The disintegration of the Soviet Union in 1991 broke the existing economic ties and caused political instability in the former Soviet republics. However, in Abkhazia as well as in other regions of the former Soviet Union, economic reforms and the market system started to develop despite numerous difficulties. Due to the fact, that Abkhazia had no large scale industry and was dependent on resort infrastructure and industrial processing of agricultural (subtropical) products, the Abkhazian economy could easily convert to the process of post-Soviet economic reforms. Unfortunately, the Georgian-Abkhazian war of 1992-1993 drastically changed the overall situation in the region.

I will not go into the details of which party in this war acted as the aggressors and which side used their natural right to self-defence. I would only like to point out that it was Abkhazia where the war was conducted and the zone of military operations covered nearly the entire Abkhazian territory. Almost all types of modern conventional weapons, including combat aircraft and navy, were used in the war. Direct war damage amounts to 10 billion US$, while the indirect loss appears to be hard to calculate. As a result of the war one of the most prosperous regions with enormous economic potential suffered a serious blow that set it decades back.

During the first post-war year of 1994, the gross national product in Abkhazia made up only 14% of the year 1988. The decline of industrial production constituted 93.2%; of the gross agricultural production - 75.3%. There was a 90% decrease in per capita income.

All the following years the economic growth in Abkhazia made up 15%-20% per year. However, due to the heavy consequences of the war, the Abkhazian economy continues to experience serious problems.

The economic blockade imposed on Abkhazia by Georgia with the help of third parties is accompanied by political, communication and informational isolation of Abkhazia. The consequences of such isolation are almost equal to the war damage. Quite understandably, there are many people who, not without grounds, believe that the Georgian-Abkhazian war is still continuing. The blockade, whatever its aims, did not contribute to the settlement of the conflict. On the contrary, it has only been aggravating the situation.

It is clear that Georgia's blockade of Abkhazia has quite specific goals: firstly, to make Abkhazia more pliable in negotiations and thus to try to bring Abkhazia back to Georgia's fold; secondly, to weaken Abkhazia economically with the aim to undermine her military potential, and in due course gain military advantage in a new war with Abkhazia; thirdly, to aggravate the internal political situation and instigate social disruption.

Both Russia and the West (each for their own reasons) support Georgia in her attempts to suppress Abkhazia. More than three years of such policies did not produce the desirable effect. Abkhazia did not give in, in fact, Abkhazia hardened her position. During the first post-war months Abkhazia signed a series of compromise documents, including the April 4 1994 Declaration on Measures for the Political Settlement. However, since then, despite continuous efforts to reach an agreement, the negotiations practically came to a standstill.

It is true that the economic weakening of Abkhazia was caused by the blockade, but it is also true that Abkhazia's military potential is not wholly and directly determined by the economic factor. The economic factor never played a decisive role in determining the military potential in any war in the Caucasus. Suffice it to look at the Russian-Chechen war, which was lost by Russia despite her overwhelming economic and military advantage. Of course, this does not mean that the economic factor is totally disregarded. In Abkhazia military expenditures are high and the possibility for Georgia to resume the war is not dismissed altogether here.

One has to admit that the economic blockade creates certain internal political problems in Abkhazia. But expectations that sanctions will cause internal conflicts and disruption have not been justified for the simple reason that external pressure and constant threat of war turn out to be powerful uniting factors for the society. They neutralize internal problems and keep them within manageable limits.

Economic problems and, what is more important, hostile actions on the Georgian part, hinder the return of refugees to Abkhazia. Moreover, the infrastructure that developed in the past few post-war years does not allow to increase the population drastically. In the conditions of blockade the life support system, including electric power, housing and municipal services, was not developing. It has been maintained through de-commission and the use of secondary material resources. Should the population of Abkhazia increase dramatically through a mass return of refugees, the whole population will be left without power, water or sewage system. Without major investment in the infrastructure the return of refugees becomes technically and ecologically impossible. This is a serious issue that unfortunately is seldom raised.

For several years already Abkhazia has been demonstrating to the entire world her ability to survive in extremely difficult conditions. Despite numerous problems and enormous hardships, the process of building a new democratic state continues here. The explanation to this fact is quite simple: the aspiration of small nations for freedom and happiness is just as strong and justified as that of big nations.

It seems important to note that the national and political system and structure of the former USSR was never in correspondence with Caucasian traditions. In the Caucasus all nations (peoples) are equal irrespective of their numbers. Historically, at different periods of time, the Caucasus was part of or in the sphere of influence of various empires: Byzantine, Ottoman, Russian, and later Soviet. Always it was a third party, a Big Power, that could force the peoples of the Caucasus (through bloody wars, as a rule) to become part of or subordinate to another state. Inside the Caucasus, however, one nation could never bring under her rule the other. In that sense, the Georgians are not regarded by Abkhazian or, for that matter, Ossetians, as a serious enemy, a force capable of subjugating them. Neither the Azeris for Nagorno-Karabakh. The imperial structure within the Caucasus is the innovation of the Soviet period, when one republic was made part of the other, as in the case of Abkhazia-Georgia. This structure was imposed by the powerful Soviet Empire.

Therefore the break up of the USSR, i.e. of the power that created the so called "autonomous republics", inevitably lead to the collapse of the system alien to the Caucasus: the system whereby one people were dominated by the other. In the South Caucasus this process involved almost the whole region. In the North Caucasus the process is at its initial stage. Chechnya was the first to break away. For the rest of the North Caucasus Russia still maintains its role of a big external power strong enough to subdue the old Caucasian tradition. In the zone of the Georgian-Abkhazian conflict, however, Russia's influence is weakened by the mere fact that the region is outside Russia's territory. Considering the above one can draw the conclusion that Abkhazia could be forced back into Georgia only if another big world power, comparable to the former USSR, appears on the scene. Today's Russia is not capable of assuming this role. As for Abkhazia, the republic even at the time of the severe Soviet regime was famous for mass protests, that occurred practically every decade, against Georgian domination and the imperial hierarchy of the Soviet system.

Hypothetically, a third power could emerge, but the question is whether it is going to be in the interests of that power to follow the routine of the old empires and dominate by force without taking into consideration the established Caucasus traditions. However, time will put everything in its place.

As it was mentioned above, the economic factor in the Georgian-Abkhazian conflict no doubt plays an important role, but it is not decisive. Major strategic patterns for the economic development of Abkhazia can be designed only on the basis of a particular scenario for a peaceful settlement. Possible ways of resolution, without mentioning transitional forms, could be summarised as follows:

1. Abkhazia becomes part of Georgia in one or another form. As it was pointed out above, this type of settlement requires intervention of a powerful third party, that will dictate the rules. Abkhazia, situated on the Black Sea coast, will become an economically favourable region, while the Abkhazian-Georgian conflict will still remain unresolved and, though latent, will constantly come to the surface.

2. Abkhazia becomes part of Russia on particular conditions. The economy of Abkhazia will depend on the situation in Russia. Provided that the situation is stable, the level of economic development in Abkhazia will exceed the average Russian level. The Georgian-Abkhazian conflict will remain settled as long as Russia has strong influence in the region.

3. Abkhazia is an independent state. The existence of such a state is possible if it is a recognized neutral state with international guarantees, or if as a sovereign state it becomes part of the Caucasian Confederation. From the point of view of the economic development this is the most promising option for the future of Abkhazia, since it creates conditions for political stability and exploitation of her geographical situation, climate and economic potential. Just as small European sates (like Malta or Monaco) successfully use all their advantages, Abkhazia which is situated at the junction of Europe and Asia, of the North and the South, can develop into economically favourable prospering region by conducting balanced economic policy, creating free economic zones and providing a "tax paradise" for investors.