BLOOMBERG
August 28, 2008

By Alex Nicholson

Russia's international reserves, the world's third biggest, rose by $400 million last week as tensions with the west over Georgia stayed high, the central bank said.

The value of the reserves of the world's largest energy supplier increased to $581.5 billion in the week ended Aug. 22, Moscow-based Bank Rossii said in an e-mailed statement today. The reserves fell $16.4 billion in the previous week as the central bank bought rubles to support the currency, which weakened after Russia sent troops into Georgia on Aug. 8, pushing relations with Europe and the U.S. to a post-Soviet low.

``The reserves' increase showed continued weakness despite strength in oil prices and higher valuations of euro and gold assets,'' UniCredit SpA analyst Vladimir Osakovsky said.

Russia's incursion came in response to what it called Georgian attacks against its peacekeepers and local citizens in the Georgian breakaway area of South Ossetia. Finance Minister Alexei Kudrin said on Aug. 17 that investors pulled $7 billion out of the country between Aug. 8-11. BNP Paribas SA, France's largest bank, estimates as much as $25 billion in capital has left Russia since the start of the Georgia crisis, according to a client note e-mailed today.

Flight to Continue

``We attribute capital outflow to continuing political tensions over the war in Georgia, and expect the flight to continue as the diplomatic standoff and volatility on equity markets intensifies,'' Osakovsky said.

President Dmitry Medvedev signed decrees recognizing the independence of South Ossetia on Aug. 26, pushing the ruble to an almost seven-month low against the dollar. President George W. Bush called the decision ``irresponsible.''

Osakovsky said the central bank spent about $6 billion to support the ruble as a similar amount left the country in the week to Aug. 22, damping the impact of inflows from oil revenue on the reserves. Bank Rossii has yet to release official figures on net capital flows for the period.

The central bank last month started reporting the amount of reserves based on the market value of securities it keeps, rather than on the historical value as was done previously. It has restated the size of the reserves since the beginning of 2008 to bring Russian reporting in line with international standards. The reserves were previously referred to as foreign currency and gold reserves.

The nation's reserves have climbed from $12.3 billion in 1998. China has the world's largest currency reserves, totaling $1.7 trillion at the end of March, according to Bloomberg data, followed by Japan with $970 billion at the end of May.