Capital Repatriation

Repatriation is the return of something or someone to its home country, originally referring to the return of soldiers to their homeland at war's end. In economics, it is used to refer to the conversion of money, as when tourists convert their currency back to their native currency when returning from a trip—or when capital from a foreign investment travels back to the country of its source, either through dividends or when a foreign investor sells his holdings.

The repatriation of capital typically refers to the conversion of a foreign investor's earnings into his native currency, which is necessary for him to consider the investment liquidatable. Some governments restrict how much capital can be repatriated in a given time, in order to protect their national economies: If a country that had actively sought foreign investors for a long period were to hit an economic slump, losing that foreign capital to panic selling could be enough to severely exacerbate the [Page 236]slump. Of course, those foreign investors are understandably nervous about investing money they can't get back, and so a balance must be found if investors are to be attracted. Sometimes it is a company trying to attracting the investors, while the government setting the policy remains indifferent—making a compromise position harder to reach.

Countries sometimes temporarily restrict capital repatriation, to prevent such panic or for other reasons. Malaysia suspended capital repatriation in 1998, in the wake of the Asian financial crisis, during which its currency had lost a third of its value and the stock market suffered a 70 percent loss. On the day the ban was lifted a year later, only $328 million was repatriated, of the more than $32 billion that could have been; not only was the attempt to prevent panic selling apparently successful, but the flow of money was delayed to a time when the economy was somewhat more stable. (Many of these foreign investors likely benefited, insofar as in many cases the investments they sold off were worth more in 1999 than they had been at the inception of the ban.) In response to the lift of the ban, the stock market fell less than 2 percent, despite gloomy predictions.

The government at the other end of the repatriation process sometimes enacts special laws, too. When Russia's economy stuttered in the 21st century, a temporary tax amnesty was declared on repatriated capital—meaning that Russians and Russian companies with foreign investments could cash those investments in, turn their money back into Russian currency, and not have to pay taxes on their earnings, if they did so between January and June of 2006. This included previously undeclared income and assets, which in post-Soviet Russia were rampant and had previously been a frequent target of Russian tax authorities. The goal here was simple: To bring money back into the country, for the health of the economy and of the banks (giving them more they can lend out, to the benefit of debtors). Income from repatriating capital is sometimes treated differently from income derived from domestic investments—and when it is, it is usually taxed higher (both to encourage domestic investing and to make up for the lack of tax revenue that would have been generated had the money remained in the country).

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