Once a popular holiday getaway for the communist elite, tiny Abkhazia is now a de-facto republic at odds with most of the world. Formerly a sub division of Georgia, Abkhazia declared itself independent on July 23, 1982. Since then it has been at war with, and partially occupied by Gerogia. In interview, President Sergei Bagapsh speaks about his nation's plans, friends and foes -- and prime real estate.

Other than Russia, your neighboring Black Sea states do not recognize Abkhazia as a nation. Are you isolated?

We are a small country with around 242,000 inhabitants. At the moment, our connections with Russia suffice to allow us to develop our economy. Of course, we would be happy if Europe was more open toward us. But I think that's just a question of time. At the moment, we are trying to develop economic relationships with Iran, Jordan, Turkey and Belarus. We won't beg for diplomatic recognition.

Does the Obama administration approach you differently to that of former US President George W. Bush, who called on Abkhazia to stick with Georgia?

Up until now, there's been no trace of anything like that. The Americans first need to be clear about how they want to deal with the ongoing crisis in Georgia. Experts and political scientists are starting to doubt whether it's a good idea to continue to pay such respect to Georgia's concept of "territorial integrity." That's a good start.

Before the Caucasus war with Georgia in August 2008, German Foreign Minister Frank-Walter Steinmeier came to visit Abkhazia. He wanted to try to prevent the impending war. Why do you think his mission failed?

Steinmeier really impressed me. He's an experienced and talented politician. However, we couldn't accept his suggestion that we approach the negotiations with Georgia without preconditions. Negotiations like that could not have changed the fact that Georgia's president, Mikhail Saakashvili, was preparing for military aggression against South Ossetia and Abkhazia. Even now, talks with Georgia's leadership are completely useless.

Saakashvili has said that the war is not yet over. Is there any danger of more fighting in South Ossetia and Abkhazia?

As long as Saakashvili is in charge in Georgia, there will be that danger. Where the opposition is suppressed, there will be a build-up of explosive political tension. And then there are going to be attempts to release that tension onto an external enemy. If Saakashvili takes us on again, he will be destroyed. The man is a natural-born aggressor.

But is Saakashvili the only problem? Doesn't his political opposition also dread having to admit that they have lost Abkhazia for good?

It will certainly take decades before Georgia will really see what has been going on. The current generation wants to prolong the illusion that Abkhazia is Georgia and that the Abkhazians are Georgians. If European politicians -- German politicians included -- were more long-sighted and more courageous, they might be able to help Georgia free itself of an illusion that only does it harm. The sooner that happens, the sooner we will have the neighborly relations with Georgia that we want.

In the Georgia-Abkhazia war in 1992-1993, around 200,000 Georgians fled from Abkhazia. Why can't these people return?

We have let around 60,000 Georgians return to the Gali district. But the return of all the Georgians who left including the ones who fought against us -- could lead to war here. Those who started the Georgian invasion of Abkhazia in 1992 should be held responsible for the fate of those refugees. Rather than contributing toward Georgia's rearmament, the West would be better off giving money to Georgia for the reintegration of the refugees - and for the reintegration of the refugees in their own Georgian territory, because they all emigrated from Georgia to Abkhazia in the first place.

But isn't it true that you are opposed to the return of those refugees because it would drastically alter your country's ethnic mix?

That obviously plays a role. When the Georgians were here, we Abkhazians only made up 17 percent of the population. But the most important thing remains the irreconcilable political differences between our two nations. Unfortunately, Georgia is doing everything it can to prolong this conflict.

There are Russian military bases in Abkhazia, Russian troops guard your external borders, and your currency is the ruble. And, then, you want the Russians to manage your railways for 10 years. Is it possible that you're getting just a little too dependent on Russia?

We are dealing with the Russian railways because we have to modernize our own. We would be equally pleased to deal with the German railways if they were interested. In any case, there are no completely independent nations in this world. Liechtenstein is dependent on Switzerland, Luxembourg on France. We are all dependent on one another. Georgia is dependent on America; we are on Russia.

The opposition in Abkhazia is concerned that your small nation could turn into "a quasi-nation that lives off foreign financial deposits, like a parasite." Two-thirds of the Abkhazian budget comes from Russian grants. Doesn't that justify a certain degree of concern?

No country in the world has developed without credit and outside help. Russia builds streets, schools, hospitals and churches and we are grateful for that.

You have suggested that foreigners be allowed to purchase real estate in Abkhazia, something that Abkhazian law has blocked until now. Isn't the fear that many Abkhazians have -- that they will be pushed out by rich Russians -- a legitimate one?

We are discussing this issue. I have suggested that we look at the experiences other nations have had with this issue. Foreigners buy apartments in Spain: They relax there, pay taxes and bring money into the country. On the other hand, houses and land here are being sold to foreigners -- but not in accordance with the laws. As a result, we end up with protracted disputes that overburden our justice system. We need proper regulations. And, in the course of a sensible debate, we should be able to find a workable solution for Abkhazia.

What do you think things will be like for Abkhazia in, say, 10 or 20 years?

We will be a wealthy, affluent nation because we will have succeeded in swiftly stimulating our economy. There are already British, Czech and Austrian investors who want to get involved here. We are modernizing our airport, and we will soon be able to accept flights from Moscow and St. Petersburg. That will definitely be interesting for German tourists, particularly the ones who may have already been here in the days of the former East Germany.

In December, there will be presidential elections in Abkhazia. Unlike in Russia, it is hard to predict the outcome. Four years ago, there were serious problems with vote counting, the results were considered suspect and there were massive protests. Have things gotten any better?

Unlike in any other former member state of the Soviet Union, we have an opposition here and an adversarial press. That's good -- and it shows that we have chosen democracy.

But that adversarial press also complains of problems. In February, Inal Khashig, the editor-in-chief of the newspaper Chegemskaya Pravda, was allegedly driven to a remote location by some of your friends and relatives.

Steinmeier really impressed me. He's an experienced and talented politician. However, we couldn't accept his suggestion that we approach the negotiations with Georgia without preconditions. Negotiations like that could not have changed the fact that Georgia's president, Mikhail Saakashvili, was preparing for military aggression against South Ossetia and Abkhazia. Even now, talks with Georgia’s leadership are completely useless.

Saakashvili has said that the war is not yet over. Is there any danger of more fighting in South Ossetia and Abkhazia?

As long as Saakashvili is in charge in Georgia, there will be that danger. Where the opposition is suppressed, there will be a build-up of explosive political tension. And then there are going to be attempts to release that tension onto an external enemy. If Saakashvili takes us on again, he will be destroyed. The man is a natural-born aggressor.

But is Saakashvili the only problem? Doesn't his political opposition also dread having to admit that they have lost Abkhazia for good?

It will certainly take decades before Georgia will really see what has been going on. The current generation wants to prolong the illusion that Abkhazia is Georgia and that the Abkhazians are Georgians. If European politicians -- German politicians included  were more long-sighted and more courageous, they might be able to help Georgia free itself of an illusion that only does it harm. The sooner that happens, the sooner we will have the neighborly relations with Georgia that we want.

In the Georgia-Abkhazia war in 1992-1993, around 200,000 Georgians fled from Abkhazia. Why can't these people return?

We have let around 60,000 Georgians return to the Gali district. But the return of all the Georgians who left -- including the ones who fought against us -- could lead to war here. Those who started the Georgian invasion of Abkhazia in 1992 should be held responsible for the fate of those refugees. Rather than contributing toward Georgia's rearmament, the West would be better off giving money to Georgia for the reintegration of the refugees -- and for the reintegration of the refugees in their own Georgian territory, because they all emigrated from Georgia to Abkhazia in the your country's ethnic mix?

That obviously plays a role. When the Georgians were here, we Abkhazians only made up 17 percent of the population. But the most important thing remains the irreconcilable political differences between our two nations. Unfortunately, Georgia is doing everything it can to prolong this conflict.