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).
FORMER YUGOSLAV REPUBLIC OF MACEDONIA
FY 1998 Assistance to Central Europe Request . . . . . . . . . . . . . . . . . $16,000,000 Introduction
The Former Yugoslav Republic of Macedonia (FYROM), the poorest country of the former Yugoslavia, was the only former republic to gain independence peacefully. Although FYROM declared its independence in 1991, the United States did not establish full diplomatic relations until September 13, 1995. The FYR Macedonians have consistently pursued policies aimed at reforming the economy and strengthening democratic institutions. Despite the hardships imposed by external forces (United Nations (UN) sanctions against Serbia and the Greek embargo), FYROM persisted in implementing the key reforms urged by the World Bank and the International Monetary Fund (IMF) in their proposed stabilization program.
The Development Challenge
FYROM is suffering from many of the same ills as other East European countries going through the transition from a centralized to a market economy and from a socialist to a democratic society. With most of the agricultural land already privately owned and with fewer industrial environmental disasters, FYROM has certain advantages over its neighbors. However, the country dealt with the negative effects of compliance with the UN-mandated sanctions against Serbia, which accounted for 60% of its markets prior to the disintegration of Yugoslavia, and which also served as a conduit to other East, Central and West European markets. Further, the country had to deal with the effects of the trade embargo imposed by Greece from February 1994 to October 1995, in response to the declared constitutional name (Republic of Macedonia), the use of national symbols, and alleged territorial ambitions. Current Government estimates put the cumulative price of the sanctions and Greek embargo at over $2 billion. The FYROM government faces the additional challenge of having to create institutions to perform national functions previously performed by the federal government in Belgrade. Lastly, ethnic tensions remain a critical factor in the ability of the Government to maintain its integrity and stability.Despite these numerous obstacles, FYR Macedonians appear to have the natural and human resources, and have demonstrated the political will, to transform their economic and political systems. In its first two years of implementation, the IMF and World Bank-mandated stabilization program has produced positive effects. Inflation has been brought under control: the annual inflation rate was 1,925% in 1992, 229% in 1993, 54% in 1994 (compared to the 70% rate projected by the IMF), 16% in 1995 (again exceeding the IMF targets), and is projected to fall to between 3% and 5% in 1996.
In July 1995, FYR Macedonia reached an agreement with the Paris Club of official creditors that provides $288 million in debt relief and ratified an understanding on the allocation of responsibility for the external debt of the former Yugoslavia (non-allocated debt). FYR Macedonia accepted responsibility for 5.4% of the non-allocated debt, as well as for debt that was owed or guaranteed by entities located on its territory.
Other Donors
.
With the repayment of the arrears to the World Bank, FYROM is now receiving assistance from international financial institutions such as the World Bank, European Bank for Reconstruction and Development (EBRD), the IMF and the World Bank's International Development Association. As a result of the signing of the Greek/FYROM Accord on September 13, 1995, FYR Macedonian participation in the EU PHARE program has been formalized. An EU PHARE Resident Representative has been assigned to Skopje and has established the Macedonia office. Germany had been the largest provider of assistance to FYR Macedonia (primarily in humanitarian assistance and commodities).
FY 1998 Program.
While the core FY 1998 program represents a continuation of multi-year programs begun in FY 1995, it also reflects the progress being made by FYR Macedonia in the transition to a democratic system and a market economy. In the area of democracy, for example, the focus of the initial project activities was on national elections, creation and development of political parties, and the legal framework for independence. The focus is now shifting to the local level with activities targeted at building capacity of civic organizations and grassroots political organizations, and at improving transparency, communication and citizen involvement in local governance. In the private enterprise sector, the focus is shifting from national oversight of the banking system (banking supervision) and national-level management of the privatization process, to capacity building among commercial banks and individual businesses, and provision of mechanisms for obtaining access to credit in both the urban and rural regions. In all areas, the USAID programmatic approach includes an assessment of the policy, legal and regulatory framework required to support the economic and democratic transition process, and assistance programs which address key requirements.
Strategic Goal: Economic Restructuring
The focus of USAID activities within economic restructuring is on direct assistance to private enterprises to improve their efficiency and productivity, as well as on indirect assistance aimed at improving the competitive environment within which they operate. Special emphasis is placed on small and medium enterprises, especially in the agricultural area.
While the transition to a private sector is nearing completion as a legal process, with 900 of 1200 socially-owned enterprises privatized, the new private sector is far from viable. Many of the socially-owned enterprises were bought by their former managers or by groups of their employees, most of whom are very uncertain of how to manage a business focussed on profit rather than production. New (as opposed to "transformed") businesses are still mostly in the area of trade, and so offer little opportunity for job creation. Most business person lack knowledge about how to identify new customers, how to develop new products, how to determine production costs, how to implement prudent financial management practices, how to develop and implement business plans and marketing strategies, and how to access and manage credit. This is true in industry, in agriculture, and in banking. The USAID strategy focusses on providing managers with the basic skills essential to their future survival and ultimate profitability.
Much has been done to improve the competitive environment for business. The Government has stabilized the exchange rate, has brought inflation under control, has increased Government foreign currency reserves, and has maintained controls on wages. Many basic laws have been enacted; the courts have been restructured; and government subsidies have been reduced. The largest bank has also been restructured, its bad debts transferred to the Bank Rehabilitation Agency for resolution, and Government bonds issued to cover the bad debts. Significant amounts of credit are being made available by international and foreign financial institutions. But much remains to be done. Many basic laws, although enacted, are not being effectively implemented or enforced. Bad debts for many enterprises remain unresolved. Key business-related laws are still in development (collateral law, bankruptcy law, modern commercial laws, etc.). Banks are still very conservative in their lending practices and lack critical risk assessment skills. Moreover, the banking system as a whole does not adequately serve the needs of the growing private sector, the success of which is largely dependent upon the provision of financial resources and services. Accounting standards are very weak. The courts are still not trained and organized well enough to provide adequate protection to the business community. The USAID strategy focusses on providing technical assistance in overcoming the most critical of these obstacles to an efficiently-functioning competitive market.
Strategic Objective: Accelerated Development and Growth of Private Enterprises Strategic Goal: Democratic Transition
As with reforms to a market economy, FYR Macedonia has moved toward democratic principles in a consistent and deliberate manner, often displaying transparency in the actions taken. Following independence in 1991, Macedonia approved a new Constitution and initiated a series of new laws to implement that Constitution. A democratic system of elections was put into place; two sets of national elections and the 1996 local elections have been deemed fair and open by international observers. This past year, Macedonia passed a law on local self-government (devolving limited authorities to the local level), a law on territorial divisions (increasing the number of municipalities from 34 to 123), and a law on local elections. Also over the last year, Macedonia has enacted basic criminal codes and has initiated legislation on a civil code. The law on courts was also enacted, and new judges selected for the restructured court system.
Despite the enactment of these laws, citizens continue to be distrustful and/or apathetic toward government systems. Citizens, government and the media need to shift their mind-set from rule by government to rule by the people. Work is needed to increase both citizen involvement in government decision-making and government receptivity and ability to respond to such involvement. The USAID assistance program is therefore targeting the development of mechanisms, especially NGOs, to increase citizen participation in democratic systems, and the willingness of government officials, at both local and national levels, to actively involve citizens in the policies of government. The media, as the watchdog of democracy, performs a special role in this process by ensuring that citizens are well informed on government activities and on economic, social, and political issues.
Strategic Objective: Increased, Better-Informed Citizens' Participation in Political and Economic Decision-Making Strategic Goal: Cross-cutting and Special Initiatives USAID funds a number of activities which cross strategic objective lines, including English language training, participant training, and audit, evaluation and project support. In addition, USAID funds several special initiative activities which indirectly support the primary strategic objectives described above. These include a judiciary strengthening initiative, with a special focus on court administration; a pension reform initiative to assist in the restructuring of the current public pension program and to assist in the development of private pension supplement programs; and an initiative to establish user-owned rural financial institutions.
MACEDONIA
FY 1998 PROGRAM SUMMARY*
Strategic Objectives
Economic Restructuring Democratic Transition
Social Stabilization Cross-cutting / Special Initiatives Total Privatization -- -- -- -- -- Fiscal Reform -- -- -- -- -- Private Enterprise 11,600,000 -- -- -- 11,600,000 Financial Reform -- -- -- -- -- Energy -- -- -- -- -- Citizens' Participation -- 2,400,000 -- -- 2,400,000 Legal Systems -- -- -- -- -- Local Government -- -- -- -- -- Crises -- -- -- -- -- Social Benefits -- -- -- -- -- Environmental Health -- -- -- -- -- Cross-cutting / Special Initiatives -- -- -- 2,000,000 2,000,000 TOTAL 11,600,000 2,400,000 -- 2,000,000 16,000,000 * Support for East European Democracy (SEED) Act funds
USAID Representative: Linda Gregory
ACTIVITY DATA SHEET PROGRAM: FYR Macedonia
TITLE: Private Enterprise
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $11,600,000 SEED Act
INITIAL OBLIGATION: FY 1993; ESTIMATED COMPLETION DATE: FY 2000
Purpose: Accelerated development and growth of private enterprises.
Background: The privatization process for the approximately 1,200 non-strategic, non-agricultural socially-owned enterprises required that enterprises submit privatization plans to the Privatization Agency by December 1995. As of September 1996, almost all companies had submitted their plans, and close to 900 had completed the process. Most privatization were through management buy-outs, with a small number of companies electing sale to employees. During the last year, a law on privatization of agricultural kombinats was passed, providing the 217 kombinats with a maximum of one year to develop and submit their plans for privatization. About 388 "strategic" companies remain outside the privatization process, most of them natural monopolies and/or public services. These companies pose a special problem for privatization in that they must be regulated by the Government in the public interest. The Government has not yet addressed these regulatory issues, although it remains committed to privatizing as many of these companies as possible.
Most of the newly-created private companies deal in trade, and therefore employ very few people. This sector is therefore not yet at the point of providing employment opportunities for the many workers already fired by the larger socially-owned enterprises. It is not expected that these businesses will grow quickly enough to absorb a significant proportion of these workers, nor of the surplus workers expected to be fired over the next few years. The World Bank program to provide retraining for fired and surplus employees has made little progress in addressing this need. There is, however, a sizable gray economy which is absorbing some of the surplus, and which is helping to prevent large-scale social unrest due to the poor overall economic situation.
With the removal of the sanctions against Serbia and the Greek embargo, many businesses are now exploring ways to regain former markets and to identify new ones, but progress is slow. Foreign investment has also not been at the level anticipated, largely due to the continued perception of Macedonia as part of the former Yugoslav republic and therefore involved in the problems to the north. Agricultural marketing systems, in a country whose economy is dependent upon agriculture, are underdeveloped. The banking sector has been very slow to respond to the needs of the business community for services and financing, and has been very conservative in providing access to the large amount of credit now available from the World Bank, the EBRD, and other foreign and international financial institutions. Rudimentary accounting standards in Macedonia are an impediment to the country's ability to compete internationally since they do not meet international standards.
Business-related laws have been enacted only very slowly, and many in the business community perceive them as being unresponsive to the real needs of the marketplace. It is still difficult for a creditor to resolve debt issues in the courts, and mechanisms for resolution of contract disputes are nonexistent or under-utilized.
USAID Role and Achievements to Date: USAID has contributed to the development and growth of the private sector in a number of ways. A team of experts provided assistance to the Privatization Agency in the development of procedures for the privatization process. An English-language booklet, entitled "Doing Business in Macedonia," was developed and has been widely distributed to potential foreign investors. A micro-lending program has provided credits to about 50 micro-enterprises, providing employment opportunities and serving as an example to others interested in self-employment. A farmer-to-farmer program has provided direct assistance to several hundred Macedonian farmers in improving their production, reducing demands for pesticides and fertilizer, implementing quality control measures for agricultural products, increasing the number of producer associations, and expanding into new markets. A dairy marketing program has assisted several thousand farmers to learn how to improve sheep-breeding, comply with sanitation standards, and control livestock diseases to improve the quantity and quality of dairy products. A business resource center has worked with almost two hundred new, or newly-privatized, companies to improve financial management, business planning, and product development, in order to improve their profitability. USAID-funded legal advisors have provided assistance in the development and implementation of tax and banking laws, and are assisting in the development of new laws in such business-related areas as collateral, bankruptcy, and commercial law. USAID-funded advisors have developed training programs and operating manuals for bank supervisory functions of the central bank. A USAID-funded university has developed and implemented an undergraduate business management curriculum at the universities in Bitola and Skopje. USAID-funded training programs have provided U.S.-based training in a variety of business-related skills for around 50 Macedonians.
Description: Shifting its focus from the privatization process to the encouragement of the newly-created private sector, USAID is implementing a number of activities aimed at providing businesses with the technical and managerial skills to succeed in the new arena of a market economy. A business resource center is responding to individual requests for assistance from the new private sector; performing a "diagnostic" assessment of a company and then targeting assistance to areas which will have the greatest impact on profitability. Technical assistance is being provided to commercial banks which will be coping with sizable lines of credit targeted to small and medium enterprises. Another USAID activity provides micro-loans to very small entrepreneurs, while yet another is working to create member-owned financial institutions in rural areas, to provide access to credit for farmers and others not fully supported by the commercial banking system. The farmer-to-farmer program provides grassroots-level assistance to farmers on a one-to-one basis, while a dairy marketing initiative is attempting to expand production and marketing of milk and cheese to assist the large population of sheep breeders. A new agricultural marketing activity will focus on improving domestic marketing of livestock products and export marketing of fruits and vegetables. A new activity to bring accounting practices up to international standards will help the private sector become more competitive in the global economy.
Host Country and Other Donors: USAID programs are intermeshed with donor activities throughout the portfolio. On the business resource centers, USAID coordinates closely with the United Kingdom (UK) Know How Fund, which is financing two small centers in regional cities, as well as with the World Bank, which is using USAID centers for advice to potential borrowers for new credit lines coming on line. USAID has also negotiated agreements with both British and Dutch retired executive programs, to provide more effective collaboration between these programs and the business resource centers. In the area of commercial banking, USAID activities are being coordinated with EBRD and UK training programs. Lines of credit for SMEs are being established by EBRD, the World Bank, and Germany. In the agricultural area, USAID activities are coordinated closely with the World Bank's Private Farmer Support Project and with EU-PHARE.
Beneficiaries: Although USAID programs will specifically benefit new private sector companies, bankers and farmers, the benefits will accrue to all FYR Macedonians through development of an improved economic climate and increased employment and productivity.
Principal Contractors, Grantees, or Agencies: USAID programs currently are being implemented by Crimson Capital, KPMG Peat Marwick, Opportunity International, the World Council of Credit Unions (WOCCU), Volunteers in Overseas Cooperative Assistance (VOCA), Land O'Lakes, Financial Services Volunteer Corps (FSVC), and the U.S. Information Agency (USIA). Implementors for new projects in bank operations and SME development have not yet been identified.
Major Results Indicators: Baseline TargetsPrivate sector share of GDP (%) 35% (1994) TBD
Percent increase in volume of bank loans 0% (1996) 45% (2000) (cumulative)
Percent increase in total investment (cumulative) 0% (1996) 45% (2000)
ACTIVITY DATA SHEET PROGRAM: FYR Macedonia
TITLE: Citizens' Participation
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $2,400,000 SEED Act
INITIAL OBLIGATION: FY 1993; ESTIMATED COMPLETION DATE: FY 2000
Purpose: Increased, better-informed citizens' participation in political and economic decision making.
Background: Following its independence in 1991, FYR Macedonia made a commitment to a democratic system. Initial elections were assessed as being largely fair and open by international observers, as were the second national elections held in the fall of 1994. Turnout at the last national election was approximately 78%. A draft law on elections at the national level was defeated in parliament just before the last election, resulting in the election being conducted according to an old Yugoslavian law. The law on local governments was passed late in 1995, and elections took place in November 1996. Two associated legislative requirements for these elections were the law on territories (defining the municipalities) and the law on local elections. The combination of a new geographic organization of municipalities and new authorities being devolved to the local level will create a new operating environment for both municipal governments and, by extension, our assistance activities in this area.
While there are indigenous NGOs in FYR Macedonia, they have not been as active as in other countries. The press is not generally viewed as independent or unbiased, with the large-circulation papers viewed by many citizens as being under the thumb of the national government. Most citizens have not yet come to recognize the responsibilities of citizenship, and do not take an active role in government, at either the local or national level.
USAID Role and Achievements to Date: USAID has played an important role in enhancing citizen participation in FYR Macedonia. USAID-funded advisors have provided extensive capacity-building assistance to Macedonian NGOs in areas such as financial management, organizational skills, grantsmanship, strategy development, and member recruitment. Assistance has included small grants to support project activities like newsletters, networking, community-building, and environmental awareness. Advisors have also worked closely with three local governments to develop their capacity for management of public services and infrastructure, economic development, revenue generation, and public involvement in decision-making. Three mayors have visited several U.S. cities to learn about different approaches to local government as practiced in the United States. In addition, USAID advisors have worked with the Government to address changes needed in election laws and procedures; many of the recommendations made have been incorporated in revised laws. USAID funding has been used to provide direct support to new media outlets through purchase of equipment, training, and funding of operating costs. Several dozen journalists have obtained training in investigative reporting, basic writing skills, and management of media operations. American journalists have provided in-country assistance in reporting techniques, use of new technologies, and curriculum development.
Description: USAID activities are working to increase the number, membership, capacity, and activities of indigenous NGOs. Activities also include working with political parties to increase their capacity to address economic and social issues, and to improve their internal management practices. USAID-funded activities also focus on getting people together to peacefully resolve their problems, across ethnic, gender, and social lines. This has involved organizing round table discussions between NGOs and government officials, encouraging the establishment of parent councils in ethnically diverse schools, and assisting in the conduct of town meetings that bring citizens together with their elected officials to discuss common concerns. USAID is working at the national and, increasingly, the local level to establish mechanisms for such public participation; to ensure that regulatory procedures include solicitation of, and responsiveness to, public opinion; and to enact laws which protect the right of citizens to express their opinions on government decisions and activities.
Host Country and Other Donors: Donor assistance in this area has been rather limited. Dutch Interchurch Aid assisted in the creation of an indigenous civic organization (the FYR Macedonian Center for International Cooperation), which has been active in local community-level issues such as income generation, basic health, nutrition, food for the poor, and sanitation. The European Community Humanitarian Office (ECHO) has provided funding for humanitarian activities by indigenous NGOs, as has the International Federation of the Red Cross (IFRC). A number of donor humanitarian activities have used indigenous NGOs as a conduit for distribution of food and other relief supplies, which has had a secondary benefit of building capacity within those organizations.
Beneficiaries: USAID activities seek to benefit all citizens by encouraging greater citizen participation in all aspects of political and social life, whether through professional associations, civic organizations, special interest groups, or political parties. Activities also benefit the Government by assisting in the development of appropriate mechanisms for public participation and of awareness of the importance of such participation to a modern democracy.
Principal Contractors, Grantees, or Agencies: USAID activities have been implemented through a number of contractors and grantees: Catholic Relief Services (CRS), Delphi Star, the International Republican Institute (IRI), the National Democratic Institute (NDI), Development Associates Inc. (DAI), the Institute for Sustainable Communities (ISC), the National Forum Foundation (NFF), and the International Center for Not-For-Profit Law (ICNL). Media programs have been implemented through the U.S. Information Agency (USIA). Training programs have been designed by Partners in Developmental Education and Training and Project HOPE.
Major Results Indicators: Baseline TargetsChange in percentage of citizens who report 5% (1995) 25% (2000) having actively participated in citizen-based organizations and groups
Ratio of open to closed sessions of municipal 0% (1995) 20% (2000) councils
Number of laws enacted with public participation TBD (1995) TBD (2000)
Law on administrative procedures (citizen No (1995) Yes (1999) participation) enacted
![[USAID Home]](/images/usaid.gif)
[USAID Home]
[CP 98 Home]