Beautiful coast awash with money hides poor and corrupt hinterland

Letter from Budva: Zarko Radulovic's family were not rich and two decades as a ship's captain were not lucrative, but today the Rolling Stones are staying at his hotel and he has no time to sail his pleasure boat.

Radulovic is a man of modern Montenegro, the world's youngest independent state, where a glittering patina of wealth and glamour masks pervasive poverty and corruption, and few people are benefiting from a quick-fire sale of swathes of the country to foreign tycoons and celebrities.

Radulovic's 10 floors of glass and pale stone now shimmer between Montenegro's pine-covered mountains and Adriatic shore, but the hotel's birth was far from easy: in 2005 three bombs exploded on the building site and the police investigator who found the culprits was shot dead.

"The local Mafia did it because this was the first big investment here by people who were not part of any lobby and had no 'protection'," said Radulovic in one of the hotel's marble-clad bars, which looks out across the beach and the bay to the famed island resort of Sveti Stefan. "When the explosions happened I realised how important it was for Montenegro that we succeed and we did succeed."

Businessmen show no sign of taking fright in Montenegro, particularly along a stunning coastline blessed with a balmy climate and a sprinkling of stardust from the days when Yugoslav leader Tito hosted the likes of Richard Burton, Elizabeth Taylor and Sophia Loren on Sveti Stefan.

The hotel is now being renovated by Singapore's Amman Resorts, and will reopen next year with prices prohibitive to all but the wealthiest visitors.

A dozen miles up the coast, Canadian gold mining tycoon Peter Munk is transforming a rundown naval shipyard into a €100 million marina complex for luxury yachts and, to the south at Velika Plaza near the Albanian border, several major international investors are preparing to bid for the right to build a multibillion-pound development beside the pristine 8km-long beach.

A year after the split with Serbia, local businessmen see today's Rolling Stones concert on a beach in the resort of Budva as a blessing from rock royalty for independent Montenegro, and hope it will raise the country's profile in the same way as Casino Royale, which took James Bond to Montenegro to play high-stakes poker (though the scene was filmed in the Czech Republic).

Catherine Zeta-Jones and Michael Douglas have looked at property around the walled town of Kotor, where racing driver Ralf Schumacher has already bought land according to several local agents, who say prices along much of the coast have quadrupled in the last two years.

And while scores of private Irish and British investors have recently snapped up flats and villas on the Montenegrin coast, Russian money is now the most prominent - and most worrying to the many Montenegrins who fear corrupt officials are selling their country for personal gain.

Dwarfing the other private jets this week at Dubrovnik airport in Croatia, just 20 minutes up the coast from Montenegro, was the Boeing 767 of Roman Abramovich, who has reportedly been scouting for a villa on the Adriatic and planning to invest in the Velika Plaza project. "He's in the area on his yacht, on holiday," said the Chelsea football club owner's spokesman, John Mann.

"The rumours that he is buying property in Montenegro are totally false."

Many rich Russian investors have placed money in Montenegro, however, raising fears that the fledgling country's banking system may not be capable of preventing money laundering.

"Montenegro is now a replica of 1990s Russia - corrupt privatisations, money disappearing offshore, authoritarian-style leadership and no accountability," says opposition leader Nebojsa Medojevic.

"It's no wonder Montenegrin tycoons established good connections with Russian tycoons - their style is just same."

"One side of the Montenegro coin is yachts, flashy cars, fancy villas, and the other side is destroyed industry, no jobs in the north, people moving to the coast for work," says Medojevic.

"It's unsustainable - we have 200 miles of coastline and can't build a luxury marina in every village." Budva's infrastructure is creaking under the pressure of mass tourism, but the council found more than €1 million to prepare Jaz beach for the Rolling Stones concert.

"I used to dream that Montenegro could one day look like Monte Carlo," said Radulovic as he awaited Mick Jagger, Keith Richards and the rest in his hotel - which is also partly Russian-owned. "Now I think that in 10 years, Montenegro will be better than Monte Carlo."

Medojevic and many other Montenegrins share a different vision, however. "Controversial world businessmen know that if they make deals with Montenegro's leaders, they will be protected here," he says. "They have found a beautiful little country in the heart of Europe where there is no rule of law - Montenegro is paradise for them."