* Saakashvili’s NATO and territorial ambitions reined in
* Pressure from home and abroad for democratic reform
* Economic downturn looms, new war not impossible
By Matt Robinson
TBILISI, July 27 (Reuters) - It would be a stretch to say Mikheil Saakashvili has been humbled. But almost a year after Georgia’s war with Russia, the flamboyant president, like his country, cuts a more modest figure.
The five-day war dashed the former Soviet republic’s hopes of taking back control of the rebel regions of South Ossetia and Abkhazia and slammed the brakes on NATO accession.
With his greatest ambitions curtailed, Saakashvili is now under pressure at home and abroad to build the kind of democracy he promised with the "Rose Revolution" that swept him to power in 2003.
"I have not come here today to announce that things are easy or to report how great our achievements were," he told parliament last week, in words that could very well set the tone for the rest of his presidency, due to end in 2013.
The address, billed as a keynote speech, did not repeat the promise made when he won re-election in early 2008: to restore control over the breakaway territories and take Georgia into NATO as the ultimate security guarantee against Russia.
Instead, Saakashvili spoke of re-balancing power between parliament and president, and the need for free media and independent courts -- a response to a spring of discontent that saw tens of thousands take to the streets against him.
"The occupied territories ... are of course part of ... the political discourse in Georgia, but in a very different way than a year ago or two years ago," said a senior European diplomat.
"They’re not on the political agenda for any immediate action, and that’s very different from what Saakashvili promised when he started his second term as president ...
"It’s evident that any kind of NATO accession process is a more distant prospect than it was before August."
Russia’s blistering counter-strike crushed a Georgian assault on South Ossetia within five days last August, its tanks pushing deep into Georgia proper and shaking Western confidence in the country as a safe transit route for Caspian oil and gas.
Russia recognised South Ossetia and Abkhazia as independent states, and its troops hold the heights of South Ossetia, some 50 km (30 miles) from Tbilisi at the nearest point.
The West condemned Russia’s "disproportionate" response, but recoiled at further talk of speedy Georgian accession to NATO.
Russia sees accession as an encroachment on its borders, and there is unease among some European states about Saakashvili’s unpredictability and his chequered record on democracy.
EU and NATO dialogue with Russia was suspended, but restored months later. Critics said Saakashvili had put too much faith in the readiness of his Western allies to stand up to Russia, the key energy provider for much of Europe.
"This government has a huge amount of faith in Euro-Atlantic integration and the implicit deterrent effect on the Russians of its relationship with the West," said Svante Cornell, research director at the U.S.-based Central Asia-Caucasus Institute.
"Many of us were surprised to what extent the West did not respond to these expectations. I don’t think the government has any choice but to adapt its policies to the new realities."
Visiting Georgia last week in a show of support, U.S. Vice President Joe Biden said there was no quick fix to Georgia’s territorial integrity. "It is a sad certainty, but it is true, that there is no military option to re-integration," he said. [ID:nLN234010]
CALLS FOR DEMOCRACY
Beholden to the West to the tune of $4.5 billion in post-war aid and loans, Saakashvili is also under pressure to answer calls within Georgia and from the West for greater democracy.
Biden told Georgian lawmakers that they should address the balance of power between the parliament and the executive, level the electoral playing field and ensure free media and courts.
"Your Rose Revolution will only be complete when government is transparent, accountable and fully participatory" he said.
At home, the 41-year-old leader of 4.5 million people has weathered a months-long opposition street campaign, which limped to an end last week. [ID:nLO501339]
But mass protests against his virtual monopoly on power have become an annual occurrence.
And discontent is likely to grow as an economic downturn starts to bite, with GDP forecast to contract 1.5 percent this year and foreign investment in the first quarter of 2009 down more than 75 percent from the same period last year.
Analysts and diplomats say the protests could return with a vengeance if Saakashvili does not make himself more accountable.
That is not to say new hostilities can be ruled out.
In strong words coinciding with Biden’s visit to Georgia, Russian Deputy Foreign Minister Grigory Karasin accused Georgia of re-arming and vowed "concrete measures" to cut off supplies.
Diplomats say they believe Saakashvili’s ambitions to take back the rebel territories have been snuffed out, but Russian determination to see him ousted could yet to lead to new war.
"There are certainly those in Moscow who think that the task from last year was never accomplished, the real hardliners," said the senior diplomat.
"Maybe some even harbour a sense of humiliation since they did not succeed in removing Saakashvili." (Editing by Kevin Liffey)