USAID Mission to Poland

Europe & Eurasia

>> E & E Home >> Poland >> SEED Reports >> 1999

Success Stories Assistance Areas SEED Reports Contact Information Last updated: 33     1999 POLAND INPUT INTO THE 1999 SEED REPORT Political Developments Poland is a parliamentary democracy based on a multiparty political system and free and fair elections. The President shares power with the Prime Minister, the Council of Ministers, and the bicameral Parliament, made up of a lower house (Sejm) and upper house (Senate). Poland's constitution of October 1997 enshrines sweeping liberal-democratic rights including freedom of speech, press, association and religion, and guarantees civilian control of the military. Poland has held two presidential and three parliamentary elections since the fall of the communist regime in 1989. The current government, formed after the September 1997 parliamentary elections, is composed of Solidarity Electoral Action (AWS) - - a grouping of rightist, center-right, and Christian-national parties anchored by Solidarity's "Social Movement" (the political arm of the Solidarity Trade Union) - - and the centrist Freedom Union (UW). This coalition holds 246 of the Sejm's 460 seats and 60 of 100 seats in the Senate. The government is continuing the basic foreign policy of its predecessors toward closer integration with the Euro-Atlantic community, including membership in the European Union (EU). On domestic policy, it is seeking to speed the pace of privatization and in 1999 launched major social sector reforms in education, health care, social security and local government. Local elections held in October 1998 were an important step in shifting significant authority from the center to local governments in several spheres of civic administration. Poland joined NATO in March 1999. Under the constitution, the President exercises command of the armed forces through the civilian Defense Minister, who has clear command and control over the military Chief of General Staff and oversight of military intelligence. Growing numbers of Polish officers train in American or NATO institutions, further entrenching principles of civilian control over the military. As a NATO member, Poland is already providing forces to the Alliance's immediate rapid reaction and main defense forces, as well as to NATO's integrated air defense. It has made an important contribution to allied operations in Kosovo and elsewhere in and around the former Yugoslavia, where there are currently a combined number of approximately 1,600 Polish soldiers serving in the SFOR and KFOR operations. Poland has also contributed civilian advisors and military personnel to 15 other international peacekeeping operations. Poland is making an important contribution to regional stability and is an active participant in NATO's Partnership for Peace Program. It has extensive cooperation agreements with neighboring states and has formed peacekeeping battalions with Ukraine and Lithuania. Poland also supports the development of the Baltic countries' armed forces through cooperative programs.   Economic Developments Ten years after it launched its transformation to a democratic, free market country, Poland stands out as one of the most successful and open transition economies in Central and Eastern Europe (CEE). The Economic Bank for Reconstruction and Development (EBRD) in late 1998 rated Poland and Hungary as the two countries most advanced in the transition process. Even with the financial turmoil in the emerging markets, all three of the major credit rating agencies (Standard and Poor's, Moody's and Fitch IBCA) have evaluated Poland positively. Each has given Poland an "investment grade" sovereign credit rating. Poland's bold reform efforts have paid off. The economy grew by 6.8% in 1997, 4.8% in 1998. However, growth is expected to slow further in 1999 to around 3.5 to 4 %, as Poland continued to feel the effects of the economic slowdown in Russia and Western Europe. Most forecasts point to an improvement in 2000, with growth around five percent. (The Polish government forecast is 5.2 %.) In 1999 the Polish government launched several large structural reform programs. On January 1, 1999 a new system of local administration was introduced, with much political and some financial authority devolved to regional and local governments. At the same time, the pension and health care systems were being significantly reformed. The pension system will rely increasingly on investments in private pension funds, both reducing the burden the social security system places on the central budget in the longer term and increasing the depth of Polish capital markets. The health care reform involves the introduction of HMO-like regional organizations and freedom of choice among competing providers. Further, the government introduced a revamped educational system in the fall; has embarked on a coal sector restructuring program that is aimed at closing inefficient mines, reducing excess labor, and returning the sector to profitability by 2002; and unveiled a "Pact for the Countryside" to improve the efficiency of Poland's agricultural sector and generally expand economic opportunities in rural areas. Privatization continued in 1999 with the sale of several large banks and other financial institutions, as well as preliminary steps in the privatization of the national airline and the telephone company. In late 1999 the parliament was debating a major tax reform proposal designed to reduce both rates and deductions and thereby improve the investment climate. However, inflation dropped significantly in late 1998 and early 1999; after holding steady through most of the summer, year-on-year inflation stood at 6.3 % in July. However, the month-over-month consumer price index has been increasing since then reaching 8.7 % in October. The increase has been attributed largely to structural factors, including increasing prices for food because of government intervention and energy because of international crude oil increases. Most analysts expect inflation to continue rising into the first quarter of 2000 before falling again. The government in November moved decisively to tighten monetary policy in order to dampen inflationary expectations which could threaten the target for December 2000 inflation in the range of 5.4 to 6.8 %. The government is also confronting a large increase in the current account deficit, which could reach seven percent of GDP in 1999, up from 4.3 % in 1998. This stems from both the weakness of Poland's largest export markets in Western Europe, and from the strength of the Polish zloty through autumn 1999. The government continued to focus on tightening the budget in 1999, with the deficit still officially estimated to be about 2.1% of 1999 GDP (national budget only, not public sector deficit). However, transition costs associated with the introduction of the pension and health reforms have increased off-budget spending in 1999. With local spending, the public sector deficit is estimated at about 3.5% of 1999 GDP In contrast to global financial crises during 1998 that led to reversals of macroeconomic stabilization elsewhere, Poland continues to evolve toward economic modernization. Several factors have helped insulate Poland's economy from crisis: Poland's early and deliberate plunge into a market economy without delay or restraints; its shift in export orientation toward the West (two-thirds to the EU) rather than the East (under 10% to Russia); stock exchange capitalization that is majority domestic (60% compared to just 5% domestic capitalization in Russia); and well-entrenched long-term foreign investment (an estimated $30 billion by the end of 1998). The government certainly faces short- and medium-term challenges in managing the current account deficit, restraining inflation and reducing the fiscal deficit, implementing the reforms required to further promote investment and job creation, and completing the arduous task of harmonization for accession to the European Union. Yet, just ten years after it became the first country in eastern Europe to reintroduce democracy and a market economy, Poland has in place the fundamentals which can provide the basis for long-term economic growth and full integration into the global economy.  SEED ASSISTANCE PROGRAM OVERVIEW PROGRAM OBJECTIVES The SEED program in Poland is in its final year. With the exception of the Local Government Partnership Program (LGPP) which ends in FY 2001, the Loan Portfolio Guarantee Program (LPGP) which ends in FY 2003, and the Development Credit Authority which ends in FY 20009, the SEED program in Poland will officially graduate at the end of FY 2000. The program has been highly effective by all accounts. It has made critical and significant inputs into the development of one of the most stable democracies and effective and open transition economies in CEE. USAID began its program in Poland in 1989, at the time when the country reintroduced democracy and a market economy. Since then it has implemented slightly more than 200 projects at a cost of approximately one billion dollars. The program has gone through two stages. As indicated in last year's SEED Report, the first stage focused on pulling Poland out of recession and transforming the wealth-making structures of the economy. From 1989 through 1996, large-scale efforts such as debt restructuring, the Polish-American Enterprise Fund and the stabilization/bank privatization fund were undertaken to achieve those objectives. In 1996, SEED activities were refined and organized into three strategic areas: Stimulation of the private sector at the firm level to develop the private sector in Poland by: 1) ensuring laws and regulations are conducive to the growth of small and medium scale enterprises (SMEs), including the creation of a market-oriented energy sector; and 2) supporting a number of indigenous institutions required to maintain long-term assistance to the business sector. SEED efforts under this objective have included technical assistance to SME support institutions and consultants, as well as regulatory and judicial reform; management training; U.S. and Polish MBA programs; and energy saving technologies. Building a competitive, market-oriented private financial sector to help Poland develop a sound, efficient financial sector with: 1) well-functioning supervisory and regulatory structures over financial markets; 2) access to reliable financial information; 3) a competitive banking system dominated by private banks and other financial institutions; and 4) availability of basic financial products and services. SEED assistance has also been targeted on the new private pension funds system. Making local governments more effective, responsive and accountable by enhancing their ability to better mange their resources and to build the capacity of support organizations to assist local governments in improving management practices such as strategic planning and task based budgeting. The three main strategic objectives have been complemented by a combination of special initiatives carried out by several U.S. government agencies including: Department of Energy (DOE) and the Environmental Protection Agency (EPA) enhancing environmental protection; Department of Labor (DOL) assisting workforce development in Silesia's "rust belt"; Department of Justice (DOJ) modernizing the criminal justice system; Treasury assisting a tax administration pilot effort; State Department's (formerly USIA) Democracy Commission; and Peace Corps' small grants. In addition, a number of special initiatives have been put into place to support the Government of Poland's ambitious social sector reform program. Cutting across several strategic objectives, a number of USAID/Poland's activities have been contributing directly to reformed social sector programs and policies over the past several years. These include: passage and promotion of pension reform legislation; joint Harvard/Jagiellonian University development of health management systems for Krakow, that are now scaling up nationally; the DOL worker adjustment program that is assisting the GOP coordinate the social and economic dimensions of mass layoffs; administrative reform assistance to help local governments deal with new social sector implementation responsibilities; and a new strategic communications activity to enhance the GOP's outreach to the Polish public, affected interest groups, and other "stakeholders" involved in the recent social sector reforms (pensions, health, education and administration). As the concluding chapter to the SEED program in Poland, USAID/Poland will continue to focus attention on the two new themes introduced last year in support of heightened GOP interest in assuming the role of a model for other transition countries and its social reform initiatives. The former will be addressed through USAID support to the recent launching of the Polish Know-How Foundation, together with the Freedom Support Act (FSA)-funded ten million dollar Poland-America-Ukraine Cooperation Initiative (PAUCI). The latter will focus assistance on more effective GOP coordination of the recently introduced social reforms, and on strengthening two-way communications between government and the public. PROGRAM IMPACT IN FY 1999 Economic Growth Poland continues to suffer from the impact of Russia's 1998 financial crisis and recent weak growth in Western Europe. Real GDP growth in the first half of 1999 amounted to only 2.6 percent, well below the average six percent annual growth recorded over the past five years. Estimates for 1999 are in the 3.5 % range, and increasing to about five percent in 2000. The Polish economy's ability to emerge relatively unscathed from the turbulence which has rocked developing markets since 1997 reflects, in part, the success of the transition to date, the increasing depth of economic resources, and Poland's relatively strong reputation among financial markets. Long-term investment inflows maintained the pace of the previous year, with about five billion dollars in direct foreign investment in the first six months. Private Sector Growth For the past five years, SEED support to Poland has provided the country's SMEs with an institutional and regulatory environment that allows them better to face the competitive shock expected with EU accession. SEED-funded technical assistance has improved the capacity of the GOP and Polish Parliament to understand business needs and work with business associations. It has improved the professionalism of consultants and business support organizations, and increased cooperation between maturing technology transfer centers and local authorities to assure financial and technical support for innovative businesses. As a result, state-of-the-art business education institutions are now providing entrepreneurs with first-rate training and joint-degree MBA programs. In FY 1999, SEED-funded assistance providing for legal and regulatory reform in the fields of commercial law ended. Technical assistance was provided in the drafting of legislation and follow-up advocacy efforts with parliamentarians that resulted in the passage of a new Law on Economic Activity. This law will substantially reduce the number of administrative concessions required to carry out business in Poland. The changes were brought about through an unprecedented series of consultations between the GOP, Parliament and business associations. SEED-funded technical assistance, training and research on key issues allowed the SME Parliamentary Committee to gain stature and experience to intervene on behalf of small business. Various business associations also received advisory services and learned to coordinate their efforts in bringing about legislative change, skillfully tackling such contentious and politically charged issues as labor legislation and corporate taxation. However, continued concentration by the Ministry of Finance on possible changes to tax rates and policy issues - rather than on tax administration - have hampered efforts by U.S. Treasury advisors, working with the GOP and some of its regional tax offices, to improve auditing of tax payers, collections, and the quality of tax payer services. SEED funding of the American Bar Association’s CEELI program also ended in FY 1999. Over the past seven years it has provided expert advice in commercial and criminal law issues including assistance to the GOP to carry out an assessment of the insurance code for the Ministry of Finance, as part of a revision of the legal framework regulating the industry; and institutional development support to an institute specializing in intellectual property rights and lawyers’ associations. CEELI also provided assistance that resulted in the establishment of an association of Polish judges. The association currently has a membership of 1,500, which is approximately 25% of Poland's judges. The association provides training for judges thus strengthening the professionalism and independence of the judiciary. SEED-funded support to Poland’s business support organizations during FY 1999 was highly notable. First, the need for an association bringing together Poland’s women entrepreneurs was recognized and acted upon. (The remarkable contribution of women to Poland’s economic success is only slowly coming to light, although the proportion of businesses owned by women has grown from 3% to almost 40% since commencement of the country's transition process.) SEED funding has provided institution-building assistance to the association that promotes entrepreneurship among Poland's women. In addition, progress was made in making regional governments, newly empowered to fund economic development initiatives, aware of the funding needs of maturing technology transfer and manufacturing extension centers. SEED-funded technical assistance has also enabled those centers to improve their client outreach and marketing efforts in support of innovative small businesses. One of three Polish universities receiving SEED support (visiting professors, faculty development and distant learning equipment) to provide high-quality business education courses, graduated from the assistance program in FY 1999. SEED assistance has led to the establishment of a joint degree MBA program offered by the University of Minnesota and the Warsaw School of Economics. This program, completed by 105 students (39 of them in FY 1999), is now fully sustainable. There are currently 85 students enrolled in the program. In addition, the Universities of Maryland and Lodz continue to improve their distance learning facilities, and through compressed video links and faculty development, have managed to bring business training courses to over 1,000 participants during FY 1999, including 30 who obtained an MBA degree. Almost 100 students completed business courses in Olsztyn, with another 30 participating in the new public administration program provided in cooperation with the University of Minnesota. USAID and University of Minnesota support (faculty and curriculum development) to Olsztyn’s agricultural college has made a significant contribution to the elevation of the Olsztyn institution to university status in the summer of 1999. SEED funding has also been supporting ever-increasing numbers of start-up and micro businesses through the Polish-American Enterprise Fund’s Fundusz Mikro micro-lending program. The program has now provided 26,000 loans whose total value exceeds $45.0 million and is considered by many to be one of the most successful assistance programs in transition countries in CEE. Given its success, a high-level delegation from Ukraine, including the heads of the National Bank and the Small Business Committee, visited Poland during the summer of 1999 to learn about the program in order to introduce a similar effort in their own country. FY 1999 also saw the conclusion of SEED-funded assistance to the CASE Foundation, one of Poland’s leading macroeconomic think-tanks. The two-year research program addressed future reform requirements and the need for more liberal labor market policies to create employment for the projected large number of entrants expected over the next decade. GOP initiatives in this direction have been facing concerted trade union opposition and the research results provided by CASE efforts have provided further underlying support for enactment of GOP policies. CASE also continued its strong presence in other transition countries, including Ukraine, Moldova, and Belarus, in part, supported through Freedom Support Act funds. Environment and Energy January 1999 saw the first stage of deregulation of electricity and heat prices, although the increases were limited administratively to 13% and 15% respectively. SEED-funded support to the new Energy Regulatory Authority (ERA), which included advisory assistance on deregulation, institutional development, information systems and tariff setting, has enabled the Authority to meet its statutory obligations in deregulating the energy market. Upon completion of the concession process encompassing all participants in the electricity and heat industry, the ERA set about implementing the first round of tariff negotiations and approvals. The Authority, and its nine regional offices, employed a SEED-funded management information system for this process. With support from U.S. and Polish experts, the Authority resolved inconsistencies in implementing regulations that had led to widespread criticism of the deregulation and reform process. When SEED support to the ERA ended in FY 1999; the Authority was poised to manage the full deregulation of prices in 2000. In order to ensure the success of energy deregulation, USAID continued to provide support during FY 1999 to the energy regulator, industry and end-users. Technical assistance on least-cost planning for heat and electricity utilities went hand in hand with demand-side management training for industrial and municipal customers. Sixty members of a regional association of heat utilities also received training to lead them through the complex tariff process. They were provided with least-cost planning and tariff structure models and software that allows them to operate in the newly deregulated market, calculate justified costs, and set reasonable profit levels. In addition, training on low-cost energy efficiency improvements and renewable energy sources was provided by a Polish NGO to Ukrainian visitors. FY 1999 also saw passage of the Thermomodernization Law and all secondary legislation, as a result of SEED-funded technical assistance that established the manner in which the reform was structured. To further support implementation of the law, assistance was provided to six municipalities including city-wide energy efficiency audits, demonstration low-cost investments in public housing and public buildings, thus leveraging over $200,000 in investments from city authorities. Through the new Development Credit Authority mechanism, an investment of $350,000 of SEED funds will provide loan guarantee coverage of up to $10 million for 50% risk-sharing guarantees to the BISE Bank for thermomodernization loans to private sector borrowers. These efforts combined to improve the quality of housing stock, raise energy efficiency, and reduce pollution, in particular green house gas emissions. A major effort to reduce pollution also continued under the Cracow Low Emissions project, implemented jointly with the Department of Energy. During FY 1999, over 100 low emission sources were eliminated, over 8,500 home stoves were converted to electricity, and work was begun to modernize the heating system at the Polish-American Children’s Hospital. At its conclusion, the project will have eliminated 90% of the low emission sources in Poland’s historic capital. Another major action during FY 1999 was the conclusion of negotiations with the GOP for a five million-dollar grant to mitigate climate change in response to legislative and policy reforms that enhance the prospects for environmental protection and greater energy efficiency. This program grant assistance helps to lay the groundwork for Poland's accession to the EU. The proceeds of the grant are to be used to finance the importation of energy efficiency or environmental protection and mitigation equipment manufactured and assembled in the United States. The technical expertise imparted under a series of activities implemented in cooperation with the U.S. Environmental Protection Agency has provided Polish organizations with the capability to absorb funding from the European Union's Instrument for Structural Policies for Pre-Accession (ISPA) to address the estimated $40 billion environmental clean-up facing Poland. These activities, most of which ended in FY 1999, include: water management training and a public awareness campaign in Cracow; management of mining waste, biosolids, and hazardous waste; and development of local environmental action plan projects with select municipalities in support of local government environmental investments. Financial Sector and Pension Reform The region’s financial sector needs technically proficient and independent regulators to avoid the financial crises that have rocked many emerging economies over the past two years. Poland’s banking supervision inspectorate and securities and exchange supervisory authorities have been beneficiaries of substantial SEED assistance to date (e.g., design and remedial actions applied by the inspectorate to assess and address the Y2K preparedness of Poland's banks). Polish regulators are now widely recognized as having contributed significantly to Poland's reputation as a safe location for investment. To ensure the institutionalization of the bank supervision process, and the regulation of Poland's financial system, SEED assistance will continue to be provided both to the inspectorate and the pension regulator. Given the effective bank supervision operation of the National Bank of Poland, and its demonstrated strong performance during FY 1999, plans are underway to institute a regional training center for bank supervisors in Warsaw. The validity of this proposal is underscored by the fact that Poland's bank supervision operation is already providing assistance to its counterparts in neighboring countries of the region and as far away as Kazakhstan. In January 1999, implementation of Poland’s pension reform began. As a direct result of SEED assistance, the pension regulator, UNFE, has emerged as a reliable and effective guarantor of the principles of security and soundness in the Polish financial market. Over $4.5 million in SEED funding has been targeted to build the regulator’s capacity, and to support a public education campaign in support of pension reform. The GOP's perception of the frail nature of the existing pay-as-you-go system is widely shared by the Polish public who have embraced the new private funds, exceeding estimated initial participation in the system by nearly 50%. SEED technology assistance to Poland’s payment system was completed in FY 1999 and played a major role in the dynamic development of the sector. As a result, Poland is beginning to change from a cash-based society to one familiar with sophisticated electronic payment systems, with extensive use of ATMs, growing circulation of credit and charge cards, and new, information-based innovative products and services (electronic banking, 24-hour banking, and internet banking). These technical innovations in banking services, together with an increasing number of financial instruments available to customers, combine to facilitate the integration of Polish businesses into international trade and services. One of USAID’s main partners in financial sector reform, and a former recipient of SEED-funded institutional development assistance, the Warsaw Institute of Banking, continues to work closely with Poland’s leading financial institutions. The Institute’s expertise in risk management, which is widely recognized, will soon assume greater importance for the sector as a whole as local banks adjust to the Basle Committee's new banking operations principles and learn to use the newest instruments limiting banking risks. Training bank managers in these principles will improve the safety of banking operations and improve Poland's standing as a reliable and secure member of the international banking community The Central European Rating Agency (CERA), a private Polish enterprise providing investment ratings, also graduated from SEED assistance in FY 1999. As a result of the assistance provided, CERA is capable of producing reliable publications and business ratings that provide investors with important investment risk information. CERA has also become a sustainable and influential organization producing innovative products. Together with the BRE bank, it pioneered the first securitization transaction in Poland thus providing businesses with greater access to investment capital. Given its reputation for independent risk assessment, it is used by domestic and foreign investors for research and consulting assignments. In FY 1999, SEED-funded technical assistance to Poland’s credit unions also came to an end. As a result of that assistance, over 250,000 lower-income people have easier access to banking and insurance services, whose outlets are located in companies’ compounds or in local parishes. With the assistance provided, the credit union movement developed its own training program and risk management structures, and started to share its experiences with similar institutions in Ukraine and the Czech Republic. Eight years of SEED assistance to Poland's housing finance sector was also effectively completed in FY 1999. By working with the Polish Banks Association, the National Bank of Poland, the Ministry of Finance and the Housing and Urban Development Authority, U.S. advisors have helped to create a well-balanced and dynamic housing finance system in which total mortgage debt is currently growing at a 90% annual rate. The assistance provided under the program has produced a sustainable training system managed by Polish institutions, and a public sector that is well informed on the various options for support and intervention. As a final event, USAID, together with the Polish Banks Association, hosted a national and regional conference, in December 1999, to chart future priorities for the development of housing finance in Poland and throughout CEE.  Building Democracy and Local Governance Since 1990, local governments have had responsibility for management of water, sewer and solid waste services, transport, economic development, and primary education. The public administration reform of 1999 created two new levels of local government (regional and county) and, with this, increased their responsibilities. Local governments now have responsibility for secondary and vocational education, and social welfare assistance. With the enactment of the public administration reform, Poland has successfully made the transition to full democracy and has significantly decentralized resources and decision-making authority. The Freedom House assessment of Democratic Freedoms for 1998 gives Poland a score of 4.7 out of a maximum of 5, which ranks Poland with Hungary as the leader in Europe and Eurasia in terms of democratic reforms. Essentially, The Freedom House ranking means that Poland has democratic freedoms basically on par with some Western democracies. (This ranking and interpretation is taken from the USAID/ENI/PCS "Monitoring Country Progress In Central and Eastern Europe & The New Independent States" dated July 1999). A number of local governments in Poland have put their increased freedom to make decisions and manage program resources to good use. For example, the City of Ostrow Wielkopolski (pop. 60,000) has put on commercial terms the delivery of heat, water, and wastewater. To finance these activities, the respective service providers issued publicly traded municipal bonds. The city of Polkowice (pop. 30,000) has restored its old town using private sector resources. The restoration has attracted new commercial investment in the city, diversifying its current economic base. However, there are still many local governments that are struggling to cope with the increased responsibilities resulting from decentralization. These cities are faced with high unemployment, huge backlogs of needed investments, and poor infrastructure. While a growing number of Polish cities and towns have demonstrated an increased capacity to manage their resources better and attract private sector investments (and are thus well positioned to absorb EU funds effectively), criteria for proper allocation of these funds among local governments - to ensure appropriate distribution in a manner that supports effective decentralization - have yet to be developed, universally employed and widely disseminated. During FY 1999, SEED-funded programs continued to support decentralization and the development of more democratic and effective local governments in Poland through an integrated strategy of: 1) supporting legislative and policy reforms with direct assistance in strategy analyses and policy development; 2) strengthening of municipal management through technical assistance and training; and 3) developing civil society organizations through grants, training, and service contracts. Legislative and Policy Reforms To accompany the administrative reform, the GOP developed new legislation on local government finance. This legislation was intended to put in place a system of local government finance that would allow local governments to finance the newly delegated responsibilities largely from their own revenues. In 1998, the Parliament passed an intermediate (two-year) local government finance act that started the process of fiscal decentralization. A more definitive and far-reaching act is supposed to be developed and passed by December 2000. Working through the SEED-funded Democratic Governance and Public Administration (DGPA) program, USAID provided the Ministries of Finance (MOF) and Education (MEN) with timely and effective advice and policy-related studies on the development and implementation of this legislation. This assistance helped build the analytical capacity of the MOF and enabled senior-level Ministry officials and policymakers to select the most appropriate options as they put in place the legislation and regulations to support decentralization and equitable financing for local governments. As a result, the MOF was able to develop the first set of 1999 budgets for the newly created voivods (regional) and powiats (county), thereby moving ahead significantly on fiscal decentralization. Most important, the MOF now possesses the capacity required to maintain the forward movement required to complete fiscal decentralization. USAID assistance also greatly enhanced the ability of the MEN to develop transfer formulas that will more rationally and equitably distribute resources for local government education expenditures. (Schools receive between 40 and 50% of local government budgets). SEED-funded assistance allowed the MEN to create a unified system for the distribution of the education allotments to local authorities that will support the rationalization and consolidation of the primary and secondary education systems. This will allow the GOP to fund education more efficiently by diverting funds from local governments that are well off to those that need increased resources. The MEN is now also able to determine accurately how much it is spending on the various forms of education (primary, secondary, and vocational). USAID-funded experts also worked on a number of regulations that will improve local government access to private sector capital. The DGPA project worked closely with the Polish Securities and Exchange Commission to prepare and defend legislation amending the Bond Law to allow revenue bonds for the first time in Poland. Such an amendment will lead to lower investor risk and, therefore, lower the price of private capital for municipalities. Another project assisted the Housing and Urban Development Agency to draft legislation to standardize and rationalize utility pricing with the aim of attracting private investments in municipal enterprises. Equally important is the partnership with the Polish Bankers Association, initiated by USAID in October 1999, to establish an ongoing Working Group on Municipal Credit. This group, supported by SEED-funded technical assistance, has embarked on a series of policy roundtable discussions to address the various legislative, administrative, and market barriers to increasing the role of private banks in financing municipal infrastructure. USAID support for this work will continue through fiscal year 2000. Upon completion of this activity, the Bankers Association will be fully capable of carrying on the development and promotion of the necessary legal and regulatory acts required to support increased private sector financing for municipal and other local government infrastructure. Strengthening Municipal Management As mentioned above, while some local governments in Poland have put their new authorities to good use and have increased their ability to improve the efficiency and quality of service delivery, and attract private sector investment, others are still struggling to meet those challenges. To address this situation, and in direct support of the GOP's wide-reaching public administration reform initiative, the SEED-funded Local Government Partnership Program (LGPP) was put into place to enhance the management capability of a large number of local governments and the technical capacity of numerous support organizations. These support organizations provide local governments with the skills and resources they need to make them more effective and responsive. One of the objectives of the project is to enlarge the market for the delivery of quality technical assistance to local governments so that, when SEED assistance ends, a self-sustaining Polish capacity to deliver quality and affordable technical assistance will be in place. During 1999, USAID’s LGPP provided more than 50 Polish local governments with assistance in developing their capacity to implement strategic management, introduce task based budgeting systems, develop capital investment plans, restructure municipal enterprises, undertake effective project preparation for investment, and incorporate more effectively public participation in local government activities. This assistance - which will be provided to an additional 100 to 120 local governments during the year 2000 - has been and will continue to be delivered by more than thirty Polish private sector and non-governmental organizations. Assistance will continue to be provided to these organizations to expand their capacity to deliver effective assistance to local governments further. These organizations include consulting firms, schools of public administration, and associations and foundations working on local government management. The LGPP project, which is nearing the mid-point in its implementation, can point to important accomplishments to date. As a result of advisory services provided by LGPP-supported Polish consulting firms, the city of Gorzow Wielkopolski (pop. 100,000) transferred all water service assets to the water services company, making a single entity responsible for providing all water services to the community. This also allowed that entity to operate more efficiently and profitably. As a result of the restructuring, a neighboring local government agreed to transfer its water services assets to the Gorzow Wielkopolski water services company. The company’s enlargement will allow for the provision of improved service to more customers and further increase revenues. In Dukla, a small rural gmina with a population of 17,000, LGPP assistance has resulted in the local government gaining control of its long-term investment portfolio. Dukla has reduced its investment projects from 80 to 24, based on criteria established with LGPP advisors. Given its recently acquired ability to undertake quality financial analyses, develop priorities and prepare sound budgets, Dukla qualified for and received financing from the Ecofund to build and manage its sewage treatment facilities. Also, as a direct result of LGPP assistance, the city of Szczecin (population 417,000) obtained an international credit rating of BBB, the same as that of Poland, which has allowed it to access domestic and international credit. This recent access to credit has enabled the city to initiate bankable projects in transport, water, wastewater and roads. USAID views enlarging the market for the delivery of quality technical assistance to local governments as the most effective means and sustainable way to foster and promote better service delivery for the 2,500 local governments nationwide. Preliminary results from LGPP indicate that the market is, in fact, developing. As demonstrated by the examples above, a growing number of local governments are seeking contracts with consulting firms and training institutions to help them improve their management through the application of modern management techniques and financial planning. LGPP has also been responsible for introducing a training and certification process for local government support organizations. SEED-funded assistance under this important project will continue past closeout and end in March 2001. In early CY 2000, a mid-term evaluation will be carried out to further assess the project's accomplishments. Civil Society Organizations Over the past three years, the SEED-funded DGPA program has assisted Poland’s four Municipal Associations develop their capacity to represent the interests of local governments in the development of local government laws and regulations. The Associations have become effective representatives of local governments’ interests. They played a key role in the development of the Public Administration Reform and the laws on local government finance. Three out of the four Associations have solid and growing membership bases and are financially self-sustaining. LGPP’s grant program supports a variety of local government support organizations across Poland. These organizations include public policy, social service, and economic development NGOs, as well as schools of public administration and the associations and foundations that support local government development. Many of these institutions are already self-sustaining. LGPP will continue working with these organizations throughout FY 2000 to enhance their programmatic effectiveness and financial sustainability. From January 1996 to January 1999, with SEED-funding, the National Democratic Institute for International Affairs (NDI) carried out a political party building program to support Poland’s multiparty system by strengthening the communication skills and organizational capabilities of political parties at the local level. The objective of the NDI program was to strengthen the organizational structures and public outreach capabilities of Poland’s major political parties, to create more organized, broad based, and transparent party operations, and to give the public a better understanding of each party's platform. As a result of NDI's intervention, political parties in Poland brought more resources to bear on their organizational development at the branch level, planned for and executed election campaigns that were responsive to voter interests, saw women and youth attain more dynamic positions within party organization, and created a Polish "legacy" organization to carry on political party and democratization work, the European Institute for Democracy (EID). NDI also developed a political trainer network through established political parties. EID also serves as a useful vehicle for Polish political expertise to be transferred to neighboring countries.  Special Initiatives: Social Sector Restructuring/Quality of Life When the GOP began to implement its ambitious program of major reforms in the social sector – consistent with the principles of decentralized decision-making and market economics - it encountered some resistance, even by those who were to be the direct beneficiaries. This resistance was due to a less than clear understanding by many of the nature and objectives of the reforms, thus slowing down implementation. In response to this situation, and to accelerate implementation of the reforms, in FY 1999 USAID initiated the Social Sector Reform/Strategic Communications activity. Since July 1999, a team of SEED-funded advisors has been working with the Prime Minister’s Chancellery and selected line ministries to assist with the development of a more effective communications strategy with the public and within the Polish Government. Although the project is only five months old, it has already succeeded in making an impact on the way information is presented to the public, soliciting feedback from interest groups and in coordinating communications within the Polish government itself. At the suggestion of the project team, the Prime Minister held five town meetings in provincial centers during October and November 1999, where he discussed the status of the reforms with the public. The success and receptivity of this rather new approach in Poland was demonstrated in the town of Olsztyn where the unexpected turn out of 800 people required that an external projection screen be erected for viewers outside the Town Hall to observe the proceedings. Before the start of the school year in which the education reforms were to take effect, the project provided assistance to a communications team comprising - for the first time - representatives of both the Ministry of Education and the Prime Minister's Chancellery. Although introduction of the education reforms was not without problems, the threatened social unrest was avoided, as the public became more sympathetic with the aims of government. This outcome was a direct result of the efforts of the joint ministry communications team. Since this is a new undertaking, the full impact of the assistance program on implementation of the reforms will become more apparent in the second half of FY2000, and will be discussed further in next year's SEED Report. In support of pension reform (discussed earlier in this report), the American Center for International Labor Solidarity (CILS), provided training to 35,000 Polish workers in a number of large, medium and small enterprises in Poland on the newly implemented pension and social security insurance system. Through the program, Polish workers obtained the necessary information to allow them to make educated choices regarding the best possible option for their future retirement plans. DOL efforts continued under the Workforce Development Project during FY 1999. Under this activity, DOL is providing assistance at the regional level (primarily Silesia) to address worker dislocation adjustment problems resulting from the GOP's restructuring of the coal sector. DOL has assisted in the development of a comprehensive strategy to help workers, enterprises and communities adapt successfully to the restructuring process. The project has trained over 600 people (staff from labor offices, trade unions, local government and personnel managers) in rapid response techniques, including more than 50 people who are now functioning as Industrial Adjustment Specialists (IAS). (The rapid response approach being employed is modeled on successful experiences in Hungary and the United States.) Seventeen Polish communities have initiated Rapid Response programs, providing services to workers at thirty enterprises. Quantitative data is currently being collected in order to evaluate the impact of these initiatives on workers. The results will be included in next year's SEED Report. In addition, the regional labor offices in Silesia and Malopolska have jointly submitted a proposal to the National Labor Office requesting funding and authority to create permanent IAS positions thus ensuring that these positions - created as a result of the project - will continue upon termination of SEED-assistance in June, 2000. The two regional offices are also in the process of establishing a working group to adapt DOL training curricula to Polish conditions. Also during FY 1999, community economic renewal activities were initiated in ten communities to stimulate local economic development and generate new jobs in smaller communities. (To achieve greater synergy, the DOL advisor will be working closely with the SEED-funded Local Government Partnership Program during CY 2000.) A pilot demonstration "Quick Start" vocational retraining program was recently initiated at the Piast mine. Results from this pilot activity will be evaluated in early CY 2000, modifications made, as appropriate, and then replicated elsewhere. FY 1999 saw the continuation of DOJ assistance to the GOP to create a climate conducive to introducing major changes in Poland's Criminal Code and Code of Criminal Procedure which went into effect in September 1998. The Parliament's Judiciary Committee has requested assistance from DOJ in the preparation of recommendations for procedural change amendments that would enhance the efficiency of Poland's criminal justice system. Areas currently under consideration include: 1) further improvements to the institution of plea bargaining, 2) strengthened forfeiture provisions; 3) further refinement of what constitutes reliable evidence; 4) introducing time limits for the commencement and resolution of trials and; 5) creating a unitary system for conducting electronic surveillance. DOJ expects that most, if not all, of these changes will be considered by the Parliament during FY 2000. In addition, DOJ efforts in preparing and promoting a new Prosecutor's Law has generated a widespread debate on the role of the prosecutor in Poland's criminal justice system. Although the proposed bill is still being debated, serious recognition appears to be emerging among legislators that reform must be fundamental and not simply cosmetic. DOJ expects that legislation will be passed during FY 2000 encompassing the spirit of reform contemplated in the currently proposed Prosecutor's Law. FY 1999 also saw the completion of SEED-funded assistance to the Warsaw Journalism Center (WJC). The WJC was established to support the further development of an independent media in Poland. The WJC provided education in print and broadcast media, and a television studio providing equipment rental and professional, technical services for producers of programs at public and private television stations. The Journalism Education program was a two-year, 400 hour, academic professional training program. The Center also ran specialized short-term courses and seminars on a fee basis. In total, 270 students graduated from the two-year academic program. Short-term courses on media management were organized for entry-level media managers and 60 people participated. Another 60 students were provided with internships in Germany, USA and England. WJC also organized several conferences and seminars and approximately 300 journalists and media people attended each year. The project contributed to the development of an independent media in Poland by training and delivering to the media market a highly qualified cadre of journalists. Its impressive accomplishments, notwithstanding, the WJC was not able to address adequately the challenges of sustainability, despite the assistance it received. When it was no longer able to find new donors and work out appropriate sources of funding to become sustainable, it closed. Although the institution no longer exists, its contributions to the media sector will long be felt as a result of the many qualified professionals it trained. After the enactment of the health reform law in January 1999, the Harvard School of Public Health/Jagiellonian University Health Management project adjusted its activities and organized a study tour to the U.S. for the managers of the health insurance funds that manage the financing for the public health system in Poland. As a result of the training, strategic plans were developed and the project expanded its activities to strengthen the management of health units in 16 newly created HMO-like health insurance funds. Over its history (see previous SEED Reports), the project has served as a source of many health innovations which are being utilized extensively by local governments and recently established insurance funds throughout Poland. In 1998, USAID/Poland, in cooperation with the Government of Poland launched a $300,000 project to train Polish experts in disaster preparedness and the coordination and delivery of efficient and effective emergency assistance. During the project, which ended in FY 1999, 40 high-level Polish officials from central and local governments, non-governmental organizations, and flood experts were trained in the U.S. The training resulted in the expansion of these officials' collaboration to enhance Poland’s emergency management systems, primarily through the development of a Civil Preparedness Law and other supporting legislation. The East Central European Scholarship Program (ECESP) ended in FY 1999. The program provided for international training programs aimed at supporting democracy and improving the quality of life. Over the course if its ten year history of activity in Poland, ECESP worked in cooperation with USAID to train and educate 436 Polish leaders, experts, administrators and managers in such fields as: democratic leadership, public administration (local and central government), public policy, health care administration and reform, finance and banking, regional development, business administration, and education. The Program will continue to work with the ECESP Alumni Association and the Institute for Public Health Studies and Management, which it helped found. The Program plans to cooperate with Polish alumni to provide training for other countries in transition throughout Europe. Graduation Prospects Throughout the past ten years Poland has made significant advances in establishing democratic political structures and restructuring the economy along private sector, market-driven lines. Parliamentary, national, and local government, changes reflective of the voters' choices have occurred without significant dislocations. Poland's impressive economic performance reflects the strength of policy reforms, and all important macroeconomic indicators show that a solid base exists for continued growth and development. The latest Transition Report by the EBRD shows Poland among the leaders in adapting its economy to changing market conditions during the last decade. This conclusion is further supported by the U.S. investment bank, Goldman Sachs, which stated in a recent report that "the local Polish market presently offers the potentially best return for any investment-grade country in the world." Poland is now a member of NATO and it is one of a select group of countries that have been chosen to begin negotiations for EU membership. This has evoked intense work throughout government as demonstrated by the recent introduction of an ambitious and comprehensive group of social sector reforms supported by USAID. During FY 1999, SEED-funded assistance continued to contribute meaningfully to ensure that local institutions maintain the required momentum to meet long-term transition objectives after the graduation of the USAID program. Overall, the Polish economy remains strong, slowed less by the Russia crisis than by the economic slow-down among its Western trade-partners, especially Germany. Public acceptance of market and democratic changes has been confirmed by recent polls that have shown clearly that Poles are more content with transformation than other countries undergoing reform. While the government is faring poorly in opinion polls, this is not because of any questioning of the fundamental directions of the transformation process but inter alia, the manner in which major reforms are implemented. The fairly poor showing is also, no doubt, due to the introduction of an unprecedented number of major reforms in January 1999, a shock equal in magnitude to that when the first set of market reforms began nine years earlier. A competitive, market-oriented financial sector has been growing and developing consistently. The liberalization of the Polish market and entry of Polish entities into international financial markets continue. Key privatizations in the banking sector have taken place, with the focus shifting now to the insurance industry. The GOP has begun long-awaited reforms introducing greater transparency and compatibility with international standards in accountancy, as well as through a substantially improved bond law. SEED-funded technical assistance to pension reform, the pension regulator, and a public information campaign has been highly successful. During FY 1999 private pension funds began operations, and attracted unexpectedly high numbers of participants. Unprecedented growth in innovative financial products (electronic banking, and internet technology) can also be traced to SEED assistance supporting Poland’s payment system. The decision to conclude the bilateral SEED-funded assistance program to Poland is supported by a number of factors: the country’s satisfactory macroeconomic performance, the growth of GDP to well above 1989 levels, the undisputed strength of its democratic institutions (as indicated in the latest Freedom House report, "Nations in Transit"), as well as the impending major increase in EU prestructural funds as the negotiating process toward Poland’s membership in the European Union continues. USAID ties to Poland will nevertheless continue, not only through discrete, Washington-managed USAID regional activities that may include Poland, but more importantly through the recently established Polish-American Freedom Foundation, and the use of Polish experts in other transformation countries (through such new mechanisms as the FSA-funded Poland-America-Ukraine Cooperation Initiative). Furthermore, during FY 1999 SEED-funded assistance continued to contribute meaningfully to ensure that local institutions maintain the current momentum to meet long-term transition objectives after the graduation of the USAID program. January 1999 also marked the beginning of the implementation of the administrative reform that consolidated voivods (regional self-governments) from 49 to 16 and created a new powiat (county) level of government. As with any major reform, the administrative reform has experienced "growing pains". Confusion exists about responsibilities at the various levels. Powiat leaders complain about insufficient resources to implement mandated responsibilities. Nonetheless, a majority of Poles surveyed through press-reported opinion polls believe that the administrative reform got off to a good start and that it will be refined and improved in the next few years. At this point, a broad political consensus continues to support the administrative reform. Reviews of the GOP budget also suggest that significant fiscal decentralization has taken place with over 41% of the GOP budget transferred to local governments in 1999, as compared to 28% in 1998. Given the above, Poland is poised to graduate from SEED-funded assistance at the end of FY 2000. This action is fully consistent with current U.S.-Polish relationships, which emphasize partnership on a broad array of economic, political and security fronts. It is also consistent with the objectives of a sovereign, economically strong Poland, which - as indicated throughout this report - contributes to peace and stability throughout Central and Eastern Europe. While Poland will continue to face social, political and economic challenges (as indicated in the last EBRD and United Nations transition reports), it is expected to handle these challenges well as Poland will receive substantial assistance from multi-regional and European institutions to deal with such issues. The basic objectives of SEED assistance - to lay a foundation for long-term economic development and assist in the formation of democratic institutions - will have been achieved by the close of the program in September 2000. To further reinforce this process, several legacy institutions such as the Polish-American Freedom Foundation and the Polish-American Know How Fund will be well underway at the time Poland graduates from the SEED Program, contributing to Poland's on-going transformation to a fully democratic society and a fully functioning free market economy.

:  :  :  :  :  :  :  :  :  :  What's New : FOIA Requests : Privacy Policy : Email This Page : Plug-ins : FAQs : Help Desk : Contact Us : Site Map Last Updated on: March 13, 2002