Russian Leader Says Georgian Conflict Complicates Financial Markets

Russian President Dmitri Medvedev says recent events in South Ossetia have complicated the country's financial markets, but there is no economic crisis. VOA Moscow Correspondent Peter Fedynsky reports.

President Dmitri Medvedev told a Kremlin meeting of Russian entrepreneurs and industrialists that any war or political crisis inevitably creates economic problems and difficulties for business. He said the government will safeguard liquidity in the banking system and pledged his commitment to economic reforms.

Russia's RTS Index of leading stocks has fallen nearly 30 percent since hostilities broke out in Georgia on August 7 and 50 percent since June 1. The ruble is at a 13-month low, and according to Europe's BNP Paribas Bank, investors have pulled $35 billion out of Russia since the conflict.

Mr. Medvedev said the Russian government will do all it can to continue mutually beneficial foreign relations and to protect Russian business interests and properties abroad. He said possible foreign sanctions against his country would not work. He says sanctions will not have any catastrophic consequences for Russia, and to some extent may encourage development of the country's domestic market.

The head of the Russian Union of Entrepreneurs and Industrialists, Alexander Shokhin, told the Kremlin business meeting the Russian economy is facing a number of serious challenges. He says the stock market is falling, capital is leaving Russia, there is a serious liquidity problem in the banking system, the price of hydrocarbons is dropping, and inflationary pressures are increasing.

President Medvedev said the Russian government would ensure liquidity on the domestic market. He said capital flight and stock market losses highlight an extremely low-level of Russian domestic investment. He says Russian government financial entities, private insurance companies, and pension funds are among the institutions failing to adequately invest in Russia. He says such organizations stabilize national economies on markets around the world, adding that Russia must work actively to develop their own.

A financial analyst with the Otkrytia Financial Corporation in Moscow, Khalil Shekhmametyev, told VOA one of the problems of raising domestic capital in Russia is that the country's elite appears to prefer investing abroad. He says the Russian elite is inclined to suddenly take off and land in a place like the Maldives instead of investing in the Vladimir Region near Moscow.

Russia's economic problems come at a time of global market declines. President Medvedev reassured his country's entrepreneurs and industrialists, saying Russian market fundamentals remain sound and that the government will not change its economic policy or priorities.