ANALYSIS: By Sabina Zawadzki, Reuters, Kiev, Ukraine, Thu Aug 28, 2008

KIEV - You might think war next door would make your average western executive take his money and run, but foreign business in Ukraine is still as concerned with red tape and inflation as a looming Russia.

France's Foreign Minister Bernard Kouchner said on Wednesday that Ukraine could be Russia's next target, after Moscow recognized the independence of Georgia's breakaway regions South Ossetia and Abkhazia, populated mostly by Russians.

Investors, indeed, have responded to the regional crisis by driving Ukraine's credit default swaps -- one assessment of risk -- to four-year highs and withdrawing cash from its currency and equities markets.

But while businesses say they are monitoring events in Georgia, they remain more concerned by stalled reforms under the divided government of President Viktor Yushchenko and Prime Minister Yulia Tymoshenko, and inflation of close to 30 percent.

"For companies that are here, this is nothing new. It's business as usual," said Trond Moe, president of the European Business Association, which represents dozens of large foreign companies including Siemens, Raiffeisen, ArcelorMittal, E.ON, Fujitsu, Nestle and Volvo.

"Ukraine has to deal with Russia. In Ukraine there are sensible politicians who can deal with this, who are not hotheaded or irrational."