Following is a Web version of a document from USAID's 1997 Congressional Presentation. Please note that some formatting may have been lost in the automated conversion of the original file. This document is also available for download in its original WordPerfect 5.1 format.

FY 1997 Assistance to Central Europe Request: $200,000,000
FY 1997 P.L. 480 Title lI: $25,000,000

Introduction.

The war in Bosnia-Herzegovina (Bosnia) has had profound effects throughout Europe, which directly impact U.S. strategic concerns and economic interests. Under the agreement brokered by the United States that resulted in the Dayton Peace Accords, the U.S. committed troops to a multinational force in Bosnia and pledged U.S. help in a multinational civilian peace implementation program. With the signing of the peace accords in Paris in December, 1995, the international community assumed a responsibility to help rebuild war-torn Bosnia and promote economic and democratic incentives for maintaining peace once the North Atlantic Treaty Organization's (NATO) Implementation Force (IFOR) leaves the country. Economic revitalization and the creation of an environment in which democracy will take hold and flourish, cements U.S. diplomatic efforts and provides the foundation for sustained peace. Other donors, particularly the European Union and the Organization of Islamic Countries (OIC), are expected to assume the greatest financial burden for rebuilding Bosnia. The United States plays an important, supportive and often times catalytic role in setting the course for sound reconstruction policies and for a market-driven economy. At the moment, USAID is the only bilateral donor with an active presence in Bosnia. USAID's lengthy and extensive in-country humanitarian assistance experience has resulted in a deep appreciation of local conditions, leaders, and realities.

The U.S. assistance program is integral to the IFOR mission. It is imperative that people quickly see the benefits of economic growth and reconstruction and participate actively in democracy building in order to cement the peace process. This will create the necessary atmosphere and framework to allow U.S. troops to withdraw. The United States assistance program seeks a stable post-war Bosnia with strong Federation institutions, a functioning free- market economy and democratic government. To accomplish these objectives, USAID envisions a non-permanent mission in Bosnia with three years of recovery and reconstruction funding and closeout by the beginning of the 21st century.

The Development Challenge.

U.S. national interests required our participation in the military support for the peace process initiated with the Dayton Peace Accords. Those same interests also compel continued participation in reconstruction. The war decimated the Bosnian economy, destroying substantial amounts of productive capacity and infrastructure. GDP per capita has been reduced by 75% and economic production is operating at 6% of pre-war levels. Major national industries have been shut down and may not, and in some cases should not, reopen, while many private enterprises have been equally devastated. High unemployment stands as a major issue certain to be heightened by the return of demobilized soldiers. The population of Bosnia has dropped from a pre-war level of four million to less than three million. With 1.3 million displaced persons in Bosnia, 900,000 in surrounding territories, and 800,000 displaced abroad, resettlement presents a major challenge to the peacemakers, complicated further by the partial or total destruction of 60% of the housing stock. Because of the economic and social consequences of the war, many became dependent on international relief assistance.

USAID has provided substantial humanitarian assistance throughout the war, although European contributions for humanitarian assistance over this same period have been more than twice the $1 billion U.S. contribution (though predominantly for maintenance costs for refugees in Europe). USAID's Foreign Disaster Assistance program has provided emergency humanitarian programs in the former Yugoslavia, mostly in Bosnia, since FY 1992. NGOs implement the majority of these programs and traditionally work in the sectors of water and sanitation, health, shelter repair and winterization assistance. Typical commodities distributed through the NGOs include supplemental food parcels, blankets, plastic sheeting, basic shelter materials, emergency medical supplies, winter clothing, agricultural seeds, hygiene items and sanitation kits.

From FY 1992-95, USAID has provided about $110 million in humanitarian assistance to the former Yugoslavia through the Foreign Disaster Assistance program. To date in FY 1996, it has obligated some $14 million andprogrammed another $7 million, almost all of it for Bosnia. The program's mandate focuses on emergency relief and rehabilitation. USAID continuously monitors the humanitarian requirements on the ground, and its programs can phase into longer-term reconstruction projects when emergency humanitarian needs no longer exist.

Through the P.L. 480 Title II program, USAID has provided over $340 million in emergency food assistance since 1991, of which over $270 million has been programmed through the World Food Programme. The bulk of all food (85%) goes to Bosnia, although USAID-provided food may also feed refugees in other parts of the former Yugoslavia. To date in FY 1996, $50 million of $60 million in planned assistance has been obligated. For FY 1997, $25 million in Title II assistance is planned at this time.

The most important task facing Bosnia is the reactivation of productive capacity, creating jobs and income, so that people no longer depend on humanitarian assistance. The resumption of economic activity will also enable the expected 100,000 demobilized soldiers to be reintegrated into their communities with gainful employment, thereby acquiring a stake in a lasting economic recovery. Paralleling the reconstruction process, the country needs to build the framework and create a conducive environment for a private sector market economy.

There are positive elements in Bosnia's pre-war economic situation which may smooth the road towards economic reconstruction and democratic reform. The country has significant productive capacity and potential for creating jobs. The relative openness of the former Yugoslav economy, the limited but growing presence of private enterprise, and established links to international markets even during the Communist period can serve as a foundation for post-war reconstruction. A sizable portion of Bosnia's pre-war exports were directed to western and other convertible currency markets and Bosnia traditionally had a balance of payments surplus. The country also has a resilient, entrepreneurial, and well-educated population capable of leading the way to economic recovery and a democratic peace. Further, the country has a tradition of municipal autonomy and decentralized administration that offer promise for local democratic governance.

Bosnia faces a severe balance of payments deficit since the country must import most of the goods and services required for reconstruction. A substantial portion of USAID resources will be geared towards bridging this balance of payments gap to help ensure compliance with a structural adjustment program supported by International Financial Institutions. In FY 1996, a Reconstruction Finance program will provide quick disbursing loans to support small and medium private enterprises. Credit will be channeled through existing commercial banks, with full USG oversight and monitoring, to viable firms. With this working capital, such firms will be in a position to make short- and medium- term capital improvements, to invest in equipment and inventory, and to support letters of credit for imports. Repayments will be funneled back into the banking system to increase available capital for future lending. A network of U.S. technical assistance and expertise will be made available to improve credit evaluation procedures, train the future cadre of Bosnian bankers, and assist firms in developing feasible proposals. A small business micro-lending component will also be implemented utilizing an experienced U.S. organization. The Reconstruction Finance project will also supplement the World Bank's $30 million emergency line of credit to Bosnia in a parallel financing arrangement.

In close collaboration with the IMF and the World Bank, the USG will provide technical assistance to new Federation institutions to help them address critical fiscal and monetary policy issues. USAID, assisted by the U.S. Treasury Department, will provide assistance in tax policy and administration, budget and expenditure management, as well as modernization of customs administration. Technical assistance in the banking sector will focus on bank supervision, asset restructuring and bank privatization. Assistance to enterprises will concentrate on privatization and developing the legal and regulatory framework needed to support the reconstruction process and free-market economic and commercial relations. Bosnian authorities have emphasized that they do not want to simply rebuild former systems, but begin reforming during the rebuilding process.

Through a major Municipal Infrastructure and Service initiative, financing will be made available in participating cantons and municipalities, primarily in the U.S. IFOR sector, Sarajevo, and cantons in which the USG has a strategic or political interest. USAID resources will be focused on urgent local infrastructure repairs and the restoration of essential services, such as electric power, water supply and wastewater management, and solid waste management. This initiative will support local Federation capacity to attract displaced persons and refugees back to their homes and simultaneously generate immediate employment and income. Stimulating economic activity will support a rapid return to normalcy and serve as a visible sign of U.S. commitment to the reconstruction effort to Bosnia's citizens. Thisinitiative is closely coordinated with an emergency shelter repair program designed to address immediate housing concerns.

The development of a strong democracy and enduring Federation institutions are key elements to building a peaceful, just and multi-ethnic society in post-war Bosnia. USAID technical assistance and training will concentrate on developing a commercially-viable, professional, and independent media to guarantee citizen access to information, serve as an open forum for alternative views and opinions, and help overcome the extremism, polarity, and ethnic nature of state-supported electronic media. In the pre-election period, USAID will provide training for journalists in electoral reporting techniques and provide small grants to local media, resulting in independent election-related information for voters. USAID will also help create the necessary environment so that alternative candidates, whose positions are less polarized than ethnic-based leaders, may participate fully and freely in elections and in the political system as a whole. At the same time, voter education activities will strive to demonstrate the benefits of a participatory democratic society.

USAID will focus on strengthening intergovernmental relations by linking municipalities and cantons to the Federation through an intergovernmental finance system. The cantonal system is new in Bosnia and integrating intermediate and local levels of government in a federal system will be a key challenge over the next years. Direct technical assistance will also strengthen the capacity of cantons and municipalities to manage their budgets and deliver services such as fostering an environment for economic development and establishing open, transparent procurement systems.

A professional, dispassionate and ethnically neutral judicial system is one of the essential building blocks of democracy. USAID will continue to provide assistance and expertise in developing rule of law principles and a system of judicial administration to complement international assistance for the creation of a civil police force, critical for ensuring the safety and security of Bosnian citizens, including displaced persons returning to their homes.


Other Donors.

The international donor community and the international financial institutions will ultimately have to assume the largest share of the costs involved in rebuilding war-torn Bosnia. The United States' contribution, in the short-term, is meant to be a catalyst for larger-scale, long-term commitments by other donors. Moreover, international contributions over the next year will be essential to the success of elections, police training, economic reform, respect for human rights and continuation of humanitarian assistance. The World Bank estimates that Bosnia will require over $5.1 billion to finance high priority reconstruction projects. The U.S. concurs in this estimate. Of this amount, $3 billion is to be covered by individual donor states; the rest by International Financial Institutions, debt reduction and foreign direct investment. Thus, the U.S. commitment to contribute $600 million over the next three years represents 20 percent of the World Bank's estimate of the bilateral share of reconstruction needs. While the United States has assumed a leadership role in market reform, employment generation and democracy-strengthening, other donors will be heavily involved in financing sectoral programs with particular emphasis on infrastructure.

FY 1997 Program.

A lasting measure of the ultimate success of the IFOR mission will be economic recovery in Bosnia- Herzegovina. U.S. leadership and active engagement is essential to the peace process and to the success of the reconstruction and development effort which support economic recovery. This will become increasingly important following the withdrawal of IFOR troops in late 1996. USAID's FY 1996 program concentrates on laying the groundwork and creating a conducive environment for an enduring and just peace in Bosnia. The FY 1997 program will build directly upon these efforts to expand economic productivity and employment, and support democratic growth. Major initiatives in private and financial sector development, municipal infrastructure and housing repair, as well as democracy and Federation building will continue to serve as the primary avenues of USAID assistance. To support this program, USAID will need authority to use $4 million of the proposed funding amount for operating expenses for our field mission in Bosnia.

Cross-cutting and Special Initiatives

Under the Dayton Accords, the parties agreed to support a program of rehabilitation of infrastructure and economic revitalization, establishment of political and constitutional institutions in Bosnia and Herzegovina, and the holding of free and fair elections. The U.S. assistance program has been specifically tailored to accomplish these objectives in the following ways: