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![[Congressional Presentation]](/images/cp00bnnr.gif)
UKRAINE
FY 1998
ActualFY 1999
EstimateFY 2000
RequestFREEDOM Support Act $225,000,000 $195,000,000 $219,000,000 Introduction.
Ukraine’s successful transition to a democratic society and market economy is fundamental to U.S. national interests. A strong, stable, independent, prosperous, and democratic Ukraine will be an important partner in achieving post-Cold War goals such as preventing nuclear proliferation, expanding commercial and economic relations, eradicating disease and conflict, easing environmental degradation, and shaping a more secure and stable Europe. In providing assistance to Ukraine, U.S. strategic goals are to help Ukrainians build a strong, independent, democratic, and economically viable country, and to further Ukraine’s effort to become integrated into the global community and forge stronger ties with the West.
The Development Challenge.
After seven years of independence, Ukraine’s transformation to a market-based democracy may well be irreversible, but its pace has proven Western expectations overly optimistic. Despite some progress in economic reform, most observers agree that Ukraine has not executed the tough policy reforms necessary to promote economic growth. There are a number of reasons for this: there is still no consensus among the country’s people or leaders on the ultimate nature of Ukraine’s government or national identity; the leadership either has been uncommitted to reform or unable to articulate and gain support for a particular vision; proposed changes are often blocked by political stalemates between the President’s Administration and the parliament, or by the class of elites born of the transition wishing to preserve the status quo; increasingly, politicking for the October 1999 Presidential election is intruding on the policy debate. Lack of political will is surely a problem, but it does not fully account for the failure to reform. Also to blame is the fact that capacity to conceive and implement changes is extremely limited.
The current financial crisis threatens to dissolve hard-won policy gains, and this may serve as renewed impetus for the Government to pursue comprehensive reform in earnest. But the obstacles remain substantial. Given experience to date and the present environment, the United States has begun taking a new approach in its assistance program. In the past, with only limited success, primary emphasis was placed on supporting the Government’s reform efforts at the national level. Increasingly, the assistance program has been shifting focus to local-level activities, with the majority of resources directed to programs that empower people and grassroots organizations to foster change. This includes support for small business development, working with private farmers in selected regions, strengthening citizens’ groups, think tanks and other non-governmental organizations, and increasing the capacity of local government to implement reforms and promote economic growth. This is complemented by an ongoing policy dialogue with the Government, both on a bilateral basis and in conjunction with other donors, to influence structural reform in key sectors. Limited technical assistance for government reform efforts is provided where there is good potential for progress, particularly in conjunction with IMF and World Bank programs.
Also emphasized in this new approach is pilot-testing reform initiatives in selected progressive regions, and maximizing the use and replication of demonstration projects to provide successful models of reform throughout Ukraine. Greater reliance on partnerships with U.S. organizations will help leverage U.S. assistance dollars further and promote binding ties between groups in the United States and Ukraine. In the same vein, there is great potential for Ukraine to benefit from lessons learned by other former Eastern bloc countries further along in their transition, such as Poland. The United States is supporting this type of cross-border cooperation through technical assistance, training and study tours. Finally, support for anti-corruption measures will play a more prominent role in U.S. assistance programs, particularly in reducing the potential for corruption by encouraging transparent measures, reducing regulation, and putting in place incentives to reduce corruption.
Other Donors.
The United States is the largest bilateral donor to Ukraine. Other major donors include the World Bank, European Union, United Kingdom, Germany, Canada and the European Bank for Reconstruction and Development. USAID works closely with these donors to ensure that U.S. assistance programs are complementary, mutually reinforcing and do not duplicate each other. General donor meetings are held regularly, and seventeen sector-specific working groups meet periodically to exchange views and information on joint activities and key developments. Programs in which donor coordination has been particularly productive include bank supervision, international accounting standards, power sector regulatory reform, the Regional Environmental Center, the National Environmental Action Plan, the Action Plan to Address the Social Impact of the Closure of Chornobyl, climate change, privatization and capital markets, and business development.
The European Union’s assistance program focuses on institutional reform, private sector development, energy and the environment. Germany provides credits to finance German exports to Ukraine and federal guarantees for capital investments, as well as technical assistance on macroeconomic, legal and social issues, financial sector reform, privatization and small and medium enterprise development. Canada’s program of technical cooperation supports the transition to a market-based economy, promotes democratic development, and increases Canadian trade and investment links with Ukraine. The United Kingdom’s Know-How Fund provides assistance in agriculture, energy, financial services, good government and small and medium enterprise development. The EBRD has a micro- and small enterprise credit line, and provides support for enterprise restructuring, institutional strengthening and post-privatization activities. EBRD investments encompass a broad range of sectors, including food processing, financial sector, oil and gas extraction, agricultural services, telecommunications and port facilities. The EBRD also administers the Chornobyl Shelter Implementation Plan on behalf of the G7 and other contributing countries.
In September 1998, the IMF approved a three year credit of $2.2 billion under the Extended Fund Facility to support the Ukrainian Government's 1998-2001 economic program. However, only $336 million of the total loan package has been disbursed. The current tranche was postponed in November, 1998, due to Ukraine's slow pace of reform. Both the IMF and World Bank have expressed concern that Ukraine is one of only two former Soviet Republics that has yet to register any GDP growth during its post-Soviet existence. In February, 1999, the IMF continues to review performance under the program to determine whether disbursements are possible.
FY 2000 Program.
USAID-Implemented Programs: The objectives of the U.S. assistance program will continue to be promoting economic growth, strengthening democratic institutions, and addressing critical social issues. Activities to strengthen the economy will emphasize improving the investment environment, facilitating small and medium business development, and transforming important sectors of the economy such as energy and agriculture. Assistance with democratic institutions will focus on the development of civil society, rule of law, and an effective local government. Social issues addressed through U.S. assistance will include reform of the pension and unemployment systems, improvement of health care delivery, including women’s reproductive health, and strengthening non-government organizations that fill gaps in the social safety net. These objectives are interrelated in their consequences for Ukraine’s future. Absent the rule of law, for instance, economic growth is unlikely to flourish even in an otherwise improved investment environment. Likewise, without attention to the collapsed social infrastructure that has left so many Ukrainians without services and resources, popular support for economic reform will be limited.
In addition to these objectives, several special initiatives are also included in the FY 2000 assistance program for Ukraine. The Poland-Ukraine Cooperation Initiative helps Ukraine benefit from Poland’s transition successes. The Global Climate Change Initiative will assist Ukraine to develop the human, institutional and technological capacity to reduce greenhouse gas emissions. The Kharkiv Regional Investment Initiative will assist the Kharkiv community in accelerating regional economic growth by improving the investment environment, increasing private investment, and developing trade links with the U.S. private sector. The Anti-Trafficking Initiative is a multi-pronged program to stem the sexual trafficking of women, assist the victims, and prosecute those responsible for this crime.
Improved health care service delivery is an important special initiative of the USAID program in Ukraine, as a healthy workforce is integral to Ukraine’s potential for economic growth. Since the break-up of the Soviet Union, the health care system has deteriorated. Lack of available and/or affordable quality health care has contributed to an overall deterioration in the physical and mental well-being of the population. This is illustrated by a recent rise in infectious diseases, a falling birth rate and an increase in degenerative diseases and circulatory illnesses. The inability of the health care system to adequately forecast and respond to potential disease epidemics increases the danger to the population. In addition, there has been a significant decline in life expectancy, particularly among males.
USAID’s work in the health sector emphasizes seven priority areas -- health care financing, women’s health, infectious diseases, pharmaceutical management, hospital partnerships, breast cancer assistance, and Chornobyl-related childhood illnesses. The goal of these programs is to reverse the decline in the health status of Ukrainian citizens by helping to transform the health care system to one that is sustainable and capable of meeting the overall needs of the population. USAID is assisting Ukraine to implement a wide range of health care system reforms. USAID’s management of infectious disease prevention and control efforts focuses on improving access to and utilization of accurate, appropriate and timely health and management information, specifically regarding the management of vaccine-preventable diseases. The rational pharmaceutical management project emphasizes three technical areas: formulary development and management, rational drug use and pharmaceutical policy/legislation. The health partnership project has expanded to include primary care as a focus of activities. Existing hospital partnerships include Women’s Wellness, Neonatal Training and Emergency Medical Service Training Centers. The new partnerships will emphasize family medicine, violence against women and community outreach programs. The breast cancer program continues to focus on screening and diagnosis for early detection and improved breast cancer care, treatment and increasing survival rates. The Chornobyl Childhood Illness Project and the Birth Defects Project screen and treat childhood physical and mental illness related to the Chornobyl accident.
Other U.S. Agency Programs: Included also with this request are programs implemented by other U.S. Government agencies. The request for cross-cutting and special initiatives, in particular, reflects expanded emphasis on the need to reduce the risks of proliferation of weapons of mass destruction through programs which enhance our mutual security, such as export controls, science centers and efforts designed to employ scientists in non-military areas. In addition, other USG agencies participating in technical cooperation programs with Ukraine through inter-agency transfers from USAID include the Environmental Protection Agency, the Nuclear Regulatory Commission, the U.S. Departments of Energy, State, Justice, Commerce and Treasury, and the United States Information Agency.
UKRAINE
FY 1999 PROGRAM SUMMARY*
(in Thousands of Dollars)
Strategic Objectives Economic Restructuring Democratic Transition Social Stabilization Cross-cutting / Special Initiatives Total Privatization -- -- -- -- -- Fiscal Reform 3,600 -- -- -- 3,600 Private Enterprise 36,427 -- -- -- 36,427 Financial Reform 7,000 -- -- -- 7,000 Energy 6,180 -- -- -- 6,180 Environmental Management 1,980 -- -- -- 1,980 Citizens' Participation -- 7,200 -- -- 7,200 Legal Systems -- 1,000 -- -- 1,000 Local Government -- 3,000 -- -- 3,000 Crises -- -- -- -- -- Social Benefits -- -- 5,400 -- 5,400 Environmental Health -- -- -- -- -- Cross-cutting / Special Initiatives -- -- -- 147,213 147,213 TOTAL 55,187 11,200 5,400 147,213 219,000 *FREEDOM Support Act (FSA) Funds USAID Mission Director:Gregory Huger
ACTIVITY DATA SHEET
PROGRAM: UKRAINE
TITLE AND NUMBER: Increased Soundness of Fiscal Policies and Fiscal Management Practices, 110-S001.2
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCES: FY 2000 $3,600,000 FSA
INITIAL OBLIGATION: FY 1994 ESTIMATED COMPLETION DATE: FY 2004Summary: In a market economy, an efficient fiscal system plays the vital role of providing sufficient revenues to support necessary public expenditures without hampering the growth of the private sector. Reforming both fiscal policy and fiscal management practices in Ukraine will help the Government of Ukraine to better define the size and scope of the public sector and the essential needs for public provision of goods and services. It will also encourage private sector economic growth by limiting the resources consumed by government and establishing a fair and stable tax environment.
The USAID fiscal reform program for Ukraine is aimed at establishing sound fiscal policies and management practices that support both the growth of a market economy and the necessary redefinition of the size and scope of government activity within a market economy. The program currently focuses primarily on (1) improving tax law, policy, and administration; (2) developing analytic techniques and procedures for budget preparation, adoption and implementation at the national and sub-national levels; and (3) formulating macroeconomic policy and analysis. As a vital adjunct to these efforts, USAID is providing assistance for the functional review and restructuring of the Ministry of Finance, Ministry of Economy and State Tax Administration in connection with the public administration reform initiative led by the World Bank. In all areas, emphasis is placed on ensuring that skills are transferred to counterparts and work products are appropriate to the Ukrainian situation. The immediate beneficiaries of USAID activities are the Ministry of Finance, the State Tax Administration, the Ministry of Economy and the Verkhovna Rada’s (Parliament) tax and budget committees, and by extension, the taxpayers and voters of Ukraine. Entrepreneurs will benefit as more comprehensible and transparent fiscal systems are established.
Key Results: USAID will consider this objective achieved when Ukraine meets the following criteria: (a) the tax system is sufficiently fair, simple and transparent to encourage greater taxpayer compliance and revenue collection is increased without placing an undue burden on economic growth; (b) public expenditures meet government priorities at a level that can generally be sustained by reliably estimated revenues; (c) the process of budget preparation, adoption and execution is well-informed, accurate, transparent and responsible; and (d) the division of responsibilities and resources at all levels of government are well-defined and the relevant officials are held accountable; and (e) fiscal policy makes a positive contribution to macroeconomic stability and growth in GDP and personal income.
Performance and Prospects: Progress in this strategic objective has been slow, but there have been some improvements and prospects for continued progress are reasonable. USAID has assisted in establishing a macroeconomic monitoring group to compile key economic indicators and provide analysis to aid top GOU officials with economic policy-making. This activity includes developing and supporting a macroeconomic model to assess the impact of policy decisions on the economy. USAID and U.S. Treasury advisors have assisted the Ministry of Finance in implementing a budget classification system, as well as new budget procedures and computerization of the budget preparation process. Training in budget analysis is being provided both at the MOF and through a local NGO. A relational database for budget information has been developed, along with time series for key budget data going back to 1992. A comprehensive budget system law has been drafted, approved by the Cabinet of Ministers and is awaiting Rada action. An intergovernmental fiscal model has been developed, with staff trained to use and maintain it. Work is proceeding to reform intergovernmental finance. New budget preparation systems for oblast and rayon-level governments are being implemented and computerized. These systems and their related databases are expected to be linked with local government-level budgets to form a comprehensive picture of expenditure needs and funding flows across levels of government. The new Value-Added and Enterprise Profits Tax laws were enacted, and a comprehensive tax code has been drafted for submission to the Verkhovna Rada by mid-1999, with enactment expected by the end of the year. Over twenty-one million taxpayer identification numbers, as well as tax forms and instructional materials, have been issued. Significant numbers of tax officials are being trained in new tax laws and more efficient techniques of tax administration. In the Rada, the Fiscal Analysis Office is providing objective and quantitative analysis of tax and budget legislation, used by deputies in debates on proposed budgets and tax laws.
Over the next four years, it is expected that funding levels will phase down slowly and a greater portion of the effort will be directed at lower-level bodies of government. Assuming that the tax code is passed, continued support will be provided in the implementation of tax modernization efforts under the World Bank loan (see below) and in the application of organizational and procedural reforms at the district level. Aside from further improvements in the budget preparation process, increased attention will be placed on budget program analysis and moving toward program-based budgeting. Activities involving direct work with local governments are likely to increase as the broader intergovernmental functional and funds transfer arrangements are sorted out. Particular emphasis will be placed on development of local government revenue sources, especially the property tax, which requires major efforts to develop the necessary infrastructure and techniques for proper administration. Assuming that the overall restructuring of the Ministry of Finance is accomplished in 1999, further efforts to reorganize and strengthen the Ministry of Finance, including extensive training, are likely to be subsumed under the specialized program areas listed above, e.g., improving the operations of the Budget Department. Finally, in the area of fiscal analysis capability for the Rada, the current Fiscal Analysis Office is expected to become a permanent arm of the Rada, with expatriate advisors phased out over time and all activities shifted to Ukrainian professionals hired by the Rada.
Possible Adjustments to Plans: None, as these programs have recently undergone strategic review.
Other Donor Programs: USAID fiscal reform programs are closely coordinated with both the International Monetary Fund (IMF) and World Bank to ensure that technical assistance supports the fulfillment of loan conditions. USAID is providing technical assistance to the State Tax Administration on a pending World Bank loan for modernization and computerization, to the Ministries of Finance and Economy on the proposed World Bank Public Administration Reform Structural Adjustment Loan, and to various entities on a World Bank Local Government Finance loan. USAID technical assistance in tax administration, budget process, intergovernmental finance and administrative reform are also directed toward helping the GOU meet IMF program conditions. In all these areas, USAID’s work is also coordinated with other U.S. Government-funded organizations, mainly the U.S. Treasury, and with other public and private donors and non-governmental organizations. Joint work related to fiscal reform is being carried out with the EU, Canada, and the United Kingdom.
Principal Contractors, Grantees or Agencies: KPMG/Barents, Harvard Institute for International Development, CASE, International Center for Policy Studies, and U.S. Department of the Treasury.
Selected Performance Measures:
Baseline Target The number of budget revisions required due to
inaccurate budget forecasts is reduced.3 (1995) 1 (2000) Central-to-local government funds transfers
are done on a formula basisno (1995) yes (2000) The number of taxpayers included in the taxpayer
identification system increases0 (1995) 35 million (2000)
ACTIVITY DATA SHEET
PROGRAM: UKRAINE
TITLE AND NUMBER: A More Market-Responsive Agriculture Sector, 110-S001.3a
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCES: FY 2000 $8,900,000 FSA
INITIAL OBLIGATION: FY 1994 ESTIMATED COMPLETION DATE: FY 2005Summary: U.S. assistance to agriculture and agro-industries in Ukraine has been premised on the expectation that fundamental policy reform would take place relatively quickly, resulting in an expanding open market, private sector-driven agricultural economy. Programs were designed to spearhead key policy changes nation-wide through activities that would demonstrate the effectiveness of open markets and related private input supply, processing and marketing institutions, as well as private land ownership and farm management.
Since 1996, however, the prospects for fundamental policy reform at the national level have worsened. The pace of reform has been slow and uncertain, and the Government of Ukraine has undertaken policy measures that resulted in a more adverse environment for private sector-led agricultural development. These measures included restrictions on private marketing of grain, and an initiative by the Government to supply agricultural inputs, fertilizer, and machinery. Opposition to private land ownership and private farming has remained strong in Parliament and in many parts of the Government.
While there is little potential for fundamental reform emanating from the level of the national government in the near future, USAID believes that regional and local governments may be more amenable to allowing greater private sector participation in the agricultural sector through initiatives that focus on particular regions. Therefore, USAID technical assistance is now being re-focused. Activities will emphasize private farmers and households where people benefit directly. There will be a concentrated effort in 3-5 geographic locations where prospects for private farmer and household production and marketing improvements appear good. Activities will help expand the base of private farmers and improve marketing, input supply, credit and extension services. Farm restructuring and agricultural land privatization will be central to this approach. A major focus of USAID’s agriculture sector program to date has been the provision of agriculture inputs through the creation of private dealerships, promotion of trade and the development of cooperatives. This emphasis will continue, but in closer collaboration with the farm restructuring and titling activities to ensure that farms coming out of the restructuring process have available to them the input supply alternatives essential to viable private farming operations.
Given the absence of the traditional sources of credit to private farmers, USAID will explore a range of alternative institutional approaches to address the credit constraint, including credit unions, cooperatives and suppliers credit. USAID will also address the constraints faced by private farmers, restructured farms, and plot holders in dealing with elements of the agricultural production-marketing-processing chain through approaches that reflect the diversified nature of their production. USAID will work to strengthen cooperatives and farmers associations in providing direct links between individual farmers and markets, and to encourage private farmers, restructured farms and plot holders to trade on open markets.
Finally, USAID will adopt approaches that strengthen capacity for policy analysis and reform, facilitate advocacy for policy reform by private professional and trade associations and work with interested local government and oblast officials to create the space necessary for the regional agricultural initiatives to operate effectively. Progress will be articulated to national agricultural policy decision-makers. USAID will continue to provide assistance to the National Private Farmers Association, the National Commodity Exchange Association, the League of Entrepreneurs, and the Ukrainian Cooperative Foundation so that these organizations may acquire a more effective voice in articulating and advocating a unified policy reform agenda.
USAID assistance is benefiting producers and consumers in terms of increased agricultural production and related processing and distribution through increased incomes and lower food prices.
Key Results: USAID will consider this objective met when sustainable nation-wide agricultural policy reforms are implemented and private farmers in selected regions enjoy opportunities to increase their production and marketing of agricultural commodities.
Performance and Prospects: USAID activities have achieved significant results since 1993, although these achievements have fallen short of the fundamental agricultural reform anticipated. First, land ownership has been transferred from the state to collective agricultural enterprises (CAEs). An estimated 6.5 million land shares have been issued for CAE land. Actual land titles have been issued to 8,000 people through USAID-supported activities. The number of private farmers rose from under 2,000 in 1992 to 36,000 in 1997, accounting for over 900,000 hectares. Second, the USAID-supported process of mass privatization resulted in the privatization of over 4,000 agro-industrial enterprises, with the delayed process of privatization of grain elevators now underway. Third, the private sector has become active in input supply and agricultural marketing and processing. Private U.S. agribusinesses in partnership with Ukrainian entities have expanded the provision of inputs, processing facilities, and marketing outlets. Private independent commodity exchanges, with functioning spot and forward contract mechanisms, are operating at a limited level. USAID also established the Commodity Exchanges Information System to provide weekly information on Ukrainian and world prices. Price information is disseminated to over 1,100 direct recipients, including newsletters, new agencies, oblast administrations, agricultural producers, processors, and distributors. Fourth, private industries and commodity exchanges have established, with USAID support, independent associations to defend their interests and lobby for policy change.
Fifth, a framework has been established, through the Inter-Ministerial Commission on Agrarian Reform (IMCAR), under which the Government of Ukraine and international donors are beginning to consider policy changes in agriculture and the agro-industrial sectors in a joint forum.
Possible Adjustments to Plans: These programs have recently undergone strategic review and revision. No additional adjustments are contemplated for the present.
Other Donor Programs: The World Bank, EU/TACIS, the British Know-How Fund and USAID cooperate closely in their policy reform and project activities, and are jointly funding internal Ukrainian agricultural policy analysis through IMCAR. The World Bank has the largest agriculture program in Ukraine, and has released the final $150 million under an Agriculture Sector Adjustment Loan (SECAL). The World Bank is not planning additional policy-related sector adjustment loans because of the same policy reform problems that have faced USAID’s efforts. However, the World Bank is planning to include policy-related issues in various projects that are under development. These include Land Title Registration, Rural Credit, Agribusiness, and a new Rural Development project that may include co-financing of farm restructuring. The World Bank is linking many of these projects to existing USAID initiatives, enhancing the impact and sustainability of USAID’s program activities.
Principal Contractors, Grantees or Agencies: RONCO, Chemonics, PricewaterhouseCoopers, Louisiana State University, the U.S. Department of Agriculture, Iowa State University, Citizens Network for Foreign Affairs, Land of Lakes and ACDI.
Selected Performance Measures:
Baseline Target Private sector contribution to agricultural production 60% (1998) 65% (2000) Government-issued land titles 25,000 (1997) 625,000 (2000) Grain elevators privatized 100% 15 (1998) 237 (2000)
ACTIVITY DATA SHEET
PROGRAM: UKRAINE
TITLE AND NUMBER: Privatized Enterprises are More Competitive and Efficient, 110-S001.3b
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCES: FY 2000: $9,830,000 FSA
INITIAL OBLIGATION: FY 1994 ESTIMATED COMPLETION DATE: FY 2005Summary: With completion of USAID’s mass privatization program, the vast majority of state-owned enterprises in Ukraine have been privatized. Following on the success of that program, support for the development of privatized enterprises concentrates on providing essential business skills, removing external constraints and creating an enabling environment for private sector growth. The principal focus of USAID’s program to support privatized enterprise development to date has been in the area of reducing financial constraints to growth by means of promoting private ownership of urban land under enterprises and land markets in Ukraine. Access to credit is the most critical ingredient for growth of all private enterprise, and USAID has targeted this problem directly through the West NIS Enterprise Fund and indirectly through collateral law and banking reform, and through support to tax system reforms that will facilitate the flow of private investment. Training and certification efforts under the accounting reform activities and the new training program under the enterprise restructuring program ensure access to business skills and information. The legal and regulatory environment has been another important limiting factor preventing these privatized enterprises from restructuring, and the USAID program has provided support to organizations within the GOU to promote reforms to the business, legal and regulatory environment. These activities will benefit the business community of Ukraine and those they would employ through the introduction of training and restructuring methods and the jobs created by new and growing businesses.
Key Results: USAID will consider this strategic objective achieved when the economic environment both encourages and supports efforts by privatized enterprises to undergo restructuring in order to become more efficient and competitive. More specifically, an environment that encourages restructuring will involve (1) greater outside ownership and control over these privatized enterprises, to stimulate the demand for restructuring, as well as (2) an improved financial sector to allow the prospects of additional investment for restructured firms to motivate privatized enterprises to undergo restructuring. A supportive environment will satisfy this demand for restructuring by (1) making business skills and training accessible; and (2) implementing laws to reduce or eliminate the numerous legal and regulatory constraints to growth and restructuring.
Performance and Prospects: Under SO 1.1, over 45,000 small enterprises have been privatized, 15,500 with direct USAID assistance, in over 70 cities in 23 oblasts throughout Ukraine. As a result, over 90 percent of all small and medium enterprises in Ukraine are privately owned, providing employment to more than 660,000 people. By the end of 1998, over 5,000 unfinished construction sites were privatized, resulting in the creation of over 3,000 new jobs in the new firms, the transfer of unproductive state-owned resources to productive employment by new private owners, and additional revenue for the budgets of local governments. Under the USAID-assisted Mass Privatization program, an estimated 35 percent of Ukraine’s citizens are now shareholders. By the end of 1998, more than 8,700 medium and large enterprises out of a universe of approximately 10,000 were privatized. Of these, nearly 5,000 are 100 percent privately owned.
Through the Land Privatization program, there has been considerable success working at the level of oblast and municipal government to privatize agricultural and enterprise land. Neither effort is self-sustaining yet and neither has yet reached the stage of nationwide impact. But initial results are promising. Ownership of agricultural land has been transferred from the state to collective agricultural enterprises and some 6.5 million land shares issued to individual collective members. Physical titles have been issued to 155,300 people including 10,300 since July 1997 through USAID-supported programs. Privatization of land under enterprises started only in October 1997, but enterprise land sales offices are now operating in 24 cities and more than 1,500 privatizations will be complete by the end of FY 1999.
Considerable progress has also been made in follow-on programs under SO 1.3b. To date, over 5,000 unfinished construction sites have been privatized, over 1,000 with direct USAID assistance, creating over 3,000 new jobs. By the end of FY 1999, at least 1,500 enterprise land privatizations will have been completed. Privatizations to date have generated over $2.0 million in revenue for municipal budgets. The Accounting Reform Project, which has provided training to accountants and auditors in International Accounting Standards and which assisted in the formation of the Ukrainian Federation of Professional Accountants and Auditors (UFPAA), has helped to improve the management of enterprises and to make their accounts more transparent to investors. At the enterprise level, a program to convert Ukraine’s small, medium and large enterprises will result in 30 additional pilot conversions by mid-1999. The West NIS Enterprise Fund continues a program of debt and equity investments in medium and large enterprises in Ukraine, for a total of over $23 million in completed transactions.
USAID believes that the GOU will proceed with privatization of land under enterprises and the development of land markets in Ukraine, including the sale of unfinished construction sites. Despite some opposition within the Rada to private land ownership, the growing interest at the local levels of government in engaging in privatization, along with enterprise demand for private ownership of associated lands, creates a powerful constituency.
Possible Adjustments to Plans: These programs have recently undergone strategic review, and no adjustments are contemplated for the present.
Other Donor Programs: USAID works closely with International Financial Institutions in providing technical assistance to meet their lending conditionality. Regarding enterprise restructuring, USAID recently initiated a donor coordination group for assistance to privatized enterprises. In addition, USAID has coordinated closely with the World Bank regarding the pending Private Sector Development loan.
Principal Contractors, Grantees or Agencies: International Finance Corporation, The Recovery Group, Barents Group, London Business School, PricewaterhouseCoopers, East European Real Property Foundation, and the West NIS Enterprise Fund.
Selected Performance Measures:
Baseline Target Number of unfinished construction sites privatized 5,000 (1998) 15,000 (2000) Enterprises using international accounting standards 0 (1998) 13,000 (2000) Number of enterprises on top of privately owned land 30 (1997) 2,000 (2000)
ACTIVITY DATA SHEET
PROGRAM: UKRAINE
TITLE AND NUMBER: Expanded Role of Small and Medium Enterprises in National Economy, 110-S001.3c
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCES: FY 2000: $17,697,000 FSA
INITIAL OBLIGATION: FY 1994 ESTIMATED COMPLETION DATE: FY 2005Summary: Small and medium enterprise (SME) development is an essential element of Ukraine’s transition to a market economy. SME development can make a positive difference in peoples’ lives through its impact on the labor market; in the long term, SMEs are likely to become the largest source of employment for the people of Ukraine. In Western Europe, for example, approximately 50 to 70 percent of the workforce is employed by small and medium enterprises. According to official figures, only about 10 percent of the labor force in Ukraine is employed by SMEs; in Russia, the figure is 20 percent; in Eastern Europe, SME employment is between 45 and 50 percent of the labor force. A large part of SME activity in Ukraine currently exists in the informal economy, so the actual figures for SME employment are probably higher than the official figures. Creating an environment that encourages SME growth will also promote the move from the shadow economy to the formal sector, which leads to additional benefits to the state in the form of increased revenues from greater tax compliance.
The USAID program to support SME development concentrates on removing constraints and creating an enabling environment for private sector growth. Improving access to business skills has been the principal focus to date, but the USAID program has also begun to assist the GOU in promoting reforms in the legal and regulatory environment, a critical constraint to the development of SMEs. Access to credit is another important ingredient for SME growth, and USAID has targeted this problem directly through support for the West NIS Enterprise Fund and recent microenterprise credit initiatives. Beneficiaries include proprietors and employees of micro, small and medium-sized businesses via various firm-level assistance activities and policy/regulatory reforms.
Key Results: USAID will consider this objective achieved when the high tax and regulatory burden on private enterprise is reduced, the weak financial system is improved to permit SMEs greater access to credit and investment, and the level of business skills is improved.
Performance and Prospects: A total of twelve USAID-funded business service centers have been created to date to ensure that SMEs have access to business skills, with four more to be created in 1999. During four years of existence, 15,283 clients had received services through the eight NewBizNet Centers as of May 1998. In addition, the four IFC business centers located in smaller cities in Ukraine have trained over 2,000 SME managers and staff, and have provided business toolkits and other information services to over 200 local businesses. Sustainability of these business centers has been a goal since their creation, and has been achieved in some of the original centers to a substantial extent. By July 1998, business service centers generated a total of well over $1,000,000 in revenue. USAID has also provided modest support to business schools in Lviv, Kiev, and Donetsk, and trained over 1,000 Ukrainian accountants and auditors in International Accounting Standards, reporting, and managerial accounting. Work under The Alliance consortium (IESC, CDC, ACDI/VOCA, and MBA Enterprise Corps) in FY 1998 resulted in 253 business volunteer projects providing training and consulting services to 350 Ukrainian companies. In March 1998, USAID conducted a national workshop on business association development, which resulted in the creation of a coordinating committee of participating business associations. An international conference on SME Development was held in November 1998, with international speakers and roundtable discussions on key topics, presentations by existing SME support programs, and an interactive information fair with participation by various SME support programs available in Ukraine. The conference highlighted the GOU’s success in reducing the number of days required to register businesses from 35 to less than four, and in reducing business registration costs by almost 50%. The State Committee for Entrepreneurship Development now has the capacity to analyze and challenge regulations that are found to be unfavorable to business development. Five regulations have been eliminated, and five more will be altered. Training and seminars have been held for eleven regional membership-based business associations in Ukraine over the past year to improve their services to members, increase their membership base, and develop their capacity to lobby government for the interests of their members. USAID has helped to create regional associations of realtors in Lviv, Odessa, Kharkiv, and Odessa. Nine more small realtor associations are beginning to incorporate in other cities, with memberships ranging from 3 to 24 firms. As of November 1998, the West NIS Enterprise Small Business Loan Fund had provided 52 loans to SMEs averaging $46,000. Through the same period, the Eurasia Foundation Small Enterprise Lending Program provided 15 loans averaging $49,773 through two banks. USAID’s program to create and ensure the sustainability of credit unions has succeeded in setting up eight model credit unions in various regions of Ukraine, and has trained more than 800 credit union managers, board members, and initiative group representatives. This project has also assisted the Ukrainian National Associations of Savings and Credit Unions (UNASCU) to improve its services to member credit unions and to develop new legislation that more appropriately reflects credit union activity in Ukraine.
The prospects for effective SME reform in Ukraine are good. The Government generally looks on SME development as a win-win situation. Even among those in the government who oppose other reforms, development of small enterprises represents a political "good" which both provides jobs and increases tax revenues, while resulting in very few negative side effects. While they may balk at specific deregulation aspects or some other important steps in private sector development, a mandate to push such changes through the system is often easy to establish under the flag of small enterprise development. A very powerful and persuasive argument in favor of reforms to support SME development is that these changes are not costly to the government, either in terms of finance or political capital (i.e., impact on voters is only positive or neutral, but not negative). Finally, the February 1998 mandate from the President that empowered the State Committee on Entrepreneurship Development to challenge all legislation and regulations unfavorable to business development is seen as a means to pave the way for reforms to the enabling environment through the removal of constraints to SME growth.
Possible Adjustments to Plans: These programs have recently undergone strategic review, and no adjustments are contemplated for the present.
Other Donor Programs: Other development partners are active in promoting the growth of SMEs, through such means as loan funds to support microenterprise development, technical assistance, and loan conditionality that requires the GOU to continue to work toward creating a positive enabling environment for SMEs. The governments of Germany, Canada, and Great Britain as well as the European Union, United Nations Development Program and the World Bank are all providing funds for programs to promote the development of SMEs. Representatives of USAID and these agencies meet on a regular basis to coordinate their assistance programs for SME development.
Principal Contractors, Grantees or Agencies: Development Alternatives, Inc., The Alliance, International Finance Corporation, World Council on Credit Unions, and the University of Minnesota.
Selected Performance Measures:
Baseline Target Days spent completing (a) licensing and
(b) registration processes(a) 35 (1997)
(b) 30 (1997)(a) 15 (2000)
(b) 5 (2000)Institutions providing microcredit 0 (1997) 15 (2000) Business associations conduct roundtables and workshops on policy and regulatory reform 0 (1997) 10 (2000)
ACTIVITY DATA SHEET
PROGRAM: UKRAINE
TITLE AND NUMBER: A More Competitive and Market-Responsive Private Financial Sector, 110-S001.4
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCES: FY 2000: $7,000,000 FSA
INITIAL OBLIGATION: FY 1994 ESTIMATED COMPLETION DATE: FY 2004Summary: Financial sector reform in Ukraine will transform a mechanistic, bookkeeping system to a service-oriented sector based on market principles, capable of providing financial support to consumers and to small and large businesses. The Government's role in the transformation is to develop an infrastructure that promotes safe, sound and responsive financial services and to provide the legal and regulatory framework that will allow the sector to operate effectively and responsibly. Such a system critically depends upon several factors: (1) an economic environment of growth and private initiative, supported by government stabilization policies that promote efficient resource allocation; (2) a legal environment that specifies transparent "rules of the game"; (3) government regulatory authorities who are able to implement the "rules of the game" in an evenhanded way; (4) a culture and incentive structure that encourage financial market players to carefully analyze the risks of their activities and conduct their business in a manner consistent with western "best practice"; and (5) a constant upgrading of human capital to provide the sector with needed management and decision-making capacity. During the past six years, USAID’s technical assistance has been developed with these objectives in mind. Emphasis has been placed on developing the fundamentals of the financial infrastructure, upgrading human capital, and strengthening the legal, policy and institutional environment. This thrust will continue, along with careful attention to the sequencing of technical assistance to concentrate on the fundamental building blocks of a functional financial system -- government regulatory authority, accurate accounting and reporting, payments mechanisms, and the training of basic skills.
Beneficiaries of these activities include all those involved in the private financial sector, including enterprises and households that need access to finance.
Key Results: USAID will have achieved its objective of a more competitive and market responsive private financial sector when (1) the fundamental financial infrastructure is developed that will increase public confidence in the banking sector, create a level playing field in which all banks can compete, and strengthen the National Bank of Ukraine’s (NBU) supervisory authority; (2) institutions and practices are established for an open, transparent and safe equity market that will provide savings vehicles for homeowners and businesses, and, in turn, supply capital to industry, commerce and the Government; and (3) a market-oriented legal and regulatory infrastructure is in place that provides both the financial institutions and the entities they serve with an effective and transparent framework in which to operate.
Performance and Prospects: USAID has provided strong support for the development of the Ukrainian fixed-income market, encompassing banking and government securities. This includes critical support to the NBU’s regulatory authority and capacity, putting into place regulations that include classifying and provisioning for bad loans, setting higher minimum capital requirements, and lending to one borrower and related parties. Supervisors have been trained in both Western-based inspection techniques and off-site risk analysis, as well as in rehabilitation techniques for problem banks. In collaboration with other donors, USAID has helped convert the banking system to international accounting standards (IAS). An initial pilot program of banks tested the new chart of accounts. Subsequently, IAS was introduced throughout the banking system in January 1998. Since that time, USAID has been working with commercial banks to deepen the usage of IAS-based financial reporting and to develop back office functions such as internal auditing. Work continues on the creation of a self-sustaining banking school. To date, over 3,000 bankers from all over Ukraine have received short-term training.
USAID has also worked with the leading Ukrainian business school, the International Management Institute, in implementing a one-year intensive training course leading to an MBA in banking. Seventy banking professionals have received MBAs under this program; thirty two are currently enrolled. A number of graduates are currently team-teaching with foreign advisors at the banking school. During 1996 and 1997, USAID’s activities led to the formation of the Securities and Stock Market State Commission (SSMSC) and its authorization to regulate the corporate securities market. USAID provided assistance to the SSMSC in conducting enforcement activities and surveillance inspections, analyses of disclosure filings and financial statements, and conducted training/education programs covering all areas of securities markets, especially corporate governance. USAID also spearheaded legislative coalition-building and assistance in the drafting of laws and regulations in the areas of securities and the stock exchange, business association, joint stock companies, and self-regulatory organizations. USAID supported the formation of a broker-dealer organization, which in turn established an organized over-the-counter securities trading system (PFTS). By the end of November 1998, PFTS membership reached 299 in twenty-one cities, and the total volume of trades amounted to nearly 5,500 with a value of $289 million. USAID provided technical assistance and training in Depository and Custody issues. USAID activities also created trade associations for registrars and depositories (PARD), for investment funds (UAIB), and for accountants and auditors (UFPAA). By the end of November 1998, PARD membership surpassed 270 in all principal cities. USAID enabled the UFPAA to adopt guidelines and instructions for four international accounting standards. USAID assistance contributed to the passage of the amendment to the Law of Ukraine on Pledges to provide for a State Pledge Registry of movable property. An extensive training program in bankruptcy and financial restructuring for judges of the Highest Arbitration Court and other legal and financial professionals has been completed. A modern bankruptcy law has been drafted and has passed its second reading in the Parliament.
Current development of the Ukrainian financial sector occurs against a backdrop of turmoil in international financial markets. The difficult situation in Russia is of particular importance to Ukraine because of the close trade and financial ties between the two countries. Compounding this situation, badly askew macroeconomic policies have dampened private sector development and resulted in highly restrictive monetary policies leading to liquidity problems for banks. While USAID’s basic objectives, and thus the underlying program, will not change, particular care will have to be taken in this environment to ensure that efforts do not destabilize an already fragile financial system.
Possible Adjustments to Plans: These programs have recently undergone strategic review, and no adjustments are contemplated for the present.
Other Donor Programs: USAID’s work in the banking sector is supportive of both the World Bank Financial Sector Adjustment Loan (FSAL) and the IMF Extended Fund Facility (EFF), twenty-five conditions of which concern the banking sector. Upgrading NBU bank supervision, developing NBU capacity to deal with problem banks, passage of banking laws, deepening the conversion to international accounting standards are all examples of USAID activities that feature prominently in both FSAL and the EFF. Joint programs exist with EU-TACIS and the British Know How Fund in bank accounting, with EU-TACIS in problem bank restructuring, and with the Swiss government in bank training. USAID’s efforts in strengthening the capital markets are reinforced by the World Bank’s activities through its Enterprise Development and Adjustment Loan II. In addition, the European Union has initiated corporate disclosure and custodian development programs that also support the achievement of USAID’s objective.
Principal Contractors, Grantees or Agencies: Financial Markets International, PricewaterhouseCoopers, Barents/KPMG, IBTCI, Financial Service Volunteer Corps, Gavin Anderson, IRIS, Deloitte and Touche, and the Ukrainian Legal Foundation
Selected Performance Measures:
Baseline Target Commercial banks meeting minimal capital requirements 89 (1995) 99 (2000) Bank examinations focusing on asset quality and management 0 (1995) 50 (2000) Securities enforcement/compliance activities 0 (1995) 10 (2000)
ACTIVITY DATA SHEET
PROGRAM: UKRAINE
TITLE AND NUMBER: A More Economically Sustainable and Environmentally Sound Energy Sector, 110-S0 1.5
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCES: FY 2000 $6,180,000 FSA
INITIAL OBLIGATION: FY 1994 ESTIMATED COMPLETION DATE: FY 2005Summary: Since 1995, progress in the reform of the energy sector has been significant and in some respects is greater than anywhere else in the region. Ukraine began the process of power sector restructuring to address critical financial and managerial problems and to develop a financially sustainable power sector. Critical first steps were the break-up of energy production and distribution monopolies and the establishment of regulatory institutions. The industry now consists of four thermal, one nuclear, and two hydroelectric generating companies (GENCOs), and 27 local distribution companies (LECs).
Deeper reform is required, however. The policy, legal and regulatory environment needs to be strengthened and extended to other aspects of the energy markets, including coal, oil and gas. Suppliers must be empowered to collect energy tariffs. For efficiency and financial reasons, privatization and restructuring of energy companies with significant involvement of international strategic investors is essential. Strategic investments are necessary to supply the needed capital, technology, and management expertise, and to put the energy sector on a sound commercial footing. The ability of strategic investors to withstand political pressure is essential to achieve the final objective. In addition, incentives must be developed that encourage more efficient use of energy, not only to reduce Ukraine’s dependency on imported fuels, but to put the sector on a more sustainable foundation to meet future energy needs. Other reasons to promote energy efficiency in Ukraine include environmental and macroeconomic benefits, as well as global climate change.
USAID energy reform assistance directly benefits newly corporatized electric generating and distribution companies, the National Energy Regulatory Commission (NERC), the Alternative Fuel Center, industrial and municipal energy users, employees in the energy sector and the coal industry.
Key Results: USAID will consider this objective met when: (1) the legal and regulatory environment surrounding the development of the energy sector is developed and provides an enabling environment for strategic private investment; (2) the energy sector has become a competitive, financially sustainable energy production and delivery system; (3) Ukraine reverses the decline in domestic fuel production and is able to reduce dependence on imported natural gas and coal from Russia; and (4) improved efficiency in energy utilization is achieved.
Performance and Prospects: Since 1995, the Ukraine electric power industry has undergone far reaching reforms. The totally integrated power system was broken up into 35 generation, distribution, and transmission companies. A regulatory mechanism has been established, and commercialization of wholesale markets has been achieved. The World Bank proposed a Financial Recovery Plan (FRP) in 1997 that would enable the power sector to become solvent and self-sustaining. USAID played an active role in supporting the Government of Ukraine’s adoption and implementation of the FRP in 1998. To date, 18 of 26 of the Plan’s covenants have been met, and one other has been partially met. USAID has been the lead provider of technical assistance to the NERC, which is providing fair, transparent, and predictable governance over the electric generation and supply market. The NERC is now recognized as a solid institution in the issuance of licenses, regulation of producer-consumer relationships, and formulation of market-based tariffs.
USAID provided assistance to selected coal mines in the development of marketing strategies and business development plans. The western-standard business plan for Krasnolimansaya coal mine has been submitted to EBRD and the World Bank for consideration. Also in the coal sector, USAID played a lead role in promoting health and safety awareness and practices regarding methane gas risks. USAID is promoting the development of coal-bed methane (CBM) as a commercially-viable alternative source of energy. To that end, USAID has identified the key legislative and regulatory issues affecting commercial exploitation of CBM (which has been treated in the past as a hazardous by-product of coal mining with no commercial value). USAID collaborated with the Government of Ukraine in the creation of the Alternative Fuel Center to coordinate CBM activities, including information dissemination on CBM to assist private domestic and foreign interests in securing investment opportunities.
USAID has been active in promoting energy efficiency through a variety of approaches. USAID has supported the Ukraine-US Program to Promote Sustainable Development, which identified strategies to improve the policy and legal incentives for market-based mechanisms for energy efficiency. USAID activities also stimulated demand for energy audits provided by private energy service companies (ESCOs), including facilitating entry by U.S.-based ESCOs into the Ukrainian market. Finally, USAID collaboration with heating companies in the city of Lviv led to the installation by private sector companies of building-level heat delivery systems through condominium and cooperative associations. Energy efficiency and control of methane emissions can greatly reduce Ukraine’s impact on global warming.
The Ukrainian commitment to this objective is strong, but there is not complete agreement on the methods and approaches. The NERC is strongly committed to a competitive, market-based system, while some in the Ministry of Energy want to maintain total Government control and ownership of the power sector. Many in the Parliament, central government and local government still see power as a service that should be provided at nominal cost, or free if necessary, but don’t know how fuel, equipment and labor costs of the industry will be financed. The long period of living off capital and subsidized fuel is coming to an end as all other financing sources are cut off, which will require substantial restructuring of the industry or cuts in service that are likely to be unacceptable. This situation is likely to result in greater support for a market-based, sustainable system because there will be no viable alternative.
Possible Adjustments to Plans: These programs have recently undergone strategic review, and no adjustments are contemplated for the present.
Other Donor Programs: The World Bank, the other major donor in the power and gas sectors, is concentrating on policy reform. The Bank has used its policy-based Electricity Market Development Project (EMDP) to help bring about policy improvements. The loan has been suspended for more than a year, but it is expected to be reinstated. The Financial Recovery Plan (FRP) is a device to help bring about reinstatement of the EMDP. If the loan is not reinstated, then the Bank will concentrate purely on project financing. Activities in the gas sector are not as well defined, though the Bank and the Government agreed on a program to reform the gas sector. The EBRD is another major donor in the energy sector with several projects underway. It is the lead financier for the completion of two nuclear generating units at Khmelnitsky and Rivne. The EBRD considers the FRP a benchmark of this project’s financial viability. Neither the World Bank nor the EBRD can provide significant technical assistance, although both can bring hundreds of millions of dollars in loan funds, as well as creative short term financing by the EBRD. Other donors include the Government of Japan, the European Union/TACIS and KHF.
Principal Contractors, Grantees or Agencies: Alliance to Save Energy, Partners in Economic Reform, International Institute of Education, Hagler-Bailly Company and the United States Energy Association
Selected Performance Measures:
Baseline Target NERC functions independently of political forces no (1998) yes (2000) Number of energy companies privatized by strategic investors 0 (1996) 15 (2000) Reduction in industrial, residential and
communal consumption of energy0 (1998) 2% (2000)
ACTIVITY DATA SHEET
PROGRAM: UKRAINE
TITLE AND NUMBER: Increased Environmental Management Capacity to Support Sustainable Economic Growth, 110-S0 1.6
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCES: FY 2000 $1,980,000 FSA
INITIAL OBLIGATION: FY 1999 ESTIMATED COMPLETION DATE: FY 2005Summary: USAID programs in support of this objective aim to increase public and private capacity to address critical environmental constraints to Ukraine's sustainable economic growth. By and large, they are carried out at the local level, where the majority of decisions affecting Ukraine's economy and environment are taken by enterprises, utilities, schools, hospitals, public and private transport providers, local administrations, and citizens. USAID assistance aims to create the necessary conditions and incentives for a greater private-sector role in environmental technology transfer, increase and improve the technological know-how and environmental management capabilities of communities, and create an enabling environment for environmental investment financing. These activities take advantage of the important role of citizens in ensuring that both public and private entities protect environmental values in consonance with economic growth and employment creation, and advance understanding that improving local infrastructure, reducing pollution and minimizing waste increases economic efficiency and productivity. USAID also supports policy and regulatory reform initiatives at the national level where environmental constraints to economic development cannot be addressed at the local level, and contributes to integrating environmental policy initiatives and regulatory reforms into Ukraine's economic reform and restructuring activities at the national and local levels. Finally, this program contributes to strengthening linkages among environmental professionals in the region and between Ukraine and its U.S. counterparts, particularly with a view to promoting environmentally sound technology transfer and meeting Global Climate Change mitigation goals through emissions trading and joint implementation activities. The activities under this objective are distinct from, but synergistic with, activities under other objectives, including SO 1.5 (energy restructuring), SO 1.3 (private sector development), SO 2.3 (improved local government), and SO 2.1 (citizen participation/NGO development).
The primary beneficiaries of these activities are the citizens of the areas in which USAID activities are concentrated, including Lviv, Donetsk, Dnipropetrovsk, Kiev, Crimea, Slavutych, Ivano-Frankivsk, Kharkiv and Odessa.
Key Results: USAID will consider this objective met when (1) increased integration of economic, environmental and social policy objectives is achieved and market-based policy tools are adopted to strengthen environmental policy, regulatory, and enforcement capabilities; (2) increased capacity to uphold commitments to international agreements is achieved, including administering emissions trading and joint implementation programs; (3) improved environmental management practices are achieved, including the adoption of environmentally sound and energy efficient technologies by private and public sector entities; (4) sustainable regional and U.S. partnerships are formed; and (5) increased number of Ukraine citizens and environmental NGOS are empowered to participate in and influence the decision-making process affecting human health and the environment at the local level.
Performance and Prospects: Notwithstanding the critical state of Ukraine’s environment and economy, USAID has made significant progress under its environment program, and has established a solid foundation for further progress. Since 1996, the core of USAID’s environmental program has been the U.S.-Ukraine Council and Work Group Program to Promote Sustainable Development. This program also marked the initiation of efforts to integrate economic and environmental development objectives. Field demonstration projects in urban water, agriculture, industry, energy efficiency, environmentally sound business development, and international treaties were linked to work groups that proposed legislative and policy solutions to barriers to sustainable development encountered in the field. Ten policy/legislative reform proposals have been sent forward through the Council to Ukraine’s Cabinet of Ministers. Four of these have been adopted so far, and it is anticipated that the remaining five will also be adopted. Those adopted include reforms to Ukraine’s tax collection system, capital reinvestment, and depreciation procedures affecting capital improvements and maintenance of water utilities. USAID’s environmentally sound technology transfer activities have also progressed in both the municipal and industrial sectors. An example at the municipal level is USAID’s Lviv Urban Water Program. Through the transfer of U.S. EPA computerized water system modeling technology, U.S. engineering technologies, and financial management and efficiency know-how, local capacity to provide water services was increased from 0-3 hours per day to 24 hours per day. A USAID pilot project in the Pasichna district achieved these results for 35,000 residents and significantly improved water services for an additional 70,000 residents. The installation of energy-efficient pumps in nearby pump stations has enabled improved water services for an additional 200,000 residents in the city of Lviv. In the industrial sector, USAID projects helped to generate $3.4 million in annual savings in ten Donetsk and Dnipropetrovsk enterprises, and improved energy efficiency in 24 enterprises.
USAID also initiated programs on environmental financing and market-based tools by sponsoring workshops and seminars, and sponsored a Ukrainian-U.S. conference on Global Climate Change and Greenhouse Gas Mitigation. Progress was also made on increasing the number of viable NGO’s in Ukraine. The network of NGOs has grown from a membership of approximately 150 in 1994 to 562 in 1997, an increase of 275%. The focus will now shift to building institutional capacity within these organizations and to coordinating these efforts with the establishment of the new Regional Environment Center.
Possible Adjustments to Plans: These programs have recently undergone strategic review, and no adjustments are contemplated for the present.
Other Donor Programs: USAID works closely with The World Bank, EBRD, and other donors on environmental issues. The Environment for Europe Environment Action Plan Task Force and Project Preparation Committee have committed to focus donor attention on the NIS for the period 1998-2002.
Principal Contractors, Grantees or Agencies: United Nations Development Program, U.S. Environmental Protection Agency, CH2M Hill, Hagler Bailly, and ISAR
Selected Performance Measures:
Baseline Target Number of laws and regulations adopted that
strengthen the policy, legal and regulatory framework
for environmentally sustainable development0 (1998) 8 (2002) Number of private and public entities utilizing
Innovative financing mechanisms0 (1998) 50 (2002) Number of private and public entities that have
adopted improved environmental management0 (1998) 100 (2002)
ACTIVITY DATA SHEET
PROGRAM: UKRAINE
TITLE AND NUMBER: Increased Better-Informed Citizen Participation in Political and Economic Processes, 110-S0 2.1
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCES: FY 2000 $7,200,000 FSA
INITIAL OBLIGATION: FY 1995 ESTIMATED COMPLETION DATE: FY 2005Summary: For democracy to succeed, well-informed citizens must participate in the political and economic decision-making processes. Active non-governmental organizations (NGO), an independent and unrestricted press, and free elections are all essential for citizens to make informed decisions and to participate. This strategic objective contributes to Ukraine’s transition to a market-based democracy by strengthening these essential elements of democracy. An active civil society will also contribute to the broader reform process. NGOs or citizens who demand transparency and accountability would create a counterbalance to Ukraine’s largely corrupt and erratic reform process.
This strategic objective will also help empower Ukrainian citizens to participate in and drive forward Ukraine’s political and economic transitions. Programs that increase citizens’ participation and government responsiveness at the local level under the local government objective and that support NGO legislation and strengthen NGO capacity under the social services objective also contribute to the achievement of SO 2.1. Similarly, enhancing the rule of law under is a vital link to building citizens’ confidence in the political process, overcoming apathy, and, accordingly, encouraging greater citizen participation. Finally, the success of strategic objectives in other sectors, such as support to small and medium enterprises, address some of the economic barriers to broader citizen participation. Collectively, these programs comprise a comprehensive strategy to increase the level of citizen participation in political and economic decision-making.
Ukrainian NGOs, political parties, independent media and trade unions, and the Central Election Commission all benefit from USAID support for and promotion of citizen participation and education activities. Ukrainian citizens also benefit from system improvement as a more informed electorate.
Key Results: USAID/Kiev will consider progress towards the achievement of this strategic objective on track if public attitudes towards participation begin to change and more citizens strive to become involved. In addition, media support programs will be progressing satisfactorily if non-state media approach financial sustainability and are free from blatant government attempts to restrict freedom of speech.
Performance and Prospects: Ukraine has made some progress in its democratic transition. Since 1991, the number of non-governmental organizations (NGOs) has grown significantly. The number of independent newspapers that compete with the government press has also increased. Ukraine was the first post-Soviet state to undergo a peaceful transfer of presidential power following free and fair elections in 1994. In 1996, the adoption of the Constitution and the subsequent establishment of the Constitutional Court created a basis for adopting and implementing reform legislation. With USAID support, thousands of Ukrainians, including judges, journalists, attorneys, newspaper managers, political party activists, NGO leaders, civic activists, legislative drafters, municipal government leaders, law faculties, and trade union leaders, have received training that is contributing to their efforts to support democratic reform.
USAID’s support for NGOs that pursue issues that have an impact on people’s lives, particularly by influencing political process and upholding citizens’ rights, has proven successful. An illustration of this is that a coalition of environmental NGOs that attempt to hold government accountable to environmental and public participation laws has had a high success rate, advancing an issue of primary concern to citizens while increasing their confidence in the political process and legal system. In addition, legal advice to democratic trade unions has resulted in the successful resolution of several cases by trade union members. For example, the courts ordered an enterprise to reinstate and compensate the chairman of an independent trade union who had been fired for his union activities. Independent trade unions have also received training and information in collective bargaining, workplace safety, and pension reform. Similar legal advice and training is being provided to journalists, editors, and media lawyers under a media legal advocacy program. Public policy, legal advocacy, and human rights NGOs have been strengthened through training and small grants, enabling them to advocate on behalf of citizens, produce informational bulletins and TV programs, conduct regular and well-publicized opinion polls, and investigate human rights violations. Women’s NGOs have received assistance that has helped them address key issues such as domestic violence, inequality, and women’s entrepreneurship.
USAID has assisted the Government with election administration and voter education. Political party activists have received training in campaign management, coalition-building, and fund raising. USAID/Kiev has supported their efforts to be active and informed participants in the constitutional debate and the drafting of new election laws. A new parliamentary election law was adopted and implemented for the March 1998 elections. This law contributed to greater representation in the parliament, cost savings through elimination of repeat and run-off rounds, and further development of national political parties. USAID provided comprehensive assistance prior to the March 1998 elections, including support for political party debates, voter education programs, and training for CEC officials. In addition, get-out-the vote efforts contributed to youth voter turnout almost equal to that of all other age groups. USAID also supported an election observation effort by 17,000 non-partisan domestic monitors, the first independent election night news program, and an exit poll. These efforts contributed to relatively smooth election administration despite new changes to voting procedures under the new election law.
A USAID-funded press center is providing journalists with access to a wide range of resources including the Internet, legal databases, and Ukrainian and Western wire services. In addition, USAID provided technical assistance to a loan fund that was established to support the development of self-sustaining and independent media-related enterprises. In response to the growing constraints on independent journalism, a new activity was initiated to provide legal protection to journalists and to monitor legal actions and persecution against the media. This program will fund lawyers who advise or represent individual journalists and will support lobbying efforts for legislative acts that support an independent press. Programs to encourage government accountability through increased availability of information to the media have proved successful. Within the Public Education Program, a network of 25 press clubs has been developed throughout Ukraine where journalists meet on a regular basis with government officials to discuss issues such as privatization and economic reform. The weekly meetings at the Kiev Press club are covered in newspapers, radio, and national television news programs, allowing government officials to reach a large audience while promoting the accountability of officials to the public.
During the next four years, USAID/Kiev will continue to build upon achievements to date. The focus of activity will shift slightly to place greater emphasis on work with NGOs that enforce citizens’ rights and demonstrate to citizens that their rights can be upheld and their concerns addressed through participation in the political processes. In addition, election support will be phased down after the 1999 presidential elections.
Possible Adjustments to Plans: These programs have recently undergone strategic review, and no adjustments are contemplated for the present.
Other Donor Programs: Several other donors are currently providing grants to NGOs. Their efforts complement USAID’s support to civil society and give additional NGOs an opportunity to expand activities that provide citizens with examples of the benefits of civic action. USAID leads or participates in donor meetings to coordinate assistance for NGOs, independent media, and elections.
Principal Contractors, Grantees or Agencies: International Foundation for Electoral Systems, International Republican Institute, National Democratic Institute, Free Trade Union Institute, NIS-U.S. Women’s Consortium, Freedom House, Internews, and IREX
Selected Performance Measures:
Baseline Target Citizens believe they could do something
about an infringement of their rights by
the government6% (1995) 17% (2000) Draft national legislation introduced by the
legislative branch in which there was
citizen participation in the deliberative process0 (1995) 20 (2000) Medium and large cities with coverage of daily
national news by non-government stations16 (1996) 24 (2000)
ACTIVITY DATA SHEET
PROGRAM: UKRAINE
TITLE AND NUMBER: Legal Systems that Better Support Democratic Processes and Market Reforms, 110-S0 2.2
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCES: FY 2000 $1,000,000 FSA
INITIAL OBLIGATION: FY 1995 ESTIMATED COMPLETION DATE: FY 2005Summary: The establishment of and respect for rule of law is essential to the success of market-oriented democratic systems. Ukraine, like other former Soviet republics, is striving to overcome a 70-year history of communist rule where law was subverted to the dictates of the party leadership and the population had little expectation of the State as guarantor of rights. While the country has made tangible progress since independence in enacting legislation and instituting policy reforms, the challenge of creating an entirely new, Western-oriented legal system and transforming the existing political-legal culture is enormous.
USAID will continue to emphasize strengthening the institutional capacity of the courts and the parliament to assist these branches of government to fulfill their constitutionally-established role in the national political process. Activities to bolster the effectiveness of the court system, through training of judges, technical assistance, and limited equipment purchases (e.g. computerization and access to legal databases), constitute the centerpiece of USAID's broader effort to reform Ukraine's legal system. At the same time that USAID is augmenting the capabilities of key government institutions involved in the creation of a Western-oriented legal system, it is also seeking to reform that system by empowering citizens who are generating pressure for adherence to the rule of law. USAID will extend and expand the various activities that have supported citizen and NGO efforts to hold government accountable to the law. This includes targeted legal assistance to groups such as journalists, broader support for pro bono clinics at law schools, small grants for legal advocacy NGOs, and support for indigenous media programs that provide practical legal information and encourage greater citizen participation in demanding accountability under the rule of law. There is close coordination with USAID activities under other strategic objectives, including private enterprise development and increased citizen participation, as well as special initiatives to combat sexual trafficking of women, to promote awareness of women’s legal rights, and to reduce corruption.
The Ministry of Justice, Supreme Court, Higher Arbitration Court, law schools, students, judges, lawyers, legislative drafters, and the National and Subnational Rada all directly benefit from USAID’s activities in legal system reform. Citizens dealing with the legal system also benefit from system improvements and more knowledgeable jurists and lawyers.
Key Results: USAID will consider that this objective has been achieved when the laws needed to support free-market democracy are in place and effectively enforced through fair and timely judicial processes.
Performance and Prospects: The foundation for a Western-based legal system was laid with the adoption in 1996 of Ukraine's new post-Soviet constitution, a generally progressive document that guarantees citizens an impressive set of rights and establishes the structures of national government. That adoption of companion enabling legislation such as an updated civil code has lagged, that endemic corruption has produced tremendous cynicism in the population, and that the judiciary faces serious material, institutional and political hurdles in fulfilling its constitutional role as an independent branch of government overseeing the administration of justice, all point to the enormity of the task in putting in place a legal system suited to the needs of a modern democratic, free-market system. Transforming institutions and mindsets is a long-term undertaking.
Still, since independence and the dissolution of the Soviet Union, Ukraine has made important headway in establishing the rule of law. Formation of a Constitutional Court, creation of a judicial training center, computerization of court administration and installation of electronic legal data bases, widespread dissemination of legal information such as citizens' rights, introduction of mechanisms for alternative dispute resolution, reform of law school curricula, improvement in the education of legal professionals, and more widely available legal advocacy and representation for citizens, all underscore the country's progress in the rule of law sphere. Not coincidentally, these are areas in which USAID as well as other Western donors have been active, providing technical assistance, training, and other assistance.
But progress in discrete activities does not provide a full picture of the changes, some admittedly difficult to measure, that have begun to take hold in erecting a legal system more supportive of democratic processes and market reforms. Though the Constitution establishes an independent judiciary, judges have only recently begun to see themselves part of an independent, co-equal branch of government. The same can be said for members of the Verkhovna Rada. Despite the inefficiency of its internal procedures and its lukewarm support for economic reform, parliament is also emerging as a prominent actor in national policy making. In both cases, USAID and other donor-supported programs to bolster the institutional capacity of the courts (e.g. judicial training center) and the parliament (legislative drafting and analysis) have contributed to this emerging sense that these bodies should have a co-equal role in the governing process. The norm of free and fair (though by no means perfect) elections has also taken hold. Not only have citizens come to expect and demand an electoral process with integrity, but legislators and political leaders from across the ideological spectrum view the ballot box as the only legitimate path to power.
The change that may have the most profound long-term consequences is the increasing incidence of citizens, primarily through NGOs, using the court system to hold government authorities, particularly at the local level, accountable for observing the rule of law. For example, one USAID project supports a coalition of environmental NGOs that attempts to hold government accountable to environmental and public participation laws. The resulting efforts by citizens and NGOs to use their rights under the law have had a high success rate, advancing an issue of primary concern to citizens while increasing their confidence in the political process and legal system. Similar projects that provide legal and advocacy support to journalists, members of independent trade unions, and special interest groups such as consumer and business associations, have had impressive, albeit limited, success. This trend has been greatly abetted by growing awareness on the part of citizens about the law, and by the expanding supply of competent legal representation and increased citizen access, in part through USAID-supported pro bono legal clinics. An ever larger number of NGOs in areas such as consumer rights, human rights, environment, and small business, is involved in legal advocacy.
Possible Adjustments to Plans: USAID will carry out a rule of law assessment in 1999. While no major changes are expected in the strategy, the assessment will be used to refine programs.
Other Donor Programs: USAID continues to coordinate with the World Bank, EU/TACIS, OSCE, and other donors on legal reform issues. Most notably, USAID’s programs are designed to complement the proposed World Bank Legal Reform loan which has been under negotiation for several years. USAID organizes and participates in donor meetings to coordinate assistance to the courts, parliament, and specific legislative drafting initiatives. Coordination meetings often include Ukrainian government counterparts as well as NGO development partners such as the Ukrainian Legal Foundation.
Principal Contractors, Grantees or Agencies: ABA/CEELI, ARD/Checchi, Indiana University/U.S.-Ukraine Foundation, and Management Systems International.
Selected Performance Measures:
Baseline Target Number of target laws enacted 1 (1995) 9 (2000) Citizens aware of basic human and civil rights 25% (1997) 43% (2000) Number of operational pro-bono legal clinics 1 (1997) 11 (2000)
ACTIVITY DATA SHEET
PROGRAM: UKRAINE
TITLE AND NUMBER: More Effective, Responsive and Accountable Local Government, 110-S0 2.3
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCES: FY 2000 $3,000,000 FSA
INITIAL OBLIGATION: FY 1995 ESTIMATED COMPLETION DATE: FY 2005Summary: Improving the capacity of local governments to manage resources and provide services is crucial to the success and sustainability of Ukraine’s overall reform effort. Assistance at the local level not only has visible impact on people’s lives, but also improves public perceptions of and experience with democracy and economic reform. In cities, towns and villages, the interaction between citizens and government is most vigorous. There is evidence that local governments with the capacity to exercise well-informed choices in partnership with citizens and civil society can solve problems, identify and maximize opportunities, narrow the gap between resources and responsibilities, and engage the central government on policies that encourage local initiative. In fact, a recent survey indicated that from 1997 to 1998, there was a 14% increase (from 2% to 16%) in citizens who indicated that local government is the most likely branch of government to resolve the economic problems facing Ukraine in the next year. This may very well be an indication that public confidence in local government officials is growing.
Much of USAID/Kiev’s programs that support democratization, housing, finance, privatization and private enterprise, environment, health, and training have taken place in or directly benefited cities or towns. In 395 Ukrainian communities, USAID/Kiev is working at the grassroots level with citizens, NGOs and local governments to bring about positive change.More than 1000 community-based activities help to build responsive, well-run communities and increase public confidence not only in local government but also in the transition to a free-market economy and democratic society. These efforts help bring about tangible improvements in people’s lives. Strengthening local government capacity and encouraging citizen participation at the community level is the key to the sustainability of these efforts.
The strength of USAID’s approach lies in the fact that U.S. assistance results in tangible evidence that priority community concerns can be addressed more effectively through local government initiative and citizen participation. USAID/Kiev will continue to build upon experience to date in promoting: (1) democratic governance -- transparency, accountability, responsiveness, citizen participation and effectiveness; (2) improved fiscal and financial management, including the development of operating and capital budgets, financial planning, business and investment plans, and economic development plans; (3) improved management capacity and administrative practices; (4) improved municipal services delivery and tariff reform, including improvement in the quality of service and the efficiency of service provision in the areas of public transportation, heating, water/sewer, solid waste, and housing; and (5) continued strengthening of the Association of Ukrainian cities as the lobbyist and professional association for local governments.
These programs are mutually supportive of programs under other strategic objectives that increase citizen participation, build citizen confidence in political processes, and strengthen the rule of law. In addition, the restructuring of the intergovernmental finance system under SO 1.2 also will make an essential contribution to the achievement of this objective. Finally, as municipal development is truly a cross-cutting issue, objectives and Special Initiatives in the areas of economic growth, environment, and health that promote development or address citizen needs and concerns at the local level reinforce the efforts of activities under this objective.
The principle beneficiaries of these programs are mayors, city administrators, local government officials and policy makers through increased local authority and improved management. The citizens of these communities benefit through improved services and greater transparency of government operations.
Key Results: USAID will consider progress towards the achievement of this strategic objective on track as targeted local governments and citizens begin to work together to solve priority community problems and to identify opportunities for future development. These efforts will help bring about tangible improvements in service delivery. Sharing positive experience and lessons learned with other local governments in Ukraine and in the region will facilitate the duplication of effective approaches in other localities, enabling a broader impact of USAID programming.
Performance and Prospects: While local governments in Ukraine continue to face significant challenges, USAID has made progress that will serve as a foundation for continued development of local government. USAID has provided local governments with training and technical assistance in management, financial planning, municipal operations and budgeting through in-country and cross-border exchanges with public and private organizations. Dramatic improvements in nine communities’ transportation services resulted in significantly improved public perception of local government. Six cities also adopted financial analysis methods and operating/capital budgets to help exercise their new authority to raise revenue and plan expenditures. Over 50 cities are using the Financial Analysis Models developed under this program.
USAID-sponsored activities have promoted more open and responsive city government operations, public accountability of local officials, and increased citizen participation. Open and competitive procurement procedures, budgeting processes, distribution of annual reports, and public hearings have been introduced in communities that received USAID assistance. A zoning manual has been distributed, and five cities have developed zoning rules and enlarged boundaries and schemes of planning restrictions. Ten local governments received assistance in instituting and implementing computerized titling and registration.
Laws on Local Self-Government and State Power and on Local Administrations were passed. The USAID-supported Ukrainian Association of Cities (UAC) assisted in drafting the Local Self-Governments bill, passed in July 1997, and continues to assist in the development of and lobbying for bills regarding local taxes and fees, communal property rights, the State budget and the budget system in Ukraine. UAC’s membership continues to grow (from 79 in 1996 to 232 at present) and has become more effective in its lobbying of the central government for greater decentralization.
The implementation process for housing sector reforms has been documented in how-to manuals and model legislation. Through outreach programs, 4,200 officials and thousands of residents in 196 localities throughout Ukraine have access to information on condominium conversion and private maintenance and management services. On October 1, 1997, responsibility for delivering technical assistance under this program was transferred from USAID’s contractor, PADCO, to the entirely Ukrainian-run Housing and Municipal Reform Support Center, an NGO formed by former PADCO employees. This serves as a promising example of sustainability of USAID activities.
The Urban Water Project in Lviv introduced a successful model for financially viable and sustainable vodokanals (water utilities). The USAID-funded Ukraine Council to Promote Sustainable Development endorsed an action plan on institutional, management and tariff reform for Ukraine’s urban water/wastewater sector, which was forwarded to the Cabinet of Ministers. These reforms were included in the recent Law on Taxation of Profit of Enterprises.
These activities have demonstrated that increasing local government capacity to manage and promote democratic processes and transparency can bring about tangible improvements that build citizen support for local government and for reform. The interest in replicating USAID models and approaches in other cities confirms not only the success of these programs, but also the opportunity to make a significantly broader impact.
Possible Adjustments to Plans: These programs have recently undergone strategic review, and no adjustments are contemplated for the present.
Other Donor Programs: Many donors and international organizations are working to strengthen local government. A Municipal Development Working Group has been established and meets regularly to discuss donor coordination. Participants have included USAID; the World Bank; EU TACIS; the British Know How Fund; the EBRD, and representatives from the German, Swedish and Dutch embassies and foundations. USAID is also working closely with the World Bank on the Municipal Development Loan Fund Project.
Principal Contractors, Grantees or Agencies: U.S.-Ukraine Foundation, Research Triangle Institute, and International City/County Management Association
Selected Performance Measures:
Baseline Target Cities with a municipal business plan 0 (1998) 4 (2000) Cities with improvements in specific services 10 (1998) 14 (2000) Cities with institutionalized citizen participatory mechanisms 1 (1995) 30 (2000)
ACTIVITY DATA SHEET
PROGRAM: UKRAINE
TITLE AND NUMBER: Improved Sustainability of Social Benefits and Services, 110-S0 3.2
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCES: FY 2000 $5,400,00 FSA
INITIAL OBLIGATION: FY 1995 ESTIMATED COMPLETION DATE: FY 2005Summary: Ukraine's transition from Soviet-era central planning and authoritarian rule has imposed substantial hardship on the vast majority of the population. As price controls were lifted, food, housing, energy, and other basic goods and services were no longer affordable to people dependent on government pension and invalid benefits or on fixed wages. Explosions of inflation ignited by attempts to cover budget deficits by printing money eliminated family savings accumulated over many decades -- leaving the elderly with no cushion to protect them from the new economic realities. The abrupt end of the arms race placed millions of manufacturing employees on indefinite lay-offs or in part-time employment. With economic growth still elusive, few people have access to proper jobs. The absence of a financial sector to redirect investment funds stifled the growth of new opportunities. Endemic corruption, punitive taxes, intrusive regulations, and xenophobia reduced to a trickle the level of foreign investment, which have supported transition in Central Europe. And worsening budget deficits froze pensions and other government benefits far below subsistence levels. Most people are denied access to decent quality, affordable health care reflected in rising rates of infant mortality and epidemics of diseases long-controlled in the west.
Improving sustainability of social benefits and services would help strengthen the flailing political support for economic reform in Ukraine. With over half of Ukraine’s population living below the poverty line, such support, already dwindling, will soon evaporate if measures are not taken to shelter the most vulnerable groups in society. Ukrainian citizens cannot be expected to envision and aspire to a more promising future when their immediate welfare is in such a precarious position. The newly poor resent the bewildering "reforms" that have destroyed their living standards. They have turned to political parties calling for a "return to the normalcy" of socialism. These parties have effectively slowed or even blocked reform -- further exacerbating social and economic problems and discouraging foreign aid.
To achieve this objective, USAID assistance is aimed at (1) building a firm, rational and consistent legal, regulatory, and administrative framework to support the three-pillar pension system, including the solidarity system, the beginning of a mandatory funded system and safe, voluntary, private pension plans; (2) developing sound actuarial pension models to allow accurate evaluation of alternative pension reform scenarios and better management of the state pension system; (3) assisting the creation of a national database of all pensioners to allow automated pension calculations, auditing of pension expenditures, and reduced administrative costs; (4) creating a nationwide database of all working Ukrainians modeled on the U.S. Social Security Administration database to improve collection of payroll contributions, eliminate workbooks, improve labor mobility, and allow auditing of all social protection programs; (5) consolidating revenue collection in the State Tax Administration and providing the Pension Fund with full responsibility for calculating and distributing pensions; and (6) improving the infrastructure, management capacity, organizational government structures of indigenous NGOs providing social services to vulnerable groups in society, and improving the legal and regulatory environment in which they operate.
Because the social welfare of the population is so closely tied to many spheres of life, practically every other USAID objective contributes to the achievement of this one, particularly private sector development, increased citizens’ participation and government responsiveness, and health sector reform.
Beneficiaries of these programs include low-income Ukrainian children and adults, especially pensioners and women at selected sites in Lviv, Odessa, Donetsk and Kiev. Ukrainian NGOs and charity organizations, hospitals, orphanages, boarding houses, invalids, the elderly, and most other vulnerable groups also benefit from USAID assistance under this objective.
Key Results: USAID will consider this objective to have been met when (1) there is increased efficiency in public sector delivery of services, (2) NGOs and other private organizations provide needed services to vulnerable groups, and (3) there is effective delivery of emergency and humanitarian assistance.
Performance and Prospects: Despite a number of formidable obstacles, Ukraine, with the help of foreign donors and international financial institutions, has made some headway in creating more sustainable social benefits and services in selective areas. Working closely with GOU counterparts in key ministries, USAID has helped to design and implement a number of social sector reform programs and more generally played a catalytic role in moving the government to give greater priority to social sector restructuring. Among the most notable social sector reform achievements since 1995 to which USAID contributed are: improved cost recovery for housing and communal services, saving the State budget an estimated $1 billion per year; a successful housing subsidy program, including automated caseload management and financial reporting systems, which provides targeted assistance to some four million poor families; models to forecast Unemployment Insurance and Employment Fund revenues and expenditures and training for relevant staff; a pilot quarterly household labor force survey, coordinated with the IMF/World Bank's revised household budget and expenditure survey; systems created for monitoring the social protection needs of the population; a new system for reporting wages and contributions to the State Pension Fund that allows improved tax collections, relates pensions to employment history, and will lead to the eventual elimination of work books; fiscal models for accurate budgeting of social assistance programs; grants and training provided to social service NGOs that have helped increase effectiveness in strategic program planning and implementation, cross-sectoral cooperation with government and business, fund-raising; and advocacy; and an almost tenfold increase in client base served, from 125 to 1,000, as well as increased diversification of funding sources.
USAID’s social sector reform strategy will build on these achievements to create an efficient and effective social benefits and services system that allows continued progress on economic reform. This will include reform of the state pension system and the introduction of viable private pension funds, building an NGO network; and providing humanitarian assistance to address problems of acute human suffering during the transitional period. For the foreseeable future, USAID will also support efforts to build a sustainable network of public and private Ukrainian institutions and NGOs whose mission is to alleviate to the extent possible the privations imposed on the most vulnerable members of Ukrainian society as a result of the difficult economic and political reform process.
Possible Adjustments to Plans: These programs have recently undergone strategic review, and no adjustments are contemplated for the present.
Other Donor Programs: Other donors also recognize the importance of social sector reform in Ukraine. IMFconditionality has included requirements for better targeting of social assistance, the elimination of general entitlement programs, as well as improvement of state pension system administration. The World Bank has been exploring for several years the possibility of providing credits to support pension reform. It has expressed willingness to collaborate with USAID on phasing-in some elements included in USAID’s pension reform strategy. European Union Technical Assistance to the CIS ( EU TACIS) has provided training and policy assistance in the area of pension reform and is currently collaborating with USAID contractors in developing the social safety net. The British Know-How Fund is also developing a scope of work for a modest program to support targeted assistance. Bilateral donors --- including regional German Governments and the Government of Canada and the British Know-How Fund are also engaged in pilot projects related to improvements in the state pension system and active labor programs to create jobs and retrain workers. USAID also works closely with other donor organizations in NGO development, particularly through the Donor’s Working Group, which includes EU-TACIS, UNDP, the Netherlands Embassy, British Council, the Mott Foundation, International Renaissance Foundation (Soros). One of the projects the Donor Group has developed is a database to track all NGOs that apply for or receive assistance from any member of the donor community. This information will provide background on the NGO for purposes of coordinating efforts and checking for the NGO’s history and reliability. A separate database on which the British Council has taken the lead, provides information on the different donors and programs which will be accessible through the Internet, with public access available throughout the NGO Resource Center network. USAID and the USAID-funded Eurasia Foundation programs have taken the lead in the most comprehensive and substantial support to NGO Development.
Principal Contractors, Grantees or Agencies: Counterpart, PADCO, Gavin Anderson and Financial Markets International
Selected Performance Measures:
Baseline Target Law on mandatory state pension insurance enacted no (1997) yes (2000) NGOs that increased the number of beneficiaries 60% (1998) 85% (2000) Share of social assistance spending that is targeted 5% (1995) 45% (2000)
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