:1) Although Russia had to repay the debt of the former
USSR in 1993 and 1994, much of that was postponed or
unpaid mainly because of rescheduling arrangements.
2) In 1994 and 1995, Russia engaged
in foreign
investment abroad, the amount of which, however, did
not offset the surplus of the current account.
3) In 1993 and 1994, other short-term
capital wasrecorded in the negative sign, which means that theRussian commercial banks only kept theirearnedmoney
inforeign banks or that Russian
citizens
accumulated dollars in their pockets. These are notproductive ways to use the surplus of thecurrent
account.

Akka Uegaki

954) The situation changed in 1995 when the dollar cash in
the market was absorbed into the central bank becauseof a policy shift. The accumulated reserve assets will bea substantial help in stabilizing the Russian financial
economy.
5) Considering the conclusion of section 2, thatthesurplus of the current account will disappear in thelong run, capital inflow from industrialized countries
will play an important role in the stabilization anddevelopment of the Russian economy.
Russia in the International Financial Market(1) Who will be a partner?
It is clear that Russia has to establish financial resourcesfrom foreign countries in the long run. But who can do that? The
most important change in the international financial market inrecent years is that the USA has become a net debtor nation.
The structure of the balance of payments of the USA in the
1960s', when the net inflow in trade balance and investment
income had been absorbed by the net outflow in the transfer andfinancial accounts, has drastically changed since 1983 and thecurrent account of the USA has accumulated a large deficit. This
deficit has been financed by direct investment, portfolio
investment and deposit by British and Japanesejinvestors andenterprises. Though the deficit of the current account of the USA
was temporarily improved in 1991 by the international relief for
the Gulf War, since 1992 the deficit of the current account has
been growing*19.
This is a critically important change for the future of theRussian economy because it means that the USA is no longer a
supplier of financial resources for the world but a huge absorber.
What is worse, the USA has a gigantic budget deficit and it mustalso be financed by someone. All of these things lead us to theconclusion that a second Marshal Plan is impossible. Today's
international financial situation is totally different from that of96

Is Russia Getting

1947.
In place of the USA, West Germany had been the nation toprovide financial resources in the 1980s. In 1989, the export ofcapital*20 of West Germany reached DM 134,651 million. This is
more than US$ 70 billion at the exchange rate at that time. On theother hand, the balance of the current accounthad been positivefrom 1982 until 1990. The unification of Germany, however,brought the accounts into the opposite position. In 1991, thebalance of the current account fell into deficit and since thenGermany has become a net absorber of financial resources.
Germany is a country that has a long tradition of investing in
Russia and Eastern European countries. Now, from the macro
economic point of view, this country lacks the resources to invest
abroad.
From the micro economic point of view, however, Germany
could play an important role in providing financial resources to
Russia and Eastern European countries, because Germany isvery actively engaged in direct foreign investment even today.
From 1993 to 1995, Germany's net outflow of direct foreign
investment was DM 22,400 million, DM 25,914 million and DM
37,084 million, respectively*21. The discrepancy between themacro and micro situation means that German investors must be
selective in deciding where to invest. Thus, there will be stiffcompetition among Russia and Eastern European countries,
including the eastern region of Germany, to attract German
investors.
Japan is the only country of the western industrialized
economies that can provide a considerable amount of financial
resources to the rest of the world in the 1990s. On average, from1991 to 1994 Japan's surplus of the current account per year was
more than US$ 83 billion. That was large enough to cover the
USA's deficit of the current account in the same period*22. Japan
has been the last resort for the relief of the transition economies
from the financial point of view.
The recent financial movements in Japan, however, cast ashadow over the problem. The scandal of financial institutions

Akira Uegaki

97

has made Japanese bankers so timid that they would not invest in
the transition economies which they know little about. Besides,
diminishing the surplus of the current асе о unt would undermine
Japan's status as an exporter of capital.
All of these things reveal that today's international financial
market can not provide a stable basis for the development of theRussian economy.
(2) Foreign direct investment (FDI) and Russia
Table 10Foreign Direct Investment, Cumulations of Gross Inflows(Cash basis, millions of US$)

Albania
Bulgaria
Croatia
Czech RepublicHungary Poland
Romania
Slavakia
Slovenia
Macedonia
Russian Federation

1991
4

1991
60

436
526
94
28
7
-

947
1985
211
40
110
72
100

1992
20
102
16
1951
3456
495
120
210
183
1554

1993
68
157
56
2519
5795
1075
207
354
294
2958

1994
116
205
104
3319
6941
1602
501
434
374
5
3958

per-capita
1994*
36
23
22
319
670
42
22
102
185
3
27

Note)* = Dollars per capita.
Source) United Nations, Economic Commission for Europe, Economic

Survey of Europe in 1994-95, 1995, Geneva., p. 145.

Among the various financial arrangements, foreign direct
investment (FDI) is the most convenient method for countries like
Russia. Russia lacks the know-how, manpower and latest
equipment which must be reconstructed from the beginning.
That is what distinguishes Russia from the USA, which lacks
financial resources but is rich in know-how, manpower, the latest
equipment etc. Foreign direct investment would bring all this
into Russia.

98

Is Russia Getting

Table 10 shows the cumulative amount of FDI into Central
and Eastern Europe and the Russian Federation. It reveals that
Russia lags behind Central and Eastern Europe in this sphere. It
is true that the total amount of accepted FDI of Russia is morethan that of the Czech Republic, but the amount is too small for
Russia, with a population of 150 million. For example, theper-capita cumulative amount of FDI from 1990 to 1994 was
only US$ 27, which is less than Albania's figure.
Besides, net flow of FDI was negative in 1992 and 1994 (seeTable 1), that is, Russia was a net exporter of FDI in these years.
This is an ironic result of the large surplus of the current account.
FDI is a risky and time-consuming economic activity andrequires economic, political and social stability.
All the above figures show that the investors in and out of
Russia do not believe in the future of the Russian economy.
Conclusion

In order to answer the question in the title of this paper, it isnecessary to define the meaning of the question. To get into theinternational financial market means:(A) to be an importer of financial resources, consequently,
to be a promising and profitable country which would
absorb excess capital, like Asian countries today.
(B)to be an active player in the international financial
market as an exporter of financial resources which
would provide capital to the world, like oil producing
countries in the 1970s'.
Based on the difinitions in (A) and (B), Russia is not getting
into the international financial market. Russia is not an importerof financial resources. In the long run, Russia has to introduce
much capital, but it is not likely that Russia will be an attractive
country for the investors of the USA, Germany, Japan and others
whose financial resources are not abundant today.

Akira Uegaki

99

Russia is not an exporter of financial resources for thedevelopment of other countries. The excess of capital isaccumulated in a non-productive way. The financial institutionsof Russia do not have the know-how, experience or even volition
to circulate financial resources productively.
Notes
1

From 1994 on, the balance of payments with CIS began to be
published.
2
Ekonomika i Zhizn', No. 6,1992 (Feb.), p. 11.
3
The postponed or unpaid debt service and the amendment
concerning non-equivalent barter are to be explained later.
4
Ekonomika i Zhizn', No. 18,1993 (May), p. 5. This problem issolved in the revised balance of payments statistics of theRussianFederation
intheAnnual Statistical
Handbook,
Rossiskii Statisticheskii Ezhegodnik, 7995,Goskomstat Rossii,
Moskva, 1996, pp. 427-428.
5Ekonomika i Zhizn', No. 18,1993 (May), p. 5.
6
Ekonomika i Zhizn', No. 11, 1993 (Mar.), p. 1. Amendment
concerningtheexportfortherepaymentofcreditinTransferable Ruble is also called "Amendment to Export"
which is US$ -468 million in 1992.
7
S. M. Borisov, "Platezhnyibalans Rossii" ,Den'gi i Kredit, No.
10-11,1993, p. 12.
8
The figures for 1993 and 1994 are taken from the data of thecentral office of customhouses and underestimates the realimport, because there were a lot of goods which did not go
through customhouses. Therefore, import of "Foodstuffs", forexample, might be more.
9
As for imports, it must be noted that so-called centralized importfinanced by foreign debt fell drastically from 1991 to 1993. It
was more than US$ 30 billion in 1991 but in 1993 it was not
more than US$ 12 billion. Finansovye Izvestiia, No. 3,1994, p.
1.
10
One factor that brings the balance to the opposite
direction is

100

Is Russia Getting

11
12

13

14
15
16
17
18

19
20

21
22

tourism which was US$ - 8.1 billion in 1995 (Ekonomika
Rossii, lanvar' - АргеГ 1996, p. 71). It was caused by a lot of
tourists who went abroad to buy consumer goods. This is atemporary phenomenon that will diminish as the Russian
society becomes stabilized.
The World Bank, World Debt Tables, 1994-5, p. xix.
World Debt Tables omits short-term loan from consideration,
therefore the author also omits other short-term capital (in1993 and 1994) or foreign cash currency and deposit (in1995). However, in Russia's balance of payments there areconsolidated items of accepted long-term and short-term credit
and offered long-term and short-term credit. With respect tothese items, short-term credit is included in the analysis.
Strictly speaking, it includes short-term credit as is pointed out
in note 12, but is long-term compared to other short-term
capital or reserve assets.
Accumulation of reserve assets in the central bank must berecorded in the minus sign.
Ekonomika Rossii, lanvar' - АргеГ, 1996, p. 72; Izvestiia, May
13,1996, p. 2.
Ekonomika i Zhizn', No. 18, 1993, p. 5; Finansovye Izvestiia,
No. 3,1994, p. 2.
Ekonomika i Zhizn',No. 29, 1993, p. 21; Ekonomika i Zhizn',
No. 42, 1993, p. 10.
EBRD, Transition report 1995, p. 95. Ал article in the Asahi
Shinbun of March 23, 1996 which refers to the EBRD's
estimation is misleading. It mistakes stock figures for flow
figures.
US Department of Commerce, Survey of Current Business, Vol.
75, No. 6, pp. 84 - 85.
Net
outflows(minus)of financial
account.
DeutscheBundebank Monthly Report,March 1996, p. 68.
Ibid.p.71.
Shigeki Takada, "90 nendaino kokusai shihon ido", Kaigai
Toshi Kenkyusho Ho,No. 4,1996, p. 8.