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UDPATE 1-Russia to boost efforts curbing speculative capital

Published 12/29/2009, 03:59 AM
Updated 12/29/2009, 04:03 AM

* Putin says regulations need moderate adjustment

* Economy not ready for a free float

* Free float dependent on progress in diversifying economy

(Adds details, background, quotes)

By Gleb Bryanski

VLADIVOSTOK, Russia, Dec 29 (Reuters) -- Russia will moderately step up efforts to curb speculative capital, while gradually moving its economy to a free float rouble exchange regime, Prime Minister Vladimir Putin said on Tuesday.

"We need to correct the rules so it is less interesting for speculative capital to come running into Russia," Putin told reporters. "There will be no revolutions."

The prime minister also said Russia's commodity-dependent economy was not ready for a fully floating rouble exchange rate.

"As the economy diversifies, we will be transitioning to a free float, and this ought to be one of the measures that would remove supportive conditions for speculative capital," he said.

Speaking to reporters on a visit to the port city of Vladivostok in Russia's far east, Putin added the departure from a controlled exchange rate regime would be "mild".

Officials have previously said they are considering "soft" measures to limit speculative inflows, with the Kremlin reiterating recently that there is no need for tougher moves like a Brazilian-style tax on capital inflows. [ID:nLDE5BD1J4]

In September, Putin pledged to keep a "liberal regime" on capital flows, saying it was a key factor in spurring investment in Russia.

Russia lifted restrictions on capital flows in 2006, which resulted in massive inflows of "hot money" that inflated corporate debt to $450 billion in 2008, pushed the rouble sharply up and spiked inflation rates.

The economic crisis that hit Russia last year lead to capital flight of $130 billion in 2008 and the rouble shedding nearly a third of its value.

"We have existing problems, which are related to the fact that we have created good conditions for speculative capital inflows," Putin said. "It flows in quite well, works here, but creates problems, because if crisis hits, it leaves quickly."

An improving global economic outlook in recent months, combined with relatively strong oil prices have renewed interest among investors in the Russian rouble and other emerging markets currencies that are riskier but offer higher returns.

As a result, in the autumn the rouble regained nearly half of its value lost in last year's crisis. The currency has moderated somewhat in recent weeks, but the autumnal rally prompted talk of re-introducing some form of capital controls.

After Brazil imposed its tax in October, Russia was considered the most vulnerable of the BRIC countries when it comes to foreign capital.

Putin said the task of the government is to attract funds, but not the ones that would run away with the "first rain".

"We have to create supportive conditions for inflows of long-term foreign direct investment," Putin said.

FDI into Russia was down 48 percent in the first nine months of the year, totalling only $10 billion, according to data from the Federal Statistics Service. (Reporting by Gleb Bryanski; Writing by Lidia Kelly, editing by Mike Peacock)

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