"Too many market problems" to punish Russia

By Michael Stott and Guy Faulconbridge

MOSCOW (Reuters) - Leading world economies are too busy with the credit crunch and the banking crisis to worry about punishing Russia for its military campaign in Georgia, a top Moscow official said on Monday.

Russian Deputy Finance Minister Dmitry Pankin told the Reuters Russia Investment Summit that he had just returned from a meeting of the Group of 20 leading industrial economies in Brazil and action against Moscow was not on the agenda.

"For finance ministers, we have enough problems in our mortgage instruments and banks, nobody wants to add political issues to our discussion," he said.

The United States has demanded that Russia immediately withdraw its forces from parts of Georgia it has occupied after a brief war and warned that Moscow's standing in international organizations could be affected if it does not comply.

Russia says its action is fully justified by the need to protect the pro-Moscow rebel regions of Abkhazia and South Ossetia from Georgian aggression, which it said started the war.

Some Americans have called for Russia to be expelled from the Group of Eight leading industrial democracies over Georgia.

"I cannot see any basic reason to put Russia out of G8," Pankin said, speaking in English. "My feeling is that in such a political situation, it will be more interesting for America instead to keep Russia in G8, to have an additional channel to communicate, to coordinate policy".

Russia's RTS stock index has plummeted 40 percent since May, with much of the fall driven by the Georgia war and other negative political factors at home, such as a bitter dispute over BP's (BP.L: Quote, Profile, Research, Stock Buzz) Russian joint venture and a row over prices at coal firm Mechel.

"We see only short-term turbulence," Pankin commented. "It doesn't affect any basic strategy, any basic horizon for our economy".

Investors have pulled out billions of dollars from Russia since the negative news flow began but Pankin said that given the country's huge gold and foreign exchange reserves, currently the world's third largest, this was not a concern.

"For a central bank with $600 billion, it's completely not a problem to cover 10 or 15 or maybe 20 or 30 billion outflow of ... foreign capital", he said.

Pressed on BP's joint venture TNK-BP, where some senior managers have accused the Russian partners of using state law enforcement and regulatory agencies to pressure BP into ceding control, Pankin said:

"Every time we have some problems and we had several years ago the same problem, last year a problem, so I cannot say this year is something exceptional if we are talking about political tension."

Pankin did concede that poor investor sentiment towards Russia, as well as the difficult global environment, had hurt companies which wanted to place shares abroad or to borrow money on the world market.

"It's much more difficult now than it was before and the price will be bigger," he said.  Continued...