Издания и публикации -- Статьи – Статья 2
Trends in Post-Crisis Capital Flows in the CIS
Elvira Kurmanalieva – Ph.D., head of Country Research Unit, Strategy and Research
Department, Eurasian Development Bank.
Evgeny Vinokurov – Ph.D., director of the Centre for Integration Studies, Eurasian
Development Bank.
Euromoney Emerging Markets Handbook 2011/12
www.euromoney-yearbooks.co.uk
Trends in Post-Crisis Capital Flows in the CIS
Elvira Kurmanalieva and Evgeny Vinokurov
Elvira Kurmanalieva – Ph.D., head of Country Research Unit, Strategy and Research
Department, Eurasian Development Bank.
Evgeny Vinokurov – Ph.D., director of the Centre for Integration Studies, Eurasian Development
Bank.
The 2008-2009 crisis showed how strongly the world’s economies depend on each other. Back in
1998, capital flows were an issue of concern mainly for Asian countries; now they are a global
issue. Regional supranational institutions develop ‘safety nets’ to protect themselves against
sharp flows of ‘hot money.’ This short essay analyses capital flows to and from CIS countries
and discusses government measures to prevent balance-of-payments crises.
Capital Flow Dynamics in 2010
After the 1997-1998 crisis, a net inflow of foreign capital into CIS countries began in 2001 and
peaked in the pre-crisis year of 2007 (see Chart 1). The global crisis then caused a significant
capital outflow from CIS economies from 2008 until the end of 2010.
Chart 2 shows average annual changes in capital flows in 2004-2007 and changes in balances of
payments in CIS countries in 2010. It is interesting to note that energy exporters find themselves
in the lower part of the chart, hence the reason for their net capital outflow in 2010. Azerbaijan
and Kazakhstan experienced a net outflow in the “other investments” item of their balance of
payments. This item includes short-term and long-term debt capital and payments on the current
accounts of the balance of payments. For example, export payments are usually represented in
the balance of payments as an increase in the foreign assets of commercial banks, which are
recorded as negative values in balance of payments figures.
Chart 1: Net capital inflow into the CIS
(% of GDP)
Chart 2: Net capital inflow into the CIS
(% of GDP; Y-axis: 2010; X-axis: the 20042007 average)
Source: IFS, IMF
Capital flows into Armenia, Belarus, Kyrgyzstan, Tajikistan and Ukraine recovered very
quickly: in 2010, net capital inflows in these countries exceeded the 2004-2007 average. In 2010,
Kyrgyzstan had the highest external debt-to-GDP ratio (86.6%). In the same year, its external
debt went down by 0.1% compared with 2009. The external debts of Armenia and Belarus grew
by 32.2% and 29.2%, respectively. Public sector borrowings dominate in three countries. In the
other countries, private sector borrowings prevail.
Chart 3: External debt (% of GDP)
Chart 4: External debt by economic sector
(%)
Source: JEDH
Two other financial accounting items are shown in more detail on Charts 5 and 6. In 2010, the
CIS countries (except for Russia) were net recipients of investment capital. In 2004-2007,
Kazakhstan received the most foreign direct investment (FDI), with the average annual FDI
exceeding 9% of GDP. In 2010, the Russian economy became a net investor and moved to the
lower part of the chart. The main recipients of Russian investment in 2010 were Cyprus (36%)
and the Netherlands (18%). This suggests that the investments either “return” to Russia or that
they are reinvested in other countries of the region. Among the CIS countries, the main recipient
of Russian direct investment was Belarus (US $1.4 billion).
Chart 5: Net inflow of direct investment
Chart 6: Net inflow of portfolio investment
(% of GDP; Y-axis: 2010; X-axis: the 2004- (% of GDP; Y-axis: 2010; X-axis: the
2007 average)
2004-2007 average)
Source: IFS, IMF
Kazakhstan was ahead in terms of portfolio investment inflow in 2010 (6% of GDP). Ukraine
also had a significant inflow of portfolio capital (3% of GDP). This is evidence that investors
prefer to invest in economies through the stock market, buying shares and securities issued by
local companies. This trend is not without risk: where external shocks occur, portfolio investors
can rapidly export their capital, creating significant fluctuations in the country’s currency and
stock markets.
An overview of capital flows in CIS countries therefore reveals several important trends. Firstly,
the net outflow of investment from the region continued in 2010. This reflects an increase in
foreign currency holdings, the income generated from raw material and energy exports.
Secondly, four of the region’s countries (Kazakhstan, Ukraine, Kyrgyzstan, and Belarus) saw
their portfolio investment liabilities increase in 2010. Thirdly, in Armenia and Belarus,
comparative external debt to GDP ratios increased rapidly in 2010.
According to preliminary estimates released by the Bank of Russia, in the first half of 2011, the
net outflow from the Russian economy was US$28.7 billion, including a net outflow of direct
and portfolio investment totalling US$6.6 billion.
According to preliminary estimates from the National Bank of Kazakhstan, during the first
quarter of 2011, the net inflow of investment totalled US$3.7 billion, including a net inflow of
FDI worth US$2.8 billion, while the inflow of portfolio investments has slowed down.
According to the National Bank of Ukraine’s preliminary estimates, the net inflow of
investments in January-May 2011 was US$4.5 billion, including US$2.6 billion of direct
investment.
Openness to Capital Flows
Chart 7: De-facto openness to capital flows
A country’s openness to
capital, and the economic
Azerbaijan
and institutional barriers
Belarus
they erect, undoubtedly
Kazakhstan
influence long-term and
Kyrgyzstan
short-term capital flows.
Moldova
2000
Russia,
Kazakhstan,
Russia
2007
Armenia and Kyrgyzstan
Tajikistan
have the most liberal
Turkmenistan
approach to capital flows,
Ukraine
while Turkmenistan and
Uzbekistan
Tajikistan are less openi.
0.0
0.5
1.0
1.5
2.0
2.5
The updated database of
so-called
de-facto
Source: Lane and Milesi-Feretti (2009)
openness
to
capital
establishes the openness of
Kazakhstan and Russia and adds Ukraine and Moldova to the list of open economies ii (see Chart
7).
Armenia
The de-jure index is a similar openness indicator, which is prepared using the IMF’s data on
restrictions on current and capital accountsiii. This index comprises indicators of restrictions on
the import and export of foreign currency based on reporting by the countries’ central banks. A
comparison of the CIS countries’ indicators for 2007 and 2010 (see Chart 8) shows that the postcrisis situation is very similar to the pre-crisis one, except that Belarus became less open to
capital flows and Azerbaijan, conversely, more open.
Another indicator, the so-called Trilemma index, shows how the countries deal with the
‘Impossible Trinity’: the impossibility of adhering to currency and monetary policies
simultaneously given fluctuations in the global movement of capitaliv. As shown above, in the
context of globalisation, legal restrictions on capital movement do not seriously affect the flow
of ‘hot money’ into or out of a country, therefore countries should focus on the other two types
of macroeconomic regulation. For instance, in 2007 Azerbaijan, Belarus, Tajikistan and Ukraine
preferred to fix their exchange rates. At the same time, other countries in the region, particularly
Russia and Kazakhstan, pursued an independent monetary policy, although arguably not
resolutely enough to protect themselves from the negative consequences of the global crisis.
After the 2009 crisis, the pattern changed to a certain degree. The central banks of Azerbaijan,
Tajikistan, Kazakhstan, Kyrgyzstan and Ukraine chose to prioritise the stability of their national
currencies. The Bank of Russia was less stringent in regard to the flexibility of the rouble. The
countries also relaxed their independent monetarism, which may have been one of the triggers of
the rise in inflation. In Armenia, Belarus, Moldova and Ukraine, increasing uncertainty regarding
the policies of the financial regulators brought excessive volatility to the markets, which was
accompanied by high inflation.
Chart 8: De-jure openness to capital flows and the ‘Impossible Trinity’
2007
2010
Source: Aizenman, Chinn, and Ito (2008).
Crisis-Induced Integration
The 2009 crisis showed that, despite legal restrictions on capital flows and their geographic
remoteness, the CIS economies are very strongly affected by the inflows and outflows of shortterm capital. In addition, volatility in the movement of ‘hot money’ requires that some kind of
protective mechanism be created to act as a ‘safety net’ where currency crises occur. The
objectives of monetary and foreign economic policies should be made very clear in these
circumstances. It is important for countries to ensure that their domestic macroeconomic policies
are coordinated with those of other countries and that there is cooperation between the central
banks of all the countries in the region.
The global crisis made that logic clear and induced the countries of the region to implement a
large-scale initiative, which addresses the need for a protective financial mechanism. In 2009,
the post-Soviet countries, led by Russia and Kazakhstan, established the EurAsEC Anti-Crisis
Fund with the capital in excess of $8.5 billion aiming to provide a ‘safety net’ to the members of
the Community.v Up to date, the Fund has already provided financing for Tajikistan ($70
million) and Belarus ($800 million, with another $2.2 billion to follow).
i
Lyubskoi M., Rykhtikov O. (2010) Monetary Restrictions in the CIS. In: Golovnin M. (ed.) The
Interaction of Financial Systems in the CIS. Moscow: Aleteya. In Russian.
ii
Lane P., Milesi-Ferretti G. (2007) The External Wealth Of Nations Mark II: Revised and
Extended Estimates of Foreign Assets and Liabilities, 1970–2004. Journal of International
Economics. 73: 223-250.
iii
Chinn M., Ito H. (2008) A New Measure of Financial Openness. Journal of Comparative
Policy Analysis. Vol. 10, Issue 3: 309 – 322.
iv
Aizenman J., Chinn M., Ito H. (2008) Assessing the Emerging Global Financial Architecture:
Measuring the Trilemma's Configurations over Time. NBER Working Paper Series. 14533
(December 2008, updated in April 2009).