Capital idea

12 May 2010 By Jason Bush

Four years after abolishing currency controls, Russia is mulling new measures to restrain shortterm capital inflows. That may not be a bad idea: research by the IMF shows that limited controls can work. But they are no longterm substitute for sound macroeconomic policies.

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Russia plans to introduce differentiated taxation rules that will reward foreign investment longer than three years and penalise more shortterm investments. On May 11, deputy prime minister Igor Shuvalov told reporters in London that "we want just to have more beneficial, more privileged status for those who keep money in our economy for longer than 3 years", saying that the change would be introduced by the end of the year.

The International Monetary Fund's Regional Economic Outlook for Europe includes possible capital controls among policy recommendations for Russia. The report states: "Capital controls may be needed as part of a broader policy package" and "Russia should keep an open mind on capital controls, at least as a temporary measure". At a news conference in Moscow, Odd Per Brekk, the IMF's senior Russia representative, said that radical measures were not currently needed.

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