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As Oil Prices Rise, Capital Outflows Shrinking

French Finance Minister Christine Lagarde eliciting a laugh from Kudrin, rear third from left, and others Saturday. Jonathan Ernst

NEW YORK — Net capital outflow will shrink further and may be “close to a zero” for 2010, while the ruble will be stronger than expected because of higher oil prices, Finance Minister Alexei Kudrin said Friday.

“The outflow will be shrinking,” Kudrin said in Washington after a meeting of the Group of 20 industrial and developing nations. “It will depend on what will be happening on the world markets. It will depend on oil prices.”

The government initially estimated the outflow at as much as $20 billion for 2010. The price of oil, Russia’s major export, has almost doubled during the last 12 months, boosting Russia’s foreign currency revenue.

Russian net capital outflow shrank to $12.9 billion in the first quarter from $35 billion in the same period a year before, the Central Bank said in a statement on its web site April 5. ? 

The “global recovery will be slow and long drawn out,” Kudrin said. “Demand is not strong enough yet, and it is being propped up by fiscal measures. There is also a problem of the size of the debt owed by some developed countries, such as Italy and Japan.”

Kudrin met with U.S. Treasury Secretary Timothy F. Geithner and Federal Reserve Chairman Ben S. Bernanke on Thursday.

Russia’s Finance Ministry will revise the ruble exchange rate estimation for 2010, as it expects the currency to strengthen because of increasing oil prices, Kudrin said.

“We had initially estimated the ruble exchange rate at an average 33.9 per dollar for this year, but it is already obvious today that this figure is going to be lower,” Kudrin said. The current estimate “will be revised,” he said.

The Central Bank’s benchmark interest rate is at a “reasonable” level, and there is even a risk of an increase this year, Kudrin said.

“There are risks, but those are insignificant,” Kudrin said. “Taking into account that inflation is expected at as much as 7.5 percent this year, we currently are at a level of the refinancing rate that is reasonable.”

The government favors borrowing on the domestic market rather than abroad to curb inflation, which has been fueled by higher oil prices, Kudrin said. The government will cut plans to borrow abroad to $7 billion a year in 2011 and 2012, from $20 billion planned earlier, Deputy Finance Minister Dmitry Pankin said at the briefing.

“While we don’t plan to sell anything denominated in foreign currency on the foreign markets this year, the idea to sell ruble-denominated bonds” overseas “seems to be interesting,” Pankin said.

Kudrin said a sale of eurobonds would not have any major impact on the ruble’s exchange rate. “This is an insignificant amount” to affect the currency, he said. The price of oil has a bigger effect on the currency than eurobonds, he said.

Russia’s budget deficit might shrink to “closer to 3 percent” of gross domestic product in 2010, from 6.8 percent currently planned, if the price of oil stays above $70 per barrel and economic growth accelerates above 3.5 percent, Pankin said. He declined to specify the price of oil that would be needed to cut the deficit in half.

“All I can say at this point is that every additional dollar paid for a barrel of oil gives us $2 billion in additional revenue,” Pankin said.

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