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).
POLAND
FY 1998 Assistance to Central Europe Request . . . . . . . . . . . . . . . . . $35,000,000 Introduction
Poland was the first country in Central and Eastern Europe to declare its independence. U.S. assistance with its transition to democracy and free markets began in 1989 with the inception of the Support for Eastern European Democracy (SEED) Act. Debt restructuring and debt relief from the United States and other creditors has been a major factor in helping Poland through the transition. Poland has served as a leader in the political and economic transition of the region. Despite resulting social hardship, it was willing to use shock therapy at the earliest critical point in its transition which succeeded in breaking its initial hyperinflation crisis. With a population of 38.5 million, Poland is the largest market for U.S. exports in the region. Its early accession to European Union (EU) membership is important to U.S. security and economic interests in Central Europe.The Development Challenge
Poland has regained its fundamental economic strength. Inflation and debt are now contained at manageable levels and pre-1990 output has been re-established. The Polish real GDP expanded by 5.3% in 1994 and 7% in 1995, but experts expect real GDP growth rates for 1996-1998 to be lower at between 5-6%, due to the slow-down in West European trading partners' economies, especially Germany, and continuing problems in agriculture. As the largest domestic market in the region, Poland looks promising to foreign investors, now that economic stabilization is completed and growth is steady. In 1996, total U.S. Investment shot up by over 40% from $1.6 billion in 1995 to nearly $2.4 billion. This recent upsurge has taken place despite delayed large-scale privatization and reports of some American firms contemplating withdrawal from the Polish market.By 1996, Poland's total debt slipped below 60% of GDP, meeting one of the EU's criteria for joining the monetary union. Poland, however still remains one of the largest debtors in Central Europe. Poland has reached agreement with both London and Paris Clubs of official and commercial bank creditors that cut its debt load in half. Although the country is classified as severely indebted by the World Bank, the burden of debt has been reduced as a consequence of the debt reduction agreements and its strong foreign currency reserves. Increases in export levels assure its ability to service its current debt. In 1995, Poland paid back all of its IMF drawings.
An estimated 62% of the Polish economy is now in private hands. U.S. assistance has contributed to an improved policy climate for the further growth of the private sector, greater competition within the banking sector, the development of a capital market, introduction of new financial products including expansion of mortgages and the introduction of models for environmental improvement, housing privatization, and delivery of key services. Though a number of business management training programs are in place and graduating to self-sufficiency, there is still much to do to develop indigenous business support organizations that will continue to foster private sector growth.
Despite progress, Poland's financial sector remains undeveloped. Fewer than 50% of households have bank accounts and cash transactions predominate. Savings and investment rates remain low (less than 20% of GDP) compared to other high growth economies and needs. Government treasury bills and notes still dominate capital markets and crowd out private efforts to raise capital. Banks are overly conservative in their lending practices. To address this, more diversified financial instruments are being developed, financial markets are being further deepened, and programs are underway to make banks more efficient and user-friendly.
Poland enacted the most profound reforms in the region, notably, enterprise restructuring and shedding of excess labor, resulting in major productivity increases at the enterprise level. Hence, in 1994 private sector industrial output rose by 23%, while that of state-owned enterprises expanded by only 6%. Export growth was at an impressive 35% in 1995 but, according to the National Bank of Poland (central bank), Poland has generated a deficit in 1996 of almost $3.2 billion. Without concerted action in defence of exports, these figures could reach over $10 billion in 1997. Moreover, Poland's rate of SME growth in numbers is expected to taper off as the country enters the next, more mature phase of economic reform, while the average SME is expected to grow larger. These newly created, smaller firms must undergo an internal restructuring, and a transition to more systematic management styles. These changes have only just begun and place a greater focus on issues such as cost control, quality production, marketing and distribution strategies, demanding much more of the relatively inexperienced Polish business manager than previously.
Poland is a successful democracy. Since independence, 47,000 NGOs have been registered and 12,000 were still active in 1994. Leaders of 2,500 local governments have been elected in free and fair elections. Independent print media are well established. U.S. assistance has strengthened democracy in Poland through its focus on the role of local governments, and the broadening of participation, primarily by non-governmental organizations. Much still remains to be done to develop local government capability, especially for revenue generation and budgeting, service delivery, and economic development, and to develop more models for public-private partnerships in these aspects.
U.S. funding levels have declined for five consecutive years, in recognition of Poland's economic progress. Continued success with Poland's economic and political transition make it possible for us to plan for its graduation from SEED Act assistance by the end of the decade. Assistance until then is oriented toward preparing for this graduation.
Other Donors
In July 1996, Poland was admitted as the 28th member of the Organization for European Cooperation and Development. Assistance from the EU remains the largest and thematically broadest share of technical assistance to Poland. The U.S. provides the next largest share of grant assistance. The World Bank provides $4 billion in loans with emphasis on infrastructure improvement in the transport sector (roads, rail, ports), and the European Bank for Reconstruction and Development provides loans for private sector investment (85% of its current portfolio). The British Know-How Fund provides a small program of assistance to the financial sector and local government. Germany, France and Japan finance modest programs focused on scientific and cultural exchanges and growth in trade and investment. In September 1995, Japan acknowledged the success of Poland's debt management and repayment record by reopening its trade credit and guarantee windows to Poland. The U.S. collaborates closely with all of these donors and lenders in its definition of program strategy. International Monetary Fund assistance is no longer requested by the GOP.FY 1998 Program
In 1996, USAID and its partner USG agencies and departments confirmed the 1995 decision to focus the future SEED program on three strategic objectives: stimulating private enterprise at the firm-level, establishing a competitive and efficient financial sector, and strengthening local government effectiveness, responsiveness and accountability. This intensifies efforts on aspects critical to Poland's progress in moving towards EU membership, and its graduation from U.S. assistance by the end of the decade. To this end, USAID's mission is to strengthen sustainable institutions and systems that will remain in place to complete Poland's transition to markets, foster participatory democracy and public-private initiatives at the local level, and promote long-term U.S.-Polish institutional relationships.Strategic Goal: Economic Restructuring
Poland is the largest and most diverse economy among the Central and Eastern European countries. Achievement of further economic progress is dependent on continued private sector dynamism and continued development of private financial sector systems and institutions. Progress in FY 1996 includes: 95% of Poland's eligible population collecting shares under the country's mass privatization program; progress towards self-sufficiency for a number of Polish business schools and private nonprofit business support organizations for housing developers; submission to Parliament of a new energy law; the first complete examinations of two major Polish banks; establishment of the first Central European Credit Rating Agency; and opening of an Over-the-Counter securities trading entity through the cooperation of 43 stock brokerage firms.Future economic restructuring activities in Poland will focus on privatizing more state-owned banks, improving bank supervision, and increasing the volume of housing constructed by the private sector. Longer term capital will be provided for municipal projects through commercial bank lending and increased reliance on municipal bonds. A credit rating agency will better inform investors of the risk in buying debt investments and will improve pricing of debt issues. The Over-the-Counter market will serve as an effective alternative for financing. Further work will proceed in deepening capital markets by developing institutional investors such as private pension funds. Poles will need to be educated as to the range of private pensions choices soon to be available. Energy activities will be refocused to rationalize electricity prices fundamental to enterprise competitiveness. The establishment of post-graduate training programs in business management in Warsaw, Gdansk and Lodz will be completed. The postdoctoral environmental studies degree program is being replicated throughout the academic community in Central and Eastern Europe.
Strategic Objective: Private Sector Development Stimulated at the Firm Level
Strategic Objective: A Competitive and Efficient Private Financial Sector Established Strategic Goal: Democratic Transition
Democracy in Poland has developed rapidly, and the necessary laws, media, and legal institutions to support democratic processes are in place. Local governments have assumed greater responsibility and are demonstrating increased creativity and capacity in their use of resources and management services. Progress in FY 1996 includes several outstanding examples of USAID's assistance to Polish cities: Issuance of the first-ever municipal bond by Gdynia; signing of the first of seven pilot partner cities programs between the United States and the city of Bielsko-Biala for downtown historic district revitalization and other economic, investment, and public administration cooperation at the local level; development of a model municipal wastewater infrastructure project; selection of USAID-assisted city of Lublin as one of 40 "best practice" housing programs in the world; and selection of the city of Gliwice by General Motors as its future plant site due to a business development proposal prepared by a USAID-trained city planner.Remaining problems include unfunded mandates for service delivery at the local government level, the need for: capacity-building in local government, economic development finance, and greater influence on local decision-making by neighborhoods, local businesses, and NGOs that represent these and other groups.
Strategic Objective: Local Government Becomes Effective, Responsive and Accountable
Cross-Cutting Assistance and Special Initiatives
Funds for the processing of participant trainees, and for U.S. assistance performance measurement data services are cross-cutting and support all of the above three objectives. In addition, there area number of special initiatives in Poland, for example: English language training; U.S. graduate degree support; small democracy program grants; and support for labor market transition. Each of these programs either provide basic skills and opportunities, such as retraining for laid-off workers, or they complement activities associated with Poland's three strategic objectives, such as ensuring the sustainability of an independent school for journalists.
POLAND
FY 1998 PROGRAM SUMMARY*
Strategic Objectives
Economic Restructuring Democratic Transition
Social Stabilization Cross-cutting / Special Initiatives Total Privatization -- -- -- -- -- Fiscal Reform -- -- -- -- -- Private Enterprise 7,222,000 -- -- -- 7,222,000 Financial Reform 8,600,000 -- -- -- 8,600,000 Energy -- -- -- -- -- Citizens' Participation -- -- -- -- -- Legal Systems -- -- -- -- -- Local Government -- 17,178,000 -- -- 17.178,000 Crises -- -- -- -- -- Social Benefits -- -- -- -- -- Environmental Health -- -- -- -- -- Cross-cutting / Special Initiatives -- -- -- 2,000,000 2,000,000 TOTAL 15,822,000 17,178,000 -- 2,000,000 35,000,000 *Support for East European (SEED) Act funds
USAID Representative: Suzanne Olds
ACTIVITY DATA SHEET PROGRAM: POLAND
TITLE: Private Enterprise, 180-SO01.3
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $7,222,000 SEED Act
INITIAL OBLIGATION: FY 1989; ESTIMATED COMPLETION DATE: FY 2000
Purpose: Private Sector Development Stimulated at the Firm Level.
Background: Over the five years since independence, Poland's small and medium-sized enterprise (SME) sector has grown dynamically. In Poland today, the private sector employs 62% of the labor force and generates at least 50% of GNP. Between 1990-1994, the level of employment in private enterprises increased by approximately 1.5 million persons, thereby alleviating some of the negative social effects of the restructuring of state-owned enterprises. There are still some factors in the Polish economy, notably poor credit and onerous tax systems, that constrain the private sector, especially in SME. Technologies are outdated and knowledge of modern management techniques and skills is still lacking.
USAID Role and Achievements to Date: USAID advisors assisted with the conceptual and regulatory design of a mass privatization program under which 513 firms were privatized. To date, 95% of eligible Polish citizens have collected their share certificates. USAID's advisors have contributed to a revision of Poland's commercial code, especially provisions on tax administration, public procurement, and bankruptcy. They have helped the newly-created Polish Foundation for the support of SMEs develop a formal strategy for small businesses and helped draft a modern collateral law that was passed in 1996. USAID has contributed to the rapid expansion of the private sector by helping over 700 Polish small businesses to develop business plans and to improve their marketing and overall enterprise management. Polish capacity to train entrepreneurs in business skills has been strengthened by establishing seven Polish management training institutions. Annual profits have increased by $7.2 million at 18 Polish firms as pollution levels have decreased through the application of 52 model waste minimization projects. A new and progressive energy law has been submitted to the GOP for review. The Polish-American Enterprise Fund is the largest and most successful of the seven funds established in Central Europe. It has provided loans and equity investments totalling $224 million to over 5,000 private Polish enterprises. Its investments are directly responsible for the creation of 15,000 new jobs and the employment of more than 70,000 people. It has created several new financial institutions, including Poland's first mortgage bank, and successfully raised more than $250 million in private investment capital.
Description: Continued support will be provided to lobbying efforts in support of SME. Assistance will also continue in the following areas: commercial law reform and legal information for SMEs will also be provided. In view of the progress made by the SME sector in Poland to date and the remaining gaps in technical know-how constraints still facing the sector, greater emphasis will be given to improving and strengthening indigenous business support organizations, especially private firms and NGOs that can provide quality consulting and training to Poland's SME's. Secondarily, USAID will continue to provide technical assistance to selected Polish SMEs to improve their planning, management, marketing and production capabilities.
Host Country and Other Donors: USAID collaborated with the EU assistance program to Eastern Europe (PHARE), the British Know-How Fund, the International Finance Corporation (IFC) and other donors who also provide assistance to SMEs. Host country legal and regulatory changes in support of SMEs have been undertaken with USAID assistance.
Beneficiaries: Over 1300 businesses and 25 business support organizations will benefit directly from this assistance. Indirect beneficiaries will include the future clients of these business support organizations.
Principal Contractors, Grantees, or Agencies: U.S. assistance is delivered by a wide range of institutions and mechanisms -- grants to two U.S. universities: University of Maryland and University of Minnesota, an IAA with the U.S. Treasury, an international organization (International Development Legal Institute), several U.S. PVOs; and contracts with U.S. private firms, especially Agricultural Development Cooperation (ACD)I.
Major Results Indicators: Baseline TargetData Sources: Reports by Ministry of Industry and Trade, Ministry of Justice, and GEMINI; baseline study by new Polish institutional contractor, Financial Services, plus annual follow-up surveys; USAID implementers' reportsNumber of legislative initiatives passed 0 (1/92) 14 major laws with broad and positive impact on the (12/99) SME sector SME sector fixed asset investment rate 5% of real GDP 25% of real GDP (12/98) Per cent change in the real value of sales 0 (9/96) 15% of increase by SMEs (12/98) Number and type of indigenous self-sustaining: Business training centers 0 (1/92) 8 (12/99) Business support institutions 0 (1/92) 25 (12/99) Number of enterprises that use new 650 (1/95) 1300 (12/98) business plans, management techniques, marketing and production methods
ACTIVITY DATA SHEET
PROGRAM: POLAND
TITLE: Financial Reform, 180-SO01.4
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $8,600,000 SEED Act
INITIAL OBLIGATION: FY 1989; ESTIMATED COMPLETION DATE: FY 2000
Purpose: A competitive and efficient private financial sector is established.
Background: To complete Poland's transformation to a market economy integrated with the European Union, the Polish financial sector will have to play a greater role in mobilizing savings and efficiently allocating investment. Depositors' and investors' confidence in financial institutions must be established. More accurate and complete information must be made available to creditors and investors. Competition among financial institutions and between debt and equity markets needs to be encouraged, and markets need to be deepened. Financial institutions still lack skills in corporate finance, risk analysis, and mortgage lending. The climate two years ago, for example, was such that only the state savings bank made long-term residential loans, all of which were heavily subsidized.
USAID Role and Achievements to Date: An on-site bank examination manual has been developed for Poland's central bank and, in FY 1996, trained examiners completed their first-ever examination of a major Polish bank; this experience will serve as the central bank undertakes several more examinations in the coming months. A modern collateral law was recently approved by Poland's legislature which will provide greater surety to banks in lending against assets. The USAID-created Warsaw Bank Training Institute, with over 2,000 bankers trained, is now delivering professional banking courses using Polish rather than expatriate staff and is striving for self-sustainability through fee-for-services and other revenue sources. Polish brokers from 43 houses have now formed an Over-the-Counter market which will provide an alternative to the Warsaw Stock Exchange for raising equity capital, especially attractive to less well-known companies. With USAID assistance, the Financial Services Resource Center is building corporate finance capabilities in Polish banks. To date, six banks have participated, representing 35% of total Polish banking sector assets. On the municipal level, some 300 USAID supported, independent local cooperative banks continue to show strong operating improvements. Last year, total assets of these banks rose by 20-30 percent over inflation, showing that they have begun to meet the credit needs of their smaller, largely rural, clients.
Financing for housing construction, municipal development, and home purchase has made rapid progress in the past year with the elimination of housing subsidies. Presently, 20 banks now carry long-term loans at market prices and 75 commercial bank branches now offer mortgage loans from the Mortgage Fund, a fund initiated by USAID assistance. Mortgage loans now finance 18 percent of all private sector housing completion. This transformation could not have occurred without the $10 million USG-funded Housing Guaranty loan which leveraged World Bank and EBRD co-financing, or without complementary USAID technical assistance in bank strengthening and regulatory reform. In addition, the creation of the first Credit Rating Agency in Central and Eastern Europe will contribute substantially to increasing confidence in the financial sector.
Description: The U.S. will continue to strengthen the ability of Poland's central bank to carry out its bank supervision responsibilities. New initiatives are creating a legal and regulatory framework and enforcement capability for the over-the-counter market, municipal bond issuance, spot and futures commodity trading, and private pension funds. Banks will improve their corporate finance capabilities. A decentralized cooperative banking system will remain autonomous. About 24 grain elevators are participating in a licensed warehouse receipt system to facilitate commodity trading, and allowing farmers to borrow against stored produce. Improvements to the payments clearing system will be instituted, and information on the creditworthiness of firms and municipalities willbecome more readily available.
Beneficiaries: First line beneficiaries will be the Polish financial institutions including banks, brokerage houses, commodity traders, private pension funds, stock and commodities exchanges, and the entities that regulate them. Their client depositors, investors, and borrowers will all be indirect beneficiaries including businesses, both large and small, individuals and families, throughout Poland.
Principal Contractors, Grantees, or Agencies: USAID implementors include: the U.S. Department of Treasury, KPMG-Peat Marwick, Price Waterhouse, Crimson Capital, Barents, First Washington Associates Ltd., Credit Union National Association, Volunteers in Overseas Cooperative Assistance, Agricultural Cooperative Development International, Financial Services Volunteer Corps Inc., Eastern Europe Real Property Foundation, Urban Institute, and PADCO, Inc.
Major Results Indicators: Baseline* Target* Number of large banks inspected on-site 0 (1/96) 5 (12/99) by Central Bank Regulations and supervision of private TBD TBD (12/97) pension funds established Law, regulations and supervision of futures TBD TBD (12/97) and commodity exchanges established An independent membership-governed TBD TBD (12/98 cooperative bank system functioning Number of banks using more advanced TBD* 15 (12/98) techniques for credits & investments*Baseline and target data will be provided Spring 1997 through a National Survey conducted by a Polish Firm, Financial Services.
Data Sources: National Bank of Poland data; USAID contractor reports; National survey by Financial Services, Polish institutional contractor.
ACTIVITY DATA SHEET PROGRAM: POLAND
TITLE: Local Government, 180-SO02.3
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $17,178,000 SEED Act
INITIAL OBLIGATION: FY 1989; ESTIMATED COMPLETION DATE: FY 2000
Purpose: Strengthen local government effectiveness, responsiveness, and accountability.
Background: Major responsibilities for service delivery in key sectors like health, education, and housing have been delegated to the local level, but these are severely under-funded mandates. Ownership of key land and buildings that could contribute to economic development has also been transferred to the local government level, but at that level there is little capability for planning, applying for financing for infrastructure, or instituting incentives in support of privatization and economic development. Public-private partnerships are considered to be essential for both service delivery and economic development at the local level.
USAID Role and Achievements to Date: Recognizing the importance of strong local government in a democracy, USAID has concentrated on helping local governments increase their capacity to efficiently deliver services and manage scarce economic development resources. In FY 1996, USAID established a successful municipal credit program - through loans and bonds -- which has now spread to at least six cities, beginning with a $12 million municipal bond to the city of Gdynia. Model demonstration projects for design and finance of wastewater treatment plants have been finalized in two cities and plants will soon become operational in three others; 50 other cities have received training in relevant skills.
USAID has also sought to increase influence of local governments on national and regional policy. As a result, municipal associations and support institutions have been strengthened, including creation of a Municipal Development Agency; task-based budgeting is being disseminated throughout the country; and a $50 million loan from the World Bank and a $4.0 million ECU grant have been leveraged for infrastructure. In addition, public participation on the local level has improved, which has led to changes in the housing allowance law to more fairly reflect the differences among cities' housing stock and burden. Partnerships are beginning to flourish. USAID experts encouraged an empowered public-private partnership which designed and co-financed urban renovation in the neglected city of Lublin. This "Neighborhood Partnership Program" created: a major private investment program, and a leveraging model with a 10: 1 private/public ratio; 137 renovated buildings; 15 new businesses; and 225 new places of employment. A network of indigenous NGO-support organizations has been established and models of transparent and consistent regulation of NGOs by local government are being developed.
Description: USAID uses a combination of legislative and policy development; local government partnerships; and institutionalization of new skills to assist Poland in creating models for municipal development. For partner cities, activities under this objective will be expanded from 7 initial pilot cities into an additional 40 partner cities specially selected as representative of the range of city sizes and development contexts in which U.S. models for local government innovation and public-private partnerships in economic development and service delivery can be most effective. The seven pilot cities will increase their resource management capacity, strengthen their financial and strategic planning systems, increase public involvement, improve service delivery, develop capital budgeting, economic development and land use planning capacity, and increase locally-generated revenues. New degree programs in city and regional planning will be established in key universities to develop a cadre of local government economic development professionals. Neighborhood and business associations in partner cities will be created and strengthened to promote cooperation between NGOsand the local government in service delivery and economic development.
Host Country and Other Donors: The U.S. is the major donor supporting this objective. The British Know-How Fund supports a small program of pilot local government projects. EU PHARE also provides some assistance to local governments. The GOP recently enacted the Local Government Law which gives cities and towns the authority to borrow from banks and float municipal bonds to finance development projects; as of December 1996, five Polish city had issued municipal bonds.
Beneficiaries: All 2,400 gminas (local governments) covering the entire population of Poland will benefit from the models developed and extended, the national policy and new urban development finance options, and long term degree programs created by this assistance. About 47 partner cities and their residents will benefit most intensively from the actual models tested.
Principal Contractors, Grantees, or Agencies: USAID implements activities through direct grants to two Polish local government support organizations, sub-grants to many other Polish NGOS, contracts with two U.S. universities and five U.S. contractors, and sub-grants and sub-contracts to many other Polish firms and organizations.
Major Results Indicators: Baseline* Target**Baseline and target data will be provided in Spring 1997 through a baseline survey conducted by Polish Firm, Financial Services. Follow-up surveys will be conducted annually.Percentage of cities using public-private TBD (1996) Baseline + 10%(2000) partnerships for service delivery
Percentage of cities using public-private TBD (1996) Baseline + 10%(2000) partnerships for economic development
Percentage of cities using bank or bond TBD (1996) Baseline + 10%(2000) financing for economic development
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