In this article, we will talk about a phenomenon such as capital outflow. Consider what consequences it can lead to, what forms it has, and how to deal with it.
What you need to know about the outflow?
Net capital outflow is the difference between the volume of cash withdrawal abroad and the flow of funds to the state from abroad. Its minimization is a problem of every state.
The outflow of capital from the country can be associated both with the withdrawal of funds in order to legalize illegal profits, and with their use for the purchase of assets of foreign countries. It is usually used to reduce losses due to inflation or other disadvantageous factors.
The outflow of capital allows entrepreneurs to reduce the impact of inflation and the tax burden, and it is most often expressed in the purchase of foreign physical assets by state taxpayers. That is, in their acquisition of shares, bonds and the like. If you want to understand this in more detail, then you need to understand what concepts such as "outflow" and "leak" are:
- With the outflow, investments in domestic sectors of the economy are reduced, and finances are uncontrollably exported abroad for their more profitable placement.
- In the event of a leak, money that was obtained illegally is laundered by buying up foreign assets, and thus trying to legalize them.
What may be the causes and consequences of the outflow
A regular outflow of capital can undermine the economic situation within the state from which money is withdrawn. For each country, capital flight is a huge problem, which confirms that it created an unfavorable economic situation. The following reasons may arise for capital outflows:
- Lack of trust in banking systems as such.
- Depreciation risk of the state currency.
- High level of development of the shadow economy.
- Deficiencies in the legislative framework that would guarantee the protection of private property.
This situation, in turn, may cause the budget to not receive a significant part of duties and taxes, because of which the bar of external and internal investments falls. And this, as a rule, provokes the development of the shadow economy and the criminalization of state power.
What measures should be taken to reduce outflow
To reduce, and ideally prevent, the outflow of capital, it is necessary to use measures of an administrative and market nature. Basically, there are three ways to solve this problem:
- Administrative - this is when a country has a tight monopoly in relation to foreign exchange economic activity. And basically the problem with capital flight is solved by the fact that the perpetrators are brought to criminal liability.
- The liberal market seems like the gradual introduction of new conditions that do not worsen the current situation. At the same time, criminal methods of capital outflow are suppressed and legal options are made as accessible as possible. Despite the fact that this option is very attractive, unfortunately, it can work only in countries where the economy is developed. In addition, this method has a very big drawback - in order for it to work, you need to spend a lot of time on it.
- Liberal-administrative - as in the version above, it is necessary to carry out reforms that will attract investors to the domestic economy, but very strict administrative methods are used along with this. And so that capital does not go away, criminal law methods of struggle are used. This is the path the Russian Federation is taking.
A more promising way for the CIS countries is the liberal administrative path. And despite the fact that rather strict control is exercised by the country, this does not interfere with normal market relations.
