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 1997 FY 1998 FY 1999 Actuals Estimate Request Support for Eastern European Democracy............... $40,100,000 $35,000,000 $20,000,000
Introduction
Poland is a leader in the political and economic transition of Central and Eastern Europe, and its successful transition from centrally-planned to democratic, free-market economy is of vital importance to U.S. security and economic interests in the region. Poland became a member of the Organization for Economic Cooperation and Development in 1996, in 1997 was invited to join NATO, and is a candidate for European Union (EU) membership. Polish troops are currently deployed alongside American and other contingents in Bosnia. Poland's participation, alongside NATO allies, helps to assure that any regional instabilities do not undermine the security of the United States or its European partners. With a population of 38.5 million, Poland also constitutes a large potential market for U.S. exports. It also serves as a model for other transition states and is sharing its lessons learned through study tours and exchanges with nations such as Ukraine.
The Development Challenge
Poland is in the process of regaining its former economic strength, although nearly 15% of the population is living below the United Nations Development Program (UNDP) poverty line, and health, education and other social infrastructure have deteriorated. GDP has expanded by 5% or better in every year since 1994. Private direct foreign investment has continued to grow, with the U.S. leading at over 30% of the current total of just under $4 billion. Legislation conducive to free enterprise has been enacted, and a vibrant private sector is now estimated to employ 64% of the workforce (including the gray economy) and to account for about two-thirds of GDP. While privatization of small and medium State enterprises has proceeded successfully, heavy industry remains under State control (about one-half of all industry), and generally operates at a loss. However, the Polish government has reaffirmed its commitment to proceed with privatization of the energy and telecommunications sectors. The government is also moving forward with privatizing the major banks remaining under State ownership, with 24 Polish banks having majority foreign ownership. Capital markets have evolved slowly but systematically; the Warsaw Stock Exchange is regarded as one of the most developed and best regulated within Central and Eastern Europe.
Poland enacted some of the most profound reforms in the region, resulting in major productivity increases within the private sector. Output growth in 1997 was particularly strong in durable consumer goods (autos, electronics, furniture). U.S. assistance has contributed extensively to these results by supporting an improved policy climate for private sector growth, greater competition within the banking sector, the development of a capital market, and the introduction of new financial instruments to mobilize domestic savings. Several business management training programs, linked with U.S. universities, are in place and produced their first graduates in 1997. With Poland's trade imbalances, however, the private sector has to do more in management, cost and quality control, and marketing.
Although Poland's structural reforms are generally in place, problems remain. Poland's widening trade deficit has adversely affected the current account deficit and could make Poland vulnerable to international financial pressures. The newly elected (September 1997) government is responding by tightening fiscal policy. At 11%, national unemployment remains a problem; in rural areas it can exceed 20%. Poland's agricultural sector employs about 25% of the workforce, but fragmention, inefficiency and outdated technology adversely affect productivity.
Poland is still one of the largest debtors in Central Europe. With U.S. and other donors' support, Poland has been able to halve debt load through agreements reached with governmental and commercial bank creditors. Through privatization and other domestic structural reforms, export earnings have been enhanced and now enable Poland to service its current debt. Chiefly as the result of private sector performance, double digit export growth has sustained over the past five years, although 1997 saw a more modest growth of 11% overall.
Poland's financial sector remains under-developed. Fewer than 50% of households have bank accounts, and cash transactions predominate. Savings and investment rates remain low (less than 20% of GDP) compared with other high-growth economies. Government treasury bills and notes still dominate capital markets and crowdout private efforts to raise capital. Use of credit by municipalities remains limited to larger cities; the stock of municipal credit was less than .5% of GDP in 1996. Banks are overly conservative in their lending practices. To address this, USAID is helping to introduce more diversified financial instruments, which include expansion of mortgages and the introduction of models for environmental improvement, housing privatization, and delivery of key services). USAID technical assistance is also being directed to making banks more efficient and user-friendly.
Since 1989 three parliamentary elections have been successfully held. Leaders of 2,500 local governments have been selected in free and fair elections. Independent print media are well established. U.S. assistance is now strengthening democracy through its focus on the role of local governments and on broadening the participation of non-governmental organizations (NGOs). The new issue now being addressed is creation of a second tier of local government (e.g., counties) and reform of the regional government structures. USAID assistance in fiscal decentralization will be expanded to assist in these reforms, and will continue addressing needs for local government capabilities in revenue generation and budgeting, delivery of essential services, and developing models for collaboration with the private sector.
Other Donors
The European Union's European currency unit (ECU) 1.7 billion program is the largest donor program. It is scheduled to phaseout in 1999, but likely will be succeeded by an accession assistance program. 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, and the European Bank for Reconstruction and Development's provides loans for private sector investment (85% of its current portfolio). The British Know-How Fund provides a small program assisting 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. The U.S. collaborates closely with all of these agencies in its definition of program strategy.
FY 1999 Program
FY 1999 will be the last year of SEED fund obligations for Poland, with USAID close-out planned for early 2000. The concluding USAID program will build on earlier successes, concentrating on key issues such as improved private sector performance, competitive banking and capital markets, housing availability through privatization and new financial instruments, and well-managed, responsive local government delivering essential services to the citizenry. Funds are requested for three strategic objectives: private enterprise development, financial sector reform, and local government. Funding is also requested for Cross-cutting/Special Initiatives, including language training support for teachers; exchange programs on economic, democratic and social development; and Democracy Commission Small Grants. Because Poland is on the worldwide list of worst polluters, USAID will address Global Climate Change issues under each of its objectives, such as developing policy incentives or helping businesses directly to operate in more energy-efficient and less polluting ways.
POLAND
FY 1999 PROGRAM SUMMARY*
(in thousands of dollars)
Strategic ObjectivesEconomic Restructuring Democratic
TransitionSocial Stabilization Cross-cutting / Special Initiatives Total Privatization -- -- -- -- -- Fiscal Reform -- -- -- -- -- Private Enterprise 2,700 -- -- -- 2,700 Financial Reform 2,900 -- -- -- 2,900 Energy -- -- -- -- -- Environmental Management -- -- -- -- -- Citizens' Participation -- -- -- -- -- Legal Systems -- -- -- -- -- Local Government -- 13,300 -- -- 13,300 Crises -- -- -- -- -- Social Benefits -- -- -- -- -- Environmental Health -- -- -- -- -- Cross-cutting / Special Initiatives -- -- -- 1,100 1,100 TOTAL 5,600 13,300 -- 1,100 20,000
*Support for East European Democracy (SEED) Act funds
USAID Representative: William Frej
ACTIVITY DATA SHEET
PROGRAM: POLAND
TITLE: Private Enterprise, 180-SO01.3
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1999: $2,700,000 SEED Act
INITIAL OBLIGATION: FY 1999; ESTIMATED COMPLETION DATE: FY 2000
Purpose: Private sector development stimulated at the firm level in order to continue and further reinforce private sector's contribution to the Polish economy.
USAID Role and Achievements to Date: With USAID technical assistance, nine laws which improved the framework in which businesses operate have been enacted. These include Anti-Trust Law, Collateral Law, Condominium Law, Rental Reform Law, Real Estate law, the Small and Medium Enterprise (SME) Policy Law, Public Procurement Law, Energy Law, as well as tax legislation on personal and commercial income tax. The Collateral Law will improve credit availability for housing and will remove one of the principal barriers to SMEs' access to credit. The new Energy Law allows energy prices to cover costs and profit, thereby improving the reliability of energy supply and compliance with new environmental protection standards. Recommendations were prepared that will make the Polish legislative process more transparent and flexible, by allowing business organizations and other groups to lobby Parliament. A pilot Computerized Classification System for tax collection was installed in Lublin, and a pilot reorganization of tax administration is being tested in Poznan. Both will enable Polish businesses to operate more effectively since they can rely on Polish tax authorities to have standardized, transparent procedures. The Polish Association of Home Builders (currently 350 members) has been established to lobby before national and local legislatures. The national professional trade associations for real estate brokers and appraisers in Poland and other Central European countries have been linked through regional networks. Ten university-based management training institutes for entrepreneurs, executives, and public administrators have been established, with five having achieved self-sustainability on a fee-supporting basis. Five more institutes are expected to become self-sustainable in FY 1999. More than 450 managers have graduated to date. A National Association of Agencies for Local Housing Initiatives has been registered to support development of private small-scale cooperative housing developers to help deal with Poland's severe housing problems. Eighteen municipalities have benefitted so far from such services. The USAID-supported Women's Rural Entrepreneurship Promotion Program has so far provided 650 loans ($2 million) to female entrepreneurs in rural areas characterized by high unemployment. Training has been provided to 1,300 female agribusiness managers since inception of the USAID program in 1992. Through a network of 22 USAID-initiated computerized business information centers, SMEs enjoy improved access to information on legal and regulatory issues, government policies, and general business information.
Description: Program emphasis through close-out will include expanding the target group of business support organizations; helping to develop and promote a new industrial law; extending knowledge of modern business practices to a broad group of SMEs (thereby enhancing their profitability); assisting Polish technology transfer centers to commercialize new technologies; and helping to achieve self-sustainability of Polish advisory and training institutions. Other activities will assist Poland in developing modern energy efficiency techniques, in advancing its energy policies and organizational infrastructure, and in setting up necessary secondary legislation to the recently passed energy law. In addition, the program will focus on assisting Poland's integration into the European Union by helping to develop processes and procedures which would incorporate the interests of Polish companies, including SMEs, into partnership and lobbying groups during European Union negotiations in Brussels.
Host country and other donors: The full collaboration of the Polish Government has enabled USAID advisors to propose legislative and policy initiatives in support of SMEs. USAID also collaborates with the EU assistance program, the World Bank, International Finance Corporation, and the British Know-How Fund.
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 the Maryland and University of Minnesota, U.S. Treasury, an international organization (International Development Legal Institute), several U.S. private voluntary agencies (PVOs); and several U.S. private firms, especially Agricultural Cooperative Development International (ACDI).
Major Results Indicators: Baseline Target Number 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 (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 1999: $2,900,000 SEED Act
INITIAL OBLIGATION: FY 1989; ESTIMATED COMPLETION DATE: FY 2000
Purpose: Building a competitive, market-oriented financial sector.
USAID Role and Achievements to Date: With USAID'S assistance in training examiners and in developing on-site and off-site monitoring tools and techniques, the central bank has completed full-scope inspections of 11 large Polish banks holding about 40% of commercial bank assets. Initiated by the US government six years ago, the Warsaw Institute of Banking has trained 7,500 bankers from Polish banks and financial institutions. Today, the Institution has a solid cadre of foreign trainers, a growing team of Polish instructors, strong core curriculum, and continues to develop new courses to help build a modern, market-oriented banking system. In the capital markets arena, the USAID-supported Central European Rating Agency (CERA) rated its first of three debt issues in 1997. A functional Over-the-Counter (OTC) trading system was successfully developed by USAID and a brokerage-owned and operated company formally opened the OTC market for trading in December 1996. As it grows, the OTC market will provide small and medium companies with an alternative to the Warsaw Stock Exchange for raising equity capital. On the local level, cooperative banks continue to show strong operating improvements with increased earnings in 1996 to 4.1% of total banking sector earnings and net assets at 11.9% of banking sector assets. The USAID-supported credit union movement continues to grow in Poland with more than 250 institutions registered as of mid-1997.
Bank Handlowy, Poland's trade bank, was privatized in 1997. As a result, funds will be released from the multilateral Bank Privatization Fund. A new collateral law providing greater surety to banks in lending against assets was passed and will be implemented in early 1998. USAID's technical assistance in the area of bank payments systems has helped reduce settlement times.
Housing finance made rapid progress in 1997. More than 25,000 housing loans were made in the last year, equivalent to about 45% of private sector housing completions, up from 18% a year ago. Some 25 banks offer long-term housing loans, all at market prices, and a variety of mortgage instruments are now being offered. The Housing Finance Sector Assessment report, "Building on Progress", and related conference increased industry focus on integrating housing finance into Poland's wider capital markets and on increasing geographic and economic access.
Municipal use of capital and credit markets increased substantially, with the value of loans over five years more than doubling between 1995 and 1996 and municipal bond issues increasing more than six-fold in the same period.
Pension reform made great strides in 1997 with passage of key legislation establishing private pension funds and a supervisory body. Several key legislators, journalists and government officials participated in USAID-sponsored study tours to Chile and Argentina, on which the Polish reforms are based.
Description: Progress will continue in strengthening Poland's central bank to become a more effective and competent bank regulatory authority. In particular, classroom and on-the-job training in core and advanced subjects for on-site and off-site supervision is on-going and a train-the-trainers program will be instituted. Polish examiners will participate in U.S. bank examinations for additional experiential learning. Assistance will be expanded to strengthen the deposit insurance fund's capabilities for problem bank resolution.
Work with the government's pension reform office will shift to the newly created private pension fund
regulator. Assistance will be provided in helping the agency to establish effective regulations and to develop policies, procedures and tools to monitor and promote the safety and soundness of private pension funds and in training of staff. Pension fund managers will also receive training.
Beneficiaries: First line beneficiaries will be the Polish financial institutions including banks, credit unions, cooperative 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, farmers, local governments, individuals and families, throughout Poland. USAID/Warsaw will also continue its efforts to promote Poland-Ukraine cooperation, building on Poland's emerging role as a model for other transitional societies. In collaboration with USAID/Kiev, funding and support will continue to be provided for study tours and exchanges between Polish and Ukrainian officials, disseminating Poland's reform and restructuring successes.
Principal Contractors, Grantees, or Agencies: USAID implementors include: Price Waterhouse, Barents Group, First Washington Associates, World Council of Credit Unions, Agricultural Cooperative Development International/Volunteers in Overseas Cooperative Assistance, Financial Services Volunteer Corps, Abt Associates, Urban Institute, and .Cracow Real Estate Institute.
Major Results Indicators: Baseline* Target* Number of large banks inspected on-site 0 (1995) 5 (1999) by Central Bank annually Regulations and supervision of private 0 (1996) YES (1997) pension funds established Law, regulations and supervision of futures NO (1996) YES (1998) and commodity exchanges established Percent of adult population covered by private (a) 0 (1996) (a) 20% (2000) pension funds: (a) if voluntary; (b) if mandatory. (b) 0 (1996) (b) 80% (2000) Private banks' assets as percentage of banking 15% (1995) 50% (2000) sector assets
ACTIVITY DATA SHEET
PROGRAM: POLAND
TITLE: Local Government, 180-SO02.3
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1999: $13,300,000 SEED Act
INITIAL OBLIGATION: FY 1989; ESTIMATED COMPLETION DATE: FY 2001
Purpose: More effective, responsible and accountable local government.
USAID Role and Achievements to Date: Citizens in over half the municipalities surveyed reported improvements in local environmental services (water and sanitation). Roughly 75% of USAID-assisted NGOs improved their organizational capabilities, although financial sustainability remains a challenge. USAID advisors are helping local governments increase their capacity to deliver services and manage scarce economic development resources more efficiently. Model demonstration projects for design and finance of wastewater treatment plants have been finalized in five cities, solid waste management improvements have been demonstrated in 13 cities, and district heating systems have been improved in 15 locations. Officials in over 100 municipalities have been trained in new service and infrastructure management skills, and officials in 150 in improved financial management of operating and capital budgets. Municipal access to financial resources has increased significantly, particularly through a municipal credit and bond market. Through USAID assistance, more than $90 million worth of infrastructure investments have been made through use of longer term credit or bonds. Ten commercial banks are engaged in municipal lending, and 15 local consulting firms have been trained in supporting municipal financial management and project finance.
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. They are developing their own data collection and analysis capacities, and are having demonstrated impact on the municipal reform agenda. The laws and regulations limiting cost recovery on utility investments are being amended, and new methods of contracting for health services are being demonstrated and adopted nationally. A demonstration of the county form of government has been successfully implemented in Novy Sacz, paving the way for the reform of national public administration systems beginning in early 1998. Partnerships between government and non-governmental organizations and the private sector have been expanding. At least a dozen municipalities have instituted city-wide policies and budget allocations to support NGO relationships. Close to 100 housing development organizations have been founded jointly by local governments and citizens groups, resulting in 760 housing units already constructed and an additional 600 under design. Three new university programs for public administration and urban planning have already enrolled students.
USAID is also assisting GOP to redress damage caused by the flood of July 1997. Infrastructure and housing were damaged in over 120 cities and towns, as well as displacement of industry and small business. USAID is supporting implementation of a $500 million joint International Bank for Reconstruction and Development (IBRD), European Bank for Reconstruction and Development (EBRD), EU, and GOP fund for infrastructure repair and flood control, as well as assisting six cities in housing replacement. USAID is providing staff, administrative support, and policy guidance for implementation of the $500 million flood repair fund.
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 eight 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 48 partner 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 NGOs and 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 also provides some assistance to local governments. The World Bank recently signed a $20 million municipal finance loan to support further development of the municipal credit market, and has taken the lead in pulling together the $500 million flood repair fund. The GOP has committed to enact a series of laws to complete decentralization by 1999, including a new municipal finance law.
Beneficiaries: All 2,500 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 48 partner cities and their residents will benefit most intensively from the actual models implemented.
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 Harvard University, Chemonics International, Foundation for Local Government, Academy for Educational Development, International City County Management Association, and Urban Institute; and sub-grants and sub-contracts to many other Polish firms and organizations.
Major Results Indicators: Baseline* Target* Percentage of cities using public-private 35% (1996) 60% (9/2000) partnerships for service delivery and economic development Percentage of cities using bank or bond 12.4% (1996) 20% (9/2000) financing for economic development Local governments that have their budget/ 51.5% (1996) 65% (9/2000) strategic plans developed with citizen/NGO/ private business participation
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