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Activity Data Sheet PROGRAM: Federal Republic of Yugoslavia TITLE & NUMBER: Special Initiatives, 169-041 and 170-041 STATUS: Continuing PROPOSED FY 2001 OBLIGATION AND FUNDING SOURCE: Montenegro: $40,000,000 AEEB Serbia: $18,615,000 AEEB PROPOSED FY 2002 OBLIGATION AND FUNDING SOURCE: $0 INITIAL OBLIGATION: FY 2001 ESTIMATED COMPLETION DATE: FY 2003 Summary: USAID Special Initiatives meet criteria outlined in Agency guidance for special objectives or interests. That is, they are of limited scope and/or duration and/or respond to particular windows of opportunity. Within that context, in FY 2001 USAID will finance the emergency importation of electricity for Serbia, emergency technical assistance for the National Bank of Yugoslavia (NBY), and a technical assistance package in the highest priority economic reform areas. The assistance will be of short duration to meet the most urgent needs. Continuing policy reform and private sector assistance will be provided under the Accelerated Growth and Development of Private Enterprises objective (SO 1.3). Program Categories include budget support, banking, fiscal, commercial law reform, and accounting reform, and trade and investment regimes. Key Results: The principal anticipated short-term results under the special initiative supported with FY 2001 funds are: (1) increased electricity supplies to forestall a humanitarian crisis in meeting heating needs and possible civil strife resulting from the lack of heating; (2) the initiation of banking sector clean-up and of a functioning bank supervision system based on international standards; (3) initial training in financial crimes investigation; (4) the identification of actions required to establish more transparent budget operations and a transparent tax system and initial training in implementing those operations and that system; (5) the development a workplan for meeting World Trade Organization accession requirements, including commercial law and other framework requirements; and (6) progress in restructuring external debt with Paris and London Club creditors. Performance and Prospects: Before the winter months of 2000-2001 began, there were significant energy shortages and load shedding. Since electricity is consumed mostly by households, there was fear that dissatisfaction at inadequate heating could result in undermining recent advances in moving toward a transparent, representative democracy. As a result, USAID provided $10.0 million in FY 2001 funds to finance the importation of electricity needed to help ensure sufficient energy is available to meet demands for heating during the winter. The economy is in crisis. In Serbia, inflation is increasing -- up 100 percent over the last year. The FRY's hard currency reserves are minimal. Serious fiscal imbalances have led to growing payments arrears. The banking system is insolvent, all six large banks suffer liquidity problems, and bank supervision is underdeveloped and weak. Anti-money-laundering legislation does not exist. The commercial law and accounting frameworks are not consistent with a market economy and impede private sector development. Banking experts were financed with $1,715,000 in FY 2001 to help the National Bank of Yugoslavia (NBY) governors develop a special program to begin the orderly and transparent resolution of the largest problem banks in the system. Policies, procedures and criteria will be developed for analyzing requests for liquidity support and establishing the legal elements of possible interventions. Quick diagnostic analyses of the largest banks in the system will be conducted to understand better their ownership structures, financial condition and management problems. NBY supervisors and staff will be trained in bank examination techniques. Advisors will help to ensure that the NBY has appropriate legal and regulatory authorities and institutional capacity to supervise and, where necessary, clean-up banks that are at risk. They also will establish international standards of bank supervision that will help address severe banking sector problems and provide incentives for commercially-oriented banking. $2.0 million in FY 2001 funds were obligated to support these activities. In addition, $500,000 in FY 2001 AEEB funding were transferred to the U.S. Treasury Department to assist the FRY Bank Restructuring Agency in dealing with policy and implementation issues for problem bank resolution. Another $1.4 million in FY 2001 AEEB funding were transferred to the U.S. Treasury Department for technical assistance in financial crime investigations, public finance and fiscal reform. The assistance will help promote transparency in government operations by setting up normal budgetary formulation and expenditure control practices. It will formulate a framework for a more equitable and private sector-friendly tax system. Experts in financial crime also will help to have anti-money-laundering legislation enacted and implemented and will train financial investigators to implement the law. An additional $500,000 in FY 2001 funds will be transferred to Treasury for support of financial crime and anti-money-laundering activities and $415,000 for assistance in tax reform. Development of a market-oriented commercial law framework and adoption of international accounting standards (IAS) is critical to ensuring transparency in the private sector, bringing firms now operating outside the law into the official economy, and promoting foreign direct investment. Overall, this work will help break the link between the government's budget and banking sector in funding political party operations and supporting special interests in the enterprise sector. It also will have an impact on recovering government funds illegally transferred abroad. The sooner the FRY/Serbia has a strong market-oriented commercial law framework and IAS consistent accounting, the sooner the gray economy will shrink and the formal private enterprise sector will thrive. USAID intends to obligate $1.1 million to support these activities as well as $500,000 for provide advice on urban land registry issues. USAID intends to obligate $2.5 million to finance competitiveness and WTO accession activities. Competitiveness activities will focus on improving the capacity of businesses to export and compete with other countries in the region. The activity will focus on two or three industries with a high likelihood of success and improve their capacity to organize, raise quality standards and export goods and services. WTO accession assistance will provide technical assistance in both the process of accession and in trade regime reform. Trade regime reform includes intellectual property rights protection, customs procedures, and complying with the Trade in Services and Technical Barriers to Trade agreements. WTO accession will increase the attractiveness of the FRY to investors, and thereby increase national employment and income. Beneficiaries: The entire population will benefit from macroeconomic stability, a better managed and more transparent budget, an equitable tax system, a sound banking system, and more competitive private enterprise. The NBY and various federal and republic ministries also will benefit from improved procedures, more effective management and increased institutional capacity. Possible Adjustments to Plans: Future support to broad economic, banking, budget, and tax reform and the private sector will be provided under the private enterprise objective (SO 1.3). Other Donor Programs: The International Monetary Fund (IMF) will be providing policy and advisory support on fiscal and banking issues. The German Central Bank (the Bundesbank) plans to provide assistance in certain aspects of bank supervision and problem bank resolution. We expect the World Bank, the European Bank for Reconstruction and Development, the European Union and other bilateral donors may also be involved in some aspects of the development of a commercial law framework and accounting. Principal Contractors, Grantees, or Agencies: Elektrizitats Gesellschaft Laufenburg AG won the competitive tender issued for the importation of electricity. KPMG-Barents is providing banking technical assistance. Technical assistance will be competitively procured by USAID for technical assistance in the areas of commercial law, accounting competitiveness, WTO accession, and macro-finance. Selected Performance Measures: The Treasury Department will develop appropriate indicators for the activities it carries out with the AEEB funds it receives from USAID. Appropriate indicators for WTO accession, commercial law, accounting, competitiveness, and macro-finance are being developed. FY 2002 Performance Table Selected Performance Measures: Special Initiatives, 169-041 Indicator FY97 (Actual) FY98 (Actual) FY99 (Actual) FY00 (Actual) FY01 (Plan) FY02 (Plan) Indicator 1: Electricity imported NA NA NA NA 276,000 NA Indicator 2: Diagnostic examinations conducted at fiancial institutions NA NA NA NA 28 NA Indicator 3: Bank supervisors and staff trained in diagnostic techniques NA NA NA NA 35 NA Indicator 4: Problem bank unit established NA NA NA NA Yes NA Indicator 5: Diagnostic of bank supervision training needs NA NA NA NA Yes NA Indicator Information: Indicator Level (S)or(IR) Unit of Measure Source Indicator Description Indicator 1: SO KWh Supplier bills & import records Number of kilowatt hours of electricity imported. Indicator 2: IR Number Contractor reports Diagnostic of ownership,structures, financial condition, and management problems Indicator 3: IR Number Contractor reports Bank supervisors trained in the techniques to discover the true condition of banks, their ownership structure, and management problems. Indicator 4: IR Yes-No Contractor reports Structure for the NBY's problem bank unit developed and the unit staffed. Indicator 5: IR Yes-No Contractor reports NBY's overall training requirements diagnost and recommendations made. U.S. Financing (In thousands of dollars) Special Initiatives, 170-041   Obligations   Expenditures   Unliquidated   Through September 30, 1999 1,254 DA 0 DA 1,254 DA 0 CSD 0 CSD 0 CSD 0 ESF 0 ESF 0 ESF 20,589 SEED 15,000 SEED 5,589 SEED 0 FSA 0 FSA 0 FSA 0 DFA 0 DFA 0 DFA Fiscal Year 2000 0 DA 1,035 DA     0 CSD 0 CSD     26,000 ESF 24,010 ESF     13,871 SEED 21,692 SEED     0 FSA 0 FSA     0 DFA 0 DFA     Through September 30, 2000 1,254 DA 1,035 DA 219 DA 0 CSD 0 CSD 0 CSD 26,000 ESF 24,010 ESF 1,990 ESF 34,460 SEED 36,692 SEED -2,232 SEED 0 FSA 0 FSA 0 FSA 0 DFA 0 DFA 0 DFA Prior Year Unobligated Funds 0 DA         0 CSD         0 ESF         0 SEED         0 FSA         0 DFA         Planned Fiscal Year 2001 NOA 0 DA         0 CSD         0 ESF         40,000 SEED         0 FSA         0 DFA         Total Planned Fiscal Year 2001 0 DA         0 CSD         0 ESF         40,000 SEED         0 FSA         0 DFA               Future Obligations   Est. Total Cost   Proposed Fiscal Year 2002 NOA 0 DA 0 DA 1,254 DA 0 CSD 0 CSD 0 CSD 0 ESF 0 ESF 26,000 ESF 0 SEED 0 SEED 74,460 SEED 0 FSA 0 FSA 0 FSA 0 DFA 0 DFA 0 DFA Special Initiatives, 169-041   Obligations   Expenditures   Unliquidated   Through September 30, 1999 0 DA 0 DA 0 DA 0 CSD 0 CSD 0 CSD 0 ESF 0 ESF 0 ESF 2,760 SEED 1,153 SEED 1,607 SEED 0 FSA 0 FSA 0 FSA 0 DFA 0 DFA 0 DFA Fiscal Year 2000 0 DA 0 DA     0 CSD 0 CSD     0 ESF 0 ESF     0 SEED 1,045 SEED     0 FSA 0 FSA     0 DFA 0 DFA     Through September 30, 2000 0 DA 0 DA 0 DA 0 CSD 0 CSD 0 CSD 0 ESF 0 ESF 0 ESF 2,760 SEED 2,198 SEED 562 SEED 0 FSA 0 FSA 0 FSA 0 DFA 0 DFA 0 DFA Prior Year Unobligated Funds 0 DA         0 CSD         0 ESF         0 SEED         0 FSA         0 DFA         Planned Fiscal Year 2001 NOA 0 DA         0 CSD         0 ESF         18,615 SEED         0 FSA         0 DFA         Total Planned Fiscal Year 2001 0 DA         0 CSD         0 ESF         18,615 SEED         0 FSA         0 DFA               Future Obligations   Est. Total Cost   Proposed Fiscal Year 2002 NOA 0 DA 0 DA 0 DA 0 CSD 0 CSD 0 CSD 0 ESF 0 ESF 0 ESF 0 SEED 0 SEED 21,375 SEED 0 FSA 0 FSA 0 FSA 0 DFA 0 DFA 0 DFA

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