The stock market has plunged more than 40 percent, some foreign investors have fled and the rouble is under pressure, but Russia's policymakers aren't too bothered.
Despite a summer of bad news from Moscow to test the nerves of the hardiest investor, capped by a military campaign in neighbouring Georgia, top officials from the Kremlin, the Finance Ministry and the Central Bank took a relaxed view in interviews this week at the Reuters Russia Investment Summit.
Finance Minister Alexei Kudrin suggested that political risk in Russia had actually fallen as a result of Moscow's brief war with Georgia. He argued that previously there was the threat of a conflict but since it had now happened, it would not reoccur.
"The situation has now been resolved and political risks have disappeared. The situation is now clear," Kudrin said at the summit, held at the Reuters office in Moscow. The remarks are significant because some Western politicians had suggested that the heavy price being paid by Russian companies and markets for the country's military intervention in Georgia might cause the Kremlin to think again.
That view gained strength as Russia's RTS index of stocks nose-dived after the conflict, closing on Tuesday at 1,395 points, more than 40 percent below its May high of 2,498. The rouble had been strengthening but since early August it turned tail and slipped more than 3.5 percent. Analysts estimate more than $20 billion of foreign money left Russia after its troops, tanks and warplanes entered Georgia.
But, sitting on some of the world's biggest reserves of oil, gas, metals and foreign currency, Moscow can afford to shrug off global unease about its decision to use its military might against another state for the first time since the end of the Soviet Union in 1991.
Russian Central Bank Deputy Chairman Alexei Ulyukayev told Reuters there was "no limit" on how much of the country's $582 billion reserves it could spend to defend the rouble. "With such a volume of reserves as we have at the moment, you can say that there are no risks to the currency," he said.
Thanks to record oil prices, Russia has added over $100 billion to its reserves since the start of this year - making the few billion spent by the central bank to prop up the currency in the wake of the Georgia war look like small change. The Kremlin's top economic adviser, Arkady Dvorkovich, said he was not concerned about investor reaction to what he described as the "unpleasant events" of the summer.
He said: "The resolution of this conflict, the resolution of the consequences of Georgian aggression against Russian citizens in South Ossetia, will have a positive impact in the coming months on economic trends, on our markets." Georgia was not the only piece of unpleasant news for investors in Russia this summer.
Prime Minister Vladimir Putin's outspoken attack on coal and steel firm Mechel over its pricing and a bitter board battle at BP's Russian joint venture TNK-BP also soured the mood. In a saga closely followed by investors, BP accused its Russian partners of trying to seize control of the highly lucrative TNK-BP by using 1990s-style corporate raider tactics. Company insiders accused the Russian shareholders of using "administrative resources" - the courts, tax police, security services and labour and migration services to put pressure on the $40 billion firm, a charge they denied.
Dvorkovich welcomed a recent pact between BP and the Russian shareholders to settle the dispute, saying it was good they had reached a deal without government involvement. When questioned about the alleged use of administrative resources by the Russian side, he answered that BP had its own administrative resources - the US and British embassies.
The chief executive of Russia's number two bank VTB said he saw nothing bad about the TNK-BP affair. "If one of the shareholding groups was using its knowledge (of administrative resources) it is like one football team is playing against another on home ground and has an advantage," VTB chief Andrei Kostin said.
Kostin was equally cool about the Mechel affair, joking about Putin's threat to send a doctor to treat the company's chief, Igor Zyuzin - words which spread panic in markets. "Nothing happened to him (Zyuzin), nothing has been taken away from him, he recovered. Don't know who treated him, but he looks great today," Kostin laughed.
Chief executives of Russian companies said that, whatever Moscow's politics, the country's booming consumer market was far too big for Western companies to ignore. "I'd be surprised if I see any of the major companies pulling out of Russia now," Alexander Izosimov, chief executive of Russia's number two mobile phone company Vimpelcom, told Reuters.
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