A village tyrant spells out his dream for the Serbs

Exclusive: Radovan Karadzic, the Bosnian Serb leader, tells Lindsey Hilsum of his plans for 'a new Hong Kong'

"If I get killed or captured, my people will still have a spirit, but if I step down they will not," said the man blamed for blocking Bosnia's progress towards lasting peace. "I would never do it."

While diplomats fulminated against him at a conference in Florence last week, Radovan Karadzic was organising his henchmen and dreaming of building a "Serb Wall Street" in his mountain enclave. The president of Republika Srpska - the Serb entity within Bosnia Herzegovina - was not invited to the gathering to review the Dayton Accords which halted the war in Bosnia six months ago. As an indicted war criminal, alleged to have ordered massacres and ethnic cleansing, Mr Karadzic risks arrest if he steps outside Srpska. He is a pariah, "a provocation to the international community", Carl Bildt, the top official implementing the civilian side of Dayton, told the conference.

But Mr Karadzic refuses to go quietly. Last Monday, he strode into his office in the mountain village of Pale, 10 miles from Sarajevo, with the confidence of a man who has heard many threats to oust him, but seen none translated into action. Nato-led peace enforcement troops patrol within a few yards of his haunts, but make no effort to arrest him. "I see them from time to time at a distance," he said. "But I have a way to avoid any checkpoint. This is my country."

Not that he is entirely immune to pressure, but he always tries to mould it to his own purposes. Pressed by Mr Bildt to stop flaunting his power, he delegated public duties to his utterly loyal and equally extreme nationalist vice-president, Biljana Plavsic. The same diplomats who refuse to deal with him now refuse to talk to her. Under an agreement with Mr Bildt's office, Mr Karadzic is not supposed to make official statements or media appearances so he declined to give a televised interview and described our meeting as "unofficial". His aim in talking to us appeared to be to show that while he may be quieter, his power is undiminished, and he does not intend to relinquish it.

"I control everything," he said, pausing his rapid-fire discourse periodically to deal with his secretary. He sat at a mahogany table in a large carpeted office, decorated with icons of Serb nationalism. He picked at a bowl of wild strawberries - more difficult to get these days, he said, because of landmines. A well-built young man with a pistol in his jeans pocket prowled the room.

In the adjoining office, representatives of his Serbian Democratic Party were gathered. Under Dayton, indicted war criminals may not stand for elections due in September. Mr Karadzic calls the provision "unlawful", but is ensuring that his loyalists are in position, so that if he does not run for office he can control everything from behind the scenes. So tight is the party's hold on the media and all institutions in Srpska, and so intense the siege mentality of the people, that the chances of any other party gaining a foothold are remote.

He breezily denied being a war criminal, but would not go to the international war crimes tribunal in The Hague, because he did not believe he would get a fair trial. Dismissing overwhelming evidence of his involvement in atrocities, he said he had once issued an order forbidding Bosnian Serb soldiers from abusing human rights. Although there had been killing after his troops overran Srebrenica last June, he denied eyewitness accounts of senior commanders giving instructions to shoot. It was not a slaughter organised by the army, he said, but revenge attacks by Bosnian Serbs whose relatives had been killed by Muslims earlier in the war.

"The Posavina corridor is crucial. We can't survive without it," said Mr Karadzic, referring to one of the most bitterly disputed areas in Bosnia, which connects Srpska to Serbia but which the government in Sarajevo still claims. "Now the Muslims would like to make Brcko an outstanding area, they might try to cut us off here. That would be disastrous for peace. But we do not intend to fight unless we are attacked."

But Mr Karadzic did not really want to talk about war crimes or politics. He wanted to talk about turning the quiet red-roofed village of Pale, where his support is strongest, into a major financial and industrial centre.

Pulling out a pointer from his breast pocket, he jabbed at a map on the board behind him. "This is Pale. Here," - indicating an area coloured pink - "we'll have the business centre, a Serb Wall Street. There'll be a stock market, two hotels and a banking area. Here's the main square, church and theatre. Blue is the residential area and yellow, industrial."

The next map showed all of Srpska, with blobs representing a planned oil refinery and power stations, and the route of a proposed 150-mile road and railway. "I'll give anyone the concession. This is a new small country... if it can't be a European Hong Kong, then something better."

Mr Karadzic's fantasy of a happy, prosperous, internationally recognised, ethnically pure Bosnian Serb republic is unlikely to be realised. He has enemies inside Serb nationalism - not least President Slobodan Milosevic of Serbia, who would like to see him stripped of power and unable to influence events - and the republic of Srpska is more like Gormenghast than Hong Kong. All the same, the dream has a dangerous edge which could still threaten the uneasy peace delivered at Dayton.

8 Lindsey Hilsum is Diplomatic Correspondent of Channel 4 News.