Kremlin risks an investor exodus

RUSSIA faces large capital outflows and a strike by overseas investors as a result of its interventions in the Ukraine crisis, the IMF has warned, writes Alex Brummer in Washington.

‘The investment climate, which was not perfect to start, is probably a bit worse,’ the IMF’s top economist Olivier Blanchard said, adding: ‘One can expect fairly substantial capital outflows.’

Both the rouble and share prices in Moscow have tumbled since the incursion into Ukraine last month, with the rouble under-performing against the currencies of other emerging markets by up to 8.5pc.

Blanchard noted, however, that Russia has ‘large reserves’ – that are estimated at $500bn – so it has the capacity to deal with the outflows. He said the country may well have to decide to increase interest rates to stem the capital flight.

‘For all these reasons we think this will lead to lower growth in Russia,’ the IMF official added.

The Fund has cut 0.6pc from its January growth forecast for Russia. It has been reduced to 1.3pc for 2014 with a pick up to 2.5pc for 2015, which is still 0.2pc down on its previous projections.

The IMF cautions that the immediate prospects for Russia and its satellites in the ‘Commonwealth of Independent States’ are being ‘hampered’ by recent developments in Russia and the Ukraine and rising geopolitical risks.

It describes the financial turbulence and geopolitical tensions relating to Ukraine as ‘headwinds on the back of already weak activity’.