President Bush proclaimed Georgia a "beacon for liberty" when he visited Tbilisi in May. Georgia has certainly made great progress since people power overthrew the corrupt and incompetent regime of Eduard Shevardnadze in 2003. Nevertheless, clouds are dimming the light of that beacon.

There is something amiss, for example, when none of Georgia's television stations ever criticises the country's charismatic, popular, 37-year-old president, Mikhail Saakashvili, and most of them carry his speeches and press conferences live and at full length. The problem is self-censorship by journalists who know that the businessmen who control the TV stations have close links with the government. (The written press is more critical.)

Another problem is the criminal justice system. Human Rights Watch says that "torture and ill-treatment in pre-trial detention remain widespread", while Georgian NGOs complain that some of those arrested for corruption are targeted for political reasons, and that the law is not applied equally to all. In the words of one western diplomat: "Until an indepen-dent judiciary is established, and the law-enforcement agencies become accountable and lose their sense of impunity, the rights of the individual vis-a-vis the state will not be protected."

Saakashvili is trying to transform his impoverished country (with a per capita gross national income of $830, or £450) from the top down. He has changed the constitution to give the presidency more power, for instance over the appointment of judges. He and his key advisers and ministers - most of them aged under 35 - have achieved a great deal in 20 months. Free and fair presidential and parliamentary elections have been held; serious efforts are being made to tackle corruption; top officials have had large pay rises, and thousands of corrupt policemen have been sacked. The government has squeezed businesses to start paying taxes and thus greatly increased its budget.

But the government writ extends to only 80 per cent of the country, because the regions of Abkhazia and South Ossetia resist rule from Tbilisi. The obvious solution would be for both to have autonomy within Georgia, but Russia is blocking this. Neither region could survive without Russian supplies and troops, and President Vladimir Putin, who regards Saakashvili as dangerously impulsive, seems in no hurry to grant him the "triumph" of winning back the two enclaves.

Saakashvili has made it his priority to join Nato and the EU: every public building flies the EU flag, and he has bought George Bush's goodwill by sending troops to Iraq. In return, both the US and the EU are pumping in aid. The US backs Georgian membership of Nato, which could be feasible in five years. EU membership, however, was never a likely prospect, and is now - with the recent referendums having virtually killed off the prospect of enlargement - implausible. But the EU sees Georgia as part of its new "neighbourhood policy", under which Georgia promises more reforms in return for more trade, aid and political contacts.

All this is useful. However, the EU could be of greater help by taking an initiative to resolve the South Ossetian and Abkha-zian conflicts. So long as they persist, Georgia will spend too much on its army, its relations with Russia will be tense and a resumption of fighting will be likely. Some Kremlin officials seem to understand now that Russia needs to be flexible on such issues. The EU could best help by working with the Russians to broker settlements for both regions.

Charles Grant is director of the Centre for European Reform