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FY 1997 Assistance to Central Europe Request: $15,000,000
Introduction.
United States political, security, and economic interests continue to be served best by an active foreign assistance program in support of Hungary's efforts to transform itself into a democratic, open market society. Hungary enjoys excellent relations with the United States, and participates actively in U.S.-led security initiatives, including the Organization for Security and Cooperation in Europe, the North Atlantic Treaty Organization (NATO) Partnership for Peace Program, and the longstanding United Nations (UN) sanctions against Serbia-Montenegro (at considerable cost to the Hungarian economy). The Hungarian Government (GOH) has actively supported UN and NATO peacekeeping efforts in Bosnia-Herzegovina, and -- as a major front-line State -- provides a vital staging point for American and other NATO troops en route to Bosnia. Over 3,000 U.S. support troops are currently stationed in southern Hungary, and a representative number of Hungarian support troops are serving alongside NATO partners in Bosnia. Seven countries share borders with Hungary, including Serbia, Croatia, and Ukraine.
Hungary has moved purposefully to establish a free market economy. A sound, broad legal and regulatory framework is in place, ensuring international corporate accounting standards as well as laws on bankruptcy and liquidation. A five-year program to bring 470 Hungarian laws into harmony with European Union standards was initiated in 1995 and is proceeding on schedule. Foreign capital is encouraged by a liberal foreign investment regime. The economic transition process has led to a strong growth in new businesses, and there are over 17,000 joint ventures in operation. Small enterprises are playing an increasingly important role and now account for nearly one-third of Hungary's gross domestic product (GDP). Hungary has privatized many State-owned assets, and the private sector is now reported to account for at least 60% of GDP. Liberalization of product, service, and capital markets, as well as deregulation of economic activities have largely been completed. Most consumer and producer price controls have been removed. Tariffs and import restrictions have been reduced significantly, and the bulk of trade has shifted in favor of Western and European Union members.
These accomplishments have not been achieved without considerable hardship and sacrifice. For most Hungarians, living standards have continued to decline since initiation of widespread economic restructuring in 1989. Health, education and social infrastructure -- heavily dependent on dwindling central budget allocations -- have deteriorated; employment and inflation have persisted at high levels; and the gap between rich and poor continues to grow wider. In 1994 the Hungarian electorate voted back into power by a resounding majority the former Socialist Party. The latter has since governed in coalition with the Free Democrats, and has honored its platform commitment to free market restructuring and Hungary's integration into Western European economic and political institutions.
The Development Challenge.
Hungary's continuing transition efforts from command to market economy have entailed numerous structural changes and noteworthy progress in privatizing the economy. The results, at the macro-level, became more pronounced in late 1995 and augur well for eventual economic recovery if this trend continues. In March 1995, the Hungarian Government embarked on a tough stabilization program, aimed at curbing the current account and budget deficits, as well as reaffirming the Socialist-Free Democrat coalition's commitment to privatization. This austerity program, which bears the name of the undaunted Finance Minister, Lajos Bokros, had by the close of 1995 begun to show encouraging results, in sharp contrast to Hungary's economic position in December 1994. GDP continued to show a modest two percent growth for the second year running, due to higher exports and continuing improvements in productivity. The current account and budget deficits had begun to decline, and private direct foreign investment reached the unprecedented, high level of $13 billion, reflecting investor confidence in the coalition government's commitment to economic reform. Hungary remains Central Europe's most favored recipient of foreign private investment, and the United States the single most important source, providing an estimated $5.3 billion or 43% of the total.
Unfortunately, unemployment and inflation rates remain high, estimated at 20% and 30% respectively, and real wages continue to fall (by over 10% in 1995). Although traditionally large trade imbalances improved somewhat, importscontinue to exceed exports. Although revenue from some late-1995 privatizations helped to draw down the debt, Hungary remains the single most heavily indebted country in Europe. At the end of 1994, in the wake of Mexico's debt crisis, there were concerns within the international community that Hungary might meet a similar fate. The current account was in large deficit and the country was heavily dependent on foreign capital to finance this deficit as well as for debt servicing. However, Hungary has continued to meet its obligations and is less vulnerable to capital flight because of the composition of its external debt. Short-term debt comprised only 13% of total net external debt at the end of 1994. Macroeconomic policy adjustments taken in March 1995 to prevent further deterioration in the current account appear to have had the desired effect. The government aims to finance future current account deficits entirely through foreign direct investment so as to avoid further increases in external debt. Nevertheless, external debt increased by $4.5 billion to $33 billion in the first half of 1995 in part due to the impact of valuation changes on the stock of debt. Hungary's estimated per capita indebtedness of $2,720 was the highest among the transition countries at the end of 1994.
Some of the Bokros austerity reforms, which cut deeply into longstanding welfare and family allowance sections of the central government budget, were declared unconstitutional in four separate decisions of the Constitutional Court, and their implementation was delayed. Efforts to overhaul central budget outlays, in order to bring outlays within the four percent of GDP level stipulated by the International Monetary Fund (IMF), are likely to continue weighing heavily on declining living standards for an increasingly large number of Hungarians. Last year it was estimated that one-
quarter of the entire population was living at or below the poverty line, and a recently concluded World Bank study suggests that this number may now be even larger, with children, dependent mothers, and pensioners among the most vulnerable. A recent American Embassy analysis of health data also noted record low fertility and exceptionally high mortality rates -- the worst since World War II -- which had "accelerated since the fall of Communism...[and which] will have a significant impact on...the Hungarian economy in the next century." On 18 February 1996, after heated cabinet discussions over further social welfare and health program cuts, Minister Bokros offered his resignation for a second time and it was accepted.
While the Prime Minister quickly reaffirmed GOH commitment to continuing free market reforms, this resignation of a key minister comes at a critical juncture in negotiations with the World Bank and IMF and could adversely affect Hungary's chances to qualify for long-sought access to structural adjustment loans.
U.S. development policy continues to support Hungary in its efforts to complete a difficult economic transformation, by promoting the structural changes essential for economic recovery, democratic institution-building and social stability, and by supporting Hungary's integration into Western economic and political institutions. While much has been accomplished with some $206 million in cumulative Support for Eastern European Democracy (SEED)-funded obligations since 1990, much remains to be accomplished. USAID expects that Hungary will have the institutional and other resources to continue its own transtiion. Current plans are to phaseout SEED Act assistance in the next few years.
Other Donors.
The assistance program of the European Union (EU PHARE) is reported to be the single largest donor, providing about $150 million annually in grant assistance, principally in the form of technical advisory services. The World Bank, International Monetary Fund and the European Bank for Reconstruction and Development (EBRD) are the most important sources of strategic loan assistance. More limited bilateral assistance, chiefly in the form of technical advisory services, is provided by the United Kingdom, Germany, other countries of Western Europe, and Japan. Japan and Germany are the most important sources of export credits.
USAID and other locally-represented donors consult regularly, not only to share information but also to explore opportunities for pooling resources. As a result of its longstanding and respected experience in economic restructuring, including banking sector reform, USAID often exercises a lead, innovative role as, for example, in designing an unemployment mitigation pilot project which also received support from the World Bank, International Labor Organization, and the EBRD.
FY 1997 Program.
USAID advisors were instrumental in helping Hungarian State Property agencies to privatize a major part of the economy: scarcely five years after the assignment of resident U.S. advisors to the State Property Agency, at least60% of GDP is generated by the private sector. Budget reform remains a major task. SEED assistance helped to establish a Treasury within the Ministry of Finance, which will play a major role in deploying and controlling scarce central budget resources. Next steps include a shift in SEED emphasis from privatization to helping privatized companies become more competitive and commercially viable. GOH fiscal reform will also entail further review and reductions in major social service outlays, which are too costly for the central government to finance much longer. This will entail a transfer of financial as well as programmatic responsibilities to local governments and to individual users. USAID efforts to promote democratic participation in decision-making will focus increasingly on local level empowerment, through strengthening the capacities of local government and non-government organizations (NGOs) to articulate and to address the needs of the population.
Strategic Goal: Economic Restructuring
Under this goal, USAID fosters the emergence of a competitive, market-oriented economy in which the majority of economic resources is privately owned and managed.
Hungary's second year of positive GDP growth (two percent in 1995) reflects the growing contribution by the private sector to production and export enhancement. With only 30% of Hungary's state-owned enterprises remaining to be privatized, it is reported that the private sector already accounts for at least 60% of GDP. This includes virtually all of the retail industry. After assisting in the privatization of several major gas and oil conglomerates in 1995, USAID technical advisors participated in GOH arrangements for the January 1996 privatization of VIDEOVOX, as well as completing preliminaries for privatizing the National Textbook Publishing Company, six electricity distribution companies, several power plants, and part of the central electric works. USAID regulatory assistance to the Hungarian Energy Office was critical for the successful power sector privatization that brought over $2 billion to the Treasury.
Consequently, the focus of USAID assistance is now moving from privatization to policy reform within the Ministry of Finance, where major efforts are under way to reduce central government spending. SEED-funded U.S. Treasury advisors consult regularly in this process, while other SEED-funded advisors assist in banking reform and in provision of more operationally-targeted assistance to newly-privatized companies. USAID advisors will continue assistance to the Hungarian Energy Office necessary to continue the privatization and restructuring process. USAID advisors are also assisting local governments in managing their resources more effectively, by improving local capacity to finance investment and municipal services, as well as in applying concepts of means testing, to ensure that scarce government funding is targeted more to the neediest.
USAID has initiated two new activities, aimed at conveying business management and marketing know-how to privatized firms. One is intended to help firms privatized under U.S.-style employee stock ownership procedures to acquire essential business management skills. Another new effort will offer similar but more specialized, on-demand assistance to more established private firms on a part-reimbursable basis. In addition, ten small energy service companies have been formed under a USAID energy management training project, and are now able to offer energy efficiency advice to other Hungarian firms. The Hungarian American Enterprise Fund is in the process of leveraging EBRD and private funding to provide additional debt and equity financing to small and medium sized business. Additional firms will be assisted in developing financial and contracting skills to mobilize private sector funds for energy efficiency investments. A program to encourage housing production through assistance to small and medium private builders will begin soon. Real property, professional associations are active and strengthening the real estate industry. Tenant associations are being trained to manage their own buildings through USAID technical assistance.
Access to credit remains a major obstacle to Hungarian recovery, due in large part to the cautious lending policies of Hungarian credit institutions. In a project launched in 1995, USAID advisors began training senior managers of the national savings bank (OTP). Initially directed at high-level managers and OTP's own in-house training unit, this project will help OTP to expand new policies and skills so that loan officers in OTP's 1,400 branches will eventually have the confidence and know-how to engage in risk taking by lending to entrepreneurs on more commercially acceptable terms.
With the assistance of another USAID partner, a major agro-business policy landmark is near attainment -- Hungary's first comprehensive agricultural bill. In June 1995 a SEED-funded team of senior technical advisors helped to draftthis omnibus farm legislation -- the first of its kind in over fifty years. This was followed by the visit of GOH and parliamentarians to the United States to visit U.S. Congressmen, farmers, and consumer groups, to obtain insight into the operations of U.S. farm legislation.
The Housing Guaranty Program, initiated in 1994, will provide U.S. guarantees to facilitate affordable loans for construction, rehabilitation, and infrastructure for modest homes. The goal of this project is to establish a model for more extensive, market based housing finance options. It aims at reducing dependence on the central budget for housing finance subsidies, removing impediments to a more competitive housing finance system, and integrating housing into financial and capital markets. To date, over 4,000 USAID designed affordable mortgage instruments have been purchased by Hungarian home buyers. The existing stock of private housing is also being improved with SEED assistance through creation of new mechanisms to support private home ownership as, for example, in managing condominiums and in helping homeowners to organize and to finance their own renovations.
Strategic Goal: Democratic Transition
In working toward this goal, USAID supports the transition to transparent and accountable governance and the empowerment of citizens through democratic processes.
In Hungary, devolution of responsibility from central to local government has not been matched by a corresponding transfer of administrative experience and financial resources. The SEED program tries to address both issues: resource mobilization and effective representation of local interests and concerns. Examples of SEED assistance include the work of USAID advisors in helping local governments to manage their resources more effectively, by improving capacity to finance both investment and the operation of municipal services. Assistance in municipal budgeting will extend to many Hungarian cities, enabling municipal governments to become more responsive to citizens' needs and to become more accountable. Assistance is being provided to reduce and rationalize municipal infrastructure subsidies. These and other facets of the USAID housing/urban assistance program are enabling local governments to work with the private sector more efficiently, without having to resort to new public ownership or necessarily to public funds.
In 1995 twelve Hungarian mayors completed USAID training programs, studying how American practices can be applied to representation and employment generation in their respective cities. The Mayor of Pecs, Hungary's fifth largest city, subsequently established a tourism and business information center.
USAID also launched two new programs in 1995, one aimed at upgrading public administration skills at the local level, and the other at supporting the establishment of local NGOs serving democratic reform and social service needs.
Cross-Cutting and Special Initiatives
A long-standing USAID Health Partnership with American and Hungarian medical institutions has established a center of excellence for treating children who are suffering from cancer. The introduction of new techniques and U.S. equipment has so far helped to reduce by over 50% the mortality rate of all child cancer patients under treatment in Hungary. In addition, and as the result of SEED-funded training of Hungarian doctors and nurses in the United States, it is estimated that 1,500 Hungarian patients have so far been able to receive modern cardiac care in a country where cardiovascular disease is a major killer. No additional funds are requested for FY 1997.
It is expected that, in order to bring Hungary into compliance with IMF conditionality, the GOH will seek to reduce charges against the central budget by reducing health benefits. USAID collaborators are helping to design a minimum health benefits package for the remaining national health insurance program. Other cost savings are expected to follow from USAID introduction of an improved hospital diagnosis related groups (DRG) system, in order to monitorhealth care costs more accurately.
High unemployment, approaching 80% in some single-industry towns in a country not noted for a high mobility of labor, continues to be a major preoccupation of the Government and a major impediment to economic reform. Costly redundance within State-owned industries, such as the railways, has to be balanced against equally or even more costly unemployment benefits funded under the central budget. Until World Bank, International Labor Organization and USAID/Department of Labor (DOL) advisors began their collaboration, Hungary had no mechanism for large-
scale processing of redundant workers and for ensuring their re-employment. A model labor center was established in Baranya County through external donor collaboration several years ago, and other more cost-effective measures have subsequently been explored.
One of these, the USAID-designed Rapid Response Project, is a pilot scheme which draws on existing local government counselling and training facilities to attract workers identified for redundancy into alternative occupations. In Debrecen, one of the highest unemployment areas of Hungary, this project has so far helped to reduce unemployment by one and one half percent in a fairly short period of time. Another USAID/DOL pilot project has also proven highly successful: the Quick Start Project, initiated in 1995, identifies local employers' needs and then provides appropriate training to match those needs. This project is credited with having so far put over 600 long-term unemployed back to work. Twelve additional sites have been activated to address mass lay-off issues and to counsel an estimated 5,000 unemployed workers.
While such activities seem modest in relation to the immensity of the problem, they do provide successful models for other donors to consider supporting or replicating on a larger scale. This is an ongoing activity for which no additional funding is requested in FY 1997.
Training is a continuing need, providing vital support for technical advisory services and other assistance envisaged for private enterprises, financial sector reform, and citizens' participation.
|
Strategic Objectives |
Economic Restructuring |
Democratic Transition |
Social Stabilization | Cross-cutting / Special Initiatives | Total |
| Privatization | |||||
| Fiscal Reform | |||||
| Private Enterprise | 6,200,000 | 6,200,000 | |||
| Financial Reform | 5,300,000 | 5,300,000 | |||
| Energy | |||||
| Citizens' Participation | 2,200,000 | 2,200,000 | |||
| Legal Systems | |||||
| Local Government | |||||
| Crises | |||||
| Social Benefits | |||||
| Environmental Health | |||||
| Cross-cutting / Special Initiatives | 1,300,000 | 1,300,000 | |||
| TOTAL | 11,500,000 | 2,200,000 | 1,300,000 | 15,000,000 |
USAID Representative: Thomas Cornell,
PROGRAM: Hungary
TITLE: Private Enterprise, 180-S001.3
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1997: $6,200,000 SEED Act
INITIAL OBLIGATION: FY 1991; ESTIMATED COMPLETION DATE: FY 2000
Purpose: Improved operations of small and medium sized enterprises (SMEs).
Background: With over 800,000 small and medium sized businesses registered in Hungary, the sector is poised to be the dominant engine of growth in the next ten years. However, three areas of constraints are hampering the development of SMEs and negatively affecting their success rate: an absence of capital; knowledge and information gaps among small and medium sized business owners; and inadequate support from the public policy environment. This activity includes initiatives to address these constraints under six ENI Bureau regional projects, Privatization and Enterprise Restructuring, Technical Assistance to Enterprises, Restructuring Agriculture and Agribusiness, Management Training and Market Economics Education, Enterprise Funds, and Housing.
USAID Role and Achievement to Date : In 1995, through USAID/Hungary assistance: the fourth and fifth Total Quality Management centers were opened. USAID supported increased access to credit by supporting the Hungarian American Enterprise Fund (HAEF) which has provided credit to small and microenterprises. It also sponsored the training of managers and credit officers in one of the largest Hungarian banks (OTP).
In 1997, USAID/Hungary assistance will focus on making more capital available to businesses through improving access to credit. It will promote improved business skills by increasing the number of local support organizations providing increased consulting services, promoting a national education system institutionalized business and management education, and improving access to information. It will also seek to promote policies, laws and regulations more conducive to enterprise profitability through business associations which improve public policy affecting business.
Description: Training of OTP staff will continue so that loan officers become more responsive to SME entrepreneurs. As a result of these efforts, it is expected that a $6 million loan guarantee fund will become available. A new small business activity, scheduled to begin in 1996, will train bank and Savings Cooperatives staff in targeted areas to increase SME access to credit. Business skills and systems will be improved by strengthening financial and operational management in about 40 firms so that they can raise capital to expand their operations. The USAID/Hungary program will continue providing direct assistance to firms by placing volunteers in Hungarian companies and bringing Hungarian managers to counterpart firms in the U.S.. A new business activity will also assist in developing business skills and systems by working with existing Hungarian organizations which provide services to local entrepreneurs. Technical assistance in business development to Hungarian universities is being provided and Total Quality Management Centers in seven universities are providing regional assistance in business development. Twelve universities will be provided with Internet access to case studies and other business materials. The use of Internet will, subsequently, be made available to SME clients who can use the system to access technical information and advertise their products. Training will be provided for newly privatized Employee Stock Ownership Programs. Also under this activity, technical assistance and training will be provided to real estate professional associations in order for them to provide their members with services and training to make them more effective and self-sustaining. Assistance to SME builders will help them improve their business practices in the areas of marketing, operational efficiency, finance, and management. Additional assistance will help owners of recently privatized housing to acquire skills and resources to manage and maintain their buildings. Policy reform will be addressed through studies on tax reform and other areas of interest to small entrepreneurs. Volunteers will be placed in the Ministry of Agriculture to assist in the development of appropriate laws for a market oriented sector.
Host Country and Other Donors: To support Small and Medium Enterprises, USAID works with a number of other donors. The Hungarian Enterprise Fund is supported by the European Union's assistance program (EU-PHARE) which provides funds for credit to SMEs. EU PHARE is expected to provide 30 million ECU ($37.5 million) over the next three years. Another project jointly sponsored by the HAEF/PHARE and USAID will train personnel in Local Enterprise Agencies (LEAs) in the use of Internet. The LEAs which receive most of their funding from HAEF, will haveInternet available to SME entrepreneurs who can use it to access technical information and to advertise their products. The HAEF/PHARE contribution for this activity is expected to be $69,704, the LEA contribution $17,426, and the USAID contribution $24,931. Other donors which also provide bilateral assistance to strengthen the LEAs include Austria, Belgium, Finland, Italy, Ireland, Turkey, and the Netherlands. The British Know How Fund financed twelve consultants and provided technical assistance for the development of business plans in four LEAs, as well as providing technical assistance for eight more. France helped develop the Business Plan of the Budapest Enterprise Agency. USAID may facilitate dialogue between the European Bank for Reconstruction and Development (EBRD), a funding source, and the Hungarian American Enterprise Funds which seeks ten million dollars to continue its small and microenterprise lending program.
Beneficiaries : It is estimated that there are about 800,000 SMEs in Hungary, of which about half are active. Although only some of these will receive direct assistance, all will benefit as the services and resources available to SMEs increase.
Principal Contractors, Grantees, or Agencies: USAID is working with the following: Hungarian American Enterprise Fund, KPMG Peat Marwick, International Executive Service Corps, Center for International Private Enterprise, MBA Enterprise Corps - Keenan Institute, Volunteers in Overseas Cooperative Assistance (VOCA), Agricultural Cooperative Development International, Partners for International Education and Training (PIET), Land 'O Lakes, State University of New York, Indiana University, Eastern Europe Real Property Foundation, PADCO, International City and County Management, Urban Institute, and Peace Corps.
Major Results Indicators:*
Number of people employed by the private sector.
Quantity of total exports.
Amount of market capitalization on the Budapest Stock Exchange.
Increase in ratio, profit before taxes (PBT)/sales.
Increase in ratio, exports/sales.
Increase in ratio, taxable profits/GDP.
* These are illustrative indicators. ENI missions are in the midst of the complex process of developing measurable country-specific indicators and targets, which will be completed by June 1996.
PROGRAM: Hungary
TITLE: Financial Reform, 180-S001.4
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1997: $5,300,000 SEED Act
INITIAL OBLIGATION: FY 1992 ESTIMATED COMPLETION DATE: FY 2000
Purpose: A More Competitive and Market Responsive Private Financial Sector
Background: The financial sector in Hungary remains underdeveloped and unresponsive to the needs of a market economy that can serve as the engine for sustained economic and social development in the country. The financial system which embraces the insurance industry, the banking system, and security and capital markets is immature and not yet capable of efficiently responding to all of the needs of a market economy. Macroeconomic financial structures are unstable and do not provide a favorable environment for substantially improved performance of the financial system. Fortunately, most of the policy, legal and regulatory frameworks needed for progress on more sustainable economic stabilization and an improved financial system are in place.
This activity includes initiatives to address these constraints under three ENI Bureau regional projects, (180-0014) Privatization and Enterprise Restructuring, (180-0027) Business Services, (180-0037) Partnerships in Health Care, and (180-0034) Housing Sector Assistance.
USAID Role and Achievement to Date: In 1995, through USAID/Hungary assistance, a draft of the Financial Institution Law was refined for submission to Parliament and is expected to be passed by Parliament in the next few months. A centralized Treasury Department in the Ministry of Finance is now fully operational and a USAID-funded Permanent Senior Economic Advisor Office at the Ministry of Finance has been established.
In 1997 USAID will focus on: developing the structure and improving the performance of Hungary’s financial systems through improving bank intermediation and; promoting more sustainable economic stabilization through a more effective economic monetary policy and a more sound fiscal policy.
Description: USAID/Department of Treasury advisors are working on bank privatization and restructuring, treasury system development, program finance, government securities market development and tax administration, and debt policy. USAID/Hungary assistance will also focus on effectively monitoring and regulating the banking system and individual banks, mostly through strengthening the audit function of the Hungarian State Banking Supervision. It will also assist the Hungarian Ministry of Welfare (MOW), the Health Insurance Fund and local institutions to restructure the financing and delivery of health services. The central focus is on achieving a more cost effective system. USAID is also working to develop a market-oriented housing finance sector through the introduction of a housing finance loan activity and accompanying technical assistance.
Host Country and Other Donors: Other major donors involved in this activity are: IMF, EU-PHARE, the World Bank and the British Know How Fund.
In the banking field, the British Know How Fund is presently financing advisors at three Hungarian banks. Future plans include UK Inland Revenue visitors to the Hungarian Treasury and to the Debt Management Agency. The British are also involved at the State Securities and Exchange Commission, where they give advice on investment funds, introducing decentralized trading, establishing a broker's association, and money laundering.
The EU/PHARE program is helping to review the Securities Act, helping to train the Vice President of the National Bank of Hungary and is involved with a larger project to assist the State Banking Supervision, where they are working together with USAID.
The EBRD is working to help privatize the Hungarian Credit Bank and preparing for an eventual equity investment. In addition, EBRD is looking at the insurance sector to set up an regional insurance fund.
The World Bank is presently assisting with projects focusing on: pension administration and insurance; health services and management; and tax administration. It is in the last stage of preparation of a large Enterprise and Financial Sector Adjustment Loan (EFSAL) loan, which would assist the fiscal and financial sector, with special attention to pension reforms. Additional activities under preparation include: assistance to the State Banking Supervision; a public sector adjustment loan and a public finance management project.
Beneficiaries: The Hungarian people will benefit from an improved financial sector.
Principal Contractors, Grantees, or Agencies: Implementors for this activity include: U.S. Department of Treasury, FSVC, Barents-KPMG, Agency on Health Policy and Research, American International Health Alliance, Health Care Finance Administration, Solon Consulting Group, and the Baltimore Urban Institute.
Major Results Indicators:*
Number of firms listed on the Budapest Stock Exchange.
Private investment as percent of GDP.
Size of financial sector measured by sector assets as a per cent of the GDP.
Decreased inflation.
Competitive foreign exchange rate, measured by a real effective exchange rate index.
Sustainable current account deficit, balance of payments.
Reduced fiscal deficit, general government accounts.
Difference in planned and actual central government budget balance as per cent of planned.
increased taxpayer compliance.
Improved enforcement.
Reduced general government expenditure.
Number of bank examinations, off-site and on-site.
Bank equity owned by government agencies as per cent of total system equity.
* These are illustrative indicators. ENI missions are in the midst of the complex process of developing measurable country-specific indicators and targets, which will be completed by June 1996.
PROGRAM: Hungary
TITLE: Citizens' Participation, 180-S002.1
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1997 : $2,200,000 SEED Act
INITIAL OBLIGATION: FY 1991; ESTIMATED COMPLETION DATE: FY 2000
Purpose: Better informed citizens increase their participation in decision-making at the local level.
Background: Consolidation of democracy in Hungary hinges on the principle of irreversibility, or the ability of new democracies to overcome threats to regime reversal. To ensure consolidation, local governments and civil society must cooperate to provide effective governance and increase the likelihood that necessary governance reforms are undertaken and sustained. In addition, effective governance must be conditioned by increased political participation and accountability.
This activity includes initiatives to address these constraints under four ENI Bureau regional projects, (180-0021) Political and Social Process, (180-0032) Non Governmental Organization (NGO) Development Project, (180-0033) Labor Market Transition, and (180-0034) Housing Sector Assistance.
USAID Role and Achievements to Date: USAID-funded advisors have improved inter-community cooperation so that municipalities can prioritize and manage solid waste and wastewater issues. USAID grantees also monitored elections, strengthened political parties, and assisted the library and members of the Hungarian Parliament in the early years of the democratic transition.
In 1997, this activity will focus on promoting a more active civil society by achieving increased support for civic issues from the private sector, increased number of NGOs advocating for issues and delivering services more efficiently, and supporting an independent media which increases the flow of information. It will also encourage more accessible and effective local governments through assisting local governments in managing more efficiently, encouraging local governments to increase mechanisms for citizen input, increasing inter-community cooperation, and improving a national level framework conducive to local government.
Description: USAID long-term advisors are working with local governments to improve administrative operations, financial management, inter-community cooperation. USAID-funded assistance will also aid the Ministry of Finance and local governments in an effort to rationalize the municipal subsidy system. A USAID-funded civil society strengthening program will provide training and subgrants to Hungarian non-governmental organizations (NGOs) to increase their capacity for advocacy and service delivery.
Host Country and Other Donors: Ongoing efforts in democracy building are coordinated with those of other donors, including EU-PHARE, the British Know-How, The Organization for Economic Cooperation and Development (OECD), SIGMA, and the Soros Foundation.
Beneficiaries: This effort seeks to benefit local communities by ensuring greater participation and more useful information. Work to increase participation will involve assistance to local governments and NGOs. Local governments will become more efficient and their operations more transparent. Civil society will begin to take a more active and productive role in the management of their communities.
Principal Contractors, Grantees, or Agencies: USAID works with the following: Environmental Protection Agency (EPA), Regional Environmental Center, United States Information Agency, United Way International, Harvard Institute for International Development, Local Environmental Management, Urban Institute, International Research and Exchanges Board (IREX), and International City Management Association (ICMA).
Major Results Indicators:*
Number of local referenda initiated by citizens
Number of voters who turn out for local initiatives
Amount of private sector financial or in-kind contributions to NGO sector
Amount of privatization of public services
Separate operating and capital budgets adopted
* These are illustrative indicators. ENI missions are in the midst of the complex process of developing measurable country-specific indicators and targets, which will be completed by June 1996.