[Congressional Record Volume 140, Number 11 (Tuesday, February 8, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: February 8, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                       CAPITAL FLIGHT FROM RUSSIA

                                 ______


                          HON. LEE H. HAMILTON

                               of indiana

                    in the house of representatives

                       Tuesday, February 8, 1994

  Mr. HAMILTON. Mr. Speaker, in November I wrote Ambassador Strobe 
Talbott seeking information on the magnitude of capital flight from 
Russia.
  The response which I received in late January states that capital 
flight was $14 billion in 1991, in the range of $9 to $12 billion in 
1992, and would be close to the 1992 level in 1993.
  Given rising concern over the direction and nature of Russian reform 
and over the most effective use of United States assistance, I am 
inserting in the Record the full text of the response to my inquiry:

                                     U.S. Department of State,

                                 Washington, DC, January 26, 1994.
     Hon. Lee H. Hamilton,
     Chairman, Committee on Foreign Affairs, House of 
         Representatives.
       Dear Mr. Chairman: I am responding to your letter of 
     November 30 regarding Russian capital flight and debt as they 
     relate to our assistance program. I regret the delay in this 
     response.
       Capital flight in 1992 has been estimated at $9-12 billion, 
     somewhat less than the $14 billion estimated for 1991, 
     because of the sharp fall in exports and the reduced 
     opportunity for capital flight. The volume of capital flight 
     in 1993 will probably be close to 1992 levels. Government 
     efforts to control capital flight include elevating the 
     Federal Export Currency Control Service to the ministerial 
     level and the transfer of former security service personnel 
     to its staff as of 28 September 1993. Legally held hard 
     currency accounts--different from ``capital flight''--include 
     funds held overseas for buying imports; Russia probably has 
     $15 to 25 billion in declared accounts. The bulk of Russian 
     capital flight is the result of barter deals, misreported or 
     underreported exports. Enterprises use capital flight as a 
     means of protecting themselves from inflation or the high 
     taxes on hard currency export earnings. Before July 1992, 50 
     percent of these earnings had to be sold at an unfavorable 
     rate to the Central Bank. The introduction of the Unified 
     Exchange Rate helped reduce that incentive for capital 
     flight.
       The high inflation which Russia has been experiencing has 
     encouraged hard-currency earners not to convert their assets 
     in rubles, in order to maintain their value. the most 
     important measures which the Russian government is 
     undertaking to respond to the problem of capital flight are 
     those directed at economic stabilization and combating 
     inflation. It would be reasonable to expect that, as the 
     Russian government makes progress in this effort, hard-
     currency assets held outside of Russia by enterprises and 
     individuals will return and be reinvested in Russia. This was 
     also the case--dramatically so--for many Latin American 
     nations as their own structural reforms took hold.
       Technical assistance to Russian government entities is 
     generally provided through advisors, either short-term or 
     resident, seminars, training courses and professional visits 
     to the United States to observe counterpart agencies. No 
     direct transfers of funds have been made to the Russian 
     government nor have these funds been used to prop up Russian 
     government corporations. It is in our interest, however, to 
     support the Russian transition to a democratic government, 
     and U.S. assistance is provided to government agencies to 
     help them perform more efficiently, to assist in reorganizing 
     their mandates and reexamining priorities, and to help them 
     be more responsive to the public they serve.
       Western governments rescheduled over $15 billion in 
     payments due from Russia in 1993 on the debt of the former 
     Soviet Union, for which Russia has assumed managerial 
     responsibility. The U.S. share of $1.1 billion in the 1993 
     rescheduling included over $1 billion in payments due CCC for 
     grain credits extended during 1991 as well as the $75 million 
     first annual payment toward the former Soviet Union's WWII-
     era Lend Lease debt. For its part, Russia agreed to pay $2 
     billion to these creditors, the bulk of Russia's obligations 
     due in 1993. The Russian government is current on its 
     payments to the USG under this rescheduling.
       Western government creditors hold approximately 50 percent 
     of Russia's $82 billion debt. While Russia's economic 
     potential is such that it should be able to repay this 
     external debt over the medium term, a short-run bunching of 
     payments is likely to require a further rescheduling in 1994, 
     and perhaps 1995 as well. Approximately $10 billion falls due 
     to Western governments in 1994, of which over $1.7 billion is 
     due to the U.S. alone. Overall official debt to the USG is 
     $3.7 billion, and Russian debt to U.S. commercial financial 
     institutions is estimated to be $110 million.
       I hope that this has been helpful. Please do not hesitate 
     to contact me again on this or any other matter of interest 
     to you.
           Sincerely,
                                                 Wendy R. Sherman,
     Assistant Secretary, Legislative Affairs.

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