ARMENIA

	FY 1998 Actual	FY 1999 Estimate	FY 2000 Request
FREEDOM Support Act	$87,500,000	$79,900,000	$71,500,000

Introduction.

Armenia is a strategically important republic in the Caucasus that is making steady but uneven progress in its transition to a democratic political order and free market economy. U.S. interests in the region will be advanced by the emergence of a Western-oriented, democratic and economically prosperous Armenia. With a settlement of the Nagorno-Karabakh conflict, Armenia could provide leadership to promote regional economic integration and political cooperation within the Caucasus.

The Development Challenge.

Like other countries of the former Soviet Union, Armenia's economic transition has been hampered by the legacy of central planning, severe economic shocks arising from the collapse of the USSR, and limited will on the part of national decision makers to undertake critical reforms to restructure and privatize the economy. In the political sphere, flawed presidential elections in 1996 and 1998 contribute to widespread public cynicism.

A major impediment to Armenia's emergence as a prospering free market democracy has been the conflict with Azerbaijan over the predominantly ethnic Armenian-populated enclave of Nagorno-Karabakh. Although a ceasefire has held since 1994, successful resolution of the impasse would allow the reopening of trade routes, make Armenia more attractive to potential investors, and reduce the level of hardship endured across the country.

Despite its hardships and challenges, Armenia has significant assets which include a highly skilled and educated workforce, strong national identity, and impressive political and financial support from a large international diaspora and the international community in general. With support from the United States and other foreign donors, the humanitarian crisis spawned by a combination of natural disaster, war and severe energy shortages has receded.

Over the past four years, the Government of Armenia (GOA) has pursued policies that have resulted in solid macroeconomic gains. Growth has been positive since 1994. While inflation was greater than expected in 1997 (at 22%), it fell to about 3% in 1998, below the GOA's target of 9%. Moreover, each year the budget deficit has declined which has contributed to lower interest rates and exchange rate stability. In 1998, foreign direct investment increased significantly and there was some export growth.

Structural reforms have proceeded unevenly with most progress realized in the banking and energy sectors. The privatization program approved by parliament in December 1997 is targeted for completion in 2000. The GOA's commitment to privatization involving strategic investors will be tested with the need for financial rehabilitation of the vital energy sector. USAID and the World Bank have supported the GOA's energy reform efforts, which have resulted in restructuring of the key power sector and improvement in the commercial operation of enterprises, thereby increasing the likelihood of needed private sector investment.

Investment, mobilized from both domestic and foreign sources, is key to breathing life back into the moribund economy. USAID is helping the GOA complete the privatization/liquidation of non-energy enterprises and the sale of residual state-owned shares as a way to provide liquidity to the capital market that is being created, also with USAID assistance. Other aspects of USAID's financial sector development portfolio include banker training, support to the Central Bank of Armenia, and loan programs for small and medium enterprises.

While, a viable legal and regulatory framework is being developed and a stronger civil society is beginning to emerge, Armenia still needs considerable work to achieve full democratic governance. USAID has provided key assistance in the drafting of Armenia's recently enacted civil code, and of the criminal code, which is close to enactment. Both the judiciary and the parliament are becoming more capable institutions. Supporting the professionalization of the legal sector has been the formation of independent associations representing judges and lawyers. USAID's focus on strengthening the rule of law will in time ensure that the human rights protections afforded by the Armenian Constitution are more scrupulously observed.

USAID's work in civil society has fostered the growth and maturing of the NGO sector and of opposition parties, enabling them to aggregate their collective interests through coalition building and advocate more effectively for democratic reforms. The draft Universal Electoral Code, although the subject of much debate, is likely to improve the chances for free and fair elections in 1999. Supporting greater transparency and fairness in the political process has been an independent print and broadcast media that is emerging and exposing Armenians to divergent views.

Fairly impressive economic growth figures for the past few years are not likely to make much of an impression on the average citizen of Armenia whose standard of living has been steadily eroding since independence. Unemployment is conservatively estimated to be 30% of the workforce and official wages are miserly. The social safety net is inadequate to provide for those who are most vulnerable and the rest of the population may not be much better off, with an overall 55% poverty rate according to the best data available. As direct humanitarian assistance to be reduced, USAID is working to bridge its economic reform agenda with grass-roots programs intended to have a direct impact on people. even The ongoing Russian economic crisis presents a real danger to the success of Armenia's fragile and ill-formed market economy.

Other Donors.

While the U.S. is by far the largest provider of aid to Armenia (some 52% of recorded official development assistance in 1997), other major sources of assistance included the International Monetary Fund, World Bank Group, and the European Union. Bilateral donors included the Netherlands, France, Japan and Switzerland. USAID has worked cooperatively with several donors and been instrumental in leveraging large loans from the World Bank through targeted technical assistance. In addition, UNICEF's vaccine program has contributed to the control of preventable diseases and the World Food Program has supported "food for work" activities.

FY 2000 Program.

USAID's FY 2000 assistance effort will focus simultaneously on economic, political and social institution-building and on grassroots efforts to provide sustainable improvements in the lives of the majority of the population which currently lives at or below the poverty line. In order to create sustainable employment opportunities, USAID will emphasize firm-level assistance as well as policy reform and enforcement. As employment expands incomes, the government's revenue base will improve and the private consumption of goods and services (including social services, such as health and education) will increase. Employment creation is seen as the best barometer of a broad-based economic growth that will contribute most quickly to poverty reduction and sustainable development. At the same time, USAID intends to support GOA's efforts to strengthen the social safety net, and will be seeking to identify pilot activities that will demonstrate the most efficient and effective means of delivering basic services. As the central government devolves more responsibility to local authorities, USAID will work to encourage greater public participation and local initiative.

Under economic restructuring, USAID is requesting funds for strategic objectives in tax/fiscal reform, private enterprise development, financial sector development and energy restructuring. Under the democracy goal area, funds are requested for strategic objectives in citizens' participation and improved enforcement and adjudication of legal systems. Under the social sector rubric, USAID will address the longer-term sustainability of social service delivery mechanisms, including a greater emphasis on decentralized health care reform. As the political situation permits, USAID will seek ways in which its program can support increased regional integration among Armenia and its neighbors. As part of cross-cutting and special initiatives, funds are requested for training programs that support mission strategic goals across the entire assistance portfolio. Included in this request for cross-cutting and special initiatives are funds for other USG Agencies participating in technical coop program with Armenia through inter-agency transfers from USAID (e.g., U.S. Departments of State, Energy, Justice, Agriculture, Treasury, and U.S. Information Agency).

ARMENIA

FY 2000 PROGRAM SUMMARY*
(in Thousands of Dollars)

USAID Mission Director: Diane Tsitsos

Strategic Objectives	Economic Restructuring	Democratic Transition	Social Stabilization	Cross-cutting / Special Initiatives	Total
Privatization	--	--	--	--	--
Fiscal Reform	5,250	--	--	--	5,250
Private Enterprise	9,670	--	--	--	9,670
Financial Reform	9,730	--	--	--	9,730
Energy	8,400	--	--	--	8,400
Environmental Management	--	--	--	--	--
Citizens' Participation	--	4,700	--	--	4,700
Legal Systems	--	2,850	--	--	2,850
Local Government	--	--	--	--	--
Crises	--	--	--	--	--
Social Benefits	--	--	8,900	--	8,900
Environmental Health	--	--	--	--	--
Cross-cutting/ Special Initiatives	--	--	--	22,000	22,000
TOTAL	33,050	7,550	8,900	22,000	71,500
*Freedom Support Act (FSA) funds

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ACTIVITY DATA SHEET

PROGRAM: ARMENIA
TITLE AND NUMBER: Increased Soundness of Fiscal Policies and Fiscal Management Practice, 110-SOO1.2
STATUS: New
PROPOSED OBLIGATION AND FUNDING SOURCES: FY 2000: $5,250,000 FSA
INITIAL OBLIGATION: FY 1999 ESTIMATED COMPLETION DATE: FY 2003

Summary: At the start-up of the Comprehensive Market Reform Program, USAID did an assessment of the fiscal needs of the Republic of Armenia. The resulting fiscal reform program integrates IMF and US Treasury programs the latter are funded through a 632(a) transfer of funds from USAID. This integrated, broad-spectrum approach is working very well. In addition to prior work on municipal finance and automating the National Treasury's budget process, USAID continues to provide assistance on WTO-related customs advisory issues. With the start-up of the Comprehensive Market Reform Program, USAID's contribution in this area has been expanded. USAID's emphasis is on the review of taxes and fees, with the goal of facilitating private sector trade and investment; and enhancing the efficiency of tax collections through education, audits and better collection procedures. USAID is also providing advisors to the Ministry of Finance and Economy (MOFE) to help revise both the tax codes and the customs code. On the budget side, USAID advisors are working to help create a more transparent and efficient budgetary process with both the Executive branch and the National Assembly of Armenia.

Key Results: Three key intermediate results were concluded to be necessary to achieve this objective:(1) market-oriented budget and financial systems for national and local governments; (2) reduction in non-vital government expenditures; (3) increased revenues from tax collections.

Performance and Prospects: USAID is providing assistance to the MOFE to implement a more transparent and efficient electronic payments and reporting system for the Armenian Treasury and its fifty branches to replace the current paper based multi-account system. Assistance should be completed in 1999. In tax/fiscal reform, agreement has been reached with the tax authorities on a comprehensive modernization plan for district tax offices country-wide. The plan includes completely new organizational structures and business functions as well as automation of tax administration. The Tax Inspectorate has taken complete ownership of a detailed implementation plan, which will result in modernization of all tax offices by the end of 1999. The plan is currently being implemented in two pilot district offices in Yerevan in preparation for being rolled-out in mid-1999, Extensive assistance has also been provided to the government in the drafting of a new customs code which will comply with World Trade Organization norms and standards. Assistance to strengthen local governments' fiscal capabilities resulted in growing awareness of municipal finance concepts with new trainees being used to disseminate information. In addition, USAID sponsored a conference held in Yerevan in October 1998 which provided an opportunity for policy-makers, legislators, local officials, and financial executives to share best practices and discuss ideas to realize future improvement.

Possible Adjustments to plans: Given the negative impact that Armenian customs has had on the flow of regional trade, there is a critical need for assistance in reform of that institution. USAID, in coordination with other donors, hopes to fund a top-to-bottom World Customs Organization diagnostic study of the customs department. The results of the diagnostic should facilitate the design and implementation of new, comprehensive, multi-year assistance programs by USAID and other donors beginning in FY 2000.

Other Donor Programs: The IMF sends numerous missions which focus on monetary policy and identify systemic problems. IMF recommendations are integrated into USAID technical assistance activities. The UN Conference on Trade and Development (UNCTAD) is providing assistance on customs taxes, as is the World Bank.

Principal Contractors, Grantees or Agencies: Barents Group (tax/fiscal reform); Information Resources Management (electronic payments).

Selected Performance Measures:

	Baseline	Target
Fiscal balance as a percent of GDP	-9.9% (1995)	-3.5% (2000)
Tax revenue as a percent of GDP	12.7% (1995)	17.9% (2000)
Proportion of consolidated government revenues generated from taxes	64% (1995)	90% (2000)

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ACTIVITY DATA SHEET

PROGRAM: ARMENIA
TITLE AND NUMBER: Accelerated Development and Growth of Private Enterprises, 110-SOO1.3
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCES: FY 2000: $9,670,000 FSA
INITIAL OBLIGATION: FY 1993 ESTIMATED COMPLETION DATE: FY 2003

Summary: To accelerate the growth of private enterprise, USAID has provided firm-level assistance and credit for small and medium enterprises (SMEs), including agribusiness; helped the government institute a land registration system and develop a real estate market; and supported technical assistance for agricultural development. In the area of policy and legislative research, USAID has provided a great deal of assistance to Armenia in its effort to accede to the World Trade Organization. Moreover, significant work has been done to establish the basis for a developing market economy. USAID's privatization program supports the rapid privatization of remaining state-owned enterprises, including residual shares. Shares of enterprises that are privatized will be transferred to the private sector and will then be available for trading in the capital markets framework that USAID is developing. Enterprise accounting reform seeks to develop market economy accounting and auditing in Armenia. USAID's land registration and titling program focuses on creating a favorable legal and regulatory environment for land reform; assisting the government in efforts to register and title all agricultural and urban land; and developing Armenian private sector capacity to support a real estate market.

Key Results: Five key intermediate results were concluded to be necessary to achieve this objective: (1) increased foreign and domestic investment; (2) increased transfer of technology; (3) increased access to credit by domestic enterprises; (4) increased access to export markets and development of domestic markets; (5) improved framework for economic policies, commercial laws and regulations for economic activities.

Performance and Prospects: The Enterprise Accounting Reform program, key to the transition to a market economy, has shown excellent progress in the conversion of accounting systems in pilot private enterprises and training in international accounting and auditing. With USAID technical assistance, the Ministry of Finance and Economy (MOFE) is completing the process of translating and adapting the most critical International Accounting Standards (IAS).

Privatization efforts have created a comprehensive database of all enterprises remaining in State ownership along with details of their financial condition. The database is now being used to assist the Ministry of Privatization in decision making regarding which modes of privatization should be utilized for divestiture of these remaining assets. The next phase of the project will provide direct assistance to the Ministry in international and domestic tenders, privatization through the capital markets, and liquidations. Privatization of major State assets, such as the telephone company, has had positive impact on foreign direct investment.

Progress in the Land Titling and Registration component is ahead of schedule: Complete review of all current laws and regulations affecting land has taken place; technical assistance has been provided for draft laws; and streamlined methodology for rapid surveying, registration and titling of privatized land has been developed.

Firm level technical assistance, implemented by IESC and ACDI/VOCA, provides direct assistance to solve business problems, develop growth strategies, find partners, and improve products and services. The local NGO, Volunteers in Service to Armenian Agriculture (VISTAA), which provides local consultants to the agricultural sector, is moving toward sustainability.

Possible Adjustments to plans: USAID plans to expand its involvement in SME development. A comprehensive SME development project will focus on association building and information dissemination. Training to SMEs in every region of the country will be provided through the use and development of local training companies and trainers. This activity will run through December 1999 and is likely to be followed by a similar program once the results of this first phase are known.

Other Donor Programs: It is expected that approximately $130 Million in SME credit from all donor sources will be made available to Armenia in FY 1999. Primary donors include the Lincy Foundation, the World Bank, GTZ, EBRD and EU/TACIS. EU/TACIS has a small program providing training in accounting reform that is complementary to USAID's broader program. The GOA is considering a new $10 million credit from the World Bank to support its land titling program.

Principal Contractors, Grantees or Agencies: Current grantees and contractors include Eurasia Foundation, Shorebank (credit to SMEs and technical assistance to lending institutions); FINCA (micro-credit); IESC and ACDI/VOCA (technical assistance to firms and farmers); RONCO (land titling and registration); Sibley International. (accounting reform); IBTCI (privatization); AED (training).

Selected Performance Measures:

	Baseline	Target
Private sector exports	$162 m (1995)	$300 m (2000)
Foreign direct investment	$20 m (1995)	$114 m (2000)
WTO accession	not a member (1995)	accession (1999)
Euromoney's Country risk index (0 - 100)	28 (1995)	40 (2000)

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ACTIVITY DATA SHEET

PROGRAM: ARMENIA
TITLE AND NUMBER: A Competitive Private Financial Sector that is more Responsive to the Needs of a Market-Orientated Economy, 110-SOO1.4
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCES: FY 2000: $9,730,000 FSA
INITIAL OBLIGATION: FY 1995 ESTIMATED COMPLETION DATE: FY 2002

Summary: USAID and other donors, including the IMF and World Bank, have collaborated to establish the basis for a strong market-oriented central bank. This began with the establishment of the domestic electronic payments system and the creation of the Bank Training Center with the Central Bank of Armenia (CBA) in 1996. USAID also contributed to the opening of Armenia's first commercial lending facilities in three commercial banks to assist small and medium-sized enterprises (SMEs). More recently, USAID has provided training in bank supervision and related issues to CBA staff that has supported the IMF's work in commercial bank restructuring. Improved CBA supervision has also been facilitated by the provision of reporting software that will enable it to better monitor and correct emerging problems in the commercial banking sector. In addition to credit, USAID's lending program also provides technical assistance to partner banks in assessing and managing SME portfolios. The lending program has been supplemented in the past few months with the arrival of the Shorebank/FINCA consortium to implement the "Enterprise Fund". With the start-up of its new capital markets development program, USAID aims to provide a significant boost to financial sector development. In the initial phase of this program, USAID is providing assistance to the government to create and build the basic infrastructure necessary for the development of a capital market. The second phase of the program is aimed at broadening participation by investors and developing the capacity of the market to aid in the capital formation process.

Key Results: The primary intermediate results needed to achieve this objective: (1) increased technical efficiency of financial sector transactions; (2) increased public confidence in the banking sector; (3) increased availability of financial services.

Performance and Prospects: Between June 1997 and March 1998, over 300 Armenian bankers received short-term training at the Bank Training Center in such areas as risk management, international payment systems, letters of credit, and asset and liability management. However, reduced attendance compared to the previous year prompted the contractor, Barents Group, to undertake a diagnostic and market survey to identify improvements needed to attract greater attendance. A new training program incorporating the improvements began in fall 1998. USAID funded efforts in electronic payment/bank supervision systems have been successfully completed. With regard to credit to SMEs, Eurasia Foundation has loaned over $3.4 million through three partner banks to over 130 firms that have resulted in 866 new employment opportunities. The capital markets development program has resulted in the drafting of a new securities law that puts in place an enhanced framework for security market regulation and creates an independent Securities and Exchange Commission to enforce those regulations. At the same time, a strong collaborative effort between USAID advisors and the government has resulted in the design of a comprehensive national market trading system, which includes clearing, settlement and depository organization and use of a centralized share registry.

Possible Adjustments to plans: Armenia Central Bank supervision over commercial banks will be strengthened through a program for development and implementation of International Accounting Standards in the banking sector as well as institutional development and training for off-site supervision functions. In addition, assistance will be initiated to the Central Bank in the development and installation of an electronic payment system (smartcard). This system will allow the Government of Armenia to proceed with its plans to begin collecting utilities payments from consumers electronically, as well as making social payments (pensions and disabilities) through the same system. This increase in activity through the commercial banks (which will be an integral part of the system) should lead to greater consumer confidence in the banks and higher levels of consumer deposits.

Other Donor Programs: Credit and technical assistance programs starting are funded by the following: the World Bank, GTZ, Lincy Foundation, EBRD, EU/TACIS and USAID.

Principal Contractors, Grantees or Agencies: Current grantees and contractors include Eurasia Foundation, Shorebank (credit to SMEs and technical assistance to lending institutions); Price Waterhouse/Coopers (capital market development); Barents Group (banker training); AED (training).

Selected Performance Measures:

	Baseline	Target
Volume of interbank payments ($US millions)	1,800 (1995)	12,000 (2000)
Real value of bank accounts index	100 (1995)	200 (2000)
Real value of loans index	100 (1995)	125 (2000)

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ACTIVITY DATA SHEET

PROGRAM: ARMENIA
TITLE AND NUMBER: A more Economically Sustainable and Environmentally Sound Energy Sector, 110-SOO1.5
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCES: FY 2000: $8,400,000 FSA
INITIAL OBLIGATION: FY 1996 ESTIMATED COMPLETION DATE: FY 2003

Summary: Since the spring of 1995, USAID has reduced humanitarian assistance to the energy sector and concentrated more resources on the systemic economic reform of the sector. Over the last three years, this strategy has contributed strongly to achieving a number of key successes including: the passage of an Energy Law; the creation of an independent Energy Regulatory Commission; the complete restructuring of the power sector; the improved financial viability of the energy sector through increased collections and introduction of International Accounting Standards; the privatization of 13 mini-hydro sites; and the identification of replacement power projects to replace the power produced by the Armenian Nuclear Power Plant (ANPP). USAID funds transferred to the US Department of Energy and the US Nuclear Regulatory Authority have also contributed to short-term safety improvements at the ANPP and the strengthening of the Armenian Nuclear Regulatory Authority. The bulk of USAID's energy sector assistance has gone into the power sector, which is considered pivotal to the economy. Nonetheless, it is fully recognized that developments in the power sector have an impact upon and are influenced by changes in the natural gas subsector and energy resource development activities (coal exploration, oil and gas development, geothermal exploitation, etc.). In fall 1998, USAID and the government reached consensus on the major elements of a $15 million program to strengthen the commercial operation of the power sector. This assistance program was developed, at the request of the Government of Armenia (GOA), in lieu of the purchase of natural gas.

Key Results: Three key intermediate results are necessary to achieve this objective: (1) increased private sector participation in the energy sector; (2) increased efficiency in the energy sector; and (3) reduced environmental hazards of operating the ANPP.

Performance and Prospects: In the past year, the power distribution subsector has been further consolidated from 11 distribution companies to 4, and the management structures of these new companies is being put in place. The overall financial condition of the power sector has continued to improve and the tracking of flows of funds from consumers to distribution company accounts will benefit from the introduction of customer payment of electricity bills using local banks. USAID's pilot billing, collections, and metering activity, which includes about 40,000 customers, has resulted in an improvement in the collections rate from 60% to 95%. In October 1998, an Energy Sector Investment Conference was held in Washington, D.C., to showcase the GOA's energy sector reforms and to highlight some of the projects identified by USAID and the GOA as replacement power for the ANPP (including the identification of indigenous coal resources that could be used for power generation).

In contrast to these positive developments, there has been tremendous political opposition to increasing electricity tariffs, without which the energy sector cannot reach a condition of financial viability. However, late in the year the GOA agreed to increase tariffs by 12.5% beginning January 1, 1999 in order to receive IMF and World Bank financial assistance. The GOA has also continued to drag its feet on privatization of the power sector and seems to lack a coherent plan for moving ahead with attracting private investment in resource development and in building the power facilities needed to replace the ANPP in 2004, as has been its commitment.

Possible Adjustments to plans: USAID will continue to build on the successful reforms implemented to date but will support greater focus on energy investment planning and development in order to expedite the realization of needed investments in the sector. USAID will also attempt to promote regional cooperation in the energy sector by working with the multilateral banks and USAID/Caucasus in Tbilisi, Georgia. On a case-by-case basis and contingent on the availability of funds, USAID may consider providing further assistance to regenerate critical power facilities that are vital to the economy.

Other Donor Programs: The World Bank and USAID coordinate closely in the energy. The World Bank program aims to deepen reforms in the energy sector and aid the financial rehabilitation of the sector. Currently, it is finalizing terms of a $52 million loan to the government for rehabilitating and strengthening the power transmission and distribution system. The European Union assists the Ministry of Energy in developing energy efficiency policies and legislation, and in strengthening billing and collection.

Principal Contractors, Grantees or Agencies: Current grantees and contractors include Hagler Bailly (restructuring and privatization); U.S. Energy Association (exchanges and training); U.S. Geological Survey (coal exploration); AED/Hagler Bailly (training).

Selected Performance Measures:

	Baseline	Target
Amount of electric utility enterprises ownership privately held    distribution:    generation:	0% (1995) 0% (1995)	61% (2000) 31% (2000)
Collections from end-users paid to distribution companies	65% (1996)	100% (2000)

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ACTIVITY DATA SHEET

PROGRAM: ARMENIA
TITLE AND NUMBER: Increased Citizen Participation in Political and Economic Decision-Making, 110-S002.1
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 2000: $4,700,000 FSA
INITIAL OBLIGATION: FY 1994 ESTIMATED COMPLETION DATE: FY 2003

Summary: Armenia is slowly making the transition to democracy. Many of the institutions necessary for a functioning democracy are either in place or plans to create them are underway. Citizens are learning their roles and responsibilities in a democracy. Armenia has stumbled at times on the road to democracy, most notably in its national elections, but progress can be seen in a variety of areas, such as with independent media and NGO development. The beneficiaries of this program are the citizens of Armenia who will gain more democratic institutions and knowledge on how to act upon their rights and responsibilities in a democracy.

Key Results: Three key intermediate results are: 1) Increased availability and access to information; 2) increased public confidence in citizens' ability to affect change; and 3) sustained public confidence in the political process.

Performance and Prospects: Performance over 1998 was mixed, although lower than expected. Much of this can be attributed to the extraordinary presidential election in March 1998 in which there were many reported incidents of fraud on election day. However, media performance exceeded expectation, and advocacy NGOs progressed as anticipated.

As a result of USAID-funded programs, journalists, production staff, and station managers from 12 independent television stations across the country have benefitted from professional technical/journalistic training and are regularly contributing objective news reports both for a weekly Armenian news program and for a southern Caucasus weekly news program. A new Universal Electoral Code will pass in early 1999, and because of efforts of USAID-funded grantees, this law will contain many key provisions that will allow for more transparent elections. A number of nascent grassroots organizations have successfully implemented projects and garnered the trust and recognition of international organizations working in Armenia. In addition, civic education classes are now being conducted by well-trained teachers in over 200 secondary schools.

Short-term prospects in achieving this objective looks promising. Many of the institutions and laws necessary for a stable democracy are either established or soon will be. Active individuals in the media, NGOs, and political parties are taking their roles seriously and improving their organizations. However, unless the GOA takes serious steps to improve the electoral process, cynicism and apathy will grow as citizens feel that they are not freely selecting their country's leaders.

Possible Adjustments to Plans: Special attention may need to be given to the electoral process to underline its importance to increased citizen participation.

Other Donor Programs: USAID is the lead donor in democratic development in Armenia. Other donors, including Open Society Institute, the European Union, and US Information Service, provide limited assistance to media and NGOs, but USAID has the most comprehensive program which addresses these sectors as a whole. In addition, around the election period, international organizations such as Organization for Security and Cooperation in Europe (OSCE) and the Council of Europe provide assistance to the Central Election Commission and other institutions responsible for administering the elections, but USAID is the only organization which provides ongoing assistance in this area.

Principal Contractors, Grantees, or Agencies: USAID funded activities are implemented by the following grantees: Internews, the Eurasia Foundation, the National Democratic Institute (NDI), the International Foundation for Electoral Systems (IFES), the Armenian Assembly of America's NGO Training and Resource Center, and Junior Achievement of Armenia. Additional grants may be established with other private US firms for expanded assistance in this area.

Selected Performance Measures:

	Baseline	Target
Number of Active NGOs working on public policy issues	3 (1996)	10 (2000)
Number of Independent television stations providing objective news reports	11 (1996)	25 (2000)
% of national legislation passed that is published/covered in media	5% (1996)	25% (2000)
Law enacted protecting press freedom	No (1996)	Yes (2000)

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ACTIVITY DATA SHEET

PROGRAM: ARMENIA
TITLE AND NUMBER: Legal Systems That Better Support Democratic Processes and Market Reform, 110-S002.2
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCES: FY 2000: $2,850,000 FSA
INITIAL OBLIGATION: FY 1996 ESTIMATED COMPLETION DATE: FY 2003

Summary: The purpose of this objective is to help develop a properly functioning, impartial legal system in the Republic of Armenia, one which provides justice according to the law, rather than based on bribery or connections. USAID began its legal reform assistance program with legislative drafting, with particular emphasis placed on the Civil Code. Limited GOA political will for judicial reform began to emerge in late FY 97. The judicial branch in Armenia has historically been controlled by the executive branch. This control has started to weaken, and USAID has supported independent associations of judges and other legal professionals. The executive branch has also indicated a willingness to relinquish some control, though this willingness has not yet fully manifested. The direct beneficiaries of achievement of this objective will be judges and court personnel, advocates, regulatory agencies, and law students. Indirect beneficiaries will be all Armenians, given that a properly functioning, impartial legal system will benefit anyone dealing with the courts or executive branch, and will smooth the function of the general economy.

Key Results: There are four key intermediate results: (1) impartial administration of laws by regulatory agencies, (2) an independent judiciary, (3) an effective court system, and (4) impartial, efficient enforcement of court judgments.

Performance and Prospects: Performance over the past year has met expectations. A new Civil Code and new laws relating to the legal system have been developed and adopted with USAID assistance. Independent judges and attorneys associations have been created, and are working on issues relevant to their constituencies, such as judicial independence, and continuing legal education. Yerevan State University Law School has created a modern electronic research library and produced new course materials; junior faculty have been trained and have developed new curricula in the United States. USAID helped to develop a judicial examination for new judges to be appointed 12 Jan. 1999, and the examination process appeared honest and transparent.

In addition, USAID expects to work with regulatory agencies on impartial administration and enforcement of laws, and with a new court executors service on enforcement of court judgments. USAID will also work substantially on judicial training, and on court administration issues.

There have been some significant problems. While the judicial examination process went well, the overall plan for the exam was seriously flawed, and the selection of judges from a pool of qualified (by exam score) candidates was not transparent. The selection process was overwhelmingly controlled by the executive branch. The Council of Court Chairmen, responsible for training of new judges, has shown limited interest in training support. The Environmental Public Advocacy Center, which USAID supports as a demonstration that the legal system can be used effectively, has had limited success.

Possible Adjustments to Plans: Constitutional amendments now being considered would substantially enhance the independence of the judiciary by limiting executive branch involvement. USAID is providing advice on this issue. If certain amendments are made, the current program will continue as planned. If not, changes will be made to enhance the effective independence of the judiciary as much as possible, perhaps by limiting executive branch power in legislative, rather than Constitutional, ways. If the Council of Court Chairmen does not develop an interest in near term training for new judges, USAID will focus on longer term training, in conjunction with the planned EU/TACIS Judicial Training Institute. A number of donors are interested in execution of court judgments and court administration. USAID will coordinate with these donors, and adjust its plans accordingly. The Environmental Public Advocacy Center has focused on some additional areas in addition to court action, but will continue to bring environmental court cases with the expectation that success rates will improve.

Other donor programs: USAID coordinates with the World Bank, which is in the planning stages of a broad legal reform program; with EU/TACIS, which will fund a Judicial Training Institute; as well as with GTZ and the Dutch Government.

Principal Contractors, Grantees, or Agencies: The American Bar Association's Central and East European Law Initiative (ABA/CEELI), AMEX International, Inc., and IRIS. Additional grantees or contractors may receive awards to support programs in this area as well.

Selected Performance Measures:

	Baseline	Target
Judicial reform laws (e.g., regarding the Bar, Courts, Procuracy) enacted	No (1996)	Yes (2000)
Proportion of population that understands civil and economic rights	5% (1997)	15% (2000)

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ACTIVITY DATA SHEET

PROGRAM: ARMENIA
TITLE: Strengthened Social Safety Net, 110-S003.2
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 2000: $8,900,000 FSA
INITIAL OBLIGATION: FY 1999 ESTIMATED COMPLETION DATE: FY 2003

Summary: The purpose of this strategic objective is to reduce human suffering through efforts to strengthen and make sustainable key aspects of the social safety net. USAID humanitarian assistance in the areas of food, winter fuel, and pharmaceuticals, has been instrumental in avoiding a humanitarian crisis and in buying time for the government to begin to implement economic and social reforms. With the immediate crisis passed, USAID has also funded a program designed to improve the targeting and delivery of humanitarian and government assistance to vulnerable households. Other successful initiatives have included the pilot phase of a Social Investment Fund, which continues to operate with World Bank Funding, and a Community Development activity. While these activities have been successful at averting immediate human suffering, it is increasingly clear that widespread poverty in Armenia remains a serious problem, therefore that attention needs to be shifted to longer-term efforts to rebuild a social safety net that will provide access for all Armenians to adequate and affordable health care, food and shelter that can be sustained domestically -- without donor support -- over time. Through efforts in improving the efficiency and effectiveness of the health sector and through macro-level social safety net assistance (e.g., in assisting in the identification and implementation of appropriate unemployment and/or health insurance plans), USAID plans to benefit all Armenians. Improvements in the efficiency and effectiveness of more targeted assistance will benefit the most poor and vulnerable population groups in the country.

Key Results: USAID will concentrate increasingly on improving the efficiency and effectiveness of social service delivery, in particular improvements in the national health delivery system for all Armenians and provision of basic food and shelter services for the most vulnerable. Improvements will be sought at both the macro (policy) level as well as at the micro (actual service delivery) level.

Performance and Prospects: USAID is currently shifting its focus from direct service delivery to reduce human suffering to assisting Armenia in its search for longer-term improvements in the efficiency and effectiveness of sustainable, domestic service delivery. In recent years, USAID has helped the GOA to develop and implement a monitoring system to track the country's most vulnerable population groups; the GOA has now taken over responsibility -- both financial and managerial -- for this system, demonstrating its sustainability. It is clear that, in order for a population-wide social safety net (e.g., unemployment insurance and pension) to be developed and implemented, Armenia will now need a broader social security numbering and tracking system as well as specific policy making and planning for what types of social safety net mechanisms (centralized/decentralized; public/private) will be pursued. In addition, USAID has supported community development activities which encourage local responsibility for identifying and resolving local problems such as the availability of potable and irrigation water. These community development activities have been shown to be sustainable and have demonstrated that small-scale employment and income generating activities are viable and profitable. Community-based mechanisms for delivering basic assistance to the most vulnerable now needs to be explored. (Employment and income-generating activities also need to be expanded but not under the social safety net guise.)

Possible Adjustments to Plans: Over the past several years, USAID has been shifting away from direct service delivery to help avert immediate human suffering and toward longer-term, more institutional approaches to social service delivery. By FY 2000, USAID may need to become more actively involved in the identification and development of nation-wide social safety net options that will allow the country (either through public and/or non-governmental means) to sustain these systems on its own over time. USAID also will work with the GOA as well as non-governmental organizations to identify the most appropriate and effective means (e.g., public versus private sector, local versus national) of actual social service delivery.

Other Donor Programs: The World Bank continues to provide major funding for social infrastructure rehabilitation. Armenian Diaspora contributions to charitable organizations (e.g., schools, orphanages, health clinics and hospitals) continue to be significant. The European Union has worked with the GOA to identify what should be included in a social security numbering system but does not plan to fund the actual development and implementation of this system.

Principle Contractors, Grantees, or Agencies: In the health area, U.S. partnerships will be formed with the assistance of the American International Health Alliance. In non-health social areas, USAID currently implements activities through U.S. and local organizations including most prominently Save the Children Federation. Non-health implementors may change by FY 2000 in light of possible program adjustments as noted above.

Selected Performance Measures:

	Baseline	Target
Number of sustainable civic action groups created	0 (1995)	141(2000)
Number of community development projects completed	0 (1995)	96 (2000)
GOA policy agreement on basic social service delivery mechanisms	No (1998)	Yes (2000)
Lower social service delivery costs and/or improved effectiveness of delivery to the most vulnerable	No (1998)	Yes (2000)

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