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FY 1997 Assistance to Central Europe Request: $15,000,000
Introduction.
Slovakia is one of Central Europe's newest countries and U.S. assistance seeks to root the country firmly in the western economic and political community and to accelerate its transformation to a market economy and pluralistic society. While impressive strides have been made in macroeconomic stabilization, without foreign investment and new technology the high growth rates of the past two years are not sustainable over the long term. The past year has been marked by growing western concern over the emergence of authoritarian decision-making at the national government level. The political and economic interests of the U.S. continue to be best served by an active program targeted to assist decentralized decision-making, encourage the development of a diverse and independent media, strengthen the non-governmental sector, deepen the general understanding and appreciation of democracy, and support already privatized small and medium size enterprises.
The Development Challenge.
The Slovak economy enjoyed an impressive turnaround with five percent real GDP growth in 1994 after a cumulative GDP decline of 24% between 1990 and 1993. In 1995, this growth continued with a GDP increase of between 6% and 7%. The country also experienced solid export growth, resulting in a trade surplus for 1995. Industrial production, which fell by more than 10% in 1993, rose by an estimated seven percent in 1994 and 8.4% in 1995. Prudent monetary and fiscal policies have resulted in a rate of inflation below seven percent, and near balance in the national government's budget. Average real wages are increasing. Nominal interest rates are falling. At $732 million, foreign investment is small relative to some other Central European countries, but has begun to grow from that small base. The second wave of privatization will end in June, 1996. The share of the GDP produced in the private sector now exceeds 62% according to official statistics. Most prices are free, with foreign trade relatively liberal and thriving. Slovakia is classified as a less indebted lower-middle income country by the World Bank. Its total external debt at the end of 1994 was estimated to be about $4.1 billion, and its average debt service to exports ratio averaged about eight percent for the period 1992-94. Rising short-term debt and suppliers' credits are expected to raise the debt service ratio to 10% by the year 2000. However, medium- and long-term debt are expected to remain at about 30% of GDP, roughly the same level as in 1993-94.
The economic picture is not without its sobering side, however. Slovakia began its transition with a heavy adjustment burden, because much of its industrial base was comprised of large defense-related enterprises. Many of these and other large state-owned enterprises were heavily indebted to the banking system and to each other, as vain initial attempts to cope with the shocks of collapse of traditional product markets compounded a history of old-regime financial laxness.
The national average unemployment rate dipped below 13% in late 1995. However, some areas of the country experience nearly twice that rate. Drawing these high unemployment regions into the general growth path is an important task for economic policy makers. Because of the dislocations caused by the collapse of the old system and the adjustments necessary to accommodate to a market-based economy, social sector restructuring is an important element of the overall adjustment process. Needs include the establishment of unemployment insurance and modifying other safety net mechanisms, the introduction of new and financially viable health insurance and delivery systems and means-tested housing subsidies.
While the macroeconomic aggregates are improving, much work still needs to be done on restructuring and strengthening privatized enterprises and on democracy-building. Forty years of communism left an apathetic, disenfranchised citizenry unaccustomed to believing individuals have a say in their government. This young nation is struggling to find its place as a European country tolerant of a plurality of views, based on a strong civil society. While many individuals and most young people are convinced that the only way forward for Slovakia lies with early integration into western institutions, the average citizen is somewhat ambivalent.
USAID expects that Slovakia will have the institutional and other resources to continue its own transition. Currentplans are to phaseout Support for East European Democracy (SEED) Act assistance within the next several years.
Other Donors.
The United States has been very active in coordination with other donors such as the International Monetary Fund, the European Bank for Reconstruction and Development (EBRD), the East European Assistance Program of the European Union (EU PHARE), the British Know-How Fund, and the German Technical Assistance Agency in helping Slovakia transform into a democratic market economy. Close coordination among the British Know-How Fund and the German Technical Assistance advisors has been critical in banking and financial sector assistance.
Also, privately-funded NGOs, including the Ford Foundation, the Open Society Fund, the Foundation for Civil Society, and Partners for Democratic Change are working to ground Slovakia firmly within the Western tradition of democracy and pluralism.
FY 1997 Program.
USAID's strategy for helping Slovakia achieve a self-sustaining path toward a market economy emphasizes support to enterprise restructuring and revitalization of already privatized SME's and a sound business and investment climate. Democracy assistance supports the transition to transparent and accountable governance and the empowerment of citizens through grassroots initiatives aimed at strengthening the network of non-government organizations, decentralizing decision-making and government activity, deepening democratic attitudes and values, and encouraging the development of a diverse and independent media. USAID also helps locally-elected officials to better manage decentralized finances and administer city-owned properties and assets more effectively, supports reforms to introduce an "ethic of democracy" in primary and secondary classrooms, and assists in the development of an independent judiciary. To improve the quality of life in Slovakia assistance focuses on improving health care management, fostering "healthy communities", and helping to rationalize housing subsidies.
Strategic Goal: Economic Restructuring
USAID's assistance will help to accelerate Slovakia's transition to a market economy by aiding the restructuring of already privatized small and medium enterprises and the creation of a strong financial sector and economic institutions.
USAID has helped Slovakia establish and develop market-oriented institutions and a legal and regulatory framework conducive to competition and private sector growth by promoting bank and enterprise restructuring and workout of non-performing loans; encouraging adoption of efficient and equitable tax laws; improving Slovaks' entrepreneurial skills through business training and advice; and assisting the development of the capital markets. U.S. volunteer organizations have contributed significantly to enterprise development by providing business advisory services. U.S. assistance promoted economic liberalization. Early assistance was targeted at anti-monopoly efforts. The U.S. Treasury Department helped reform tax laws, regulations, administration, and fiscal and budgetary policy.
Strategic Goal: Democratic Transition
USAID's assistance in support of this goal has, and will continue to emphasize work at the grassroots level to deepen the general understanding and appreciation of democracy, to foster pluralism and respect for different opinions, and to promote community based problem solving and decision making in Slovak society. In keeping with this emphasis, USAID will continue to provide support to municipal governments to equip them with the financial and human resources and capacity to govern effectively, responsively and accountably; to empower citizens in order to allow them to play an active role in the political and economic decision-making of their community; and to strengthen independent media's diversity and financial viability.
USAID's Local Self-Government Program fosters the decentralization of governmental authority and promotesdemocratic pluralism. The program aims to help municipalities mange their affairs in a transparent way, while providing necessary municipal services and facilities.
The International Republican Institute (IRI) is working to develop the political skills of locally elected officials and political party activists. The program has increased communication and public outreach skills, encouraged negotiation and coalition building within and among parties, and improved party organization by increasing fund raising and recruitment abilities. Better ways to solicit citizens input on local policy issues has also been realized.
The Democracy Network Program (Foundation for a Civil Society, National Forum Foundation and International Center for Non-for-Profit Law) is strengthening the ability of NGOs to affect the formulation and implementation of public policy, act as a forum for debate and advocacy, and provide services to their constituents.
USAID also provides assistance in the area of judicial reform. This includes training lawyers in commercial and bankruptcy law, and legal education reform
Since 1989, the health status of the population has decreased and life expectancy has declined. Slovakia's health providers are inefficient and resources are inadequately managed. The government wants to guarantee quality and accessibility to health services, with emphasis on women, children and the elderly. It has been working to restructure the social assistance program to reduce dependence on subsidies and focus limited resources on low income earners.
In the health sector, priority programs aim to reduce the number of premature deaths and increase average life expectancy. Under the partnership grant to Project Hope, the Boston Children's Hospital helped the Bratislava Children's Hospital reduce child mortality from 40% in 1989 to 7.4% in 1994. The Bratislava Children's Hospital preformed 284 pediatric cardiac surgeries in 1994 compared with only 144 in 1989.
In the area of health care management, USAID helped improve the efficiency and quality of care in two pilot hospitals by introducing quality management practices. A team of nurses continues installing the quality methodology developed with U.S. consultants. Current activities seek to institutionalize and replicate these practices by training lecturers in fields of health care management and developing better curricula for public and private institutions in this area.
In the environment sector, most of Slovakia's critical environmental problems can be attributed to poor water quality, air pollution, and hazardous solid waste dumping. It has many of the critical environmental problems facing countries in transition which adversely affect human health. Slovakia is also on the few countries in the world where every citizen has the constitutional right to a healthy environment, thus there is a commitment on the part of the GOS to address environmental concerns. The USAID program addresses these issues through policy advisory work, environmental investments, training, waste minimization and the Environmental Health Project. USAID activities improve environmental quality and reduce related health risks by supporting economically viable pollution prevention/abatement projects. The U.S. EPA has trained central government, regional and local staff in health risk assessment. USAID has helped draft legislation creating the Slovak Environmental Revolving Investment Fund, which will finance environmental infrastructure projects. USAID also helped the Slovak Government prepare its presentation to the international environmental conference held recently in Sofia. At the conference, Slovakia proved it is well ahead of other participating countries in preparing an effective environmental action plan. USAID has also assisted in implementing aspects of this plan in two environmental "hot spots".
The USAID Environmental Training Project works at the local level to develop the institutional capacity needed to address environmental concerns. Workshops and training are offered to environmental NGOs and businesses, localand regional governments, and academic institutions on environmental management and approaches to pollution prevention.
Housing assistance was instrumental in introducing the condominium approach to housing privatization in Slovakia and USAID was a key player in drafting the concept underlying the 1993 condominium law. An estimated 10% of the 344,600 housing units owned by municipalities have been sold so far. USAID has been providing technical assistance and training to help develop a program for selling city-owned housing units. This training also helps explain to new unit owners how to manage and maintain a condominium. U.S. assistance is helping revise housing subsidies to focus on a needs based housing allowance to boost the private housing market. USAID assistance in FY 1996 will result in the drafting of a housing allowance law and implementing regulations. Given the need to develop a systematic approach to providing housing allowance benefits to needy households, FY 1997 assistance will be focused on assisting in the implementation of the program.
In FY 1997, USAID will help reform health policies at national and local levels. Resources will be devoted to reducing negative health impacts of industrial manufacturing and processing facilities. Training will give Slovaks better ways to deal with various health risks, including environmental pollution. Under a new hospital partnership project, USAID is continuing its efforts to develop quality health care by providing technical assistance and training for physicians. U.S. assistance will help improve health care in areas such as neonatal intensive care, pediatric and gynecology. The U.S. will work to improve the management and organization skills of hospitals administrators as well.
Cross-cutting and Special Initiatives
Programs in this category are primarily training programs that are a key element of support for the larger USAID activities. In terms of 'customer satisfaction' these are among the most effective projects in the portfolio. Two participant training projects have enhanced the banking and financial sector and the class of new small entrepreneurs. The Entrepreneurial Management and Executive Development (EMED) program provides scholarships for private entrepreneurs to train with their counterparts in the United States as well as to identify potential business partners. By mid-1996 more than 100 entrepreneurs will have participated in this training. Under the Participant Training Project for Europe (PTPE) approximately 150 Slovaks will have been trained in managerial and technical skills. PTPE provides short term training opportunities in the United States for senior and mid-level Slovaks working in organizations which contribute to the transformation of Slovakia's economy and the development of democracy. These programs provide Slovakia with essential skills necessary to undertake and sustain their economic and political transformation.
|
Strategic Objectives |
Economic Restructuring |
Democratic Transition |
Social Stabilization | Cross-cutting / Special Initiatives | Total |
| Privatization | |||||
| Fiscal Reform | |||||
| Private Enterprise | 3,600,000 | 3,600,000 | |||
| Financial Reform | |||||
| Energy | |||||
| Citizens' Participation | 8,425,000 | 8,425,000 | |||
| Legal Systems | |||||
| Local Government | |||||
| Crises | |||||
| Social Benefits | |||||
| Environmental Health | 600,000 | 600,000 | |||
| Cross-cutting / Special Initiatives | 2,375,000 | 2,375,000 | |||
| TOTAL | 3,600,000 | 8,425,000 | 600,000 | 2,375,000 | 15,000,000 |
USAID Representative: Patricia J. Lerner
Purpose: Accelerated development and growth of private enterprise.
Background: Many potentially viable privatized enterprises are illiquid or near bankruptcy and are unable to service their bank debt. They cannot qualify for the new credit which would allow them to implement restructuring plans and take advantage of and contribute to the improving economic environment in Slovakia. To end this vicious cycle USAID is targeting some 80 to 100 troubled privatized medium and small businesses by instilling business management practices that will lead to a positive cash flow in the short term ultimately to profitability. By reinvigorating this core group of firms in the industrial sector, Slovakia's economy will be placed on a stronger and more diversified base.
USAID Role and Achievements to Date: The private sector contribution to the overall GDP increased in 1995 to an estimated 62%. In January 1996, USAID launched a major initiative creating the Slovak Business Advisory Center (SBAC). This center consolidates a number of USAID implementing organizations to provide comprehensive restructuring and business advice to small and medium sized businesses. The SBAC is new. However in only its pilot phase it has eight enterprises in the implementation stage of their turnaround and restructuring plans. Previous achievements under this activity include assisting two major former armaments companies in planning and beginning to implement successfully a plan for conversion to civilian goods production. Finally, several medium and large enterprises assisted in 1994 with financial diagnosis and planning are now implementing these restructuring plans.
Description: USAID's 1996-97 work will focus on post privatization assistance to restructure enterprises and encourage the creation and growth of a diversity of small and medium-sized businesses. USAID funding supports the development of a new MBA program at the Economics University which will provide a range of necessary business skills. The focus of these activities is to accelerate the transition to a diverse market economy.
Host Country and Other Donors: USAID programs coordinate with EU PHARE lending and technical assistance programs and with the British Know How Fund.
Beneficiaries: This effort seeks to directly benefit current and start-up business owners by providing business services, advice, training, and restructuring. This effort hopes to help incorporate access to economic opportunities for Slovak individuals through out Slovakia's society. It also benefits the country as a whole by reducing the country's reliance on a narrowly based industrial sector.
Principal Contractors, Grantees, or Agencies: Major organizations are: International Executive Service Corps, MBA Enterprise Corps, Volunteers in Overseas Cooperative Assistance, the University of Pittsburgh, The Recovery Group, U.S. Department of Agriculture, and Peace Corps. American firms provide services including Coopers and Lybrand, Crimson Capital and Deloitte and Touche.
Major Results Indicators: Baseline Target
Number of assisted enterprises successfully implementing Zero July 1995
restructuring plans Eight February 1996
50 Mid-1996
100 Mid-1997
Purpose: A more competitive and market-responsive private financial sector.
Background: Since 1992 the United States has been a major contributor to financial sector reform in Slovakia. U.S. Government agencies have advised the Slovak Government, the Central Bank and commercial banks on an entire range of policies and technical issues. As a result, in the relatively short span of five years, Slovakia's financial sector has quickly evolved from a typical communist system to a relatively sophisticated system of public and private banks and other financial institutions that offer an ever-increasing range of services to their customers. The Central Bank is a model of prudent monetary policy. With the assistance of U.S. funded advisors, the capital market is developing a code of ethics and enforcement and developing self-regulating organizations along Western lines.
USAID Role and Achievements to Date: Through U.S. Government programs, in excess of 2000 Slovak bankers have been trained. An advisor on capital markets has helped draft a new securities law and is working with counterparts in shaping and developing a securities and exchange commission (SEC) type organization. An Association of Securities Dealers is being created as a self-regulatory organization. A U.S. advisor at the Institute of Bank Education has developed a long term strategy and has increased its self reliance. A bad loan work-out department has been set up in the largest bank in Slovakia. USAID also is supporting the training of on-
site bank auditors.
Description: USAID's activities encourage the development and implementation of sound financial sector practices. This includes advising commercial banks on asset evaluation, risk assessment and bad loan workout. It also includes a resident capital markets advisor at the Ministry of Finance, who is quite influential in influencing the Ministry's policy and legal recommendations. Bank managers and staff are trained both through this activity and through participant training. Assistance is based on demand from clients. Based on present indications, it is anticipated that this demand can be met through 1997 with activities funded in FY 1996.
Host Country and Other Donors: USAID programs coordinate with EU PHARE advisors, IMF Bank Support Advisors, the British Know How Fund and the German Technical Assistance Agency.
Beneficiaries: This effort seeks to benefit Slovak citizens and businesses by ensuring sustainable credit institutions, transparent and logical procedures in financial markets, and creation on new financial opportunities and reduced risk in those opportunities through creation of securities investment vehicles. In addition, a rational enforceable financial system will benefit Slovakia by providing an inducement to increased foreign investment.
Principal Contractors, Grantees, or Agencies: Major organizations and firms are KPMG/Barents working on bank supervision and bank training; Financial Services Volunteer Corps on Capital Markets; Arthur Anderson and KPMG/Barents on bank advisory issues.
Major Results Indicators*:
Value of investment fund assets
SME lending
Country financial ratings
* 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.
Purpose: Reduced environmental risks to public health.
Background: Slovakia has many of the critical environmental problems facing countries in transition which adversely affect human health. It is also one of the few countries in the world where every citizen has the constitutional right to a healthy environment. Thus there is a serious commitment on the part of the GOS to address environmental concerns.
USAID Role and Achievements to Date: Working with low/no cost methods to reduce loss of chemicals from chemical factories to the environment, USAID advisors helped one chemical plant buy a $8,300 piece of equipment which significantly reduced the plant's use of formaldehyde, a cancer-causing chemical. The savings generated by this adopted change were equivalent to $125,000 per year. Along the same lines, one lime processor converted from burning high sulfur coal to natural gas which reduced air pollution in the area, created less solid waste, reduced the level of health risk to workers and those living in the environs of the lime plant. Building on this success other firms such as lead smelters are also changing their technology to address environmental health conditions as well as to increase the efficiency of their operations. The USAID policy advisor to the Ministry of the Environment is working with counterparts on a new law to create a revolving environment fund which would make small to medium sized loans to industries and municipalities to encourage adoption of environmentally sound technology. In addition, this advisor is helping to drafting the Environmental Information Act which, when adopted, will be the cutting edge model for freedom of information law in Slovakia. USAID works in a number of nuclear safety programs to improve standards of safety and operations for nuclear plants. Finally, USAID is beginning an environmental health project to inform citizens how to mitigate adverse effects of environmental hazards.
Description: USAID's activities focus on improving environmental quality, citizens quality of life, and reduced related health risks by supporting economically viable pollution prevention and abatement activities.
Host Country and Other Donors: Over 24 municipalities, the Slovak Environmental Agency, the State Environmental fund and the Ministry of the Environment collaborate with USAID programs. In one USAID program the Slovak Environmental Fund provided local currency matching $5 million for air and water monitoring equipment. In addition there is collaboration from the Ministry of Health, the Center for Epidemiology, and the Center for Occupational Hazards. USAID also seeks to incorporate EU PHARE and EBRD funding and technical expertise in collaboration of activities including planning for various workshops and other project components.
Beneficiaries: This effort seeks to benefit Slovak citizens by reducing serious environmental hazards which many citizens encounter in their daily life.
Principal Contractors, Grantees, or Agencies: Major organizations are the Harvard Institute for International Development, Chemonics, the University of Minnesota, the Environmental Health Program, and the World Environment Center. Cooperating US Agencies are the Environmental Protection Agency, Department of Energy, the Nuclear Regulator Commission.
Major Results Indicators: *
Number of industrial plants modified to reduce emissions to acceptable levels
Number of improved laws/regulations incorporating environmental issues to the
benefit of human health.
Percent increase in labor productivity as a result of cleaner and safer working
environment
* 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.
Purpose: Increased, better informed citizens' participation in political and economic decision making.
Background: After the Velvet Revolution of 1989, local self government was reconstituted and vested with substantial responsibilities. There are over 2800 towns and villages in Slovakia, each with a directly elected Mayor, Vice Mayor, and Municipal Council. Since 1990 local officials have been directly elected. However, they function in a political environment which has limited experience with representative democracy. Therefore many of the tools, skills, mechanisms, and practices which lead to open, responsible governance and constituent accountability are lacking. There is still little tradition of civic participation in political and economic decision-
making, and little understanding among the general populace of their role and responsibilities in a democracy. While there is an independent media, the various media outlets are hampered by limited resources, inadequate business skills, and political considerations.
USAID Role and Achievements to Date: USAID's Educational Reform Project has met with remarkable success in its endeavor to introduce a "spirit of democracy into the classroom" through new teaching methods. This project works with teachers, administrators, students, parents, and university pedagogical faculties to provide in-
service and university level teachers training, and to institute democratic principles into the Slovak education system. It is planned that this Project, which has been working for the past year in one administrative school district and one university faculty, will be expanded to two additional districts and an additional university faculty this year.
USAID's Democracy Network Program is finishing its first year having sub-granted over $400,000 to local NGOs to carry out public policy-related missions and projects. One grant was given to create three additional Centers for Local Democracy, which act as resource centers for local government and civic associations to support the decentralization of decision-making and encourage the active participation of citizens in public life.
Description: USAID's assistance will continue to work at the grassroots level to promote the decentralization of decision-making in Slovak society. USAID will continue to provide support to municipal governments to equip them with the financial and human resources and capacity to govern effectively, responsively and accountably; to empower citizens in order to allow them to play an active role in the political and economic decision-making of their communities; and to strengthen independent media's financial viability. USAID is also supporting the independence of the judiciary and the research skills of the Slovak National Council. In addition, USAID will provide funding to the Free Trade Union Institute (FTUI) for independent trade union strengthening.
Host Country and Other Donors: Major host country counterparts are Comenius University, the Slovak Judges' Association, the ORAVA Regional Administrative Office of the Ministry of Education, and the Netherlands Embassy. Also involved have been the Center for Independent Journalism, the British Know How Fund, Open Society Fund, and EU PHARE.
Beneficiaries: This effort seeks to benefit Slovak citizens by increasing common understanding of basic principles of democracy and by increasing citizen participation and access to their government.
Principal Contractors, Grantees, or Agencies: These organizations include the University of Northern Iowa, the International Republican Institute, the Foundation for Civil Society, the International Center for Not-for-Profit Law, the National Forum Foundation, the National Democratic Institute, the Free Trade Union Institute, the American Bar Association/Central and East European Law Initiative, the U.S. Information Agency, and the International Research Exchange Board.
Major Results Indicators:*
Number of changes made to government policy as result of citizen participation
Number of draft legislative initiatives introduced by the legislative branch in which there was citizens participation
Number of NGOs representing women's issues, ethnics and minorities
Increase in the percentage of new coverage expressing opposing views
Rating of elections as free and fair by local and international monitors
Existence of laws protecting freedom of association, assembly, and speech
* 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.