Note: This document may not always reflect the actual appropriations determined by Congress. Final budget allocations for USAID's programs are not determined until after passage of an appropriations bill and preparation of the Operating Year Budget (OYB).
KAZAKSTAN
FY 1998 Assistance to the NIS Request . . . . . . . . . . . . . . . . . $52,000,000 Introduction
Kazakstan, the world's largest land-locked country, is resource-rich and offers considerable trade and investment opportunities. Of particular value are vast reserves of oil and natural gas, as well as gold, copper, and chromium. Lack of effective transport routes and relative isolation make it difficult for Kazakstan to access international markets. The government is publicly committed to building a democratic, market-based political, social and economic order. Considerable progress has been made in a number of areas since independence in 1991. The country's geographic location, combined with its mix of both Russian and Asian traditions, position it to play an important role in supporting a successful interaction between the two traditions. Kazaks represent the country's largest ethnic group, though they do not constitute a majority in a country with over 100 ethnic groups.U.S. national interests in Kazakstan are both commercial and strategic. The country actively promotes Western trade, investment and economic support. The potential is enormous, especially in the energy sector. Foreign investment is already at levels higher than any other former Soviet republic including Russia, but continued progress in establishing a transparent, consistent legal and regulatory environment is needed to maintain and expand on this level of investment. Kazakstan's large size and geographical location makes it a key player in shaping the post-Soviet political and economic order in the large Eurasia landmass. Relations with Russia are vital, as are those with China, its other large neighbor; Kazakstan also interacts closely with the other Central Asian republics and, more indirectly, with both the Middle East and the Indian Subcontinent to the south. Kazakstan was one of four states in the former Soviet Union that possessed nuclear weapons on independence, but is now nuclear weapons free. An independent and prosperous Kazakstan which engages constructively on the international stage is an important factor in determining regional stability in a potentially volatile area of the world.
The Development Challenge
. Kazakstan, the largest recipient of U.S. assistance in Central Asia, has succeeded in arresting the economy's downward spiral and in establishing an increasingly sound macroeconomic policy framework. Inflation was reduced from 1,160% in 1994 to 60% in 1995; in 1996, the annual rate is expected to be about 30%. The fiscal deficit was cut from just under 7% of GDP in 1994 to 2.7% of GDP in 1995; in 1996, the anticipated deficit is estimated at 2.9%. On the monetary front, Kazakstan's strong reserve position helps keep the Tenge relatively stable. Also, the treasury bill market has expanded and the Central Bank is relying on increasingly sophisticated indirect monetary control. The Central Bank has asserted much needed control over the banking sector by establishing an effective bank supervision regime and enforcing capital requirements. More than 130 insolvent banks have been closed during the past several years, including one major bank that conventional wisdom had thought was "too big to fail".The government has undertaken a number of steps to address key legal and regulatory reform issues and additional measures are planned. Recent reforms have been undertaken in the Foreign Investment Law, the Law on Petroleum, and the Law on Subsurface Utilization which should clarify and strengthen the rights of foreign investors. The government has also developed an ambitious legal reform agenda for developing the regulatory framework needed to clarify property ownership and transfer rights and the rights of parties to economic transactions. An inter-Ministerial working group is currently designing a comprehensive package of regulatory and legal reforms to introduce a two-tier private pension system intended to make private pension plans mandatory by 1998. The government also continues to move forward aggressively in its efforts to become a member of the World Trade Organization (WTO) and in July 1996 submitted its Memorandum of Foreign Trade Regime, the core negotiatingdocument for WTO accession.
Kazakstan has made significant progress in small-scale and mass privatization, although there remains some concern that cash auctions have slowed considerably during the past few months. As a result, only about one-third of all state enterprises eligible for sales through cash auction have actually been sold off to the private sector. In addition, the privatization of "large-scale" enterprises," which represent a significant share of Kazakstan's productive assets, is proceeding slowly. Significant progress in large-scale privatization is needed to ensure that the economic reforms that have already taken place result in economic growth.
While the investment climate has improved, much remains to be done before Kazakstan will be able to attract the continued high levels of foreign investment it needs to substantially increase the standard of living for the majority of Kazakstani citizens. A number of important steps have been taken to promote a viable securities market, including strengthening of key market institutions such as stock exchanges, central depositories and basic ownership structures. USAID is working with the government to ensure private control of these structures and to streamline licensing requirements and transform private investment funds into investment companies.
Growth in the energy sector has not yet met expectations, although it is still regarded as a primary engine for future economic growth. Oil and gas development in particular are critical to the economic future of the region. Current oil production levels are still much lower than at independence in 1991. Recent agreement on a restructured consortium to construct an export pipeline for Caspian basin oil offers new promise for accelerating the rates of production and the volume at which Kazakstan's oil and gas reaches world markets. USAID continues to urge the government to establish an independent oil and gas regulatory agency, thereby allowing the government to play a facilitating rather than a controlling role. It would also eliminate the current confusion created by multiple government agencies with overlapping regulatory powers and authorities.
Power sector reform seems to be well underway with the December 1995 adoption of an independent regulatory commission for electricity; privatization of over 30% of the national generating capacity in 1996; and plans for establishing a competitive wholesale power market in 1997. USAID is working with the government on drafting implementing rules and regulations that would promote the independence of the commission and the operation of the wholesale power pool, with an eye toward furthering the privatization process and attracting foreign private investment in the power generation, transmission, and distribution subsectors. On a local level, Kazakstan ordered an end to general utility subsidies in 1996.
Agricultural performance has been disappointing in a number of respects. The grain harvest was better in 1996 than in 1995, but still much lower than 1994 figures. Kazakstan will still meet its own domestic requirements, but grain exports will be much reduced. Drought, inefficiencies in supply and distribution systems and a shortage of spare parts and fuel all contributed to the poor harvest. Areas in which the private sector plays an important role, such as the production, distribution and marketing of fruits and vegetables, have performed much better.
Kazakstan's population is relatively well educated, and its literacy rate is almost 98%. However, education systems are geared toward a central, command economy and basic understanding of how a market economy works is often lacking. State-organized systems for delivering social services have proven to be unsustainable. USAID has been instrumental in introducing reforms which help decentralize the health care system and strengthen primary health care. USAID also assisted in addressing major obstacles to the provision of quality drugs at affordable prices by promoting private pharmacies and helping to break up "pharmatsiya," the large public sector monopoly that previously controlled the marketing and sales of health-related supplies across Kazakstan. At this point, some 80% of all drugs are imported and distributed by private companies. The economic transition has proven to be especially difficult for vulnerable groups such as pensioners and large families headedby women. Mechanisms for targeting assistance for vulnerable groups are now being established. For example, in 1996 a national program to target housing subsidies was introduced.
Individual human rights are by and large respected. There is a lively independent media and the non-governmental organization (NGO) sector is expanding rapidly. However, most Kazakstanis tend to focus on economic concerns and many people appear uninterested in the political process. An April 1995 referendum extended the president in office until 2000, and a new constitution, approved by referendum in August 1995, concentrates power in the presidency. The next presidential election is anticipated in 2000. USAID programs are assisting the new parliament as well as independent media and NGO development. Intergovernmental finance and other mechanisms to strengthen local government are being supported and will receive even greater attention in the future.
According to projections, the high level of technical assistance which currently characterizes the USAID/Central Asia program in Kazakstan should evolve into a combination of high level trade and investment promotion combined with partnership-type programs requiring less management attention and aimed at consolidating a long-term cooperative partnership relationship.
Other Donors
Other donors are heavily engaged in Kazakstan, reflecting the country's reputation as one of the early reformers interested in working with international institutions to effect lasting change. A policy package supported by the IMF's Extended Fund Facility was negotiated with the IMF in July 1996, and the European Bank for Reconstruction and Development (EBRD), the Asian Development Bank (ADB) and the World Bank all have active programs. The World Bank provides technical assistance for economic restructuring and loans in key areas related to oil development, urban transport, social protection, and finance and enterprise development. New projects in a number of areas covering land registration, financial sector adjustment, private sector support, irrigation and drainage, water supply, agricultural privatization, and treasury modernization are being prepared. EU-TACIS and bilateral donors such as Germany, Britain, and Japan provide additional aid, usually in the form of technical assistance and training. The UNDP recently sponsored a conference to examine social dimensions of the transition and the World Bank and other donors are focusing increasing attention on the importance of investing in human capital and in social sector development more generally. USAID works closely with these other organizations and in some instances their resources are able to supplement and provide wider support for programs pioneered by USAID-funded technical assistance teams.FY 1998 Program
USAID's strategy for helping Kazakstan achieve a democratic, market-based society focuses on three main areas: the economic, democratic, and social aspects of the transition process. Economic restructuring remains the single most significant part of the portfolio, with emphasis shifting over time from privatization (in which USAID funding is now being phased out, though the World Bank continues to lead the large-scale privatization effort) to broader legal and regulatory policy reforms. Under the Partnership for Freedom new programs will encourage economic growth and develop links between Kazakstanis and Americans.The planned 1998 program anticipates a continued evolution of the USAID program in the area of economic restructuring. In the past few years, the USAID economic restructuring program in Kazakstan has gradually moved through a three-stage progression: (1) initial focus on short-term economic stabilization measures designed to help bring government spending and inflation under control; (2) support for privatization of small-and medium-sized enterprises; and (3) establishment of financial markets and development of an appropriate legal infrastructure for commercial activities. The first two stages of this process will be largely complete during FY1997. In FY1998, it is envisaged that the USAID program will continue to focus on the third stage by helping to deepen the now nascent financial sector through direct support to financial market institutions, further development of commercial legal infrastructure, and further rationalization of intergovernmental financial relations.
Planned democratization programs include a mix of support for independent media, strengthening the parliament, and developing local NGOs, including legal and business associations, as an essential feature of a more open civil society. Concurrently, a local government program is being developed that will address social sector concerns while promoting more effective, accountable local governance.
Work in the social sectors is critical to sustaining support for a successful economic transition. Specifically, incentive-based market systems will be introduced to improve the efficiency and quality of health service delivery. The health system will be reoriented to emphasize cost effective primary health care over more costly hospital-based systems. Private housing ownership and maintenance will be promoted through the expansion of residential housing associations. Cost recovery programs for utilities and targeted housing and other social allowances will also be emphasized.
Finally, a continued training program is envisaged that cuts across all sectors. The program will place greater emphasis on cost-effective, in-country training programs that provide the technical skills needed to effectively implement policy change.
Strategic Goal: Economic Restructuring
Kazakstan's educated population, large natural resource base and relatively developed industrial infrastructure offer a number of advantages that should enable it to eventually compete effectively in world markets. Although the shift from a socialist system to a market-based economic system has at times been difficult, Kazakstan is well down the path toward fundamental, lasting change. As the Government's small- and mass-privatization programs, implemented with considerable assistance from USAID wind down, greater emphasis needs to be placed on deepening the capital markets and broadening the legal reforms needed to ensure that newly privatized firms grow and prosper.USAID advisors played a central role in developing Kazakstan's new tax code that was introduced in July 1995. It has been described as perhaps the most modern and transparent code in the former Soviet Union. Considerable work is also being done to improve the budget planning and implementation process. Effective implementation of these new policies is needed in order to ensure their ultimate success. Key activities include providing technical advisors and training in modern tax administration procedures. Programs aimed at ensuring more rational and transparent ways to raise revenues and allocate funds among the various levels of government (national, oblast, local) is also planned.
Dealing with bureaucratic obstacles related to trade and investment concerns also figure prominently in the work being undertaken, with a view toward assuring the economic climate in Kazakstan is attractive to both local and foreign investors. Private economic actors must know the "rules of the game" at the outset, and potential new investors have to be sure beforehand that they can confidently analyze risks involved in a new venture. Also, greater transparency is essential to counter corruption and ensure a level playing field for all private sector actors. In this regard, USAID-supported work in introducing modern accounting standards, improving financial management and offering judicial training to those involved in administering commercial codes are important tools for addressing the crime and corruption issue.
The notion of financial markets was almost unknown during the Soviet era. In a market economy, strong financial markets are needed to ensure that capital is channeled into areas of highest economic return rather than being squandered on inefficient enterprises that contribute little to long-term growth. Initial USAID activity helped found Central Asia's first stock market in Almaty as well as an independent securities exchange commission to regulate it. Other steps underway include expanding the size and scope of the stock exchange and ensuring that Kazakstani counterparts are effectively equipped with the skills needed to manage a modern financial sector, including adoption of modernWestern accounting practices. As with fiscal and commercial environments, a strong financial sector is crucial for attracting the kind of trade and investment needed to ensure sustainable, long-term commercial relationships in the international marketplace. The Central Asian American Enterprise Fund provides loan and equity capital aimed at promoting private sector development.
Energy--including oil, gas, and electricity--is an obvious sector of focus for economic restructuring. Given U.S. Government interests in energy development and the fact that Kazakstan's own future growth hinges in large part on energy development, USAID has done considerable work in legal and regulatory reform over the past two years in the power subsector. Over the past year, this work has been extended to the petroleum industry as well. Effective implementation of the recently announced policy reforms in the power sector is needed to ensure ultimate success, and considerable further support for legal and regulatory reform in the petroleum sector is required. The latter includes establishment of an independent oil and gas regulatory agency; tax rules that support production sharing agreements; a simplified and rational licensing regime; and environmentally sustainable rules and regulations governing petroleum exploration, processing and transport.
Strategic Objective: Increased soundness of fiscal policies and fiscal management practices
Strategic Objective: Accelerated development and growth of private enterprises
Strategic Objective: A more competitive and market-responsive private financial sector Strategic Goal: Democratic Transition
There were a number of setbacks last year in terms of democracy building in Kazakstan, including the use of a referendum in place of a presidential election and the relatively sudden introduction of a new constitution that concentrates power in the office of the president. International observers have questioned some elements of the electoral process as it has been implemented in Kazakstan. More positive signs include a sensitivity to human rights, maintenance of a lively independent media and the expansion of a nascent NGO sector. The new parliament is getting organized and increasingly making its presence felt. Building democracy will be a long-term process in Kazakstan, requiring both commitment at the upper levels of government and active interest on the part of individuals and NGOs in helping to shape future development patterns.
The trend toward greater centralization of power underscores the importance of expanding the flow of information and ensuring that a variety of voices are heard. Growing emphasis has been placed on building and sustaining local NGOs as a way to ensure more grassroots involvement. Emphasis will now focus on developing NGO organizational skills, especially in the business and professional advocacy area. Assistance will also continue to be provided to independent radio stations and television networks, both to improve their professional programming skills and to ensure that they become sustainable, commercially viable business operations. Civic education, bar association development, and judicial reform also receive support. One grantee is currently doing a follow-up to last year's survey on voter attitudes. Another is helping to develop a bar association in Chymkent as part of a deliberate attempt to move assistance out of the capital. Central Asia's first national NGO coalition was also recently formed, in part as a result of USAID activity in this area.
Finally, local governments appear receptive to activities which support development of sustainable urban and social service delivery. The experience of other countries in Eastern Europe and the former Soviet Union for these types of interventions underscores the importance of initiating such programs to assure eventual improvement in other people's lives. USAID is actively working with other donors to achieve results in this area.
Strategic Objective: Increased, better-informed citizens' participation in political and economic decision-making
Strategic Objective: Demonstrate more effective, responsible and accountable local government Strategic Goal: Social Stabilization
A recent external evaluation of the USAID-funded health reform program concluded that "there is a strong supporting relationship between the substantive reform of the health care system and the overall success of the transition to market oriented, democratic societies . . . Unless people believe that there is a continued commitment on the part of government to maintain the social safety net, the overall transition could falter."
USAID plans to take the next step in improving the sustainability of social services by developing technical assistance and training interventions based on the combined lessons learned from demonstrations in local self government and in the social sector (e.g., housing and health). USAID plans to work at both the national and the local level. USAID plans to continue to demonstrate that health and housing reform can be carried out in a cost-effective basis while improving quality and availability of services. These efforts will complement the activities undertaken in the local self government initiative.
The Mission will continue to support health financing schemes that contribute to long term financial sustainability. It will also continue to support decentralization of the health budget and to establish primary health care units such as family group practices. In the next two years, USAID will complete the introduction of health reform in the two pilot areas and will expand the pilot to selected regions. USAID will phase out external technical assistance while developing local capacity to continue the health reform agenda in Kazakstan. USAID recognizes that resources to improve the sustainability of social benefits are unlikely to be achieved by any single donor. Thus, USAID will actively continue to leverage resources of other donors, especially the World Bank, to replicate pilot interventions on a national basis.
One of the deepest inefficiencies in the Kazakstan health system is the imbalance between curative, hospital-based health system and primary health care. Already because of USAID efforts, there has been a dramatic percent increase in family group practices within the past year in the health reform sites. Today, approximately 56 such practices now have the legal status to operate as independent health care providers in Zhezkazgan. Last year there were none. However, technical assistance will be necessary to help these practices become financially and technically viable units within a market oriented economy. Consumers now can choose the group practice that they want to join, unlike under the old system in which the individuals were assigned to a particular hospital catchment area.
Based on USAID technical assistance, a case-based hospital payment system has been introduced in the pilot sites. As a result, there has been a 20% reduction in the average length of hospital stays. The savings to the local health budget due to the decreased length of hospital stay can be directed to primary health care facilities for preventive care. The new cost accounting data analysis system introduced by USAID advisors also resulted in payment to health facilities on a per case basis rather than on number of beds. This payment change has already improved the quality of care and resulted in budget savings at the national level.
Because of the breakup of the centralized pharmaceutical monopoly, private companies are now importing and distributing 80% of the pharmaceuticals in Kazakstan. It is reported that private retailers charge six percent lower than State-owned retail pharmacies for similar medical supplies. The housing allowance program also represented a breakthrough in demonstrating the effectiveness of targeted rather than general subsidies. In some cities, savings have been estimated at over 50%. Budget savings of as much as 30% are possible in some local communities as a result of USAID-supported approaches to targeted housing subsidies.
In the housing sector, USAID's promotion of homeowners associations has begun to demonstrate that families can take control over their own living conditions. With the support of local municipal officials, approximately 2,500 homeowner associations have been formed and are privatizing housing functions previously inadequately and expensively carried out by government.
Remaining activities under the Aral Sea initiative will focus on the negotiation and preparation of draft laws, decrees, and long-term agreements concerning regional water use and sharing.
Strategic Objective: Improved sustainability of social benefits and services
Strategic Objective: Reduced environmental risks to public health (CAR Regional)
Cross-cutting and Special Initiatives
Special initiatives related to medical partnerships, infectious disease control and family planning will continue to be shaped to improve the sustainability of the social sector and to support the health reform agenda. The medical partnerships activities are helping to improve health care protocols, management and clinical practices in Kazakstan.
Under the FY 1997 reproductive health earmark, the contraceptive social marketing program is employing market approaches to selling contraceptives. Fifty percent of the private pharmacies are now selling quality contraceptives. Abortion rates in Kazakstan have declined as modern contraceptives are more readily available in the market. The USAID-funded Kazakstan Demographic Health Survey undertaken in 1995, the first in the former Soviet Union, provides reliable data on the health status in Kazakstan for formalizing health policy and targeting interventions where they are most needed. Among other things, the survey indicated relatively low fertility rates; according to the survey, the Kazakstani women will give birth to an average of 2.5 children.
For infectious disease programs, Kazakstan is introducing more effective, efficient and cost-effective surveillance measures. New and modern immunization policies and schedules are being developed in ways that promote a more modern and efficient health care system in Kazakstan.
Also under cross-cutting programs, the NIS Exchanges and Training program continues to provide important support for reform-minded Kazakstanis to obtain specific training in a way that also exposes them first-hand to Western systems and methods. The training has proven to be especially effective in Kazakstan because it is usually linked to the larger technical assistance effort and because counterparts often come back with new ideas and views on how to do things differently back in Kazakstan. Given the country's historical isolation, this opportunity is all the more useful.
USAID provided U.S. short-term training for 164 officials in 1996, bringing the total for Kazakstan since 1994 to 646. Another 122 U.S. participants are planned for 1997; in-country training is also planned for 1,700 individuals. The training is essential to support the wider technical assistance effort and to achieve objectives in many areas, including tax policy, central banking operations, national budgeting, commercial law, accounting standards, and health reform. This effort benefits Kazakstanis at all levels by training qualified public officials who are able to establish laws and regulations that are transparent and foster the growth of markets and democratic governance.
In FY1998, training resources will be delivered as comprehensive "packages" that include U.S. short-term training as well as third country and in-country programs. Alumni Resources Centers have already been set up, allowing returning participants to utilize electronic communications, photocopying, and conference facilities. The in-country program provides for additional training through seminars and conferences, cost-effectively conducted by technical expertise already located in Central Asia.
The technical training provided has been instrumental in assisting the Government of Kazakstan in the implementation of its economic restructuring program. Focus will shift from preparing and persuading decision-makers to adopt policy changes toward greater emphasis on implementing the policies at regional and local levels. Training will continue to be coordinated closely with other donors in Kazakstan.
The Special Initiatives category also includes other U.S. agency activities that do not directly support USAID's strategic objectives, such as the U.S. State Department's Science Centers programs.
KAZAKSTAN
FY 1998 PROGRAM SUMMARY*
Strategic Objectives
Economic Restructuring Democratic Transition
Social Stabilization Cross-cutting / Special Initiatives Total Privatization -- -- -- -- -- Fiscal Reform 2,000,000 -- -- -- 2,000,000 Private Enterprise 22,000,000 -- -- -- 22,000,000 Financial Reform 4,000,000 -- -- -- 4,000,000 Energy -- -- -- -- -- Citizens' Participation -- 6,000,000 -- -- 6,000,000 Legal Systems -- -- -- -- -- Local Government -- 2,000,000 -- -- 2,000,000 Crises -- -- -- -- -- Social Benefits -- -- 4,000,000 -- 4,000,000 Environmental Health -- -- 500,000 -- 500,000 Cross-cutting / Special Initiatives -- -- -- 11,500,000 11,500,000 TOTAL 28,000,000 8,000,000 4,500,000 11,500,000 52,000,000 *FREEDOM Support Act (FSA) Funds
USAID Mission Director, Patricia K. Buckles
ACTIVITY DATA SHEET
PROGRAM: KAZAKSTAN
TITLE: Fiscal Reform, 110-S001.2
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $2,000,000 FREEDOM Support Act
INITIAL OBLIGATION: FY 1993; ESTIMATED COMPLETION DATE: FY 1999
Purpose: Increased soundness of fiscal policies and fiscal management practices.
Background: The Soviet legacy ensured that newly independent states such as Kazakstan inherited an antiquated set of fiscal programs and policies. Complicated budget procedures lacked transparency. Similarly, little was known about modern approaches to tax collection and revenue generation. Progress in both areas is essential in order to ensure and sustain macroeconomic stability.
USAID Role and Achievements to Date: USAID-funded advisors made major contributions to the formulation of a new tax code, adopted in July 1995 and described by some outsiders as perhaps the most modern and transparent of any in the former Soviet Union. On the budgetary side, USAID-funded contractors and USAID-funded Treasury advisors are helping to introduce a new budget classification system, a national and local budget law, and a modern system for managing public external debt. Other USAID-funded advisors are working with Kazakstani counterparts to ensure a more efficient revenue collection system and to shape more rational and transparent budgetary processes. Now that a new tax code is in place, the focus is shifting to training and hands-on instruction in how to manage and implement the new system. Advisors work directly with counterparts to improve systems and to rationalize the expenditure and taxation authority among the various levels of government (national, oblast, local).
Description: In FY1998 USAID technical assistance in the fiscal area will concentrate mainly on further rationalization of the Government of Kazakstan's system of intergovernmental financial relations, with a view toward ensuring that various levels of government operate with greater efficiency in implementing their taxation and expenditure authority.
Host Country and Other Donors: Ongoing efforts in the fiscal arena are coordinated with those of other donors, including the World Bank, IMF and EU-TACIS. The World Bank is planning a major treasury modernization project which would involve technical advisors, training and equipment.
Beneficiaries: This effort seeks to benefit tax-paying Kazakstanis at all levels by ensuring greater transparency and a more rational revenue collection and budgetary expenditure process. Potential entrepreneurs will benefit as more comprehensible and transparent fiscal systems are adopted. Increased government revenues and a more rational system for allocating their use should also lead to more effective governance and greater macro-economic stability.
Principal Contractors, Grantees, or Agencies: USAID activities are implemented through two private U.S. firms and the U.S. Department of Treasury.
Major Results Indicators: Baseline TargetGovt. deficit as % of GDP 5.2% (1995) 2.8% (1997) (accrued and cash basis)
Local govt. revenue as % of total 34% (1995) 42% (1997)
GOK maintains compliance with Yes (1995) Yes (1997)
IFI conditions
Effective legal framework established No (1995) Yes (1997)
Avg. volume of all types of govt. $89m (1995) $200m (1997) securities during year
ACTIVITY DATA SHEET
PROGRAM: KAZAKSTAN
TITLE: Private Enterprise, 110-S001.3
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $22,000,000 FREEDOM Support Act
INITIAL OBLIGATION: FY 1993; ESTIMATED COMPLETION DATE: FY 2001
Purpose: Improved, more sustainable private business operations.
Background: Kazakstan's economic future depends largely on its ability to stimulate a nascent private sector. Some of this will come through the privatization process, some as a result of entrepreneurs entering the marketplace to start or expand businesses. Already, outside private investment is higher in Kazakstan than in any other country in the former Soviet Union, in large part because of Kazakstan's enormous supplies of oil and other natural resources. Although the government is broadly supportive of economic reforms needed to foster private sector growth, problems often occur at lower levels, where there is a lack of understanding of market-based policies and procedures and a lack of technical competence that will be needed to implement them effectively. This lack of understanding is evident in the government's effort to attract foreign investment in its energy sector, among other areas.
USAID Role and Achievements to Date: Privatization represented the first phase of USAID economic restructuring work in Kazakstan. By early 1996, more than 6,000 enterprises valued at more than $49 million had been sold through cash auctions. A parallel program of mass privatization involving coupons has also made considerable progress, especially since August 1995. By the middle of February 1996, 22 coupon auctions for 1,712 companies had been held. By some accounts, nearly two-thirds of the industrial employment in Kazakstan now works for firms that are majority owned by the private sector. Since 1995, USAID has also supported the privatization of major energy sector assets, including more than 30 % of the national power generation capacity. It also helped establish an independent regulatory entity for electricity. More recently, USAID has focused greater attention on the policy and legal environment needed to sustain a supportive business environment. To promote competition, USAID advisors worked with the Anti-Monopoly Committee to successfully promulgate reforms that drastically reduced the number of companies subject to pricing and profitability controls. USAID advisors also helped force the breakup of many major holding companies and made sure that they were included in the mass privatization program. They also helped ensure an insurance regulatory framework which promotes competition and ensures foreign participation. Finally, the USAID-funded Central Asian American Enterprise Fund (CAAEF) is now a very visible presence and has already made a number of equity and loan investments in Kazakstan.
Private sector support represents by far the biggest USAID activity in Kazakstan. In the area of legal and regulatory reform, advisors are working in key areas including trade and investment, bankruptcy reform and general business law reform; a large training effort in all three areas is underway. The general business component targets constraints to business operations, including passage of legislation in such areas as contract law and property rights. The bankruptcy area is designed to help establish the rights of creditors and develop a framework for disposing of unproductive assets and channeling them toward more efficient economic uses. Many of these efforts are needed to maintain the momentum created by the privatization process and to expand opportunities for US trade and investment in Kazakstan. Continued advocacy for implementing legal reforms will also promote foreign investment in Kazakstan's all-important oil and gas industry and help develop the country's power sector. The CAAEF is available to help facilitate and promote this type of investment. People-to-people efforts and exchange programs such as those supported by the International Executive Service Corps (IESC) and the various farmer-to-farmer programs have proven to be excellent vehicles to identify potential investment opportunities and develop appropriate business plans.
Description: In FY1998, support for private enterprise reform will focus mainly on furthering commercial law development and related areas such as support for accounting reform at the enterprise level. Among other things, the support activities will assist Kazakstan in developing a financial sector that is more open and transparent and therefore less susceptible to corrupt practices.
Host Country and Other Donors: Ongoing efforts to strengthen private business operations are developed in conjunction with those of other donors, especially the World Bank, EBRD, and EU-TACIS. World Bank funds are being used to provide consultancy services. A World Bank-funded project on private enterprise support is now being developed. EBRD programs include a loan program comparable to that offered by the CAAEF. EU-TACIS also supports private sector development and has a special interest in the agricultural sector.
Beneficiaries: Specific beneficiaries include the hundreds of thousands of Kazakstanis who own shares in privatized government enterprises and stand to gain financially if these new firms are successful. Aspiring entrepreneurs stand to benefit from a transparent, stable and consistent legal environment. The entire population stands to gain from a more efficient market-based economic system that produces jobs and increases the availability of goods and services.
Principal Contractors, Grantees, or Agencies: USAID activities are implemented through several private U.S. firms as well as U.S. private voluntary organizations such IESC, Agricultural Cooperative Development International (ACDI), Volunteers in Overseas Cooperative Assistance (VOCA), the U.S. Energy Association (USEA), Harvard Institute of International Development (HIID) and Winrock. As noted, the CAAEF also makes an important contribution by expanding the amount of investment and equity capital available to Kazakstan's private sector.
Major Results Indicators: Baseline TargetShare of GDP generated by 24.5% (1995) 40.0% (1998) private sector
Number of new laws and policies 0 (1995) 30 (1998) drafted with USAID assistance
GOK maintains adherence to IFI Yes (1995) Yes (1998) conditionality
ACTIVITY DATA SHEET
PROGRAM: KAZAKSTAN
TITLE: Financial Reform, 110-S001.4
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $4,000,000 FREEDOM Support Act
INITIAL OBLIGATION: FY 1993; ESTIMATED COMPLETION DATE: FY 2000
Purpose: A competitive private financial sector more responsive to a market-oriented economy.
Background: Success in privatization will be fleeting unless it is followed by development and expansion of a vibrant capital market to channel scarce investment resources into areas of highest economic return. A basic legal and institutional framework for market-based financial market development is now in place, but further skill and understanding is needed to ensure its effective operation and implementation.
USAID Role and Achievements to Date: The establishment of the Central Asia Stock Exchange (CASE) in Almaty represents one notable achievement, the formation of an Independent Securities Exchange Commission another. International corporate accounting standards were introduced in December 1995. Significant strides also have been made to tighten financial regulatory guidelines and to enhance monitoring capacity in the banking sector. Through October 1996, as a result of detailed bank examinations, more than 130 insolvent banks have had their licenses suspended. These actions, combined with sustained discipline by the Central Bank in managing the nation's currency, are beginning to lay a solid foundation for development of Kazakstan's financial sector.
Description: USAID's main role is to provide technical assistance and training to nascent institutions in the financial sector. Work often entails drafting and introducing new laws, procedures, and operating systems. Hands-on work and on-the-job training receives special emphasis. High level policy advice is accompanied by efforts to ensure that counterparts develop the capacity to undertake such research and analysis on their own. In FY1998, USAID will continue to promote financial sector development in the areas described above.
Host Country and Other Donors: USAID is the major foreign donor working in the financial sector, and the only one involved in the securities area. Work is coordinated closely with the World Bank. Training activities for private banks undertaken by both USAID and EU-TACIS are about to be merged into a single institution that should set the standard for banker training in Central Asia.
Beneficiaries: Immediate beneficiaries include professionals involved in securities market development such as private bankers, stock brokers, and government officials. Newly emerging entrepreneurs as well as a broad range of Kazakstani citizens should benefit by the extension of capital markets that channel scarce financial resources into more productive directions.
Principal Contractors, Grantees, or Agencies: USAID activities are implemented through several U.S. firms in cooperation with local counterparts at the National Bank, Ministry of Finance, Central Asia Stock Exchange, and National Securities Commission.
Major Results Indicators: Baseline TargetBanks deposits as % of GDP 4.9% (1995) 7.0% (1998)
No. of financial services available 4 (1995) 25 (1998)
% of banks meeting capital adequacy 66% (1995) 90% (1998) requirements % of firms using new accounting 0 (1995) 90% (1998) standards
Types of financial institutions 3 (1995) 9 (1998)
No. of companies listed on stock 12 (1995) 80 (1998) exchange
ACTIVITY DATA SHEET
PROGRAM: KAZAKSTAN
TITLE: Increased, better informed citizens' participation, 110-S002.1
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $6,000,000 FREEDOM Support Act
INITIAL OBLIGATION: FY 1993; ESTIMATED COMPLETION DATE: FY 2001
Purpose: Increased citizens' participation in political and economic decision-making.
Background: There have been a number of setbacks on the road to democracy in Kazakstan. Parliament was disbanded in March 1995. President Nazarbayev's term in office was extended to 2000 by referendum and a new constitution, consolidating power in the presidency, was overwhelmingly approved by referendum in August 1995. Citizens are basically free to act and associate as they choose. However, it is understand that there are limits to dissent. Self-censorship, especially in terms of independent media, is prevalent. Against this backdrop, democracy assistance continues. The non-governmental organization (NGO) sector is thriving while growing independent media faces a variety of challenges, both financial and regulatory. Lawyers and judges are open to forming associations and a USAID activity is free to conduct a tracking poll on voter attitudes. Opportunities also exist to work with and support the new parliament.
Achievements to Date: Prior to 1990, there were no truly non-governmental organizations in Kazakstan. Several hundred now exist, though lack of funding and lack of organizational skills is a recurring problem. Through the end of November 1996, USAID-funded American organizations had provided 184 grants throughout Kazakstan to local NGOs representing a variety of interests, including human rights, the environment, rule of law, women's rights, agricultural development and market transition. In late 1996, 80 Kazakstani NGOs convened to form Central Asia's first national NGO coalition, with an activist organizational agenda emphasizing advocacy, information exchange, and skill-building training. One USAID-funded grantee is helping to strengthen independent media across the country (of the 48 independent television stations and 22 independent radio stations throughout Kazakstan, only eight and seven respectively are in Almaty). The Association of Independent Electronic Mass Media encourages television stations to share information and maintain a united front. Since a July 1995 conference involving 21 television cities in 14 cities, membership in the association has increased nearly ten fold, from seven to 68. The organization's main goal is to protect independent electronic media. USAID-supported monitoring groups made sure that inadequacies in Kazakstan's electoral processes have been documented and brought to public attention, in hopes of establishing dialogue with relevant government institutions and improving electoral processes in future. The new parliament is requesting a variety of assistance. With regard to rule of law, USAID is also helping a group of local attorneys in Chymkent form an association.
Description: USAID's current program focuses on democratic processes, especially those aimed at enhancing civic participation and education, the flow of information, ensuring transparency and accountability in government and dialogue between the government and non-governmental sectors. Parliamentary strengthening programs will also be considered. The local NGO sector receives special attention, in terms of improving the legal and regulatory environment they work in, in terms of introducing greater professionalism and new management skills, and in terms of effecting needed social change and providing needed services. The formation and effectiveness of a local bar association, a form of NGO, is being furthered because of its potential contribution to democratic, economic and social change.
Host Country and Other Donors: The United States is the major foreign donor working in the area of democratization in Kazakstan. Programs supported by the various USG agencies, including those of USAID and USIA, are closely coordinated.
Beneficiaries: Immediate beneficiaries include individuals directly associated with Kazakstan's NGO sector. Many more Kazakstanis will benefit through the public interest advocacy and social services provided as the NGO sector grows and expands. Tens of thousands of Kazakstanis also benefit from improved programming and management skills at the country's independent television stations. More broadly, all Kazakstanis stand to benefit from strengthened civil society and the introduction of more democratic norms and practices.
Principal Contractors, Grantees, or Agencies: Several USAID-funded American NGOs such as the National Democratic Institute (NDI), the American Bar Association/CEELI, Internews and the International Foundation for Election Systems (IFES) have played a role in promoting democracy in Kazakstan. Familiar American groups such as Goodwill Industries, Aid to Artisans, and the Citizens Network for Foreign Affairs also participate in local NGO development.
Major Results Indicators: Baseline TargetNo. of Advocacy NGOs 0 (1992) 220 (1999)
Cumulative # of open hearings or consultative processes addressing 0 (1992) 5 (1999) legislative/policy issues
No. of independent stations 13 (1994) 45 (1999)
ACTIVITY DATA SHEET
PROGRAM: KAZAKSTAN
TITLE: More effective, responsible, and accountable local government 110-S002.3
STATUS: New
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $2,000,000 FREEDOM support Act
INITIAL OBLIGATION: FY 1998; ESTIMATED COMPLETION DATE0: FY 2003
Purpose: Demonstrate more effective, responsible, and accountable local government
Background: As Kazakstan struggles with decentralization and democracy, USAID actively seeks to promote these principles by demonstrating the benefits associated with effective, responsible, and accountable local government. There is an increasing body of knowledge on the importance of effective, responsible, and accountable local self government to the sustainability of social benefits and services. The central government has increasingly moved responsibility for social programs (notably housing, health and education) to local levels. However, the authority over resources as well as development of a professional civil service to administer these social programs has not necessarily followed. USAID has demonstrated by its sector specific work in the areas of housing and health the need to work at the local level for maximum effectiveness. USAID has initiated work in intergovernmental finance. The time is opportune to address generic issues relative to financing and administration of social benefits and services in addition to the more sector specific issues covered under Strategic Objective 3.2 (Improved sustainability of social services and benefits).
USAID Role and Achievements to Date: USAID has implemented the Municipal Finance and Management (MFM) Project in Central Asia as part of the Democratic Pluralism Initiatives (DPI) program from 1994 through 1996. Atyrau, Kazakstan was chosen as one of two municipalities in Central Asia (the other being Karakol, Kyrgyzstan) in which to implement the project. An end of project evaluation was conducted in October 1996 to better inform future directions in this area.
The evaluation concluded that many strides toward democracy building were made, especially when considering the short life cycle of the project. Those noted were: a long range development Strategy (LRDS) was created at the local level and taken to the national government to gain its support (in former Soviet times the local level would not have voiced local needs/concerns but rather would have only carried out orders from above). Second, the city's financial systems are now based on western accounting practices and information is much clearer and can contribute to controlling fraudulent activities. Third, citizen awareness, participation, and commitment to the future of Atyrau has been considerably enhanced.
Description: USAID believes the time is appropriate to expand the initiative begun in Atyrau to other oblasts and/or municipalities in Kazakstan. The inability of the central government to meet subsidy requirements at the local level will motivate policy makers to devolve key financial and other authorities to the local level. Building on lessons learned from the MFM project and in close collaboration with other donors USAID believes it will be able to assist the process efficiently and effectively. USAID funded training and technical assistance shall be directed to national as well as selected local levels to facilitate decentralization reforms.
USAID anticipates work directed toward development of the legal framework for operations of municipal and oblast government to ensure that the center cannot continue to exercise excessive authority over outlying areas and to encourage the national government to reward local initiative. Further, USAID will assist in the development of administrative capabilities at the local government level. Activities under this initiative will be closely coordinated with ongoing assistance in the development of local resource bases to guarantee a degree of fiscal independence to local government and the development of indigenous nongovernmental organizations, and development of programs of sustainable social services.
Key to this effort will be work done to improve municipal performance, for example, by continuing to help municipalities competitively contract out for services and supplies. Demonstration projects have already shown that substantial efficiencies and cost savings can be accomplished at the local level by supporting government anti-monopoly policies in this way.
Host Country and Other Donors: USAID will work closely with the various governmental entities involved in local government issues, including ministries, the presidential apparat, parliament, local level government officials and government employees. A number of other donors also support activities with a local government dimension, including the World Bank, Asian Development Bank, UNDP, SOROS, and EU TACIS.
Beneficiaries: Elected officials and government employees at the oblast and municipal level will benefit directly. Also, private citizens of Kazakstan, especially those classified as part of the "vulnerable group" (i.e., elderly pensioners, women, and children) will benefit from improvements in the social safety net and more targeted social services.
Principal Contractors, Grantees, or Agencies: To be determined. Mission plans to buy into existing assistance mechanisms or to competitively procure services depending on which will provide the best benefit to the US, cost and other factors considered.
Major Results Indicators:*
*This is a new strategic objective; indicators and targets will be finalized during the next planning period.
ACTIVITY DATA SHEET
PROGRAM: KAZAKSTAN
TITLE: Improve the sustainability of social benefits and services, 110-S003.2
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $4,000,000 FREEDOM Support Act
INITIAL OBLIGATION: FY 1993; ESTIMATED COMPLETION DATE: FY 2000
Purpose: Improved sustainability of social benefits and services.
Background: The social sector in Kazakstan, which was previously funded and managed entirely by the government, continues to be severely strained as the country moves from a planned economy to a market-oriented one. A key determinant of the overall success and social sustainability of the reforms will be the ability of the government and the private sector to develop and administer efficient and cost-effective social services. Under this strategic objective, USAID has focused attention on the health and housing areas. USAID activity under other strategic objectives that is related includes work on pension reform. Significant progress has been made in these areas, and now this progress needs to be deepened to ensure sustainability of well targeted social benefits and services in a market economy. One strategy for deepening reform is coordinated work at the local level, as already demonstrated by specific activities in housing and health. Work in this area will thus be closely linked to a new initiative in local self government.
USAID Role and Achievements to Date: USAID has been a key player since 1993 in the reform of Kazakstan's health care system and housing sector. A recent external evaluation of the project concludes that "there is a strong supporting relationship between the substantive reform of health care systems and the overall success of the transition to market-oriented, democratic societies." The evaluation cites a number of significant achievements in only 24 months of implementation. These include introducing consumer choice in the selection of personal physicians, supporting numerous market-driven private payment experiments, and effectively managing the privatization of Kazakstan's pharmaceutical sector.
With regard to housing, USAID has played a supportive role in an extensive set of new policy directives aimed at advancing reform in the shelter sector. For example, the government adopted a policy to eliminate generalized subsidies for utilities, in combination with a housing allowance program introducing targeted housing subsidies. USAID-funded advisors helped with the establishment of 56 allowance centers (from a base of only one in 1995). The national government allowed almost complete flexibility in promoting condominium development and housing allowance programs to the municipalities.
Description: USAID plans to take the next step in improving the sustainability of social services by developing technical assistance and training interventions based on the combined lessons learned from demonstrations in local self government and in the social sectors (e.g., housing and health). USAID plans to work at both the national and local level in the areas of legal, regulatory, administrative, and technical reform. Assistance will be provided to both government and non-governmental organizations. In the health sector, one area of emphasis will be training and technical assistance for new retail pharmacists as well as assistance in establishing a revolving drug fund. USAID will continue work with the Health Insurance Fund to replicate the new payment system currently being tested in Dzezkazgan. USAID will also provide assistance to make the new family group practices both operationally and economically viable.
In the housing sector, emphasis shall be placed on creating umbrella associations to help private homeowners undertake responsibility for improving their own living conditions. Similarly, municipalities will be assisted in implementing housing allowance programs and taking steps to reduce the cost, and improve the effectiveness of housing and municipal services through privatization and competition.
Host Country and Other Donors: Various government ministries and other donors are involved in this crucial area, including the World Bank, WHO, UNDP, UNICEF, UNFPA, WHO and EU-TACIS.
Beneficiaries: Immediate beneficiaries include owners of newly privatized pharmacies, private practice physicians and their staffs, and new apartment owners. Ultimately all citizens of Kazakstan benefit, especially those in that segment of the population classified as vulnerable (e.g., elderly pensioners, women, children).
Principal Contractors, Grantees, or Agencies: Abt. Associates, Inc. is working in the health reform area. International City and County Managers Association is working in the housing sector.
Major Results Indicators: Baseline TargetNo. of cities with pilot housing 0 (1994) 9 (1997) allowance program
% of central budget allocated 30% (1994) 50% (1999) to primary health care
% of hospital and outpatient care 0 (1994) 60% (1999) reimbursed on incentive basis
Number of independent primary care 0 (1994) 150 (1998) practices
Increase in no. of private pharmacies 200 (1994) 1,200 (1998)
% market share of private pharmacies 12% (1994) 90% (1998)
ACTIVITY DATA SHEET
PROGRAM: KAZAKSTAN
TITLE: Environmental Health, 110-S003.3 (CAR Regional)
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $500,000 FREEDOM Support Act
INITIAL OBLIGATION: FY 1993; ESTIMATED COMPLETION DATE: FY 1998
Purpose: Reduced environmental risks to public health.
Background: Following the period of Soviet central planning, a legacy of problems related to industrial pollution and environmental degradation remained. A prime illustration of such environmental degradation is the Aral Sea disaster zone, where several million people have been deprived of access to safe water and have experienced abnormally high rates of morbidity, non-specific diarrheas, and viral hepatitis. While much of USAID's early environmental efforts were focused on humanitarian assistance to the impacted Central Asian population, the challenge now is to focus on reform measures that will reduce levels of urban and industrial pollution in the region and to establish the policy and institutional framework to manage precious natural resources, including water.
USAID Role and Achievements to Date: USAID's Aral Sea program has provided safe drinking water for 1.1 million persons, improved the health/sanitation practices of 1.5 million persons, and already promoted significant policy changes needed for more efficient water use. The turnover to local officials of water treatment/transmission equipment combined with related training in Kazakstan, Turkmenistan and Uzbekistan are graphic demonstrations that USAID is one of the few donors delivering concrete results in the Aral Sea disaster zone.
In an effort to prevent the poor planning and resource utilization that lead up to issues like the Aral Sea disaster, all five republics have participated in seminars for regional water cooperation; are conducting analyses required for the introduction of water pricing; and have established short-term regional water sharing agreements. In Kazakstan, draft legislation is being prepared for establishing water user associations, a new national environmental law, and a pilot air pollution emissions program. While the first phase in developing a national environmental action plan in Kazakstan is now underway, legislation is now being prepared for establishing air pollution standards in Uzbekistan.
Description: USAID assistance appears critical for the Central Asians to maintain the needed focus on policy reform, including the introduction of rational water pricing schemes and regional agreements on water sharing and quality control among all the affected states in the Aral Sea basin. Additional emphasis is also being placed on the passage of reform legislation which would establish water user associations, waste management guidelines/requirements, and a pollution fines system. Strong coordination with other donors is essential as the Agency begins to phase down its own direct involvement. This coordination offers important opportunities for USAID to use its own field experience to leverage substantial resources and help shape the programs and policy agendas offered by other donors.
Host Country and Other Donors: The World Bank, United Nations Development Program, and EU-TACIS have been involved in these efforts. Major host country counterparts include the Interstate Council for the Aral Sea - Sustainable Development Commission, heads of state water agencies from each of the various republics, and various other ministries of each republic. In addition, there has been substantial collaboration with a wide range of other officials at the local and national levels.
Beneficiaries: This assistance seeks to benefit all Central Asia citizens by reducing serious environmental hazards which they encounter in their daily life.
Principal Contractors, Grantees, or Agencies: These organizations include CH2M-Hill Consortium, Harvard Institute for International Development, World Environmental Center, Moscow State University and ISAR Cooperative Agreement.
Major Results Indicators: Baseline Target*
National water pricing strategies support policy changes at the local 0 (1994) TBD and national levels
Critical watersheds subject to effective management and control policies/international treaties. 0 (1994) TBD
Agricultural water management investments leveraged by other donors (bilateral and multilateral). $0 (1995) TBD
*Target data will be developed during the next planning period.
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