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Source: CRS compilation of data from theIMF and the Bank of Russia.

Capital flight:In the first three quarters of the year, net private capital outflowsfrom Russiatotaled $85 billion, compared to net outflows of $54 billion in all of 2012. In December 2014,Putin announcedthat one of Russia's sovereign wealth funds, the National Welfare Fund, wouldbe used to recapitalize Russian banks.Depreciation of the ruble:Capital flight from Russia contributed to downward pressure on theruble, which depreciated against the dollar by more than 50% between July 2014 and earlyDecember 2014, even before the events unfolding on December 15 and 16. Russia's central banspent $80 billionto support the ruble in 2014, before the most recent round of currencyinterventions.Inflation:In November 2014, inflation in Russia increased to 9.1%, the fastest acceleration sinc2011 and well above the central bank's target rate of 5% to 6%. In addition to depreciation ofthe ruble, inflation has been caused by Russia's ban on certain agricultural importsfrom countrieimposing sanctions, which has caused some food prices in Russia to rise dramatically.Diminished growth prospects:In October 2014, the IMF downgraded its forecast for Russia'economic growth in 2014, from 1.3% to 0.2%. It projected that Russia's economy will only growby 0.5% in 2015. Although the Russian government had initially been optimistic about itseconomic growth prospects, in early December 2014, the Bank of Russia forecasted that theeconomy could contract by 4.5%in 2015.

Economic instability in Russia is likely driven by low oil prices, which have fallen by more than 40%since June. Russia is a major oil producer and exporter, and oil and gas account for about halfof thegovernment's revenues. Targeted sanctions imposed by the United States, the European Union (EU)

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and other countries on Russian individuals and entities may also have been a factor, although it isdifficult to assess to what extent. U.S., European, and other countries' financial institutions havereportedly cut offmany major borrowers in Russia, even those not on the sanctions list. Other factorscould also include questionable domestic economic policies; the general political crisis in Ukraine;corruption; and an economic slowdown in Europe, one of Russia's major economic partners.

Issues to Watch

Next steps for the Russian government? How long will Russia's foreign exchange reserves last if

it continues to intervene in foreign exchange markets and provide support to selected Russian firmsand banks? By most measures, Russia has large foreign exchange reserves, totaling $374 billion at thend of November 2014. However, some analysts question how liquidRussia's foreign exchangereserves actually are. A former finance minister claimed the amount could be as low as $200 billion.Some analysts have suggested that the Russian central bank could impose capital controlsto stopmoney from leaving the country, but there are questions about the effectiveness and long-termconsequences of capital controls.

Contagion to other emerging markets? Russia is a major player in the international economy: ithas the world's ninth-largest economy and a population of more than 140 million. There are questionsabout whether investors will differentiate the economic challenges facing Russia as unique from thosefacing other emerging economies, such as India, South Africa, and Turkey, or whether the crisis willtrigger broad capital flight from emerging markets to "safe havens," like the United States and the EU.

Spillover effects for the United States?Overall U.S. trade and investment ties with Russiaarerelatively limited, but some major U.S. firms, such as ExxonMobil, General Electric, Ford, and Pepsi,among many others, are active in Russia. An economic crisis or prolonged economic downturn inRussia could directly impact these firms. It could also create disruptions in the global economy thatcould impact the U.S. economy more indirectly, particularly as growth in many countriesincludingEurope, Japan, and Chinahas slowed. In particular, the economic impact of the crisis on Europe coulhave implications for the U.S. economy, given tight U.S.-EU economic ties.

Related Issues Before Congress:

Russia and the Caucasus

http://www.wsj.com/articles/russia-plans-emergency-fund-for-companies-hurt-by-ukraine-sanctions-1410802572http://www.fas.org/sgp/crs/row/RL33460.pdfhttp://www.imf.org/external/pubs/ft/survey/so/2014/car063014a.htmhttp://www.cbr.ru/eng/hd_base/?PrtId=mrrf_mhttp://www.economist.com/news/briefing/21633815-russias-official-reserve-figures-overstate-funds-it-has-its-disposal-not-quite-all-therehttp://www.economist.com/news/finance-and-economics/21636082-counter-cyclical-capital-controls-are-great-theory-less-usefulhttp://www.ft.com/intl/cms/s/0/2ba83ad8-8517-11e4-bb63-00144feabdc0.html#axzz3LyCeURGwhttp://www.fas.org/sgp/crs/row/IN10119.pdfhttp://www.crs.gov/pages/issuesbeforecongress.aspxhttp://www.crs.gov/pages/SubIssue.aspx?CLIID=283&parentID=29http://www.crs.gov/pages/SubIssue.aspx?CLIID=283&parentID=29http://www.crs.gov/pages/issuesbeforecongress.aspxhttp://www.fas.org/sgp/crs/row/IN10119.pdfhttp://www.ft.com/intl/cms/s/0/2ba83ad8-8517-11e4-bb63-00144feabdc0.html#axzz3LyCeURGwhttp://www.economist.com/news/finance-and-economics/21636082-counter-cyclical-capital-controls-are-great-theory-less-usefulhttp://www.economist.com/news/briefing/21633815-russias-official-reserve-figures-overstate-funds-it-has-its-disposal-not-quite-all-therehttp://www.cbr.ru/eng/hd_base/?PrtId=mrrf_mhttp://www.cbr.ru/eng/hd_base/?PrtId=mrrf_mhttp://www.cbr.ru/eng/hd_base/?PrtId=mrrf_mhttp://www.imf.org/external/pubs/ft/survey/so/2014/car063014a.htmhttp://www.fas.org/sgp/crs/row/RL33460.pdfhttp://www.wsj.com/articles/russia-plans-emergency-fund-for-companies-hurt-by-ukraine-sanctions-1410802572