Page last updated at 15:44 GMT, Friday, 22 August 2008 16:44 UK

Investors pulling out of Russia

Russian soldier in Georgia
Russia's intervention in Georgia has added to geopolitical tensions

Russia has seen foreign reserves decline, a sign that the market is more nervous about investing in the region since the recent conflict in Georgia.

Central Bank figures show reserves were sharply down in the week ending 15 August, marking a fall of $16.4bn (8.8bn) from $597.5bn a week earlier.

Tensions with the west have also been strained by Russia's objection to the US placing a missile defence in Poland.

Georgia has urged the west to invest in the region as it seeks to rebuild.

According to the Financial Times, the latest drop in capital reserves is the largest "since comparable figures began" in 1998, though similar funds were taken out during the currency crisis.

Reconstruction

Finance ministers from the group of seven richest nations have said they are "ready to support" Georgia's economic reconstruction in the wake of conflict with Russia.

The US Treasury issued a statement on the G7 countries' behalf saying they would be ready to help Georgia "to maintain confidence in Georgia's financial system and support economic reconstruction."

He also called on Georgian authorities, the World Bank, European Bank for Reconstruction and Development, Asian Development Bank, European Investment Bank, and European Commission to "identify and support reconstruction needs and the restoration of services that will build a base for future economic growth".

Officials from the World Bank are visiting Georgia on Friday to assess the extent of damage to its economy and how the process of reconstruction can begin.

The development body has pledged to help Georgia access funding to rebuild crucial infrastructure, such as roads and railway lines.

It has also promised to assist people displaced by the fighting in South Ossetia and in Georgia itself.

The US and Poland signed a deal earlier this week to locate part of the US missile defence system on Polish soil, but Russia has warned the base could become a target for a nuclear strike.

Such geopolitical concerns have been a factor pushing up oil prices, amid fears that supplies might be hampered.

"Investors are realising that the bear has put its paw on the pipeline, and geopolitical risk is likely to remain a theme for the next month or so," said Justin Urquhart Stewart, investment director at Seven Investment Management.




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