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USAID and the Polish Decade1989 - 1999The narrative section of this USAID / Poland close-out publication is shown below. The publication further includes a timeline providing a month-by-month view of the major events of Poland's transition and the USAID assistance program, as well as a collection of local views - interviews and local reports. And there is also a summary list of projects (including approximate funding levels).
This report is produced by the United States Agency for International Development, an agency for the United States Government. USAID was created in 1961 to implement U.S. foreign assistance throughout the world. Research by June Lavelle This publication could not have been reported or written without the attention and care of the USAID Poland Mission, in particular: Tim Bertotti, Scott Dobberstein, William Frej, Howard Handler, Stephen Horn, Maryla Jakubowicz, Krzysztof Janiak, Krzysztof Jaszczolt, Joanna Kaminska, Mikolaj Lepkowski, Pawel Krzeczunowicz, Michael Lee, Nina Majer, Barbara Matusewicz-Protas and Tomasz Potkanski Table of Contents
"Could Poland have done what they did without Western assistance?" asks Zbigniew Brzezinski, Polish-born national security adviser under President Jimmy Carter and author. "I’d have to say no." Explaining success is always elusive: It has many authors while failures are orphans, the saying goes. Poland’s transformation happened because of the Polish people. Yet Western donors supported the process, and USAID definitely assisted Poland’s take off. When communism collapsed, USAID was among the first donors to hit the ground with significant assistance to accelerate Poland’s transformation from a Soviet-Bloc country to a new democracy. This close-out publication is a testament to USAID’s decade of involvement and the legacies it left behind. For all the institutions the agency established, from the Polish-American Enterprise Fund to dozens of NGOs, and the laws and regulatory bodies it contributed to, those who have benefited say that the most formidable legacy is in Poland’s people, and how the assistance helped individuals think creatively and boldly. USAID’s investment in education was massive, from technical assistance to the establishment of business schools, schools of public administration and centers for community organizing. USAID sent 2,600 people to the United States for training and study tours, and sent hundreds more to "third countries"—in Central and South America and all over Europe. In 1989, Poland suffered from hyperinflation and a shortage of basic products, a currency that could not be converted and an inefficient economy with subsidies amounting to 15 percent of the gross national product. Poland’s housing sector had no private or legal infrastructure and a stock of housing well below Western European standards. All governmental services were centralized, but that system had broken down and social benefits were deteriorating, the regulatory framework and financial infrastructure were weak. There was a lack of trained entrepreneurs with adequate access to credit and more generally an industrial sector incapable of adapting to the new conditions of a market economy. The very severity of the situation was in a way a blessing, as it demanded a radical approach. The "shock therapy" program applied in late 1989 resulted in the dismantling of most central economic planning mechanisms and the introduction of a market economy. The effects were dramatic. Liberalization of prices allowed them to rise in response to market forces, during a period of corrective inflation, and to find their own level. As a result, inflation fell from 685 percent in 1990 to 43 percent in 1992, reaching 8.7 percent in October 1999. Virtually all government subsidies were eliminated. A new currency law ended the previous artificial official exchange rate for the zloty and full domestic convertibility within an exchange rate band set by the National Bank of Poland was introduced. Foreign trade transactions were liberalized and trading monopolies abolished, initiating a considerable rise both in exports and imports. In 1997, Poland registered the highest growth rate in Central and Eastern Europe with GDP growing 6.8 percent. The introduction of reforms brought results: Production levels rose supported by export growth and increased domestic consumption; hyperinflation was gradually brought under control; the zloty regained its monetary function and foreign currency reserves were established; with the exception of a limited number of goods, prices were liberated; the command economy was replaced by a broad, balanced market economy; agreements were reached with foreign state and commercial creditors; and privatization programs and foreign investments reduced the dependence of the economy on the public sector. The private sector now employs over 60 percent of Poland’s labor force and produces more than half of its GDP. Poland continues successfully to evolve toward economic modernization. Although the Polish economy entered the 1990s as one of the weakest in Central and Eastern Europe (CEE), it enters the new millennium as one of the strongest. Ten years after its transformation to a democratic, free-market country, Poland stands out as one of the most successful and open transition economies in CEE. The European Bank for Reconstruction and Development (EBRD) in late 1998 rated Poland and Hungary as the two countries most advanced in the transition process. Most important, however, the country has not rested on its laurels of its earlier bold reforms. In 1999, the Polish government launched several large structural reform programs in education, pensions and health care and introduced a new system of local government. USAID assistance has contributed significantly to the Polish success story. Using funds from the Support for East European Democracy (SEED) Act of 1989, USAID initiated office operations in Poland in 1990. USAID’s objective was to partner with Poland to achieve the double transition from a centrally planned economy to a private-sector led competitive economy and from a society ruled by a single-party political structure to a vibrant participatory democracy. The program focused on: 1) Development of a strong market economy and private sector; 2) development and strengthening of the institutions necessary for sustainable democracy; and 3) improvement of the basic quality of life in selected areas. From 1989 to 1990, USAID assistance was predominantly focused on humanitarian assistance and stabilization programs, and far less on the transformation and development of an adequate institutional and legislative framework. This was considered by the Government of Poland (GOP) to be the first phase of assistance, and it was called "fast emergency aid." The second phase of assistance addressed the process of transforming the economy and the social-political system. Poles credit the U.S. government with significant contributions to the country now known as the corporate capital of Central Europe, the tiger of transformation and the geopolitical gateway to the East: Over the past ten years, USAID assistance in debt restructuring, financing the Polish-American Enterprise Fund (PAEF), as well as bank privatization and supervision, helped pull Poland out of recession and transform key financial structures. Since 1995, USAID support has helped stimulate the private sector through assistance to improve the viability of small and medium-sized enterprises (SMEs) and business development. USAID has contributed to energy saving technologies and legal, regulatory and judicial reform to foster competition and to create what has become one of the most attractive private sectors in the region. Assistance was also provided to the financial sector, highlighted by increasing liberalization and investment in the banking sector, high levels of accountability, growing professionalism, and strengthened supervisory structures for banking, insurance and capital markets based on global standards of transparency. Assistance has been provided to a competitive pension fund system that contributes to the deepening of Poland’s capital markets and long-term fiscal stability. USAID assistance strengthened financial services, including: businesses and municipal credit ratings; licensed warehousing; banking associations; housing finance; credit unions; municipal bond markets; and cooperative banking. USAID-funded assistance was also directed at strengthening the SME environment, enabling the sector to generate employment, absorb labor from restructured large-scale enterprises, and contributing significantly to the expansion of the entrepreneurial middle class. USAID support in deregulation, institutional development, information systems and tariff setting has created an effective energy regulatory environment. Finally, in support of extensive fiscal and political decentralization reforms, USAID directed assistance to local governments to improve resource management to meet citizens’ needs while developing and strengthening a network of support organizations. The above activities have been supplemented over the years by a number of special initiatives in collaboration with other U.S. government (USG) agencies: environmental protection (Environmental Protection Agency, EPA); redeployment of redundant mine workers (Department of Labor, DOL); modernizing the criminal justice system (Department of Justice, DOJ); and tax administration (Treasury Department). Again examples of the effectiveness and sustainability of the USAID-Polish development assistance partnership abound. The DOL project will leave in place a sustainable structure to assist workers, enterprises and communities to adapt to economic restructuring. The Department of Energy’s Krakow Low Emissions project has eliminated 90 percent of the city’s low emission sources.USAID support to the Warsaw School of Economics has left in place a sustainable dual-degree MBA program and a cooperation agreement between that school and the University of Minnesota, assuring program sustainability. USAID assistance supported the Government of Poland’s efforts to implement reforms in local government, education and infrastructure finance including a draft Local Government Finance Act. Fifty local governments have implemented model participatory processes in preparing budgets, long-term investment and economic development plans or housing strategies during the past year, and seventy-four local governments received assistance to strengthen their management and improve service delivery. The Agency has also played a dominant role in introducing Poles to the cultures of volunteerism, grant giving, and philanthropy, many visionaries said. As part of its close out strategy, USAID has encouraged Poland, now a member of NATO and on the fast track for European Union (EU) accession, to assist its neighboring countries in their development. Poland has become a role model for other transition counties. With USAID support, trilateral cooperation under the Poland-America-Ukraine-Cooperation Initiative (PAUCI) will enable Ukrainian entrepreneurs to obtain training and advice from Poland-based sources of expertise. The GOP is also conducting its own foreign assistance program, focusing on neighboring countries and facilitated through creation of the Polish Know-How Foundation (PKHF), an organization USAID supports. Poland’s graduation from USAID assistance does not mean that the United States is ending its support to the country’s transformation process. The ongoing cooperation of the legacy organizations mentioned above, and participation in selected USAID regional projects managed out of Washington, will ensure the continuation of USG collaboration in future development activities. The decision to close the USAID operation in Poland 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 the USAID program and a sovereign, economically strong Poland which, as will be demonstrated throughout this report, contributes to peace and stability throughout Central and Eastern Europe. While it is impossible in this publication to describe in detail each of the more than 400 activities supported by USAID over the past eleven years (at an approximate cost of one billion dollars), and their contributions to facilitating Poland’s transition process to a democratic, open market society, the information included in the following pages highlights some of the most significant accomplishments of the U.S. assistance program in Poland as seen through the eyes of those involved in one of Europe’s most successful and dynamic development efforts. These individuals—although sometimes separated by vast differences of geography, culture and history—are firmly joined by the desire to build a better future for the people of Poland. The stories that follow in this report are varied, yet the themes are
the same: Dynamic, driven Poles, many imprisoned under communism for
their activism, became partners in the assistance program, and USAID
offered a generation of Poles new skills and ideas on how to approach
problems. Most of them are visionaries—government ministers and
judges, mayors and social activists, leaders in finance and social reform.
What follows are their stories in the grand sweep of the Polish Decade.
Only four months into 1989, Poland’s communist leaders signed the Round Table agreement with the Solidarity-led opposition. The revolutionary accord, which allowed for the legalization of Solidarity, a popular vote, and the creation of an independent media, was the first hint that 1989 would be a year like no other since 1848, according to the writer and historian Timothy Garton Ash. Poland’s emergence from Communism over the next several months was so smooth that most of the world did not understand until the cataclysmic fall of the Berlin Wall in November that freedom was echoing throughout Central and Eastern Europe, and a number of countries were transforming themselves. Washington had long been observing the precursors of these events, from the Pope’s visit nudging Poles toward democracy in 1979 to Lech Walesa scaling the walls of the Gdansk Shipyard, occupied by workers in 1980, to the days of Martial Law from 1981 to 1983. Faced with grim economic realities and fueled by glasnost in what was then the Soviet Union, First Secretary Wojciech Jaruzelski opened negotiations with Solidarity in 1988. It is startling now to recall that after the Round Table accord, Jaruzelski, the architect of Martial Law, resigned from his positions in the Communist Party, became president, and resigned early. Walesa, the former shipyard organizer, would be elected to replace him. There was an urgent pace in the halls of the U.S. government, and everyone was trying to answer at light speed the same questions: What do we know about post-communist reform? How do we hit the ground running in Poland and accelerate the pace of democracy? In July 1989, President George Bush was in Poland announcing the assistance package while the development officers in D.C. continued to hammer out the details. During 1989, the U.S. Congress fashioned a document called the Support For East European Democracy, or SEED Act. Passed with bipartisan support over the Thanksgiving holiday, the law provided for critical assistance to promote democracy and economic reforms throughout Central and Eastern Europe. "From late November—when the SEED Act was passed— through Christmas we were working night and day," said Donald Pressley. "We had six weeks left in 1989 to develop a plan." Pressley arrived in Poland as a temporary mission director for USAID in 1990, before the arrival of Mission Director Bill Joslin, and again returned in 1993 as mission director. The idea of aid to Poland, and all of Central Europe, was seen as a
new Marshall Plan designed to revitalize post-Cold War Europe, but "reconstructing"
perceptions would prove a lot harder than the brick and mortar post-World
War II reconstruction of Western Europe. The first thing the U.S. wanted
to do in Poland was help lay the groundwork for a market economy. One
way to do that, considering the lumbering, state-owned giants that needed
to be privatized, was to help new businesses get started. The earliest
and most enduring effort would be the $254 million Polish-American Enterprise
Fund, a precedent-setting loan and investment program that has funneled
about $180-million into the follow-on Polish-American Freedom Foundation,
which will continue to provide broad based development assistance and
underpin democratic reforms.Many scholars and economists have tried
to answer the question, "Why was Poland so uniquely successful
in its transformation?" To fully understand the passion of the
early days in Poland’s transformation, one must at least glimpse
Polish history. Throughout the ages, whether fighting Tatars, Swedes,
Germans or Russians, the Poles have shown an indomitable spirit and
sense of nationhood. Even during the partition years, when Poland eventually
disappeared from the maps, the idea of the nation survived and was nourished
in the collective imagination. Poles had seen precious little independence
yet they could always taste it. And when 1989 arrived, tens of thousands
of Poles had very specific visions of democracy, civil society and a
market economy waiting to be realized. USAID quite possibly had its
most responsive host country ever. Throughout this text, there are stories
of heroes—mayors, activists, consultants, entrepreneurs, advocates,
researchers—who took the assistance and ran with it, creating strong
institutions where before there were none.
SUCCESS AND SHOCK IN THE NEW POLAND At the outset, there was widespread public support for the economic policies of Leszek Balcerowicz, the new finance minister. The immediate implementation of radical economic reforms Balcerowicz ushered in quickly became known as "shock therapy". The main pillars were macroeconomic stabilization, liberalizing the market place, privatization, reform of the social safety net, and international assistance to implement these reforms. Balcerowicz had a strong rapport with Western donors, and he requested a small business credit program in late 1990: Soon afterward, USAID’s $5-million Enterprise Credit Corporation offered $2,000 to $3,000 loans to a new wave of entrepreneurs. 1990, however, was a tumultuous year: All price controls were eliminated and subsidies, including food subsidies to families, were slashed. All this was designed to control the hyperinflation that was killing the economy. The zloty was devalued and foreign trade flourished. Harvard University professor Jeffrey Sachs, who assisted Balcerowicz in this now-famous design, recalled those first days in a lecture:"The average price level jumped by 80 percent in the first two weeks of January. It was a gut-wrenching experience for the public and reformers alike. I was very confident that price explosion would soon end, but it was frightening to watch nonetheless. Would panic set in, would a rock be thrown through a bakery window, setting off social unrest?" The program was soon called "shock without therapy." Yet
a vital street trade—such as selling fresh fruit in the middle
of winter for the first time since 1939—had begun. Said Sachs:
"The blankets on which the food was placed in January became table
stands by March, covered awnings by May, wooden sheds by July, and electrified,
refrigerated kiosks by November."But despite the growth in business
start-ups and the deluge of consumer goods that filled once-empty shelves,
many Poles were hurting. In 1990, Solidarity leader Lech Walesa was
elected President and many hoped that he could stanch the suffering.
Balcerowicz, whose purity of purpose would only be understood by some
later in the decade, resigned in 1991. Many Poles blamed him for the
human cost of the reforms.
SHOWING SUPPORT IN EVERY WAY POSSIBLE It was decided in 1989 that USAID in Poland would be run primarily by a task force in Washington, D.C. A handful of Americans at the U.S. Embassy monitored the millions of dollars of assistance that was being pumped into the country. "We thought then that the democracy was very fragile and could easily roll back," said Donald Pressley, who is currently the Assistant Administrator for the Europe and Eurasia Bureau of USAID. "We thought it was important to show support in every way possible. The idea was, just get in there."One of the most significant and powerful forces in transforming Poland in the early 1990’s was the transition to a market economy and USAID clearly played an integral part in early reforms. They include a now-exemplary banking supervision model and general inspectorate for the National Bank of Poland, improvements to the tax system, legislation, technical assistance to the Warsaw Stock Exchange, housed, ironically in the old Communist Party headquarters, and development of a Securities Commission—to name a few."This work was a success," said Hanna Gronkiewicz-Waltz, chairwoman of the National Bank of Poland and a longtime observer of USAID. "We have the best banking supervision in Central and Eastern Europe. Hundreds of inspectors were trained by the U.S. And the Polish-American Enterprise Fund helped us develop small and medium enterprises quite early with quite efficient investments."Those involved in the aid process 10 years ago say there was not so much a plan of what to do first as much as a recognition that a broad approach was essential, and the results are formidable. USAID assisted in the development of the banking system, housing finance, health, local government, non-governmental organizations (NGOs), and legal and regulatory bodies, as well as the private sector. Early projects also helped strengthen the trade union movement with about $1.5 million of direct support for Solidarity, establishing bureaus for consultation and negotiation in different regions to deal with worker lay-offs. The program responded to needs expressed by Poles across an incredibly broad spectrum, and many of the results were exciting: USAID helped Parliament develop its first library and research and analyses bureaus. The Emergency Medical Supply Project was set up in 1990 to control deteriorating health standards with coordinated efforts for treatable diseases like influenza and pneumonia. The Water Supply Foundation helped build thousands of miles of water pipes in rural areas for 40,000 households. The East Central European Scholarship Program, administered by Georgetown University, was established in 1990, providing training in the U.S. for thousands of Polish democratic leaders in the areas of public policy, administration, health reform, rural development, finance and banking, business administration and education. More than 185 agricultural experts were sent all over Poland to provide technical assistance in fruit and vegetable processing, business management and marketing. Armies of volunteers, from MBA graduates to retired business people, arrived in Poland to help all over the emerging private sector. Volunteerism was an unknown commodity behind the Iron Curtain. The diversified efforts of money and technical support helped the process of dismantling and decentralizing the communist dinosaur known as the "old system," while the continuous flow of people exposed Poles to new ways of working, with reverberations around the country. In May 1991, the Opportunities Industrialization Center Poland Foundation began, with USAID funding through the U.S. Department of Labor, to promote entrepreneurship and economic development. By mid-1995, OIC Poland had trained and provided advice to more than 9,000 people. Sixty percent of the unemployed participants secured a job by the end of the program and 80 percent of the unemployed women found jobs after the training. By 1993, highly trained Poles were swiftly catching up to the Western consultants in their skills and they deserved managerial roles inside USAID and in the field. Poland was emerging as THE democracy and THE economy of the region. It was time to hone U.S. activities and come up with well-considered strategies. As the transition process rapidly evolved, the mission could no longer be run out of Washington, D.C. In the mid-1990s, USAID began some internal changes to shore up its own activities. Implementers had grown to 85 U.S.-based organizations scattered across 1,500 locations all over Poland, yet the management of the operations had been handled out of Washington. Mission Director Donald Pressley arrived in 1993: "Part of what I was doing was focusing on local government and civil society. We were moving from macro to micro." Pressley (together with his successor, Suzanne Olds) presided over a revamping of the USAID program to concentrate on fewer areas, called strategic objectives, which were narrowed from seven to three by the end of 1996: private sector development, financial sector development (including housing finance) and effective and accountable local government. USAID would give direct support to the government’s encompassing social policy reforms at the end of the decade and use Poland’s experience as an example for the region. Close to the time of USAID’s internal re-engineering, an ambassadorial
decision was made in Warsaw by former U.S.Ambassador Nicholas Rey to
coordinate more closely with various donors. "We saved a lot of
money and made sure there was no replication of efforts between the
Western donors," Rey said. By 1995, USAID was generally viewed
as a mature operation with both feet on the ground and a significant,
strategic presence in Poland contributing to the country’s success.
By 1997, Poles would have more and more of a say over the direction
of the programs, and would rise within the ranks of projects and internally
at USAID.
After the 1993 parliamentary elections when a left-wing coalition formed a government, it was clear that Solidarity, the power elite of only three years, had been handed a message. The interpretation of that message changed from pundit to pundit. USAID and other foreign donors feared the painstaking reforms, especially in the areas of decentralization and fostering local government, might well be turned back. But the rollback of reforms never happened. "By the time I arrived
in the spring of 1994, we no longer thought there was a pervasive problem
dealing with the government," said Nicholas Rey. "My overwhelming
impression, and I think that of everyone else at the U.S. Embassy, was
that [the post-communists] were bending over backwards to overcome their
history and were more cooperative with the U.S. than some people on
the right."In a key address to the Sejm, Poland’s Parliament,
in 1993, then-Democratic Left Alliance (SLD) party leader and now president
Aleksander Kwasniewski apologized to "all those—and some of
them are here in this Chamber—who suffered injustice and misdeeds
from the authorities and the system before 1989." Kwasniewski said
that the SLD wanted to "square past accounts." He said that
decentralization would continue, but other SLD officials said that reforms
needed to be slowed down. Thus, the early emphasis of USAID on emerging
local governments was deemed even more critical by the U.S. About the
same time, USAID also became deeply involved with municipalities and
housing policy assistance.
After the Local Government Act of 1990, The Foundation for the Support of Local Democracy (FSLD)—headed by Prof. Jerzy Regulski, the father of local government in Poland—rapidly became the leading institution helping local governments learn their trade. In 1990, FSLD received support from USAID through Rutgers University, helping to develop the capacity of FSLD’s regional training centers and their core training cadre. FSLD was encouraging mayors to share with other municipalities, called gminas, what they had learned. Over a decade, FSLD has trained and provided technical assistance to over 300,000 local government officials. "USAID was very helpful in developing the capacity of Polish institutions," said Regulski. "You can’t underestimate the psychological character of USAID’s support. It was crucial at the time to our success. People were afraid; we had no experience but we had someone assisting us." After the left-wing coalition came to power, USAID was not certain whether the new Government was going to continue decentralization reforms. The Democratic Governance and Public Administration Project (DGPA), a new $12.8 million USAID program, delayed starting assistance to Government institutions, including placement of resident advisers with the Ministry of Finance, till late 1996. At that time, it became clear that the left-wing coalition, although unable to make political decisions on decentralization reforms due to internal disagreements, had decided to continue analytical work in this direction and allowed for important local experiments testing future reforms. Observing this process, USAID decided that a promising partnership could be nurtured between local governments in Poland and the American government itself – a relationship that endures today. With the objective of supporting local democracy and decentralization reforms, an agreement between the U.S. government and four local government associations was signed in the spring of 1996. DGPA provided these four organizations: Association of Polish Cities, Association of Rural Gminas, Union of Polish Metropolises and Union of Small Polish Towns with a wide range of support, from technical assistance, training, purchasing computers and installing internet software to fund the associations’ own analytical research on local government finance. Similar assistance, although of smaller scale, was provided to the Association of Polish Poviats, which was established in 1999. USAID’s objective was to help these organizations more effectively represent their constituents. The government of Nowy Sacz, located in the foothills of the Tatra mountain borderlands with Slovakia, wanted to be a site of a great experiment. DGPA in consultation with the Ministry of Finance and the Ministry of the Interior and Administration, helped Nowy Sacz create a zone to provide public services to test the idea of regional government, called poviat in Polish. By late 1997, two other groupings of gminas created similar zones in other parts of Poland. The experience from these pilot experiments—combined with the decentralization policy agenda of the new post-Solidarity government which came to power in late 1997—contributed to legislation that created a system of self-governing poviats throughout Poland. USAID was aware that citizen support in a democratic system begins with their satisfaction at the way their own local government works. With this in mind, USAID was providing assistance to individual cities, aiming at increasing the effectiveness of local government, its professionalism and its responsiveness to community needs. After 1990, gminas were saddled with communist legacies like unusable water services, poor sanitation and municipal housing stock in staggering states of disrepair. A new approach to municipal management was needed to respond to all these needs. And after over forty years of a centralized system, transparency of decision-making and public participation needed to be revived. Responding to these needs, from the early nineties, USAID advisers, working alongside Polish consultants, helped many cities improve management of existing financial resources and assets, access capital for investment, and encourage involvement of the private sector in the provision of public services. Over the course of the decade, USAID helped develop a number of modern management tools that have already proved to be crucial for the success of many gminas, for example Szczecin on the German border, Ostrow Wielkopolski, a mid-size city in the center of Poland, Krakow, an historic capital of Poland, and many others. These tools have ungainly titles like task-based budgeting, capital improvement planning, credit worthiness analysis and enterprise accounting. But they have contributed to the increasing professionalism in managing dozens of gminas across Poland. The result was more roads, water supply systems and improved waste-water treatment. In 1997, USAID begun the Local Government Partnership Program (LGPP). Today, LGPP, with a large group of Polish consulting firms, NGOs and educational institutions, works with about 150 gminas in Poland and supports their efforts to improve financial management, restructure municipal services, prepare infrastructure projects for financing, prepare economic development plans and increase citizen participation. Task-based budgeting and capital investment planning and strategic management may sound boring but they lead to very important changes in decision-making. As explained in a press interview by Tomasz J. Kayser, Deputy President of Poznan, the city, by developing its five-year investment plan, adopted a new management style that led to more efficient and effective planning of investment and its financing. He also mentioned that with clear criteria for prioritizing investment the whole process is more transparent and much less prone to political pressures. This may not be liked by some of the politicians, but has helped rational decision-making understood and accepted by citizens. Other gminas see benefits in long-term investment planning as well and Swiecie nad Osa is among them. A plan for 2000 to 2003 includes such investments as a primary school, modernization of the existing water supply system and local sports facilities. The Mayor of Swiecie explained that the plan was very useful because it included both a list of long-term investments and an accounting of how they were going to be funded. Mayor Halina Kowalkowska also stressed that this plan was developed in consultation with the local community and that the involvement of the community in discussions on investment priorities would become a standard when the plan is reviewed each year. Swiecie nad Osa is among more than 50 gminas assisted by LGPP that have already changed the way they do business and have successfully included citizens in decision-making on budgets, investment priorities, and economic development plans. In these gminas, citizens joined committees or task forces, were surveyed about their priorities and needs, and encouraged to participate in discussions during town hall meetings. In Olecko, a gmina in northern Poland known for its cultural initiatives, a local NGO was formed to participate in the economic planning process, and will be also involved in monitoring how the plan is implemented. In Spring 1999, after a strategic management-planning workshop with LGPP consultants, the rural gmina of Zgierz made a decision to privatize its village clinics. This was a response to a tough question that the mayor was faced with: how to restructure six village health clinics that were providing poor quality services and were nearly bankrupt. A year later, the rural gmina of Zgierz was among the pioneers in the successful privatization of primary health care services in Poland. Others are learning from them. Within a year quality of health services in the village clinics increased substantially while the gmina is no longer subsidizing them. Finally, it was able to redirect saved resources to other community priorities like education or infrastructure investments. LGPP has also made a concerted effort to ensure that as many gminas in Poland as possible know about these examples of good management practices and innovation at the local level. As an example, with a monthly insert into a weekly journal "Wspolnota" LGPP reached nearly all 2,500 Polish gminas with such information. LGPP or gminas that it worked with have appeared for almost a year on the Monday morning TV show "Tea or Coffee" This program reaches an audience of 1.5 million. More then 30 mayors have been interviewed, speaking from experience about the benefits for gminas of introducing task-based budgeting, long-term investment planing and the benefits of increased citizen participation. Energy is also a critical issue for local governments. Among about 14 successful USAID thermo-modernization demonstrations on public buildings that have been completed under USAID energy efficiency projects, two stand out for their social significance: the primary school in Krapkowice, a Foundation for the Effective Utilization of Energy (FEWE) grantee, and the Rehabilitation Center for Children in Gliwice. Because of the school project, the whole community was mobilized to become more energy conscious, and parents volunteered their time to help with simple carpentry to save energy. The school has become a model for others on how to implement a cost effective and energy efficient heat supply system. The Rehabilitation Center also reduced its costs which is crucial to
its sustainability and therapeutic effectiveness—the exercise rooms
are warmer. As a result of the project, Gliwice Power Distribution Company
has started to provide pro-bono technical support to the center. Both
of these projects were implemented by local small businesses.
Poles had relatively poor housing in 1989, and the stock had long since stopped keeping up with demand; Poles frequently needed to wait up to 25 years to get a flat. When they did get one, it was heavily subsidized or, for Communist Party members, free. The idea that a family might have to pay market value for their home, in a still-unpredictable marketplace, was a difficult concept. USAID faced more resistance and obstacles to assist that transformation than in any other sector. Landmark institutions in housing finance started to coalesce in 1993. USAID had been working with other donors to capitalize a Mortgage Fund, including a $10 million loan guarantee from the Agency. The Fund, which became operational in 1994, was also bolstered by USAID technical assistance to the bank managing the Fund, and later to the Housing Finance Project Office, a Polish governmental agency. Only a small number of loans were made by the Mortgage Fund. It did, however, serve to demonstrate to banks that mortgage lending was practicable and profitable, and it developed the initial public demand for unsubsidized home loans. The fact that there is a burgeoning middle-class lending market in Poland today, with 30 banks offering mortgages, is in large part due to the Fund and to USAID’s education of so many Poles on how mortgage lending works. Since its arrival in Poland, USAID had a commitment to developing banks as lending institutions, explaining the concept of mortgages and sowing the seeds for affordable home ownership. USAID’s journey proved to be a grueling road of policy development, training and infrastructure work and, most significantly, changing the way people think through widespread media initiatives. Since the State had produced most of the urban housing under communism, there was no such profession as a developer in 1990. Today, the word "developer" has been subsumed into the Polish language much like "internet" and "computer." In the following years, under the USAID program, U.S. professional organizations, like the National Association of Realtors and the U.S. National Association of Homebuilders, provided major input in the establishment and strengthening of Polish organizations of real estate brokers (1,500 members), appraisers (3,000 members), builders and developers (over 1,500 members), and property managers (over 800). In each case Polish partners were assisted not only in organizing issues but supported also through introduction of professional standards and comprehensive training programs. Clearly, mortgage lending would not reach most Poles in this decade. Interest rates were not yet low enough and incomes not yet high enough, among other obstacles. For this reason, in the mid 1990s, USAID got involved in the development of an effective social housing system at both central and local government levels. U.S. experts contributed to the design and implementation of laws on rents, housing allowances, condominia, spatial planning and rental housing. Almost 100 Polish gminas were assisted in various aspects of local level housing policy design and implementation. The USAID program directly supported the construction of over 1,700 affordable homes in democratically managed cooperatives, and another 1,000 units under the social housing rental scheme. Housing production output started to grow in 1996. According to some estimates, the average annual growth in recent years is in the range of 15 to 20 percent. By 1999, well over 100,000 mortgages had been issued. Today, every third purchase of a newly constructed apartment will be supported by a mortgage loan. These achievements in the housing and housing finance sectors were possible because of the major Polish successes in macro-economic reform, marked by over four percent average annual growth in real wages and significant decreases in inflation. However, housing growth would not gear up until the huge task of restructuring the legal and financial framework of this sector was completed. The reform was accompanied by the difficult process of changing the thinking of Poles—that the government by definition owes a home to every household. "Foreign assistance can always do more," according to Zbigniew Brzezinski. "But you can’t expect it to be a substitute for government; it cannot carry water on its own. It can only spur or support." Clearly, in the development of a housing finance sector, USAID was
finding ways to make its support count.
In 1995, Aleksander Kwasniewski won the presidential election. The former junior minister in the last Communist government beat Solidarity leader Lech Walesa. This time, though, donors and investors and officials understood that the economy was humming along and that the "post-communists," many of them reformist, had no interest in reversing what worked. The heated presidential runoff took the temperature of the investment community and foreign investment continued to flow as Poland completed its fourth year of growth. "We keep on investing and we’re still closing deals," one investor told the New York Times in 1995. Six years after shock therapy was announced, there was a lot of good news in Poland. Foreign investment continued to pour in. Unemployment fell to 13.5 percent by 1996 from a high of 16 percent in 1994. Real pay, buying power and industrial production were rising rapidly. The market for cars, televisions, furniture and appliances had also emerged among everyday people, who were beginning to pay on credit. There was bad news too, not the least of which was the apparent abandonment of one of Balcerowicz’s stated pillars—the reform of the social safety net. Privatization had become as politicized and lumbering as the state-owned giants. "The biggest lesson we learned in Poland," said Brzezinski, "is that shock therapy can only be successful if it is pursued relentlessly without turning back or dilution or de-fanging compromises." Poland wasn’t without its problems, but by 1998, it would be considered the economic engine and corporate capital of the region for several reasons: the early shock therapy that Poles endured, early and continued Western assistance over a decade, and foreign investment, which reached more than $30 billion by 2000. In 1999 alone, there was $6.8 billion in foreign investment and Poland projects there will be $12 billion in the year 2000. More significant than any other single component of Poland’s remarkable
success, according to analysts, is the renaissance of the Polish entrepreneur.
The Polish-American Enterprise Fund (PAEF), which by its nature assisted small and medium sized businesses like computer stores and manufacturers, was not set up to help Poland’s dressmakers, kiosk owners, bakers and candlemakers. From the start, however, there were clues that Poles without collateral—some of them scribbling handwritten notes in Polish to the Fund in 1990—needed money for these very small businesses. In 1995, PAEF established a microlending program called Fundusz Mikro, committing $20 million; USAID added another $4 million. The highly successful fund started out with four fundamental assumptions, according to Fundusz Mikro director Witold Szwajkowski: "That we could give loans of $1,000, and businesses would be happy with this amount. That people are generally honest. That we could do this without collateral. And that people would support each other." Each of those assumptions has been borne out. Fundusz Mikro offers lower interest loans to groups of people who guarantee each other, often to buy merchandise for their businesses. If one member defaults, the others have to pay the difference, and that’s the collateral. The organization has issued 30,000 loans in five years, and 50 percent of them are repeat loans to people who are expanding their businesses. With 31 branch offices all over Poland, Fundusz Mikro has "created a new profession," according to Szwajkowski. "When I took over in 1997, there were already no foreigners in the operation. All loan decisions are made by a Polish staff. It’s something that PAEF has left behind in Poland." USAID also worked with small and medium enterprises (SME) from the early 1990s, providing technical assistance and training, as well as grants and loans to all kinds of entrepreneurs. The Gemini project started in 1992, offering advice to the government on how to strengthen its advocacy role and deal with the constraints on available credit. By 1994, a foundation was set up with the Ministry of Industry and Trade to help coordinate donor work with government support. Gemini and the foundation worked closely on a number of USAID projects including developing SME policy, passing a market-oriented law on economic activity and helping to establish the Parliamentary SME Committee. By the end of 1996, USAID had moved away from the approach of helping
individual SME firms and instead gave broader assistance at a higher
level. The Firma 2000 project was established by USAID to help develop
Business Support Organizations (BSOs) to offer assistance to SMEs and
help them grow and expand. More than 20 of Firma 2000’s 30 BSOs
around the country are profitable and sustainable now that the project
is over, but that isn’t the project’s only legacy. Firma 2000
recently began its reincarnation as a for-profit consulting firm staffed
by Poles. It joins a number of legacy organization that have stemmed
from successful projects, including Gemini’s successor UNILOB;
LEM, a sustainable firm that sprung from the Local Environmental Management
Project; and the Academy for the Development of Philanthropy in Poland,
which grew out of the Democracy Network Project, among many others.
When Poles interested in volunteerism traveled to the U.S. in the early 1990s, at the invitation of USAID, they were excited by the humanitarian activities of non-government organizations in that country. "If we ever tried to do something on our own," one organizer recalled, "the government took down our names." Forty years of suppression and suspicion had to give way to citizen participation in democracy. But how to foster it with such fresh wounds? Through the work of thousands of dedicated Poles, NGOs went from virtually zero to 35,000 in ten years, according to Jakub Wygnanski of the Association for The Forum of Non-Governmental Initiatives. Wygnanski, an activist since his student days when he coordinated the Flying University during Martial Law, and an institution in the NGO movement, has several times been a beneficiary of USAID. USAID has been a catalyst in the NGO effort, Wygnanski said. "USAID was a good training path for all of us, and it has made for healthier, flexible, better NGOs. USAID provided a new culture of grant giving," he continued, "and a whole new concept of transparent funding, and widespread accessibility to grants and technical support." In 1995, the Democracy Network Project (DemNet), was set up by USAID to strengthen the NGO sector through grants, training and technical assistance. DemNet worked with foundations and associations all over the country, from Warsaw to Zelow to the small gmina of Sokolka, which managed against the odds to create and sustain its own NGO. Whether one travels to the dusty middle of Poland, or to the harsh beauty of the Belarussian border, one can see DemNet’s social contribution through the work of NGOs. Today, 25 percent of Poles are involved with an NGO, while 7 percent are in a trade union, and membership in political parties is too low to be measurable, according to Wygnanski, who meets visitors in a building on Ulica Szpitalna, in the room where Solidarity had its first meetings. It is now chock full of NGOs, many of whom have had help from USAID. Most of the recipients spoken to for this review believe USAID’s best investment was in the Polish people, skilled leaders who have learned through education, study trips, training and experience how to lead other Poles toward democracy and civil society. They have also learned to ask for the right kind of assistance. A range of Poles say they benefited from study in the U.S., from Miroslaw Kruszynski, the mayor of Ostrow Wielkopolski, to Krzysztof Pietraszkiewicz, director general of the Polish Bank Association. "My personal impression is that one of the most important elements of U.S. assistance was the training of several thousands of professionals in the U.S.," said USAID local government specialist Tomasz Potkanski. "All these people now play key management roles on different sides of the political barricades. They were the best investment in the stability and continued reform of the country regardless of changing governments." "Before I was a reformer, I thought there was no space for me in professional life," said former Szczecin city councilor Janusz Szewczuk. It almost sounds disingenuous coming from a political insider who is still heavily involved with Szczecin’s development as a consultant for USAID’s LGPP. But he clearly believes that USAID programs provided direction for an entire generation of Poles, and that its best work has been in "incubating people". His home, Szczecin, is a city of displaced Poles who moved there after World War II. They were low-skilled, often without families. It is strangely a place with too much and not enough history. Perhaps it was the perfect place for USAID to take root. Szczecin’s success in creating professional, transparent and customer-friendly local government—seen most obviously in its gleaming, crisp one-stop customer service center in the heart of City Hall—can also be attributed to USAID programs, from FSLD to LGPP. The School of Public Administration in the city trains people to work in local government and generates research on what Poland’s gminas and poviats need. And today Szczecin is bustling with a harvest of leaders like Szewczuk who are changing this border city’s image. The other way USAID has "incubated" Poles is through education. The Warsaw Journalism Center, a USAID project, educated hundreds of Polish journalists in the tradition of a free press. USAID helped establish schools of Public Administration like the one in Szczecin and developed the concept of an MBA degree program in Poland. The Lodz executive MBA program began in 1996 with 26 executives and a distance learning center with the University of Maryland. Lodz began holding conferences for all universities interested in such a partnership. The most renowned executive MBA program in Poland at the Warsaw School of Economics started with assistance of a USAID grant and University of Minnesota technical assistance. USAID was also behind the Credit Union school in Sopot which in May 2000 received accreditation to offer the equivalent of a bachelor’s degree and expand its curriculum to include other kinds of financial education. It was USAID assistance that helped foster the credit union movement which grew from zero to more than 450 branches in less than 10 years. USAID’s massive efforts in education over the decade also included
collaboration between Central Connecticut State University and Wroclaw
Technical University in business education. In 1991, the two universities
created the Institute of Business Studies. Also in 1991, New York University
and the University of Wisconsin began cooperating with Polish universities.
The Solidarity Economic Foundation with the assistance of Ohio State
University encouraged universities in Poland to teach market economics
starting in 1992. The University of Minnesota began training faculty
at the Olsztyn Agricultural College and the Warsaw School of Economics
in 1991—by the end of the decade, the Olsztyn Agricultural College
was upgraded to university status, in part as a result of this assistance.
"On the whole, USAID was a great success," said former ambassador to Poland Daniel Fried. "This country has a banking system in pretty good shape that we helped create. That’s not marginal. The technical assistance took off in the mid-90s, and USAID got off the ground programmatically," he added speaking on his last day in his Warsaw office before returning to Washington, D.C. in May 2000. "They started focusing on the black holes and institutional gaps and they used real experts and it showed. It was really something to be proud of." When current Mission Director William Frej took the reins three years ago, the process of "Polonizing" USAID was underway. Before the mid-90s, all programs were handled out of Washington, D.C., and much of the USAID and project staffs were American. "We made a major shift from D.C. management to Polish management," Frej said. "It was an absolutely critical move on our part. We were intent on decentralizing and making the shift out of D.C. And now Poland has become a real model for this [kind of] shift." The internal restructuring of USAID activities in the mid - 90s did
make a difference to the morale of Polish staff and recipients. Suddenly,
Polish organizations existed where a USAID project once stood, and successor
organizations like the Academy for the Development of Philanthropy in
Poland, which became a self-sustaining organization in 1998, developed
from USAID projects. Polish consulting firms flourished across sectors.
USAID has nurtured Polish consultants who now provide training to municipalities,
or strengthen the capacity of Polish firms.
POLAND’S POLITICS AT THE END OF THE CENTURY In ten years, Poland’s role in the region has solidified enough that it has shifted from receiver to giver. There could be no higher compliment to USAID and all of the key donors than Poland’s current efforts to give aid in all forms to its neighbors, from translating handbooks on community organizing into Russian (as the Dialog program in Bialystok did) to large-scale assistance programs like Poland’s Know-How Foundation and the Polish America-Ukraine Cooperation Initiative (PAUCI). The U.S., Poland and Ukraine launched this to accelerate Ukraine’s democratic and economic reforms through grants and training. Today Poland has the strongest NGO sector in Central Europe and Polish NGOs are providing assistance to NGOs in the region, including helping to start new NGOs in Kosovo. The Poland-based Institute for Democracy in Eastern Europe is promoting an independent local press throughout Central and Eastern Europe. "I think it’s unfair to those countries who are really hurting to say that Poland needs assistance now," said Wygnanski, who headed up Polish humanitarian efforts in Kosovo. "It’s time to move on." "Poland’s role as donor was integrated in the AID strategy," said Ambassador Daniel Fried. "And it’s an example of the agency’s creativity and flexibility. There’s no precedent for an aid recipient giving back money to the U.S. Treasury. But Poland did." The $254 million Polish-American Enterprise Fund, which made good investments and a tidy profit over the last decade, has established the Polish-American Freedom Foundation with $180 million. And the remaining $120 million from the final investment portfolio has been returned to the U.S. Treasury. The Freedom Foundation has decided to continue USAID’s work of supporting local democracy. Its mandate also includes outreach training for Belarus and Ukraine. The Foundation recently announced a special fund for students from surrounding countries to receive special training at Polish universities and private business schools. "There were long discussions about what the next step should be," said Ryszard Kruk, vice president of PAEF and its new foundation. Those conversations included dialogue with Polish Americans who lobbied the U.S. Congress to keep the money in Poland. "And everyone, the Poles and the Americans, are satisfied," Kruk added. "The Freedom Foundation is USAID’s legacy in Poland," said Zbigniew Brzezinski. "It is a continuous reminder of our presence there." After USAID closes shop this summer, Poland’s presidential election
will be held in late 2000. Whatever the result, the country’s courage
and vision over the last 10 years will continue. "When USAID was
at its most successful," said William Frej, "we had an understanding
of the problem. Our help came at the right time. There was a desire
for change, and we added to the process by accelerating and deepening
what had already begun." |
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