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![[Congressional Presentation]](/images/cp00bnnr.gif)
EUROPE AND THE NEW INDEPENDENT STATES
FY 1998
ActualFY 1999
EstimateFY 2000
RequestSupport for East European Democracy $ 485,276,000 $ 430,000,000 $ 393,000,000 FREEDOM Support Act 770,798,000 841,000,0001 1,032,000,000 Economic Support Fund 39,600,000 34,600,000 44,600,000 Development Assistance Fund 4,000,000 2,000,000 --- Child Survival and Disease 1,000,000 --- --- P.L. 480 Title II 34,942,000 16,551,000 --- 1Excludes $6.0 million for Mongolia U.S. NATIONAL INTERESTS.
Assisting the formerly communist nations of Central and Eastern Europe (CEE) and the New Independent States (NIS) in their transition to market-led democracies continues to be of vital interest to the people of the United States. The faster and more sustainable this transition, the higher the chances are for regional stability, enduring links between our peoples, and mutually beneficial economic growth.
National Security.
Although the end of the arms race has freed up resources for the United States in recent years, regional hot spots such as Bosnia and Kosovo and the virtual collapse of the Russian economy pose very real threats to U.S. national security. The potential for proliferation of weapons of mass destruction in the region remains a key concern. Other concerns are nuclear safety and reducing the risks of another Chornobyl accident, and securing commercial access and viable outlets for Caspian oil and gas resources. The United States and other western style democracies remain committed to staying the course in the ENI region. NATO expansion is one element of the security equation that proceeds apace. Continued strengthening of U.S. - Russia partnerships is another.
Economic Prosperity.
U.S. assistance directed toward improvements in the economic enabling environment in ENI has direct implications for U.S. trade with the region. Indeed U.S. exports to the region have nearly tripled in this decade and are likely to multiply further in the coming years, with direct implications for the growth of high paying, export related jobs at home. Growth of exports for the ENI region from 1995-1997 was a robust 12 percent annually on average, and an impressive 21 percent for the CEE northern tier countries. Increasingly this trade is with the West. The proportion of trade between CEE and advanced economies has increased from 40 percent of exports in 1989 to over 70 percent in recent years.
The lion's share of foreign direct investment (FDI) is going to a handful of CEE northern tier countries, demonstrating conclusively that investment follows meaningful reform. FDI flows increased significantly in 1997 and seem to have continued at a comparable pace in 1998. Perhaps one-third of all FDI flows since 1989 occurred in the 1997-1998 period. For many of the transition countries, however, the ability to attract foreign direct investment remains low, and this has been further complicated by the Russian financial crisis, which has virtually halted such investment in Russia.
Law Enforcement.
Crime and corruption continue to be major issues, with cross-border implications, particularly in the NIS. USAID programs are working to improve transparency, the rule of law, and commercial legal frameworks that are needed to establish international investor confidence. Transfers to the State Department and Justice Department are aimed at improving law enforcement skills and technologies.
Democratic Expansion.
Democracy continues to take root in most ENI countries, though there has been backsliding in some cases, particularly in the NIS. Important progress has been made in the holding of free and fair elections and establishment of an independent media. Hundreds of non-government organizations across the ENI region advocate for various interests and open up the political process generally. Organizational maturity and sustainability for NGOs remains a long-term challenge, however.
Global Issues.
The Agency will continue using SEED and FSA resources to support the President's Global Climate Change initiative, with activities focused on countries with significant greenhouse gas emissions (e.g., Russia, Ukraine, Poland and the Central Asian Republics). USAID will work with these countries to reduce CO2 emissions and increase carbon absorption through energy efficiency improvements, energy sector regulatory reform and better management of forests. ENI will continue helping to reduce abortion rates through increased use of modern contraception in Albania, Armenia, the Central Asian Republics, Georgia, Moldova, Romania, Russia, and Ukraine. Programs to reduce the spread of sexually transmitted diseases and HIV/AIDS exist or are being developed for Armenia, Belarus, Kazakhstan, Moldova, Romania, Russia, Ukraine, and Uzbekistan. A newly emerging threat is tuberculosis, for which a regional advisory committee is being formed and programs developed for the Central Asian Republics, Kosovo, Russia and Ukraine.
DEVELOPMENT CHALLENGE.
The development challenge in ENI remains one of transforming previously authoritarian, centrally planned societies into western-style market-led democracies with vibrant economies, open political systems, and a strong civil society. Careful monitoring of program and country progress, however, has revealed that the transition process has not proceeded at the same pace, or in the same way, from one ENI sub-region to another.
Status of the Transition.
The ENI countries are increasingly clustered into three relatively distinct groups reflecting varying degrees of reform progress. This year, due to backsliding in the middle group, the leaders have pulled sharply ahead of the pack, as shown in the chart at right. In large measure this backsliding is a result of the global financial crisis and reflects the difficulties of maintaining reform momentum during economic downturns. In many cases the deterioration of economic performance has been matched by sharp declines in democratic freedom, for example, in Ukraine, Uzbekistan, Belarus, and in Russia itself.
- Consolidating Reform: The northern tier countries of Central and Eastern Europe continue to consolidate their gains and move toward graduation from bilateral USAID assistance. It is no accident that the countries with the greatest commitment to economic reform have enjoyed the greatest sustained economic growth. In FY 2000 we will discontinue assistance for Lithuania and Poland as these two countries join Estonia, Slovenia, Hungary, the Czech Republic, and Latvia as USAID "graduates." These countries are consolidating and building on the gains of earlier reforms by developing an institutional and regulatory capacity for better corporate governance and a competitive, stable financial sector. Economic and democratic reforms have tended to go hand in hand in this group.
- Deepening Reforms: The countries in this middle group are a highly varied lot and include Russia and Ukraine, both of which have backslid dramatically in both economic and social terms over the past year. Others include the NIS countries of Moldova, Georgia, Armenia, Kazakhstan, and Kyrgyzstan and, in CEE, Romania, Bulgaria, Albania, Macedonia, Croatia, and the Federal Republic of Yugoslavia (Serbia, including Kosovo, and Montenegro.) By and large these countries have not yet fully implemented "second round" institutional and structural reforms that normally serve to consolidate earlier reforms and the reform process generally. Indeed, in the current global context it is apparent that the intermediate reformers are more susceptible to backsliding and, similarly, more vulnerable to external economic shocks such as the crisis in Russia. Reform-minded governments are included in this group, but they face institutional and human resource constraints that appear to be more fundamental than previously recognized.
- Commencing Reform: While the "laggards"--Belarus, Azerbaijan, Uzbekistan, Tajikistan, and Turkmenistan, and, in CEE, Bosnia-Herzegovina--are considerably behind the rest, two at least (Azerbaijan and Tajikistan) have recently begun implementing early liberalization and privatization reforms. Others, notably Belarus, Turkmenistan, and Uzbekistan, continue to lack a general commitment to market-oriented democratic reform. This group is generally characterized by the persistence of Soviet-era institutions, entrenched interests, and deep-seated resistance to meaningful democratic and economic reform. National security interests and humanitarian concerns drive our programs in these countries.
Regional Strategy: Toward Sustainable Partnerships.
The increasing disparity between these three groups of countries presents the ENI Bureau with a clear challenge to revisit the current transition paradigm and develop approaches tailored to each situation. To this end, ENI has launched a year-long stocktaking exercise, the end result of which will be a regional strategy to guide our programs as we move into the 21st century. A principal goal will be to develop sustainable partnerships between the United States and the countries of the ENI region, as well as between the individual countries of the region. These partnerships will be tailored to reflect the varying stages of reform progress in each ENI country. In this context, partnerships are both a method of assistance, varying in nature depending on the circumstances, and an overarching goal for countries in the region. The basic objective will be to establish enduring ties between the United States and the countries of the former Soviet bloc. We want these ties to be bound not by donor-recipient relations but by relationships based on equal sharing of talents, costs, risks, and rewards between people, between institutions, and between countries. In order to reach this vision, we believe that our activities will need to be supported, (1) through well-managed, in-country programs, (2) through less management-intensive regional partnerships, and (3) through legacy mechanisms that sustain partnerships and generate resources from the private sector for countries that have graduated from USAID assistance.
External Debt.
For most of the ENI region, the volume of external debt remains manageable and, overall, the level has decreased since 1994. However, a number of countries have increased their exposure recently. In 1997 three were "severely" indebted by World Bank standards (Albania, Armenia, and Georgia), and seven had "moderate" external debt levels (Bulgaria, Turkmenistan, Croatia, Kyrgyzstan, Moldova, Poland, and Russia). Several countries (e.g., Russia, Ukraine, Kyrgyzstan, and Romania) will likely face short-term debt repayment problems in 1999. Russia's total foreign currency debt-service obligations for 1999 amount to an estimated $17.5 billion.
PROGRAM AND MANAGEMENT CHALLENGES.
CEE Northern Tier Focus: Toward a Regional Relationship.
In the northern tier countries, USAID will move to develop new kinds of regional partnerships that foster lasting and meaningful ties between the United States and CEE graduates (Slovenia, Estonia, the Czech Republic, Hungary, Latvia, Lithuania, Poland, and Slovakia), as well as between the countries themselves. One such "legacy" mechanism is the Electricity Management Development Institute, which U.S. and CEE utility companies are supporting under the guidance of the U.S. Energy Association. Also in operation is the Baltic-American Partnership Fund (BAPF), a $15 million endowment established jointly by the USG and the Open Society Institute. The BAPF provides training and technical assistance grants to NGOs to enhance their capabilities and long-term sustainability. Another post-presence initiative is beginning to promote regional environmental partnerships through the new ECOLINKS program. This effort will help open northern tier markets to U.S. environmental businesses while also addressing issues of environmental abuse. Other legacy mechanisms under consideration are the Trust for Civil Society in Central Europe ("CEE Trust"), the Polish-American Freedom Foundation (PAFF), and a planned Partners for Financial Sector Sustainability program to bolster past economic reforms and help protect these countries from external financial shocks. In 1999 USAID will host an international conference in Warsaw for ENI countries to share successful transition experiences and strengthen cross-border partnerships.
CEE Southern Tier Focus: Staying the Course in Economic Reform.
Recent analysis indicates that the southern tier countries of Albania, Macedonia, Bulgaria, and Romania will take longer to achieve full transition than had originally been foreseen. While three of the four had positive economic growth rates in 1998 (Albania 10.0 percent, Macedonia 5.0 percent, and Bulgaria 4.0 percent), a negative 4.5 percent showing for Romania--the largest of the four economies--brought economic growth for the sub-region as a whole down to a modest 1.4 percent. The challenge for the Government in Romania will be to build political support for a more thorough and rapid privatization effort, particularly in the energy and banking sectors. In Bulgaria the challenge is to maintain momentum under reforms that brought the country back from the brink of economic collapse in early 1997.
Albania presents unique challenges, further complicated by recent threats to the security of U.S. personnel and property that have hampered our ability to mount effective programs there. During FY 1999 we will reassess progress against planned results and review our programmatic options in that country. In Macedonia, a key country in the current regional security equation, the challenge is to continue supporting the government's economic reform while taking steps to reduce the potential for ethnic conflict.
Bosnia, Croatia, and Federal Republic of Yugoslavia (FRY) Focus: Reconstruction and Beyond.
The U.S. has been at the forefront of international efforts in the Balkans to guarantee peace, facilitate the return of individuals and families displaced by war, and assist in the reconstruction of basic public infrastructure. After three years of peace building efforts under the Dayton Accords, the basic challenge in Bosnia-Herzegovina and Croatia is one of consolidating the peace so that incipient economic and democratic reforms can take root. Political pluralism and economic stability are key to the development of this region and thus comprise the focus of USAID’s program. Under strong pressure from the international community, Croatia has made important progress on refugee returns. Cracks that have appeared recently in the country’s one-party system and socialist economy present both opportunities and challenges. In Bosnia, fueled by international assistance, economic growth has been strong. However, the country’s leaders must recognize that assistance levels are falling and there has been insufficient economic reforms and institution building to sustain that growth. In addition, the nascent entity- and national-level structures are still largely unable or unwilling to run a multi-ethnic government. Ethnic aspirations and political cronyism threaten the country’s emergence as a democratic, market-oriented society. The FRY presents a perplexing and unique situation--as Montenegro moves ahead smartly with economic reforms and the consolidation of democracy and human rights, Serbia continues moving in the opposite direction, clamping down on the media, politicizing the universities, and consolidating economic control in the hands of the state. In the troubled Serbian province of Kosovo, the international community attempts to establish peace and negotiate a reasonable level of autonomy for the Albanian majority.
NIS Focus: Rebuilding Momentum and Coping with the Financial Crisis.
Progress on democratic transition and economic restructuring in the NIS region has been mixed. Significant improvements included Moldova's passage of an effective modern tax code and other significant legislation to continue its model land privatization program, Kyrgyzstan’s accession to the World Trade Organization (the first among NIS countries to achieve this distinction), Kazakhstan’s adherence to the Kyoto Global Climate Change treaty, Armenia's adoption of measures to substantially improve conditions for foreign investment, and the increased adoption of international accounting standards by private enterprises in the region. But support for reform among national leaders and the public is uneven. For example, Kazakhstan's electoral process, culminating in the January 1999 presidential election, fell far short of international standards.
The NIS region has been hit hard by the Russian financial crisis, following on the heels of the Asian financial crisis. Five salient impacts can be discerned: First, international trade has been severely affected. World commodity prices are down and Russia's imports from other NIS countries have fallen, with severe repercussions on countries like Moldova that depend heavily on this trade. Second, budgetary pressures on NIS countries have been exacerbated. Unsustainable government spending was a major cause of the Russian financial collapse. Slower economic growth, declining revenues from exports, and increasing demands for expenditures to pay for imported energy, lagging businesses or social services now add to the burden. Third, interest rates have risen and access to credit has become more difficult. Creditors and investors perceive that investment in the NIS is even riskier than before. Fourth, the proportion of the population experiencing hardships stemming from the collapse of communism and the restructuring of the economy that followed has increased. Indeed, the reduced ability to provide health services is showing up in lower life expectancy and increasing rates of infectious diseases. Lastly, the financial crisis has had and may continue to further backsliding in democratic reforms: according to Freedom House, democracy indicators regressed in seven of the twelve NIS countries last year.
Thus, the principal challenges at present lie in rebuilding support for democratic and economic reforms, putting the NIS economies on a firmer growth track, helping those most affected materially by the crisis, and ensuring the continued viability of independent, democratic institutions and the media. USAID is responding by placing greater emphasis on assistance to small and medium enterprises to increase jobs and incomes, on working with local governments, NGOs and local utilities to improve provision of basic services at the local level, and on programs that enhance public participation in the formulation of public policy. Assistance is also increasingly being channeled to activities that encourage lasting ties between NIS countries and the United States, ties that support mutually-beneficial relationships and leverage additional resources for investment from private, government, and community sources. Partnership for Freedom efforts are helping build sustainable relationships that will impact people at the grass roots. Regional Investment Initiatives will increasingly concentrate our efforts for maximum impacts in particular geographic regions of Russia, Ukraine and Kazakhstan. Finally, increased attention will be given to addressing health and other human impacts.
Donor Coordination.
Donor coordination is essential to maximizing the impact of USAID assistance in the ENI region. Principal partners include the European Commission, the World Bank, the European Bank for Reconstruction and Development (EBRD), the various European bilateral donors, and Japan. In both CEE and the NIS, USAID is the second largest bilateral donor after Germany. USAID also partners with the Asian Development Bank on activities in the Central Asian Republics.
USAID engages the European Commission regularly, both through annual high level consultations under the New Transatlantic Agenda (NTA) and through frequent discussions at the country and sub-regional level. At the country level, regular consultation with other donors, both bilateral and multilateral, fosters greater cooperation and a shared vision. In Bosnia-Herzegovina, the international community (multilateral and bilateral donors, international financial organizations, international organizations such the United Nations and the Organization for Security and Cooperation in Europe (OSCE), and the North Atlantic Treaty Organization (NATO), works closely on implementing the Dayton Peace Accords at a variety of levels. Regular meetings by members of the Peace Implementation Conference help establish priorities and implementation objectives. USAID also supports the EC accession process in the CEE region through activities in economic reform, public administration/anti-corruption, power and nuclear safety, and the environment.
FY 2000 PROGRAM.
The FSA request level for the New Independent States totals $1.032 billion. This request will fund continuing programs of USAID and other agencies in support of the economic and democratic transition. It also includes a new emphasis on programs to address the security implications of the economic transition. Programs of other agencies, such as the Science Centers and Export Controls, contribute to reducing the risk of proliferation of weapons of mass destruction, weapons delivery systems, materials technology, and scientific and technical expertise.
The SEED request level for Central and Eastern Europe totals $393 million. This request will enable the U.S. Government to continue supporting the Dayton Peace Accords in Bosnia, Croatia, and the Federal Republic of Yugoslavia; support peace efforts and reconstruction in Kosovo; and systematically close out bilateral programs in CEE northern tier countries while supporting new opportunities in the CEE southern tier.
Under the Economic Restructuring and Growth goal, USAID proposes $61.8 million for SEED and $260.5 million under FSA to foster the emergence of competitive, market-oriented economies in which the majority of economic resources is privately owned and managed. Increasing emphasis will be placed on partnerships, assistance to small and medium enterprises, and sub-national investment initiatives. Under the Democracy and Governance goal, USAID proposes $78.6 million in SEED funds and $66.1 million under FSA to support the transition to transparent and accountable governance and the empowerment of citizens through democratic political processes and freedom of information. Under the Social Stabilization goal, USAID proposes $206.3 million in SEED funds and $58.1 million under FSA to respond to humanitarian crises and strengthen our capacity to respond to the human dimension of transition to market-oriented democracy. Funding for economic reconstruction and other activities in Bosnia comprises about 45 percent of the total FY 2000 SEED request, and about 85 percent of the SEED request for the social stabilization goal area as a whole.
USAID proposes $46.3 million for SEED and $632.6 million under FSA under cross-cutting and special initiatives. Examples of cross-cutting efforts include training programs and activities with the Eurasia Foundation that channel small grants to grassroots organizations under both the economic restructuring and democracy rubrics. Programs related to reducing the risks of proliferation of weapons of mass destruction will also be included under this rubric. In addition, funding under this category includes other USG agencies participating in technical cooperation programs through inter-agency transfers from USAID, such as the Departments of Justice, Energy, Treasury, Agriculture, and Commerce, Environmental Protection Agency, the U.S. Information Agency, State Department Science Centers program, etc. USAID also proposes $34.6 million in Economic Support Funds (ESF), which includes $19.6 million for Ireland, $15.0 million for Cyprus and $10.0 million for the CEE Region.
EUROPE
FY 2000 COUNTRY SUMMARY
(in Thousand of Dollars)
COUNTRY Economic Restructuring Democratic Transition Social Stabilization Cross-cutting and Special Initiatives Total EUROPE* -- -- -- -- -- Albania 15,740 6,710 1,000 1,550 25,000 Bosnia -- -- 175,000 -- 175,000 Bulgaria 11,350 14,050 -- 2,600 28,000 Croatia -- 4,550 -- 1,450 6,000 Cyprus -- -- -- -- 15,000 -- ESF -- -- -- 15,000 -- FYR Macedonia 8,750 3,010 -- 2,240 14,000 Ireland -- -- -- -- 19,600 -- ESF -- -- -- 19,600 -- Romania 16,500 6,900 4,500 2,100 30,000 Federal Republic of Yugoslavia (FRY) -- 23,000 25,000 7,000 55,000 CEE Regional -- -- -- -- 70,000 -- SEED 9,500 20,375 800 29,325 [60,000] -- ESF -- -- -- 10,000 [10,000] EUROPE TOTAL 61,840 78,595 206,300 90,865 437,600 -- SEED 61,840 78,595 206,300 46,265 393,000 -- ESF -- -- -- 44,600 44,600 * All funds under EUROPE are Support for East European Democracy Act (SEED) unless otherwise noted.
NEW INDEPENDENT STATES
FY 2000 COUNTRY SUMMARY
(in Thousand of Dollars)
COUNTRY Economic Restructuring Democratic Transition Social Stabilization Cross-cutting and Special Initiatives Total NIS** -- -- -- -- -- Armenia 33,050 7,550 8,900 22,000 71,500 Azerbaijan 6,500 5,950 7,500 13,550 33,500 Belarus -- -- -- 10,500 10,500 Georgia 24,230 7,950 7,000 44,320 83,500 Kazakhstan 17,500 6,200 1,000 28,800 53,500 Kyrgyzstan 11,800 4,000 1,270 17,430 34,500 Moldova 21,200 4,800 -- 47,500 73,500 Russia 72,300 16,450 7,750 198,500 295,000 Tajikistan 2,800 1,800 1,400 6,000 12,000 Turkmenistan 3,800 -- -- 8,200 12,000 Ukraine 55,187 11,200 5,400 147,213 219,000 Uzbekistan 8,500 2,500 1,500 25,000 37,500 CAR Regional 5,000 -- -- 6,500 11,500 NIS Regional 7,570 1,367 18,455 57,108 84,500 NIS TOTAL 269,437 69,767 60,175 632,621 1,032,000 -- FSA
269,437 69,767 60,175 632,621 1,032,000 ** All funds under NIS are FREEDOM Support Act (FSA) unless otherwise noted.
EUROPE AND THE NEW INDEPENDENT STATES
FY 2000 TOTALS
(in Thousand of Dollars)
Funding Source Economic Restructuring Democratic Transition Social Stabilization Cross-cutting and Special Initiatives Total GRAND TOTAL 331,277 148,362 266,475 723,486 1,469,600 -- SEED total 61,840 78,595 206,300 46,265 393,000 -- FSA total 269,437 69,767 60,175 632,621 1,032,000 -- ESF total -- -- -- 44,600 44,600 Donald Pressley
Acting Assistant Administrator
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