Russia pledges cash to restore South Ossetia

MOSCOW (Reuters) - Russia will spend at least $400 million in 2008 on restoring South Ossetia's battered capital Tskhinvali, Finance Minister Alexei Kudrin said on Wednesday.

Tskhinvali, with a population of about 35,000, bore the brunt of five days of fighting that began last Friday when Georgia sought to retake the pro-Russian region. Moscow responded with a huge counter-offensive.

Speaking at a meeting of top government officials with President Dmitry Medvedev, Kudrin also promised $2,000 in compensation for each victim of Tskhinvali fighting.

The financial aid will further strengthen economic links between Russia and South Ossetia. Russia's gas export monopoly Gazprom is building a pipeline to Tskhinvali and the regional mobile network is operated by Russian firms.

Kudrin said the aid for Tskhinvali would appear in the 2009 budget and did not require any changes to the new three-year draft budget, due to be finalized this month.

"We have enough reserves in the budget of the Russian Federation. This allows us to assign the needed money without altering the budget," he said.

Russian emergency workers are already operating in the region and Kudrin said about $20.5 million has been assigned for immediate help to refugees who fled South Ossetia.

Local officials say Russian funds already account for up to 60 percent of the annual budget of South Ossetia, which broke away from Georgian rule in 1992. Russia describes the injection as humanitarian and development aid.

REFUGEES

Kudrin said the Russian government would evaluate the damage in South Ossetia within the next two weeks and present more detailed spending plans. About 70,000 people lived in the region before the conflict.

The United Nations refugee agency said nearly 100,000 people have been driven from their homes by the conflict in Georgia. Russian officials in neighboring North Ossetia say 30,000 people from South Ossetia are in the Russian Federation.

Russia, the world's second biggest oil exporter, expects 2008 fiscal revenues to amount to $330 billion and investors worry that politicians will be tempted into populist spending.

President Medvedev told Wednesday's meeting only top-priority projects, such as aid to South Ossetia, deserved additional funding and asked Kudrin, who takes a tough fiscal stance, to monitor the disbursement of money.

"We need to approach new fiscal liabilities in a very balanced and well thought-out way. Additional money should only be sent where it is really necessary," Medvedev said.

Defence Minister Anatoly Serdyukov was called in for a separate talk with Medvedev before the meeting started on Wednesday. Kudrin said earlier this week the military will not get additional funding in 2008.

(Reporting by Gleb Bryanski; Editing by Ruth Pitchford)