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The Republic of Spies. On a sunny afternoon earlier this summer in the garden of a freshly renovated resort overlooking the Black Sea, a group of Russian security-service and Interior Ministry officers on holiday were raising their vodka glasses. The toast: to their future summers in the separatist republic of Abkhazia, once a favorite holiday spot for Stalin's elite and now, despite its nominal independence from Georgia, Russia's newest colony. After a war in 2008 to help Abkhazia and South Ossetia partition themselves from Georgia, Russia is making itself right at home. The party's host, Alexander Tsyshba - the head of the privatization and investments department for the seaside city of Gagra - looked satisfied. After over 15 years of economic blockade by Georgia, investment in Abkhazia was almost nonexistent, the resorts were empty, and the economy was stagnant except for a trickle of business controlled by Russia's Federal Security Service (FSB). Now, with 3,000 Russian troops stationed in the republic, Tsyshba's old FSB friends have begun to buy up prime property across the breakaway republic. "To buy property in Abkhazia, the FSB officers use the special relationship of their long-term contacts with us," he explains with a smile. The Russian special services' "special relationship" with Abkhazia began well before the region's break from Georgia in 1991, in the days of the Soviet KGB. From Stalin's era on, every other Abkhaz family had a KGB officer, a secret agent, or an informer among their relatives. Former agents told NEWSWEEK that Moscow gave the tiny South Caucasus republic a special status - of an autonomous republic within the Georgian Soviet Socialist Republic - in order for the KGB to have a pleasant headquarters in the palm-lined seaside boulevards of Sukhumi. Locals like to boast that "Abkhazia used to beat the world record on the number of secret agents per capita," says Lavrik Mikvabia, a colonel in the Abkhaz border guard. And Vladimir Rubanov, a three-star general who ran the old KGB's analytical department, told NEWSWEEK that "the KGB always had its special power in Abkhazia. When I came for vacation and went out for a beer with my friend, a senior Abkhaz KGB commander, we did not have to pay for our beers or a plate of crabs. We just showed our KGB IDs." Traditions are respected in the Caucasus. So nobody was surprised when the FSB, the successor agency to the KGB, inherited the Mayak sanitarium, a former KGB rehabilitation center for agents, after the breakup of the Soviet Union in 1991. Or when officers of the Federal Protection Service, the agency guarding the president and other top officials, brought their families to spend summers at the dacha that Khrushchev once used - a strictly guarded, enormous resort covering more than 10 square kilometers of seafront property in Pitsunda. Now a rotating cast of former and current FSB officers has arrived to rent and privatize luxury hotels, sanitariums, and dachas on prestigious bits of land. In the two years since Russia went to war to "liberate" Abkhazia and South Ossetia from the Republic of Georgia, the Russification in those provinces has accelerated. Almost all the best Abkhaz architectural monuments have ended up in the hands of Russian investors: the 19th-century palace of the Prince of Oldenburg; Olga's Tower; another graceful palace in the Mauritanian style in the hills overlooking the city; and Gagra's oldest landmark, the ancient Persian Attaba Fortress, dating to the fourth and fifth centuries. Luxurious real-estate developments like the Dolfin Hotel, which opened last January, have emerged along the seafront, waking Pitsunda's tourist industry from years of comatose postwar decay. Tsyshba, the Gagra privatization guru, proudly boasts that the city is "the best FSB resort." The Dolfin Hotel's manager, Alexander Chukbar, agrees, but he adds warily that the new owners "are not the kind of people one can just go up to and chat with." In Soviet days, the KGB was a state within a state. Now, with former KGB officer Vladimir Putin and his circle of former spooks still very much in control of the country, the FSB's hand extends into almost every major Russian business. Former KGB officers turned businessmen are warmly welcomed in their old Abkhaz stomping grounds - and have brought billions of dollars of investment. Rosneft, Russia's state oil company famous for its ties to the Russian security establishment, arrived this year to open an office in Sukhumi and begin a $32 million geological-research program offshore in the Black Sea, considered a prospective oil-rich region. Other groups in the Russian elite have also followed the spooks' lead. Moscow Mayor Yuri Luzhkov has lost no time grabbing a massive piece of land outside Gagra for a $70 million resort complex the locals call "Project Moscow." Luzhkov is also constructing a gigantic office in Sukhumi to coordinate investments from Moscow, to be called the Moscow Center. Russia's Ministries of Defense, Agriculture, and the Interior have reclaimed state dachas in Sukhumi, Gagra, and Gudauta so that their employees can vacation there. Alexander Tkachev, the governor of Krasnodar region in southern Russia, has spent the last two summers in the dacha built by Stalin's secret police chief; he rents it from the local government, which can't afford to renovate it. And Sergei Kiriyenko, the head of Russia's nuclear-energy agency, owns a winery in Abkhazia, according to the local administration. But the biggest investor of all is Prime Minister Putin, who visited Abkhazia last summer for the war's first anniversary, and pledged $500 million in state aid to strengthen Abkhaz defense. He has also promised millions for a huge project to redevelop the town of Pitsunda, famous for its enormous old pine trees - beloved by the tsars, the Soviets, and the new Russian elites alike. The Russian government is planning to build what Astamur Ketsba, head of the regional administration, calls "Putin City" - a lavish luxury resort with a port for yachts, health clubs, and private beaches. It is expected to be ready in time for the 2014 Winter Olympics in nearby Sochi. In the meantime, Abkhaz President Sergei Bagapsh told NEWSWEEK that he has already received 300 million rubles of 9 billion offered, and that he has reached an agreement with Putin that will allow Russian citizens to own private property in Abkhazia. He boasted that the airport Sukhumi will open next month is better than the one in Sochi, and that soon, Russian S-300 surface-to-air missiles will be stationed in his breakaway republic. Not all the locals are happy about the invasion of Russian money, fearing an assault on their newly won independence. Tomara Lakrba, the main architect of the towns of Gagra and Pitsunda, says she was "astonished" when she saw the proposed designs for Putin City, which - with more than 10 stories (where three or four are normal) - she considered tall and ugly. "I realized that Russian security services gave us our independence in order to be able to decide what to buy and build in our cities," she says. Many young Abkhaz also feel concerned about the Russian elite buying up their proud, small state. "I do not think Russians understand that we are different; we do not want to be a KGB state again. We would never give our land back to Georgia, but to be independent, we mean from Russia as well," says Akhra Smyr, a youth community activist in Sukhumi. He and other irritated young activists shared with NEWSWEEK their frustration about how Russian tanks destroyed the roads in the Gali region and how their international phone code has become +7, the same as Russia's. Abkhazia's tiny military also feels steamrollered by the FSB, which has taken over controlling the border with Georgia. There are only two checkpoints (of more than a dozen) left under Abkhaz control, and some 120 Abkhaz officers have lost their jobs. Sixty were fired outright and 60 were turned into customs agents. "We are all war veterans," says the commander of Abkhaz border troops, Col. Lavrik Mikvabia. "We spilled blood for our freedom. The FSB border officers should remember that when they treat us as if we were their colony." It seems too late, though, for the Abkhaz to reconsider their pact with their powerful northern neighbor. Abkhazia's border with Georgia is secured by a full division of Russia's border guards, who answer to the FSB. Bright orange trucks - with the double-headed-eagle logo of the Russian Federal Construction Co. - crawl along the coastal roads, carrying sand and gravel for the seven-story buildings the FSB is building for the border guards and their families in Gali, a regional center on the border with Georgia. With so much Russian money being poured into Abkhazia, U.S. Secretary of State Hillary Clinton's calls for the Russian military's immediate withdrawal ring a little hollow. Never mind the ceasefire terms that ended the war, under which Moscow promised to withdraw. "Russia has just arrived," President Bagapsh told NEWSWEEK. The West should "stop having any illusions about what they call Russian occupiers leaving any time soon." [Maytisin/Newsweek/18August2010] 2b1af7f3a8