KYRGYZSTAN

	FY 1998 Actual	FY 1999 Estimate	FY 2000 Request
FREEDOM Support Act	$24,518,000	$28,520,000	$34,500,000

Introduction.

The U.S. seeks to accelerate Kyrgyzstan's progress toward a productive, efficient market economy, which will attract increased U.S. trade and investment. The U.S. has a stake in encouraging Kyrgyzstan to proceed with democratic reform, including respect for the rule of law, separation of powers, and individual rights. From a regional security viewpoint, Kyrgyzstan's location at the headwaters of major river systems in Central Asia means that it can dramatically affect critical and sensitive sectors such as agriculture and electricity generation in the downriver countries, Kazakhstan, Uzbekistan, and Turkmenistan. Any negative action on the part of Kyrgyzstan with this power source would seriously affect its neighbors and regional stability, and pose a threat to American economic and political interests.

The Development Challenge.

Though it inherited one of the least efficient and least competitive industrial sectors in the Former Soviet Union, Kyrgyzstan was the first of the Central Asian Republics (CARs) to undertake reform. It has become a "laboratory" for demonstrating that democracy can work in Central Asia. While enjoying overall macroeconomic stability (growth was nearly 7% in 1997), the country's standard of living has fallen since independence and the social costs have been high. There was a recent collapse in the value of the national currency, the sum, and a change in the entire government cabinet at the end of 1998. The challenge for U.S. assistance is to help the country continue the economic and democratic reforms which have served as an example for the other CAR's.

USAID's goal in Kyrgyzstan is to promote a free-market economy with an appropriate social safety net and the necessary legal and infrastructure improvements. The privatization program has been successful, with nearly three-fifths of the economy in private hands. USAID advisors are helping privatize the electricity monopoly--a major and advanced undertaking in the privatization phase. USAID advisors have also successfully expanded the micro-credit and small and medium-size enterprise programs throughout the country.

In commercial law, Kyrgyzstan has moved forward with an alacrity not seen in other countries of the region. Kyrgyzstan became the first of the Central Asian countries to be afforded full World Trade Organization (WTO) status. They are now positioned to avail themselves of the benefits derived from WTO accession. Likewise, the new civil code and commercial legislation under preparation will strengthen their trading capability.

Kyrgyzstan, like its CAR neighbors, had almost no experience in enacting its own fiscal policy or financial markets. A burgeoning stock market facilitates further privatization and secondary trading. International accounting standards have increased transparency and helped rein in and reduce corruption. Work is continuing on laws on securities and investment funds, the establishment of legal information systems and the implementation of commercial law.

Democratic reform and respect for the rule of law, though still fragile, took a number of important steps forward in 1998. This included the passage of new legislation for non-governmental organizations (NGOs) which, with USAID support, was drafted by a working group of NGOs and Parliamentarians. Other examples are the successful USAID-assisted housing program which included property auctions, construction, and development of condominium associations, ultimately promoting private ownership of housing with increased community-level participation. The nascent civil society is being strengthened through human capacity development programs benefiting the community of NGOs and the legal and media professions.

Government-supplied social services, critical to maintaining public support for the overall USAID- assisted social reform agenda are inadequate. USAID's very successful pilot project in health care financing and delivery has leveraged $25 million in World Bank support for its replication elsewhere in the country. USAID will continue to provide some technical assistance until the health reform model has been completed and is ready for replication nationwide, probably by FY 2001. The health partnership program, reproductive health, and infectious disease control programs have all contributed to a stronger and healthier society. These programs have transferred much-needed technology and tools to national decision-makers and helped develop and strengthen primary health care, while also strengthening tertiary care through medical partnerships.

Other Donors.

The International Monetary Fund (IMF) and World Bank have extended significant monetary credits to address balance of payments issues and to encourage sectoral reform. Conditions for extension of these credits have been consonant with and reinforce USAID’s strategy to reform the investment climate in Kyrgyzstan. Kyrgyzstan currently has an IMF three-year Extended Structural Adjustment Facility (ESAF) focussing on fiscal reform. The Asian Development Bank (ADB), the World Bank, and the European Bank for Reconstruction and Development (EBRD) are expanding their loan portfolios.

FY 2000 Program.

The Kyrgyzstan program will continue to focus on the reform process in the economic, democracy, and social sectors and on deepening respect for human rights, particularly women's legal rights. The Partnership for Freedom's new programs to encourage economic growth and develop links between Kyrgyzstan and the United States have begun. USAID will begin to implement a "southern strategy" in the Fergana Valley designed to address priority economic development issues in a poor and neglected part of Kyrgyzstan. Finally, USAID will initiate an agricultural privatization program to build on the recent passage of the land reform law.

USAID will deepen its support for effective fiscal policies and management in part by helping the GOK to create strong regulatory frameworks for the securities market and the banking sector. In addition, USAID's interventions will accelerate progress in establishing the regulatory framework necessary to build investor confidence by ensuring that property ownership and transfer and commercial transaction are rights of market agents. USAID will continue support for the development of tax administration, legal and commercial infrastructure, intergovernmental finance and land registration systems, bankruptcy laws, the conversion of enterprises to international accounting standards and strengthening the professional capabilities of judges and attorneys. Further progress will be made toward the creation of an independent regulatory agency for electricity, and the completion of the privatization of the state energy holding company. Successful activities in micro-credit and small and medium enterprise will now be expanded into the Fergana Valley.

Ensuring that economic reform is accompanied by social and political reform is a continuing priority. Programs will continue to strengthen civil society, promote independent media, solidify the rule of law, furnish election assistance, and deepen respect for human rights. USAID will work toward the development of accountable local government by expanding a legal authority for such governments, improving financial and administrative operations, broadening the local resource base, delivering services efficiently, and strengthening the role of elected local councils as instruments of grassroots democracy. There will be increased attention paid to improving women's legal rights and their participation in the political process.

Under cross-cutting and special initiatives, USAID will continue medical partnerships, cost-effective systems for health care and service delivery, infectious disease prevention, reproductive health care, and targeted services for vulnerable populations, albeit at somewhat reduced levels. The infectious disease program will emphasize cost-effective ways to prevent and treat tuberculosis. Reproductive health services will continue to be provided at primary health care service sites, especially through the family group practices. Medical partnerships will support the transfer of technology in both tertiary and primary care. Participant training programs will continue expanding the human resources capacity of Kyrgyzstan, with increased local and third-country training in FY 2000. At the end of 1998, these programs had already provided training to more than 800 Kyrgyz.

KYRGYZSTAN

FY 1999 PROGRAM SUMMARY*
(in Thousands of Dollars)

USAID Mission Director: Glenn Anders

Strategic Objectives	Economic Restructuring	Democratic Transition	Social Stabilization	Cross-cutting / Special Initiatives	Total
Privatization	--	--	--	--	--
Fiscal Reform	1,600	--	--	--	1,600
Private Enterprise	7,450	--	--	--	7,450
Financial Reform	2,750	--	--	--	2,750
Energy	--	--	--	--	--
Environmental Management	--	--	--	--	--
Citizens' Participation	--	2,750	--	--	2,750
Legal Systems	--	--	--	--	--
Local Government	--	1,250	--	--	1,250
Crises	--	--	--	--	--
Social Benefits	--	--	1,270	--	1,270
Environmental Health	--	--	--	--	--
Cross-cutting / Special Initiatives	--	--	--	17,430	17,430
TOTAL	11,800	4,000	1,270	17,430	34,500
*FREEDOM Support Act (FSA) Funds

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ACTIVITY DATA SHEET

PROGRAM: KYRGYZSTAN
TITLE AND NUMBER: Increased Soundness of Fiscal Policies and Fiscal Management Practices, 110-S001.2
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 2000: $1,600,000 Freedom Support Act
INITIAL OBLIGATION: FY 1993; ESTIMATED COMPLETION DATE: FY 2001

Summary: In Kyrgyzstan, there have been aggressive moves in the area of macroeconomic policy reform. A new currency was introduced in 1993 and significant efforts have been made to control fiscal deficits. Meanwhile, USAID assistance has continued to result in progress toward the achieving this activity, the objective of which is to increase the soundness of fiscal policies and fiscal management practices. This would lead to a steady decline in the general government deficit as a percentage of GDP -- to 2% in 2001. To date, important advances have been made in the areas of improved tax administration and budget reform. USAID has assisted in increasing the transparency of the tax code by clarifying and streamlining tax policy. This improves the environment for foreign direct investment. Progress in this area will lead to steady declines in the general government deficit as a percentage of GDP -- to 2.0% in 2001.

The effort will benefit tax-paying citizens of Kyrgyzstan at all income levels by ensuring greater transparency and a more rational revenue collection and budgeting and expenditure process. Aspiring entrepreneurs will benefit as more comprehensible and transparent tax systems are adopted. More efficient revenue collection and rational budgeting/expenditure procedures also will help strengthen the credibility of the government and help ensure the sustainability of targeted social programs aimed at the most vulnerable sections of society.

Key Results: Successful fiscal reform depends upon achievement of the following indicators: 1) a reduction in the Government of Kyrgyzstan (GOKy) deficit as a percentage of GDP to around 2% in FY 2001; 2) Continued compliance with IMF conditionality ; 3) an increase in tax revenues as a percentage of GDP to 20% in FY 2001; and 4) continued adoption of modern tax legislation and amendments.

Performance and Prospects: The people of Kyrgyzstan have benefitted from USAID-funded analysis and policy advice, particularly in the fiscal area. Results include dramatically reduced inflation (from 35% in 1996, to about 20% in 1999), relative currency stability and a macroeconomic environment that is among the most stable in the former Soviet Union. USAID-funded advisors had the lead role in formulating the new tax code that meets international standards that is currently under implementation. In tax administration, USAID has received a commitment by the head of the State Tax Inspectorate to implement functional reorganization, a critical element in the Government’s ability to conduct revenue collection, increase efficiency of the administration of taxation, and create fairness in the system. Progress was also made in computerization, thereby enhancing the prospects for efficient tax collection.

As a result of new laws, an automatic withholding system was established and a rationalized system was put in place for the determination of tax obligations. Current technical assistance focuses mainly on implementation and administration of the new tax code and further rationalization of budgets and international finance reform, key elements in the fiscal reform program to which the GOKy recently committed. This has lead to a greater budgeting and fiscal accountability within all GOKy departments.

In FY 2000, USAID technical assistance in the fiscal area will continue to help further rationalization of Kyrgyzstan's system of intergovernmental finance, with a view toward ensuring that various levels of government operate with greater economic efficiency in implementing their taxation and expenditure authority. USAID is encouraging development and utilization of a cost-efficient procurement system through training and advice and is promoting the establishment of a monitoring agency to encourage greater transparency and competition. Likewise, USAID will continue to assist the GOKy to comply with IMF and IBRD conditionalities.

Possible Adjustments to Plans: In the future, USAID anticipates assistance to the GOKy in the area of improved fiscal analysis capabilities. More broadly, USAID will adjust its program in order to assist the government in delivering revenues from a widening tax base. Such actions are key to bringing the economy out of crisis.

Other Donor Programs: Ongoing efforts in the fiscal arena are coordinated with those of other donors, including the IBRD and EU.

Principal Contractors, Grantees, or Agencies: USAID activities are implemented through U.S. contractors (Barents Group and IBTCI) as well as through the U.S. Department of the Treasury.

Selected Performance Measures:

	Baseline	Target
Government deficit as a percentage of GDP	12.5% (1995)	2.0% (2001)
GOKy maintains compliance with conditions of international financial institutions	Yes (1995)	Yes (2001)
Tax revenues as a percentage of GDP	13.6% (1995)	20% (2001)
Adoption of modern tax legislation	No (1995)	Yes (2001)

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ACTIVITY DATA SHEET

PROGRAM: KYRGYZSTAN
TITLE AND NUMBER: Accelerated Development and Growth of Private Enterprises, 110-S001.3
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: $7,450,000 FY 2000: Freedom Support Act
INITIAL OBLIGATION: FY 1993; ESTIMATED COMPLETION DATE: FY 2001

Summary: Kyrgyzstan has made the strongest commitment of any country in Central Asia to the privatization of state-owned assets. The USAID-supported mass privatization program has been successfully completed. Now the focus is on privatizing "blue chip" state enterprises and developing Kyrgyzstan's capital markets. The objective of this activity is to foster accelerated development and growth of private enterprises. This would lead to steady increases in the share of GDP generated by the private sector -- 95% by 2001.

Specific beneficiaries include the hundreds of thousands of citizens of Kyrgyzstan who own shares in newly privatized government enterprises and stand to gain financially when these new firms increase in value or pay dividends. Aspiring entrepreneurs will benefit from a more comprehensive and transparent legal environment. The entire population will gain from a market-based economic system that creates employment, increases incomes, lowers prices and expands individual choice.

Key Results: For accelerated development and growth of private enterprise to occur, it will be necessary for: 1) the share of GDP generated by private enterprises to increase to about 95% in FY 2001; 2) the number of new firms transferred to new international accounting standards would have climbed to 1,000 in FY 2001; and 3) the Government of Kyrgyzstan will continue to comply with the conditions of international financial institutions.

Performance and Prospects: USAID advisors have assisted Kyrgyzstan to become the first Central Asian country to acquire full World Trade Organization (WTO) accession by developing a legal framework for trade and investment that facilitated Kyrgyzstan's application. USAID assisted in analyzing the investment climate and existing commercial laws, and then drafting of additional laws and regulatory regimes required for WTO accession. Commercial laws passed with USAID assistance include: the Foreign Investment Law, the Procurement Law and the Bankruptcy Law. All of this assistance strengthened favorably the business and investment climate. USAID is also assisting with development of strategic and business plans, as well as strengthening the management skills and provision of both equity and credit to small and medium-sized enterprises.

In the area of legal and regulatory reform, advisors have been working in key fields including trade and investment, bankruptcy, collateral law, and rewriting the civil code. A major training effort in all of these areas is underway. General business law has also been a major focus, targeting constraints to business, including inadequate implementation of laws in such areas as contracts and property rights. Many of these efforts are needed to maintain the momentum created by the privatization process and to expand opportunities for U.S. trade and investment in Kyrgyzstan.

In FY 2000, support for private enterprise reform will continue mainly focusing on further commercial law development and related areas such as support for accounting reform at the enterprise level. Among other objectives, the activities noted will assist Kyrgyzstan in developing a business environment that is more open and transparent and therefore less susceptible to corrupt practices. Through training and advice USAID is encouraging development and utilization of a competitive and cost-efficient procurement system and is promoting the establishment of a monitoring agency to encourage greater transparency and competition. Finally, as part of the emerging "Southern Strategy," USAID will assist small and medium-sized enterprises in the Fergana Valley in such sectors as food processing, construction, banking and credit unions, and textiles.

Possible Adjustments to Plans: In order to build on the success to date, USAID advisors will begin to address the issue of private land ownership. Private ownership of land was provided for in a constitutional referendum adopted on October 17, 1998 and USAID advisors have already began work on implementing legislation introduced in Parliament. Improvements could be made in areas of commercial law such as bankruptcy, fiduciary relationships and insurance law. Given the sensitive nature of these activities, government support will be essential for successful implementation.

Other Donor Programs: Ongoing efforts to strengthen private business operations have been developed in close coordination with other donors, especially the IBRD, IMF, EBRD, the Asian Development Bank and the EU.

Principal Contractors, Grantees, or Agencies: USAID activities are implemented through private U.S. firms such as Booz Allen & Hamilton, ARD/Checchi and Carana Corporation, along with U.S. PVOs such as the International Executive Service Corps (IESC), the Foundation for International Community Assistance (FINCA) and Volunteers in Overseas Cooperative Assistance (VOCA). The Central Asian-American Enterprise Fund (CAAEF) will also be making scarce capital available to Kyrgyzstan's emerging private sector with a business loan program.

Selected Performance Measures:

	Baseline	Target
GOK maintains adherence to conditionality of international financial institutions	Yes (1995)	Yes (2001)
Share of GDP generated by private enterprises	73% (1995)	95% (2001)
Number of new firms transferred to new accounting standards	0 (1995)	1,000 (2001)

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ACTIVITY DATA SHEET

PROGRAM: KYRGYZSTAN
TITLE AND NUMBER: A More Competitive and Market-Responsive Private Financial Sector, 110-S001.4
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 2000: $2,750,000 Freedom Support Act
INITIAL OBLIGATION: FY 1993; ESTIMATED COMPLETION DATE: FY 2001

Summary: Begun in 1994, the banking reform and capital markets development activities of USAID have been quite successful in Kyrgyzstan. The objective of this activity is the creation of a competitive private financial sector that is more responsive to the needs of a market-oriented economy. The two most important achievements to date have been the formation of a National Securities Commission and the establishment of Kyrgyzstan's first stock exchange in Bishkek in 1995. Currently more than 40 companies are listed on the stock exchange, which became self-sustaining at the end of FY 1998. A Central Depository was created with USAID assistance that will increase investor confidence and promote foreign investment. New corporate accounting standards have been introduced. Success in these areas will cause bank deposits as a percentage of GDP to climb to 20% by 2001.

Immediate beneficiaries include professionals involved in securities market development, such as private bankers, stock brokers and investors. More importantly, new entrepreneurs as well as a broad range of Kyrgyz citizens will benefit by expanding capital markets that allocate scarce financial resources more productively.

Key Results: Achievement of reform in the financial sector will hinge on success in the following: 1) increases in bank deposits as a percentage of GDP to 20% in FY 2001; 2) the number of financial services available rising to 25 by FY 2001; 3) 90% of banks being able to meet capital adequacy requirements; 4) the number and types of financial institutions rising to 18 by FY 2001; and 5) the types of firms operating in the securities market increasing to 18 by FY 2001.

Performance and Prospects: Significant strides have been made as part of USAID's effort to tighten financial regulatory guidelines and enhance monitoring capacity in the banking sector, which resulted in a large number of insolvent banks losing their licenses. Further, a reduction in directed credits and an overall tight monetary policy over the last two years further reflects the success of the Central Bank in asserting its independence. In addition, with USAID technical assistance, nine of Kyrgyzstan’s 18 commercial banks are now operating using international accounting standards. All enterprises in the republic are currently expected to use these standards beginning no later than January 1, 2000.

Bank accounting conversion efforts have been successful to date. With only a few exceptions, all banks have converted their major accounting systems to international accounting standards. The virtually complete adoption of such standards by the banks is a critical component of transparency and represents a significant step forward in reform.

USAID's primary function will be to continue supporting technical assistance and training to the financial sector. This will include further assistance in helping to convert the remainder of the commercial banks to international acceptable accounting standards. The basic framework for an effective securities market needs to be further developed and set on a sustainable footing. The Kyrgyz Stock Exchange requires increased corporate listings and the development of a cost-efficient over-the-counter (OTC) system.

Possible Adjustments to Plans: It is expected that the Capital Markets Activity will be phased out by the end of 1999 as a model economic reform activity. In order to ensure the sustainability of the capital markets reform, however, further activities need to be implemented over the course of 1999 which will strengthen the stock market. USAID will monitor closely such efforts, as the accomplishments achieved to date could be jeopardized.

Other Donor Programs: USAID is the major foreign donor working in the financial sector, and the only one involved in the securities area. Assistance is coordinated closely with the IBRD, as well as with other donors, particularly the EU.

Principal Contractors, Grantees, or Implementing Agencies: USAID financial assistance activities are implemented through two private U.S. firms, Pragma and IBTCI.

Selected Performance Measures:

	Baseline	Target
Bank deposits as a percentage of GDP	4.0% (1995)	20.0% (2001)
Number of financial services available	15 (1995)	25 (2001)
Percentage of banks meeting capital adequacy requirements	42% (1995)	90% (2001)
Types of financial institutions	3 (1995)	18 (2001)
Types of firms operating in securities market	4 (1995)	13 (2001)
Number of companies listed on the stock exchange	10 (1995)	150 (2001)

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ACTIVITY DATA SHEET

PROGRAM: KYRGYZSTAN
TITLE AND NUMBER: Increased Citizens' Participation in Political and Economic Decision-making, 110-SOO2.1
STATUS: Continuing
PROPOSED OBLIGATIONS AND FUNDING SOURCES: FY2000: $2,750,000 Freedom Support Act
INITIAL OBLIGATION: FY93; ESTIMATED COMPLETION DATE: FY 2004

Summary: Kyrgyzstan is the most progressive of the five Central Asian Republics in the area of parliamentary independence. The creation of a legal infrastructure to further expand such government accountability, as well as to encourage NGO and media development and citizen participation, is one of USAID’s principal efforts in Kyrgyzstan. Assistance to the local NGO community aims especially at increasing its professional and management capabilities, allowing it to advocate policy agendas, influence legal and regulatory processes, effect social change, and provide needed social services. USAID’s program includes a strong emphasis on building social partnerships between civil society, government and the business sector. Under a competitive small grants program, a number of local organizations are receiving direct program support. Private television and radio stations are receiving training to improve programming quality and enhance their financial viability.

Key Results: Three key intermediate results were concluded to be necessary to achieve the Strategic Objective. NGO participation in civil society must be strengthened, information on domestic economic policies and politics must become more widely available, and the government must become more responsive and accountable to citizens and citizens organizations.

Performance and Prospects: There has been significant progress in all aspects of USAID's democracy assistance in Kyrgyzstan, and USAID expects this progress to continue. Over the past year, ABA/CEELI-supported legal information centers (LCLI) in Kyrgyzstan have been a tremendous asset to the Ministry of Justice, parliamentarians, lawyers, and citizens; impressive statistics include the following: LCLI has served 15,944 clients, librarians have loaned over 63,776 publications to patrons and have responded to informational inquiries from 420 organizations; and the LCLI reports that its "most active consumer of informational requests is the Ministry of Justice." ABA/CEELI has also been working closely with the former Deputy Director of Parliament's Legal Department on the first draft of the Legislative Drafting Manual. Over 150 representatives from all five Central Asian Republics and all sectors of society participated in a social partnership conference in Kyrgyzstan organized by the USAID-funded Counterpart Consortium. A highlight of the conference was a speech by the State Secretary of the Kyrgyz Republic who spoke of the sincere interest of the government to work with the NGO community to develop social partnerships. Several specific projects including the "Central Asia Mass Media Association for Social Partnerships" and support for "Democratic Elections in Central Asia" were formed as a result of the conference. The recent National Referendum on Amendments to the Constitution of Kyrgyzstan was probably the year's most significant single event affecting the legal, political, and economic spheres in the country. Though there was controversy with respect to the voting, there was also lively debate leading up to the referendum. A concerted effort among three of the USAID partners helped to widely broadcast information on the referendum on radio and TV stations; in addition, thousands of copies of pertinent information were distributed to the public from USAID-supported legal information centers. The most recent draft of the election law addresses the major concerns USAID voiced regarding the previous draft and appears to be one of the most progressive laws in the region. As a result of USAID assistance, several journalist associations are active in Kyrgyzstan and they have participated in reviewing draft legislation and submitting commentary to parliament.

Possible Adjustments to Plans: In FY 2000, USAID is anticipating additional programming in the area of women’s legal rights issues and women’s participation in political processes.

Other Donor Programs: Civil society development is a multi-donor effort in Kyrgyzstan. UNHCR, OSCE/ODIHR, UNDP and Soros all support local NGOs with small grants. The UNHCR is co-funding NGO resource centers along with USAID. In the area of independent media, the UNDP, OSCE/ODIHR, and Soros support journalist associations and conferences. In the political processes area, UNDP is implementing an "automization" of elections. USAID and the EU coordinate with parliamentary assistance.

Principal Contractors, Grantees or Agencies: Several USAID-funded US PVOs such as the American Bar Association/CEELI, Internews, the National Democratic Institute (NDI), and the International Foundation for Electoral Systems (IFES), are playing a role in promoting democracy in Kyrgyzstan. Counterpart International, Aid to Artisans, and the International Center for Not-for-profit Law, which together form the Counterpart Consortium, also participate in local NGO development. Initiative for Social Action and Renewal in Eurasia (ISAR) will also participate in the development of local environmental NGOs.

Selected Performance Measures:

	Baseline	Target
Number of NGOs involved in advocacy (media/gov)	70/74 (1996)	75/50 (2001)
Average daily minutes of local news programming	1 (1994)	12 (2001)
Number of Parliamentary hearings and committee meetings addressing legislative/policy issues	2 (1996)	45 (2001)

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ACTIVITY DATA SHEET

PROGRAM: KYRGYZSTAN
TITLE AND NUMBER: More Effective, Responsive, and Accountable Local Government, 110-S02.3
STATUS: Continuing
PROPOSED OBLIGATIONS AND FUNDING SOURCES: FY 2000: $1,250,000 Freedom Support Act
INITIAL OBLIGATIONS: FY 1998; ESTIMATED COMPLETION DATE: FY 2004

Summary: The Kyrgyz Republic has taken significant steps in the transition toward more effective, responsible and accountable local governments. While democratic institutions and practices are fragile, a discernable move away from authoritarian rule and towards a sustainable democracy is clear. The central government has created an Office of Local Government with a clear mandate to strengthen local governments. A non-governmental organization (NGO), the National Association of Local Self-Governments comprised of elected village leaders (Councillors) and the elected mayor of Bishkek has been incorporated into a larger Congress of Communities, which includes NGOs as well as subunits such as block and neighborhood committees. Elections have been held in the 455 villages for the local council. All of the villages have enacted charters and the country’s 19 towns plus Bishkek are in the process of doing so. As a further move to strengthen local government, the national government has begun a process of transferring state-owned assets to local governments. However, limited authority, resources and skills at the local government level are serious constraints to the Government’s efforts in creating strong local governments. In order to support more effective, responsive and accountable local government, USAID has initiated efforts to address these constraints. Immediate beneficiaries are public sector officials and service providers. Ultimate beneficiaries are the local people who will benefit from improved public services.

Key Results: The USAID Local Government objective stated above will be achieved through three intermediate results: Practices promoting citizen input and involvement adopted; practices improving delivery of services and management of resources adopted; and powers of local governments increased. Although there were delays in project start-up, steps towards achieving the results are underway. A Memorandum of Understanding has been signed between the Congress of Local Communities and USAID to provide a range of technical assistance. Work has commenced in Tokmok as one of the pilot cities for developing budgeting and financial management systems. Mechanisms are in place to deliver the training courses in financial management, general management and leadership which are being adapted to the Kyrgyz situation.

Performance and Prospects: Activities under the Local Government Initiative were late in starting due to slow recruitment of staff by the contractor. However, over the past few months the pace of implementation has increased and year one targets are close to being achieved. By June 1999, efforts towards strengthening the Congress of Local Communities (National Association of Local Governments) as a nongovernmental organization (NGO) which can upgrade the skills of local officials and effectively advocate the interests of local government will have commenced. The Office of Local Government under the President has started implementing its agenda to strengthen local government. Assistance to form democratically controlled housing associations to perform functions previously performed by government agencies has started. Leadership Skills Training for Chief Administrators and Local Council members in selected municipalities is continuing. The target city for developing a competitive procurement system as a model of a "good local practice" to improve management of resources has been selected and training has started. A model budget format, an end of year financial report plan, and a public hearing process in which public comment is made on documents are being developed as a model for citizen input and involvement in a city’s administration.

Despite the progress made to date, an enormous agenda remains in the area of local government empowerment. Villages, towns and cities are severely constrained by the Ministry of Finance’s control over their budgets. The newly enacted tax law provides for the collection of a number of local taxes and fees, but these sources provide only a fraction of the required local revenues. Despite the reforms being implemented by the President’s administration to increase local autonomy, the Ministry of Finance remains a strong opponent of fiscal decentralization. USAID will continue to address this issue through policy dialogue at the highest levels.

Possible Adjustments to Plans: Year two work plans will complete on-going programs as well as complete the implementation of model "good practices" in two local governments.

Other Donor Programs: A number of other donors including the World Bank, UNDP, EU, and the Soros Foundation also support activities with a local government dimension that build around the principles of promoting sustainable human development in the country through decentralized management of development.

Principle Contractors, Grantees, or Agencies: International City/County Management Association, ICMA.

Selected Performance Measures:

	Baseline	Target
Adoption of practices promoting citizen input and involvement	0 (1998)	3 (2000)
Adoption of practices improving delivery of services and management of resources	0 (1998)	3 (2000)
Increasing the powers of local government	0 (1998)	2 (2000)

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ACTIVITY DATA SHEET

PROGRAM: KYRGYZSTAN
TITLE AND NUMBER: Improved Sustainability of Health and Social Benefits and Services, 110-S003.2
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCES: $1,270,000 FY 2000 Freedom Support Act
INITIAL OBLIGATION: 1993 ESTIMATED COMPLETION DATE: FY 2001

Summary: As the key donor assisting with social sector reforms in Kyrgyzstan, USAID will continue to help strengthen and implement the social reform agenda. The pilot program in Issyk-kul is operational. This program provides a viable health reform model that is being replicated in four additional oblasts with capitalization funds from the World Bank and the Asia Development Bank and technical assistance from USAID. USAID will also continue to concentrate on a national health reform policy development based on lessons learned in Issyk-kul. The combined USAID and World Bank efforts will ensure that approximately 90 percent of Kyrgyzstan’s population is covered by a health care delivery system consistent with a market-oriented economy in a democratic society. Finally, USAID programs directed toward NGOs have an important local social services dimension and will help ensure more effective delivery as well as bring about change in targeted communities. The immediate beneficiaries are the health care providers while ultimately all citizens of Kyrgyzstan benefit, especially the segment of the population classified as vulnerable (e.g., elderly pensioners, women, children).

Key Results: This activity contributes to the improved sustainability of selected social services through achievement of two intermediate results. Cost-effective health care services will be demonstrated in selected oblasts and cost-effective health sector reforms adopted nationally. To date, 425 Family Group Practices (FGPs) are operational nationally, covering 60% of the population compared to 81 in the pilot sites in 1997. Enrollments in the selected FGPs have started, with, to date, the pilot oblasts having an enrollment rate of 83% of the population. The health care system is already more cost- effective, where 70% of the service providers in the pilot oblast and 9% in the initial oblasts are being reimbursed by market-oriented payment systems. The Issyk-kul model has now been adopted in four additional Oblasts, with the remaining two to be covered by year 2000.

Performance and Prospects: This activity has progressed well with a high proportion of the targeted populations (85%) now exercising their right to select the family group practice of their choice in areas where enrollment campaigns have been conducted. All management information systems have been developed and implemented, allowing the providers to respond to new incentive payment systems. A new provider payment system, which encourages primary care physicians to treat more and refer less often to specialty hospitals, is being implemented after being launched in January 1998. USAID has also provided technical assistance to integrate women’s reproductive health, childhood health services, and infectious diseases such as tuberculosis into family group practice. Using earmarked funds, all FGPs will provide family planning services by 2001. USAID policy and legal assistance led to the establishment of a national framework for health care, which incorporates health insurance into a broader social insurance context. Information on health reform has been widely disseminated to the public through 320 television and radio spots and 156 newspaper and magazine articles. The health insurance fund has implemented nationwide the hospital payment system which was developed in the Issyk-kul demonstration. By FY 2002, it is expected that health reforms in Kyrgyzstan will be completely institutionalized at the policy and program levels.

Possible Adjustments to Plans: Currently, no adjustments are anticipated, as reforms are being institutionalized. USAID technical assistance needs have declined over time.

Other Donor Programs: Various other donors are involved in this crucial area, including the World Bank, Asian Development Bank, World Health Organization (WHO), United Nations Development Program (UNDP), UNICEF, United Nations Population Fund (UNFPA), and EU.

Principal Contractors, Grantees, or Agencies: Abt Associates is the principal contractor implementing this activity.

Selected Performance Measures:

		Baseline	Target
Increased number of independent primary care of practices - family group practices (FGPs)		0 (1995)	500 or 75% of pop. covered (2000)
Increased percentage of health care providers reimbursed by market-oriented payment systems	Pilot: Roll Out:	0 (1995) 0 (1995)	80% (2000)
Percentage of the population enrolled in FGP's	Pilot: Roll-Out:	0 (1995) 0 (1995)	85% (2000) 60% (2000)

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