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Mr. Chairman, Members of the Committee: I am pleased to have the
opportunity to testify today in support of the Administration's
request for $900 million in FREEDOM Support funding for USAID's
activities in the New Independent States, and $492 million in SEED
(Support for East European Democracy) funding for our activities in
Central Europe. We believe, and I hope this testimony will
demonstrate, that overall progress in dismantling communism and in
building democratic governments and free market economies in its place
merits your strong support. I also wish to express the
Administration's request for $15 million in economic support funds
(ESF) for Cyprus to support bicommunal activities and scholarships;
$50 million in ESF for Turkey plus $4 million in Development
Assistance Funds for family planning; and $19.6 million in ESF for the
International Fund for Ireland which, like our Cyprus request, is
designed to promote peace between two communities sharing an island.
Out of an overall request of $6.3 billion for USAID programs,
President Clinton's request for $900 million for the NIS -- an
increase from $625 million this year -- follows three years of falling
appropriation levels. After the large FY94 appropriation of $2.5
billion, assistance levels fell to $850 million in FY95, $641 million
in FY96, and $625 million in FY97. A framework is needed for a new
phase of U.S. engagement, focused on trade and investment and building
enduring ties between NIS citizens and ours. The proposed Partnership
for Freedom is intended to be that framework.
In Central Europe, funding at the requested level of $492 million will
enable us to continue the phaseout of activities in the northern tier.
The successful free enterprise democracies of Czech Republic, Estonia,
and Slovenia have advanced to the point where they no longer require
country assistance, with Hungary, Poland, Latvia, Slovakia, and
Lithuania right behind. In the southern tier Bulgaria, Albania,
Romania, and the Former Yugoslav Republic of Macedonia still need our
assistance to move farther along the road towards democracy and free
enterprise while Serbia, Croatia, and Bosnia must additionally be
helped toward peace and reconciliation.
It has now been five years since this Committee took the historic step
of funding assistance to the NIS and eight years since the Committee
first funded assistance for the emerging democracies of Central and
Eastern Europe under the SEED Act. These actions reflected the
bipartisan decision by Congress, and two Administrations that the
United States would seize the opportunity provided by the break-up of
Soviet Communism to help the states formerly incorporated into the
Soviet Union and the satellites make the transition to democratic
market economies. It was based on the premise that the people of these
nations wanted to transform their entire way of existence and that
reformers welcomed US technical assistance. It was based on the
assumption that our involvement would help forestall the return of
totalitarianism and state socialism and help ensure democratic futures
for the people of the region. Today the American people have every
right to hear if the programs they are funding have produced tangible
results.
I am pleased to report that, at this juncture, we are witnessing broad
and unmistakable signs that reform is achieving demonstrable results.
Communism is being dismantled, and a viable middle class based upon
the empowerment of the individual is being created -- not evenly, not
everywhere in the region, and often in fits and starts -- but across
enough of the region, and in enough sectors, that we can say that its
roots have taken strong hold of people's outlooks and expectations.
Reform has given oxygen to the life blood of civil society and private
enterprise. And it has produced some remarkable achievements.
First a caveat. Some of the reforms I describe may sound less than
earth-shattering. So what if a government in Central and Eastern
Europe has approved a security and exchange law, or one of the states
in the NIS now has a half dozen independent television stations? So
what if a stock exchange in Central Asia operates under procedures a
U.S. securities broker would recognize? But then you have to consider
the context; I am speaking here of the former Soviet Union and the
states it dominated through force.
Under Communism, there were no market institutions, no legal
foundations for a market economy, no democracy, and no basic
institutions for citizen participation. All real power rested with the
Communist Party and the thoroughly corrupt central government. The
individual was powerless, with no control over his or her personal
destiny -- much less over the destiny of his community or nation.
Today, just eight years after the fall of the Berlin Wall, I am able
to report to you about a region in transformation, about people
suddenly empowered both economically and politically.
A quick snapshot. In Russia, the private sector now accounts for 60%
of GDP and employs about half of the labor force. In Ukraine, some 400
formerly state-owned companies a month are being auctioned off. Over
13 million Polish citizens have purchased share certificates to enable
them to participate in the planned mass privatization program. The
Central Asian Republic of Kazakstan opened its first private stock
exchange in Almaty in April 1995. Four out of eight of Hungary's major
state-owned banks have been privatized. In Kyrgyzstan, economic
stabilization has helped make the local currency, the som, the most
stable currency in the region, at times appreciating against the
dollar. Eleven individual television stations operate in Georgia,
independent and free of government control. Romania approved a
Securities and Exchange law, created a new National Securities
Commission, and opened the Bucharest Stock Exchange and an electronic
over-the-counter exchange.
At least two-thirds of the population of the former Soviet Union and
Central and Eastern Europe now live in countries where politicians are
accountable to the people who elected them, where courts mediate civil
affairs, where markets determine prices, and market-based institutions
such as stock exchanges and small privately-owned businesses are
functioning as underpinnings of economic life.
I am pleased to report that the United States, led by USAID, has had a
part in each of those changes and the others I will attempt to
describe for you today. These results testify to a U.S. assistance
program that has had a strong positive impact. Would I claim that
change would not have occurred without the United States? No. The
collapse of the Soviet system, and its history of eight decades of
failure, ensured that much of the old system would be swept away as
soon as the people of the region had the opportunity to rid themselves
of it.
But, at the same time, I can state with confidence that without our
assistance program, a program not of cash giveaways but of hard
technical and practical assistance, change could have taken any number
of paths -- including authoritarian, nationalist approaches which
would not safeguard personal freedoms and would have been inimical to
U.S. national interests. The wrong kind of change might even have
reignited the cold war and all the costs the renewed threat of
confrontation would entail.
Modern market economics does not just happen. You cannot expect a
contemporary banking system or stock market to just evolve from the
ruins of state socialism. Someone has to show the way, offer the
models and the counsel. That is what USAID is doing. Similarly,
democracy is an idea, a worthy political goal. But nations with little
or no democratic tradition need someone to show the way to create a
system that will support democracy. That means election laws and codes
and constitutions. Again, the U.S. shows the way. And, although other
nations and multilateral institutions are playing an important role in
the building of the NIS, it is appropriate that the United States play
a central role. The former Soviet bloc was governed by the principle
that the state counts and that individuals do not. The United States,
the world's oldest democracy, is built on just the opposite idea; the
rights, privileges, and opportunities for the individual is the
bedrock of our nation's greatness. Our goal is similarly to help
empower individual citizens who, under the previous system, were
considered insignificant or not considered at all.
The USAID program pursues three strategic goals in the region:
economic restructuring, democratic institution building, and social
stabilization. It is under these rubrics that USAID has achieved so
many critical results.
Economic Restructuring
Since 1989, USAID programs have contributed to sweeping economic
changes, including mass privatization, land privatization, fiscal
reform, development of modern financial systems, and energy sector
restructuring. Establishment of private property rights and the growth
of entrepreneurship have given ordinary citizens a stake in the new
economic system. With USAID assistance, most countries have made
systemic changes such as creation of laws and institutions to permit
private business, as well as specific changes in practices such as
adopting Western accounting principles and banking practices. Many are
in the process of gaining accession to the World Trade Organization
and improving their trade prospects. In Central and Eastern Europe,
the fruits of reform are seen in the encouraging macroeconomic
performance of most countries. In that region, economic growth
averaged 5% in 1995, up from 4% the previous year. In the NIS,
significant progress has been made towards price stability, a
precursor to higher economic growth. Furthermore, the severe output
declines experienced by most NIS countries since the collapse of the
Soviet Union appear to have bottomed out.
Economic restructuring is pursued through privatization, fiscal
reform, enterprise development, financial sector development, and
energy/environment reform.
Privalization: Over 60% of GDP in Eastern Europe is now generated by
the private sector, as compared with about 15% when the Berlin Wall
fell in 1989. Similarly, almost 50% of GDP in the NIS is now generated
by the private sector, as compared with less than 10% when the Soviet
Union collapsed in 1991.
USAID has been instrumental in this process in many countries,
including the Czech Republic, which has led Central Europe and the NIS
in privatization. The Czech Ministry of Privatization opened in
October 1991, achieved its objectives of widespread privatization with
USAID's help, and closed its doors in 1996, having completed over 130
transactions with foreign investors representing over $4 billion.
USAID's efforts increased visibility and transparency and served as a
catalyst to promote further trade and investment with U.S. companies.
Fiscal Reform: Throughout the region USAID has helped governments
adopt more effective budgeting and expenditure procedures, reform tax
regimes to make them more conducive to business growth, and improve
tax administration to raise the revenues essential for good
governance. For example, with USAID assistance, Kazakstan's new tax
code was approved in April 1995 and introduced in June 1995. Regarded
as the most efficient and equitable code to be adopted in any former
Soviet republic, it is serving as a model for draft codes elsewhere. A
new tax code has been completed in Uzbekistan and awaits enactment by
Parliament, and a budget law and a treasury law are near completion.
Enterprise Development: In nearly every country in the region, USAID
is assisting enterprises to operate more competitively, and helping
reduce government interference in the marketplace. For example, in
Russia, passage of the Civil Code, guaranteeing freedom of contract
and protection of private property, is a major advance in creating a
legal and regulatory environment to support a market economy.
Financial Sector Development: USAID is helping establish stock markets
and improve commercial banks so that businesses get access to
investment and operating capital and buy and sell assets. For example,
USAID assisted in establishing the Bucharest Stock Exchange in 1995;
over-the-counter transactions began this year. USAID's bank
supervision assistance to the Bank of Lithuania provided an invaluable
service in averting a systemic banking crisis when major problems at
ten banks surfaced in late 1995.
Energy and Environment: Throughout the region, USAID is helping to
reduce waste in the production and use of energy and improve the
reliability of power supplies. It is also working to prevent further
environmental damage and to reverse the effects of decades of
indifference to the environment under the Communist regimes. For
example, in Ukraine, power sector restructuring has led to the
break-up of the former state monopoly into 33 joint stock companies.
Since 1995, with USAID assistance, 13 short-term water sharing
agreements have been signed between countries in Central Asia. Three
of seven agreements approved this past year have included provision
for hydroelectricity generation in the Aral Sea.
Economic restructuring is starting to show results in terms of
economic performance. Economic growth, for example, has resumed in
many countries of the region after the shocks and contractions that
accompanied radical reform. While income remains below pre-transition
levels, economic growth resumed in 1994 in eastern Europe as a whole
and has been robust since then in many countries, exceeding EU
standards.
In the NIS the output decline has slowed considerably with preliminary
estimates indicating that eight NIS countries experienced positive
economic growth in 1996. Even more encouraging, impressive gains in
inflation reduction bode well for future growth.
It is clear that foreign investment follows economic reform. All the
countries of our region, with the exception of oil/gas-rich Kazakstan,
Azerbaijan, and Turkmenistan, fall neatly along this trend line
associating economic policy reforms and per capita foreign investment.
This tells us that our efforts to assist reform will result in
investment, hence growth.
Democratic Transition
Democratic governance is critical to these formerly authoritarian
states. Under communist rule, there was widespread abuse of civil and
human rights and little access to information or citizen participation
in political decision-making. Now free and fair elections are being
held across the region, governments are being decentralized,
independent media access is making information available and is
increasing government accountability, and NGOs are attracting support
and influencing policy as they help articulate citizens' needs.
Indeed, democracy-building leads the reform process in many countries.
Drawing from Freedom House assessments, several countries in Central
and Eastern Europe appear to have achieved democratic freedoms roughly
on a par with Western European countries. USAID's democracy and
governance programs help make recipient governments transparent and
responsive to the public by creating checks and balances against the
arbitrary power of political leadership and the state bureaucracy.
They also create the legal and informational environments which
facilitate community initiative outside government and protect
individual rights. Increasingly, USAID's support for the development
of commercial laws provides the environment necessary for individuals
to enjoy economic freedom on a par with newly acquired personal
freedom. Progress in building democratic institutions has been just as
dramatic, and USAID has been just as central to this progress.
Civil society: In promoting citizen participation in civil society,
USAID has helped install the machinery of free and fair elections,
strengthened competitive political parties, assisted the development
of NGOs, and aided the growth and independence of public broadcast and
print media. In 1996, for example, Azerbaijan, Kyrgyzstan, Kazakstan,
and Russia all received election-related training and technical
assistance which complemented ongoing long-term political process
programs. In 1996, Russia held a free and fair presidential election
after which the defeated parties accepted the results, pledging to
continue their activities through the democratic process rather than
seek to overturn the results. In Bulgaria, USAID technical assistance
on conducting a presidential primary led to a first-ever primary in
which the opposition nominated a single candidate, who went on to
defeat the incumbent president.
We have helped build and strengthen the all-important non-government
sector. In 1991, only a handful of NGOs operated in Russia; now there
are more than 40,000. USAID has assisted numerous activities intended
to support citizen and NGO participation in community and national
life.
We have helped establish free and independent media. Internews, an
American NGO supported by USAID which trains print and electronic
media professionals, has helped transform Russia from a nation which,
in 1991, received all its news from one source to one in which there
are more than 500 broadcasting companies. The new independent media
coverage of the war in Chechnya is widely credited with having
fostered public awareness of the situation there.
Rule of Law: USAID is also assisting countries throughout the region
to strengthen the rule of law. We have helped draft constitutions,
train judges, prosecutors, and trial attorneys, and establish jury
trial systems. For example, in June 1996, after considerable input
from USAID grantees, the Ukrainian parliament ratified its first
post-Soviet constitution. USAID has assisted in creating or modifying
civil codes to protect free markets in Armenia, the Czech Republic,
the Former Yugoslav Republic of Macedonia, Lithuania, and Slovakia.
Local Government: USAID is helping to bring good government closer to
the people by assisting with decentralization of power from the
national to local level and working with mayors and municipal
authorities to improve governance and delivery of essential public
services. For example, a new municipal debt market created in the
Czech Republic with the assistance of USAID advisers allows
municipalities and commercial banks to finance environmental
infrastructure. The USAID-supported Association of Polish Cities and
Union of Polish Metropolitan Cities pushed for and achieved national
legislation making municipal bonds more feasible and housing subsidy
allocations more equitable.
The results of democracy building activities have become evident
across Eastern Europe. Comparing the ratings on civil liberties and
political freedoms that Freedom House gave these countries in 1988 and
again in 1996, we see dramatic improvements. Bulgaria and Slovakia,
which in 1988 ranked close to what North Korea is today, now have
democratic freedoms comparable with Venezuela. Poland and Hungary,
which in 1988 ranked about where Haiti is today, now are about as free
as France.
Democratic gains in the NIS are not yet as pronounced, and in some
cases backsliding has occurred. Still, political rights are greater
today than in 1992 for the region as a whole. Deterioration in civil
liberties may have stopped. In fact, in,1996, three NIS countries
registered an increase in civil liberties, while only Belarus showed a
decline from the previous year.
Social Stabilization
When social dislocation is ignored or inadequately addressed, citizens
suffer. Citizens associate their plight with reforms, and in some
cases have used newly acquired voting rights to elect politicians who
exploit these concerns. Neither USAID nor other donors can finance
social "safety nets," but the agency can provide targeted technical
assistance to strengthen the countries' own social protection systems.
For example, helping Ukraine, Russia, and Slovakia to move away from
virtually free housing for all to market-based rents and maintenance
fees has improved the quality of housing while freeing municipalities'
resources for targeted subsidies for the most vulnerable groups. In
areas affected by civil strife, USAID has played a major role in
alleviating suffering, particularly in the Caucasus, Tajikistan, and
Bosnia.
In the Czech Republic, USAID has worked to identify weaknesses in the
health system. Reproductive health programs are being funded in
Central Asia, Moldova, Russia, Ukraine, Albania, and Romania.
Preliminary data from the NIS indicate that service improvements have
resulted in reduced abortion rates and increased contraceptive use. In
Central Asia, the USAID-supported Aral Sea initiative has fostered
regional cooperation in protecting the Sea from further degradation
and will ultimately provide potable water to over a million people.
Noting these successes, it is reasonable to ask why, if things are
going so well, do we request an increase in funding? The simple answer
is that it is in the national interest of the United States to sustain
these changes, lock them in, make them irreversible. Economic
stabilization and structural change do not automatically translate
into investment and growth, nor do new political systems automatically
develop into full participatory democracies. As the political and
economic transitions in the region proceed, we will move from guiding
and advising on the mechanisms of structural change to maintaining
connections to these countries in ways that sustain these transitions.
Our engagement will evolve towards more normal, mutually beneficial
bilateral relations.
Moreover, there are great disparities among the countries in the
region. Not all the governments in the region have shown equal zeal at
reforming and not all are sharing equally in the fruits of reform.
Economic and democratic reforms go hand in hand. The countries that
have come the farthest in their economic reforms are the very
countries that have achieved levels of democratic freedom nearly the
same as those of our Western European allies.
The countries of the northern tier of Central Europe (Poland, Czech
Republic, Hungary, Slovenia, Slovakia, and the Baltics) are clustered
at the "successful" end of the trend line. These are the countries
that are scheduled for early graduation from U.S. assistance.
Southern tier countries in Eastern Europe (Bulgaria, Romania, Croatia,
Former Yugoslav Republic of Macedonia, Albania) tend to populate the
middle of the trend line, as do the most advanced among the NIS
reformers (Russia, Kyrgyzstan, Moldova, and Ukraine). These countries
and some more modest reformers (Armenia, Kazakstan) are clearly in the
midst of their transitions and are positioned to take maximum
advantage of U.S. assistance as they continue their climb along this
trend line to market-based democracies.
Some NIS countries have not yet taken off. Some are held back by civil
strife; others suffer from autocratic rule. We will maintain a modest
presence in these countries, watching after U.S. strategic interests
and looking for opportunities to support reformers.
This regional disparity is apparent when one looks at individual
measures of economic performance or quality of life, such as:
-- rates of economic growth over the past three years;
-- recent rates of price inflation;
-- the private sector's share of GDP last year; or
-- recent trends in life expectancy and infant mortality.
These results support our decision to graduate several northern tier
countries from US assistance this year, with others to follow in
fairly rapid succession. Ambassador Holmes and I took great pleasure
in attending a graduation ceremony in Tallinn, Estonia, last year
marking the completion of our program of assistance to that successful
reformer. Similarly, we are looking forward to graduations later this
year for the Czech Republic and for Slovenia. We plan to obligate
final funding for transition assistance programs to Hungary, Slovakia,
Latvia, Lithuania, and Poland during fiscal years 1998 and 1999.
It is too early to make such definite graduation plans for Eastern
Europe's southern tier. It is clear that these southern tier countries
need continued help in both their economic reform efforts, and in
democracy building.
We are working closely with the new, reform-minded government of
Romania and hope to do the same with the new Bulgarian government
after this Saturday's elections, scheduled following January's popular
uprising there. We are also closely watching developments in Albania,
preparing to close down activities if civil order is not quickly
restored there but also looking for opportunities to support reformers
and deepen civil society as the situation there stabilizes.
We intend to provide small but increasing support to the democratic
elements that have courageously raised their heads in Serbia over the
last six months, and we continue to implement reconstruction programs
as an important part of U.S. commitments to the Dayton Accords in
Bosnia.
Our programs in Bosnia, designed and initiated in a matter of months,
are now operational on the ground and making an impact. Our Emergency
Shelter Repair program repaired 2,548 homes, providing shelter for
over 12,500 people in 44 villages throughout Bosnia. Through our
Reconstruction Finance program 61 quick-disbursing loans worth $35.5
million have been provided to commercially viable businesses,
contributing to the creation of nearly 7,000 jobs, often for
demobilized soldiers and displaced persons. About $54 million in
community-level infrastructure projects are underway -- restoring heat
and electricity to the Sarajevo area, repairing electricity
substations and power lines, resurfacing roads, repairing bridges,
clearing debris from war-damaged transportation routes, reconstructing
flood dikes, repairing municipal water systems, and rebuilding local
schools and health facilities. In addition, USAID played a critical
role in providing election-related assistance to fill gaps in donor
support for the OSCE-administered national elections in September
1996.
Although reconstruction efforts are obviously the most imperative in a
post-war society, a priority task facing Bosnia is its transition to a
market economy. Toward this end, USAID-funded technical assistance is
helping to accelerate the development of an efficient private sector
within the post war rebuilding process. Technical assistance is being
provided in five key areas including: privatization, financial sector
reform, enterprise restructuring, tax and budgetary reform, and
customs.
Complementing efforts to rebuild infrastructure and to reform Bosnia's
economy are USAID's democratization activities. USAID is one of the
few international donors to have a democracy strategy for Bosnia.
Dollar for dollar these funds are, perhaps, the most important dollars
that we spend in Bosnia. Unless democracy takes root, many of our
other development activities will have been for naught. The U.S.
government is helping to strengthen democratic institutions by
supporting political party building, providing civic education to
encourage informed participation in the democratic process, building
an independent media to allow open access and information to all
citizens and candidates, and strengthening Bosnia's judicial system.
We need a longer time frame and more resources in the NIS than we had
anticipated a year ago. Much remains to be done, including further
work in improving the policy/legal/regulatory environment that has
been discouraging trade and investment, reform of the tax regimes to
facilitate business investment and provide the revenues necessary for
legitimate public functions, developing capital markets and commercial
banking so that private enterprise can flourish, restructuring
wasteful energy systems, like those in Central Asia, continuing
support to grass-roots NGOs and to the development of political
parties and independent media that spur popular participation in civil
affairs, strengthening of judicial systems to fight crime and
corruption and facilitate the settlement of commercial disputes, and
continuing the decentralization of power and authority from central
governments to local governments in which local citizens have more
say.
Accordingly, the Administration is proposing the Partnership for
Freedom that would change the emphasis of our engagement with the
countries that are ready for such a change -- from assistance to
partnership. It builds on successes in our assistance program while
focusing on trade and investment, exchanges, and cooperative
activities. This initiative will support opportunities for U.S.
business and help support partnership activities by private U.S.
organizations. A key aspect of Partnership for Freedom activities will
be their mutuality. U.S. assistance is not charity, and the
Partnership for Freedom stresses areas in which both sides will
benefit. Along these lines, we believe that repeal of Section 907 of
the Freedom Support Act would not only help democratization and
stability in the Caucasus region but it will also led to greater
economic growth for all countries in the region.
The results I have just cited do not come out of the air. They are not
the product of guesswork. Through a collaborative process with USAID
development partners, field missions defined sets of results,
performance indicators, and targets for measuring progress against the
achievement of strategic objectives. With these tools in place, USAID
is systematically incorporating performance information into program
reviews, planning, and decision-making.
Country progress monitoring examines macroeconomic performance,
democracy and governance, and social sector data to help determine
whether continued assistance is necessary or justified. In combination
with other factors, this information helps form the basis for
country-level resource requests as well as decisions on country
graduation from U.S. assistance.
By instituting its system of managing for results, USAID is in a
better position to assess progress. While many of the countries in the
region are implementing the policy and institutional changes needed to
make reform real, not all the indicators are good. In several
countries, economic reform has advanced far faster than democratic
reform. The undermining of parliamentary independence by the
government in Belarus, a repressive regime in Turkmenistan, and the
disputed fall 1996 elections in Armenia remind us that progress toward
democracy in the NIS is far from uniform.
Some social trends are also troubling, indicating that economic reform
has not always led to economic growth and equitable distribution of
wealth. Some of the NIS countries -- most notably Russia -- are now
experiencing income inequalities comparable to Latin American levels.
Although this may be attributable, in part, to wealth creation among a
few, poverty has also increased significantly. There is also the
growth in crime, which is a serious threat to democracy and to the
willingness of U.S. business to operate in parts of the NIS
environment. While we applaud the successful completion of the first
democratic presidential election in Russia's history, we also must
take into account that some 40% of Russian voters chose the
anti-reform candidate.
While five countries in the NIS witnessed an increase in life
expectancy since 1991, on balance, the region experienced a decrease.
Life expectancy among Russian males has plummeted -- from 64 years in
1989 to 59 in 1993 and possibly as low as 57 today. In addition, six
countries in the region have experienced an increase in infant
mortality since 1991.
Just as the overall improvement in conditions in the NIS argues for
our continued involvement to help sustain and deepen reform, so too do
the less successful transitions argue for redoubled effort. The
building of free enterprise democracy in nations that have primarily
known despotism is not an exact science. There are no books that tell
USAID how to confront the withering of both a nation's industrial
capacity and its spirit after decades and decades of centralized
repression. No books, no manuals, except the ones we are writing. We
learn from our successes and we learn from our mistakes. That is why
the program I am describing today bears so little resemblance to the
program that the United States envisioned at the time the Soviet Union
dissolved. At that time we thought that our immediate mission was to
be the eradication of hunger; we discussed massive food relief. We
envisioned humanitarian assistance. But almost immediately we realized
that pure humanitarian assistance was not the answer. As the old adage
goes, it is better to teach the hungry how to fish for themselves
rather than to provide a one-time supply. Thus we have developed our
program of cooperation and partnership.
We have every right to be proud of our accomplishments in Central
Europe and the NIS. And when I say "we," I mean two succeeding
administrations, and the three Congresses. Back in 1992, it was
President Bush who saw the fall of the Soviet state not merely as
cause for celebration (which it was and is) but as an opportunity to
build peace and trade relations with nations which, for decades, we
essentially had neither. The SEED and FREEDOM Support Acts, which
funds our assistance program, was the vehicle this Committee sponsored
and Congress enacted to facilitate this transition. Upon his
inauguration, President Clinton continued and advanced his
predecessor's vision.
I wish we could say that we have finished the job and are ready to
pack our bags and come home. I cannot say that about the NIS or the
southern tier of Eastern Europe, although, as I mentioned, we will be
holding graduation ceremonies in several northern tier countries very
soon. But we have made progress throughout the entire region. As you
will see in the appendix to this testimony, we have had successes in
every country and in every area of reform. Reform is happening. But
not overnight. As we have learned over and over, the revolutions that
accomplish things overnight are those that tear down. Building takes
time but we are doing it.
Mr. Chairman: Again, thank you for inviting me to appear today. I look
forward to working with you over the coming years.
Appendix A
Results in the Newly Independent States
Building Market Economies
Russia:
As a direct result of USAID assistance, Russia's mass privatization
program (completed in mid-1994) transferred ownership of approximately
120,000 businesses from the state to over 40 million private
shareholders. The Russian people now have a stake in the economy and
in reform, and have the opportunity as entrepreneurs and investors to
make their own economic choices.
-- The private sector now accounts for 55 percent of GDP and employs
about half of the labor force. New businesses are springing up,
creating thousands of jobs. More than 200 institutions and
organizations which support entrepreneurship and innovation, such as
business incubators and business support centers, are flourishing.
-- A recent agricultural land privatization law gives citizens the
right to buy and sell land for the first time since the 1917
revolution. Titles to nearly a thousand parcels of land had been
transferred to privatized industrial enterprises throughout Russia by
October 1996.
-- A nascent residential mortgage market has been formed on the heels
of privatization of over half of Russia's housing stock. Some 25 banks
are now making housing mortgage loans on market terms -- so Russians
can buy and sell. Where public housing remains, 80% of municipalities
have means tests for housing allowances, permitting them to move to
cost recovery.
The legal and regulatory framework to make the marketplace transparent
and businesses subject to the public interest is beginning to be put
in place. More needs to be done to make the tax system fair and
non-confiscatory, to prevent money laundering and other forms of
corruption, and to improve corporate governance, but a good beginning
has been made:
-- Passage of the Civil Code, which guarantees both freedom of
contract and protection of private property, is a major advance in
creating a legal and regulatory environment to support a flourishing
market economy. The passage of scores of other laws and regulations
has begun to establish the basis for trade and investment.
-- Capital markets are up and running, and regulatory mechanisms are
in place. Stock exchanges, clearing and settlement organizations,
share registries and depositories, and a securities commission are
operating. Several legal reform programs specifically address capital
markets issues, including corporate governance and shareholder rights.
Ukraine:
Just two years into its serious economic reform program, Ukraine has
made considerable progress in monetary stabilization, trade
liberalization, and a substantial reduction in inflation, meriting
support of the World Bank and IMF.
-- USAID-assisted enterprise privatization is now well underway.
Bolstered by World Bank loan conditionality, some 400 companies a
month are entering the auction process. Approximately 30,000 of
Ukraine's estimated 40,000-45,000 small-scale state enterprises and
over 3,500 medium and large enterprises have been privatized.
-- Power sector restructuring in Ukraine has progressed beyond that of
any other nation in the former Soviet Union. A competitive wholesale
electricity market began operation in April 1996 under the structure
of an independent regulator. Ukraine's eight regional monopolies which
controlled power generation, transmission, and distribution were
broken up into 33 joint stock companies. Ukraine's heavy dependence on
fuel imports and on nuclear power make the efficiencies of the market
place particularly significant in the energy sector.
-- The National Bank of Ukraine (NBU) has taken significant steps
toward establishing a sound banking sector. NBU's Interbank Payment
System is fully functional with technical execution of payments now
taking minutes rather than weeks. Prudent banking regulations have
been enacted and approximately 1750 employees from over 100 banks have
attended training at the National Center for Training Bank Personnel,
which was created with substantial investment from NBU.
-- Parliament approved a broad strategy that establishes an open and
competitive structure for the long term evolution of capital markets
in Ukraine. An Association of Investment Businesses has been
established, uniting 140 investment funds and trust companies under a
common code of conduct. An over-the-counter trading system and a
self-regulatory organization to govern it have been established. Live
trading began in June 1996.
-- With USAID support, Ukrainian Government introduced targeted,
means-tested subsidies for housing and utilities in conjunction with
IMF-mandated price increases. More than 3.2 million families were
reached through the subsidies program, enabling price increases for
housing and communal services. As a result, net savings of $600
million was estimated for the 1995 national budget.
Moldova:
-- Moldova is a reform leader, with a stable currency, low inflation,
liberalized prices and open trade, and substantial privatization of
state assets.
-- The mass privatization program has nearly been completed, with the
participation of 90% of the eligible population and resulting in the
privatization of an estimated two-thirds of the republic's
agro-industrial assets.
-- It is the first NIS country to establish an independent securities
market regulating entity (SEC) with ministry status. The Moldova Stock
exchange opened June 1995 and by the end of the year, over 300,000
shares had been traded.
The Caucasus:
-- Despite a necessary preoccupation with meeting humanitarian needs
resulting from the region's conflict, Armenia has made progress in
developing a market economy. It has moved into real economic growth,
the first in the former Soviet Union to do so; taken initial steps in
privatizing agriculture and industry; and begun the legal, regulatory,
and policy framework needed for competition and growth.
-- Armenia was the first of the former Soviet republics to adopt a
real property law which defines basic private property interests and
rights. Housing stock is being privatized and a real estate market is
developing.
-- The Central Bank of Armenia has greatly strengthened its primary
functions, with U.S. technical assistance; bank examiners are
enforcing bank laws and regulations, and installing an electronic
accounting and payments system.
-- Efforts are well underway in Armenia to de-monopolize the
electricity sector, rationalize energy pricing, and improve tariff
collection. Armenergo, the power utility previously responsible for
all electricity generation, transmission, and distribution, has been
effectively "unbundled" into three generation companies, one
transmission and dispatching company, and approximately 52
distribution companies.
-- Georgia has made progress in macro-economic stabilization, reducing
inflation, liberalizing prices and stabilizing its currency.
-- Restructuring in Georgia's energy sector has resulted in the sale
of a number of hydro power plants to private investors, and creation
of a national regulatory body for the power sector. Georgia is
participating in an agreement with the Azerbaijan International
Operating Company and the Government of Azerbaijan on oil transit
issues.
In Central Asia:
-- Accession to GATT/WTO. Both Kazakstan and Kyrgyzstan have begun the
submission process of accession to the World Trade Organization. The
memoranda on the foreign trade regimes of Kazakstan and Kyrgyzstan
were prepared with assistance of advisors from USAID. Accession
negotiations, which will likely take at least one year, began in
March. Accession would provide a certain level of comfort for foreign
and domestic investors that a legal framework is in place. It would
also provide for dispute resolution mechanisms, again, adding to the
comfort level of foreign and domestic investors.
-- New Tax Codes in Kazakstan and Kyrgyzstan. With USAID assistance,
both countries have signed into law the most comprehensive and
systemic bodies of law dealing with taxes that have been introduced
within the NIS. As such, they will serve as models for other Central
Asian and NIS countries that seek to improve fiscal systems and
strengthen government revenues. When fully implemented, both codes
will have a tremendous impact on the establishment of a sound fiscal
policy which is fair, transparent, enforceable, and non-confiscatory.
Businessmen have long told us that lack of such codes has been a major
constraint to investment and is a factor in business corruption.
-- Commercial Law. A commercial law training program for judges,
attorneys, and prosecutors is being implemented in Kazakstan and
Kyrgyzstan. This training is designed to address problems of
white-collar commercial crimes which are a growing problem as these
two societies undertake market reforms.
-- Capital Markets. In both Kazakstan and Kyrgyzstan, a securities
commission has been established as a body apart from the Ministry of
Finance with full regulatory authority over the capital market. The
Central Asian Stock Exchange in Almaty has been operating for two
years; the Kyrgyz Stock Exchange has approximately 25 companies listed
on its exchange although trading volume is as yet very light.
-- Microenterprise Support. The FINCA Program (Foundation for
International Community Assistance) in Kyrgystan is only a little over
a year old, but has already started to show amazing success in
mobilizing resources for the growth of microenterprises. Focused
primarily on women entrepreneurs (98%), FINCA has created 264 village
banks with trained staff and an active membership of over 3,000
depositors. These community institutions have lent $500,000 to over
8,000 microentrepreneurs in the past year. While only a small amount
of money in traditional USAID project terms, this credit is not only
attaining its objective of accelerating growth of microenterprises,
but in many cases these enterprises are now stimulating development of
new agricultural production and distribution systems in the rural
sector.
-- Internet Home Page, a First for Kazakstan. You may be interested to
know, Mr. Chairman, that Kazakstan's Stock Exchange is reaching out to
investors worldwide, and with USAID assistance, has established an
Internet home page. Available in both English and Russian, it provides
company specific information on privatization and the Kazakstani
securities market. The home page includes databases on joint stock
companies, upcoming company sales, and legal information related to
business activities. It is also the only location on the Internet that
carries news from the Kazakstani press. USAID's objectives of "more
sustainable private business operations" are being launched to new
heights with the Homepage. Address: http://www.matrix.ru/stockinfo
-- Eurobonds. In December 1996, Kazakstan offered $200 million dollars
of three-year maturity Eurobonds to international investors; interest
was so high that the offering was oversubscribed. This offering came
after USAID-funded U.S. Treasury Dept. advisors provided assistance to
the Ministry of Finance. This bond offering is of critical importance
because proceeds from this issue will be used to reduce government
wage arrears, purchase electrical power and fuel, as well as fund the
acquisition of medicines and other supplies for the health sector.
-- Energy Sector Reforms. As a result of USAID technical assistance
and partnerships between Cincinnati Gas and Electric and Kazakstani
utilities, 70% of electrical generation in Kazakstan is being sold to
the private sector, including American investors such as AES of
Alexandria, Virginia. This reform represents billions of dollars of
private capital. Soon to follow will be distribution companies. In the
Caspian Sea context, the largest new petroleum potential in the world,
USAID is currently helping to develop an oil and gas legal,
regulatory, and environmental framework based on international
standards to further private investment.
Establishing Democratic Institutions
Russia:
In 1996, Russia held presidential, parliamentary, and local elections
all in the space of one year. And the process had real credibility
among the citizenry and international election observers. The fact
that 40 percent voted against reform in the presidential election
tells us there is still much to be done to win support for further
change, but it also attests to the legitimacy of the elections.
-- Judicial reform has resulted from workshops, training, and
exchanges, including a pilot program to reintroduce jury trials for
serious criminal offenses in selected regions. USAID has provided
copies of the Civil Code, Part 1, to all judges and trained over 40
percent of them in commercial law..
-- There are now 40,000 registered NGOs in Russia, up from just a
handful in 1991, representing citizens' interests and advocating
policy change at the national and local levels.
-- One of the most striking differences between the Russia of 1991 and
today is the variety of media outlets bringing information to people.
In 1991, all Russia received its televised news from only one source,
the government- controlled service. Today there are at least 500
broadcasting companies producing original programming in Russia. The
Russian government can no longer keep a war in Chechnya or the health
of its leader a secret from its citizens. Internews, an American NGO,
has played a key role in Russia with USAID funding by training and
networking both broadcast and print media in the private sector.
Ukraine:
-- A fundamental first step in the establishment of the rule of law
was accomplished with the June 28, 1996 adoption of a new
constitution. The U.S. Government's programs in Ukraine contributed
significantly by sponsoring town meetings to encourage wide public
debate; providing lawmakers with information on comparative
constitutional systems; assisting Ukraine's independent media, which
provided extensive coverage; and supporting a public education
campaign.
-- With USAID assistance, local governments are becoming more
responsive to their constituents. They have introduced a variety of
democratic reforms such as more open budgeting, town meetings, citizen
task forces, constituency outreach and local government watchdog
groups, many of which have never before existed. Municipal services
are more efficient and better financed.
-- USAID developed a network of 25 press clubs throughout Ukraine
where journalists can meet on a weekly/biweekly basis with GNU
officials to discuss different issues of privatization and economic
reform. Weekly meetings at the Kiev Press club meetings are shown
nationally during the main news program on UT-1, providing a very
effective means for GNU officials to reach a large audience.
Caucasus:
-- Armenia has made strides and had setbacks in its democratic
transition in the past year. It held parliamentary elections and
approved a new constitution in 1995. In late 1996, presidential and
local elections were held but international observers described them
as flawed.
-- An objective, professional, and independent journalistic cadre is a
necessary component of democracy, and its development is a major USAID
focus. USAID helped to organize Armenia's independent television
stations into a network with a capacity for objective, professional
journalism.
-- Progress in democratic political processes is further along in
Georgia than elsewhere in the Caucasus. The parliament is one of the
most progressive in the former Soviet Union. There is a perceptible
strong will in the political leadership, in the media, and among civic
groups to advance and protect the new democracy, to establish a
transparent system of public administration and the rule of law.
-- Georgia is drafting a new civil code.
-- USAID support has led to the creation of 50 new Georgian NGOs
participating in democratic and market reform.
-- An independent television network was created in Georgia with 11
individual stations.
-- In Azerbaijan, USAID and its NGO partners have made headway in
strengthening the NGO sector, independent media. These nascent
entities are critical to support a transition toward democratic
governance.
Central Asia:
-- NGO Development. Turkmenistan is not a democracy, yet USAID
provides critical support for the growth and development of
country-wide citizen initiatives. We are providing this support
through the ASSAYER (formerly the Institute for Soviet-American
Relations) grant program for assistance to environmental
non-governmental organizations. While government policy prohibits the
import of foreign magazines and newspapers, the Turkmen NGO, Catena,
working with its U.S. partner, the Sacred Earth Network, provides free
NGO access to information from all over the world through Catena's
Internet link-up. Catena pays for its work with local NGOs by offering
reasonable and reliable paid Internet service to Turkmen businesses
and government officials.
-- Media Support. Internews, an organization funded by USAID through
the Soros Foundation, promotes independence and diversity of the
broadcasting media in Kazakstan, Kyrgyzstan, and Uzbekistan. Internews
has been a prominent voice in promoting democracy through the
establishment of independent television stations. It is helping to
establish independent television stations by providing equipment,
technical, and business training. Numerous independent stations have
benefited from workshops and instructional materials. The impact of
the work of Internews is greater access by the public to an
increasingly strengthened and diversified broadcast media.
-- National Elections. USAID provided funding to the American Bar
Association and the American Legal Consortium to prepare analyses of
the Kazakstani Constitution which was passed by national referendum in
September 1995. According to the Kazakstani government, 90 percent of
the population turned out to vote.
-- Responsive and Accountable Local Government. With USAID funding
through International City Managers Association (ICMA) technical
assistance, the Semipalatinsk region of Kazakstan is benefitting from
a determination to reform local government. The region has privatized
housing, established open and competitive contracting for providing
goods and services, and established a short-term safety net for those
who are most affected by the transition process to a market economy.
When housing was originally privatized, the government discovered it
could no longer provide maintenance services. ICMA provided assistance
in the formation of housing associations, the new institutional
mechanisms through which homeowners may channel requests for
maintenance services. Fledgling results are that homeowners now get
maintenance work done much sooner and the government gets out of the
recurrent cost business of apartment and home repairs and maintenance.
-- Eurasia Foundation. In the last couple of years, the Eurasia
Foundation has blazed the trail in responding effectively to
on-the-ground reform needs as seen by NIS citizens and institutions
themselves. In the Central Asian Republics, the foundation has
invested roughly $6 million to support reform minded grassroots
initiatives such as the liberalization of laws governing media and the
free press, the development of new modes of citizen-government
relationships through linkages between university and training
programs on public administration reform, and the strengthening and
expansion of the nonprofit sector through newly established NGO
resource centers. Finally, to better address the growing demand such
new and innovative programs in this area of the world, the foundation
has opened a smaller satellite office in Almaty that broadens its
outreach ability.
Strengthening the Social Sectors
Russia:
Social impacts of societal change are also critical. Reform efforts
could be jeopardized if, for example, citizens cannot access basic
health services or other services essential to their welfare.
Likewise, failure of Russia to address its serious problems of
environmental pollution and unsustainable management of natural
resources will both undermine long-term economic growth and produce
substantial negative global environmental impacts.
-- Health reform has produced new policies, laws, and models that are
helping Russia improve the quality, organization, and financing of its
health care system. Health care is no longer always controlled from
the center, and is becoming more efficient and responsive to patient
needs.
-- U.S.-Russian hospital partnerships have taught Russian health
professionals state-of-the-art practices in several specializations,
including women's clinical services, and contributed to improved
hospital management. Modern contraceptive use is increasing and
abortions are decreasing.
-- Modern economic tools are being incorporated in to environmental
policy-making, e.g., introduction of user fees and regional forestry
codes. Environmental NGOs are vigorously pursuing public education,
clean-up projects, and legal and legislative efforts.
Ukraine:
-- Ukraine is making progress in protecting the most vulnerable
members of society during the economic transition and making serves
more efficient and financially sustainable. Universal price subsidies
are giving way to assistance based on need. The income-based benefits
program on housing and utilities, developed with USAID support, is a
model for a broader program of means-tested benefits for the needy. It
has resulted in a savings of $600 million in 1995 and a projected $1
billion in 1996.
-- The number of NGOs has grown markedly, from roughly 40 in 1990 to
an estimated 5,000 in 1995, with almost half working to provide social
services that the government may no longer be able to afford. USAID
programs have trained over 1,200 NGO leaders, partnered U.S. private
and voluntary organizations with Ukrainian NGOs, and provided critical
support to social service, public policy, human rights, and women's
NGOs and civic organizations. Recently, USAID launched a new program
to strengthen social service and advocacy NGOs and to improve the
legal and regulatory environment for NGOs.
-- Health care efforts are combatting a diphtheria epidemic, reforming
delivery and financing at local levels, for better responsiveness to
citizen needs, improving water quality, and making modern family
planning methods available instead of abortion.
Caucasus:
-- U.S. assistance to the Caucasus has been predominantly
humanitarian, given the severe hardships engendered by regional
conflict for all the peoples of this area. Food shipments have fed
needy citizens, refugees, and displaced persons; fuel shipments have
increased electric power; winter warmth programs have provided heat
for houses and schools. School attendance in Armenia rose
significantly as a direct result of this heating program.
Pharmaceuticals have met medical needs, and large segments of the
vulnerable populations have received vaccines against infectious
disease.
Central Asia:
-- Privatization in the Health Sector. In Kazakstan, the state-owned
pharmaceutical distribution and retail system known as "Farmatsiya"
has been almost completely privatized, helped along by USAID-funded
technical assistance. Of 1,378 pharmacies, 691 have been auctioned and
562 were privatized by the end of 1996.
-- Health Reform in Kyrgyzstan. A critical element of USAID's health
sector reform in the NIS is empowering consumers by promoting choice
and responsibility. For the first time ever, Kyrgyz consumers have an
opportunity to choose their health care provider. In June 1996, the
health reform program launched a family medicine enrollment campaign
in which 86% of residents in Karokol city and 96% of residents in Tyup
in eastern Kyrgyzstan selected from a newly refurbished group of
family practices.
-- Women's Health in Central Asia. USAID has allocated $22 million
since 1993 to reduce high maternal mortality in the Central Asian
Republics related to high fertility and the use of abortion for
fertility control. As you may know, in the former Soviet Union
abortion was the main method of birth control and many women had
multiple abortions in their lifetimes. The American International
Health Alliance (AIHA) received funds in 1996 to establish two women's
health clinics in partnership hospitals in Kazakstan and one in
Uzbekistan.
-- USAID reproductive health programs support modern, effective, and
well-financed family planning services by providing assistance in
strategic planning for nation-wide approaches, clinical training,
expanding contraceptive marketing, and informing men and women about
modern contraceptives as an alternative to abortion. In 1997, USAID
will support family planning training for Kyrgyz general family
practitioners in group practice to expand services beyond women's
clinics, and continue to expand and strengthen contraceptive marketing
programs in Kazakstan and Uzbekistan. Project sites reported a 58%
increase in modern contraceptive use and a 30% reduction in abortions
in 1994.
-- In 1996, a single center, Marriage and Family Center in Bishkek,
Krygyz Republic, reported an almost 50 percent decrease in the numbers
of abortions since 1994 and a 200 percent increase in the use of oral
contraceptives (1994 1,333 clients to 1996 4,140 clients) during that
period. Clearly there is a hunger for modern methods which can lead to
nationwide impacts.
-- Aral Sea: In Kazakstan, Turkmenistan, and Uzbekistan, the US
through USAID provided technical assistance for upgrading and
improving water systems to supply potable water to populations at
risk. By focusing on providing safe drinking water supply, which is an
environmental problem of the highest priority to each national
government, U.S. credibility and access was greatly enhanced. USAID's
tangible investments in potable water improvements have helped in turn
to create strong working relationships with the region's new
governments on issues of water management. Beginning in 1995, this
credibility was used to establish a new USAID-supported regional
program on water resources management to introduce concepts of water
economics and conservation prevalent in the United States and Europe
to the broader Aral Basin.
Appendix B
Results in Central Europe
-- Across the region, macroeconomic performance is impressive.
Economic growth continues at an impressive clip: 5% in 1996, up from
4% in 1994. Six countries in this region had economic growth at 5% or
more (Czech Republic, Albania, Poland, Romania, Slovakia, and
Slovenia), and four simultaneously reduced inflation to single digit
levels (Czech Republic, Albania, Slovakia, and Slovenia).
Exports grew by 17% in 1994-95. And 1995 fiscal deficits on average
were less than 3%, the acceptable EU threshold. The Czech Republic,
Estonia, and Croatia in fact had positive fiscal balances in 1995.
-- Still, transition to market-based economies is not complete.
Slightly less than one-half of the domestic economy, on average,
remains in the public domain, not much different than the NIS
countries. In addition, only Poland -- with Slovenia close behind --
has regained its pre-transition level of output. Overall, 1995 GDP in
the region is 85% of 1989 GDP.
-- Slower economic reform and performance than anticipated has led us
to plan a slower phasing out in Latvia. While 60 percent of Latvia's
economy is in private hands, this is largely due to a collapse of
public sector production, and several other indicators suggest that
the transition is not firmly in place. GDP is approximately half the
pre-transition 1989 economy compared to the CEE average of 85 percent.
Foreign investment and export growth lag behind the region, and
inflation and fiscal deficit remain high.
Economic policy reforms continue, albeit unevenly. Greatest progress
may be evident in trade and investment policies and small-scale
privatization; slowest progress in financial reform, enterprise
restructuring policy, and competition policy.
-- The development of political rights and civil liberties is
impressive. Drawing from Freedom House assessments, perhaps as many as
five of the 13 countries tracked in the region (Czech Republic,
Poland, Hungary, Slovenia, and Lithuania) have democratic freedoms
roughly on par with Western Europe countries. In fact, democracy
building seems to be leading the reform process in several cases,
including Lithuania, Slovenia, Latvia, and Bulgaria. Throughout the
region there are many examples of local governments introducing
innovative approaches to improving services, making more efficient use
of financial resources, and involving citizens in local
decision-making processes.
-- Trends in the social conditions -- that is, how the individual is
faring -- seem to be mixed. Inequalities and poverty have increased
significantly. Yet some of the broad health trends are favorable. The
downward trend in life expectancy experienced by most of the countries
in the early transition years has stopped, and infant mortality
continues to decline.
Our program-specific results are also impressive:
Estonia. In five years of assistance, now completed, the U.S.
supported Estonia's political, economic, and social transitions,
helping reform the country's basic structures. Institutions and
processes set in place with USAID assistance will continue to deepen
reform and build links with the West.
Among the most important program efforts:
-- Privatization. USAID advisers helped define the legal framework,
and helped analyze and negotiate privatization of large state
enterprises. The Privatization Agency is now able to direct and
implement a multi-year plan for remaining utility and other industrial
concerns.
-- Rule of Law. Assistance in constitution and legal drafting in a
wide range of areas has helped build much of Estonia's legal
framework. Commercial and civil laws, human rights, business
operations, taxation, and banking regulations have been transformed.
-- Banking System. Recovery from the 1992/93 banking crisis was
greatly facilitated by U.S. assistance. The banking system is solid,
the Estonian Government has taken measures to protect the system, and
commercial banking is satisfying an important part of the credit and
financial needs of the private sector.
-- Environment. U.S. assistance has helped build institutional
capacities to strengthen environmental analysis and decision-making
and to incorporate local governments and citizens in the process.
The Czech Republic, first in CEE to embrace reform and among the first
to graduate from assistance, has achieved a solid foundation for a
flourishing free and democratic society with a strong private sector.
Building on the Czech Republic's own outstanding commitment to reform,
program success, not dwindling AID resources, enabled our decision to
close out:
-- Privatization. More than $32 billion of state-owned property has
been transferred to private hands. USAID's advisers reviewed,
analyzed, and negotiated all foreign investor transactions.
-- Support to private enterprise. American volunteer experts, from
recent graduates to retires CEOs, have assisted hundreds of Czech
companies and entrepreneurs to rationalize operations, market goods,
manage personnel, and improve profitability. In addition, USAID funded
the establishment of the Czech Management Center (CMC) and the Center
for Economic Research and Graduate Education (CERGE), which have
developed rapidly into award-winning European centers of excellence
for business administration and economics training.
-- Municipal Finance.  A new municipal debt market has been created.
-- Citizen Participation. USAID has assisted the development of
private voluntary organizations (PVOs) promoting citizen participation
in public policy decision making.
-- Health Care. USAID has worked with its Czech partners to identify,
especially at the institutional level, the weaknesses in the Czech
health system.
Poland has made impressive strides in creating both a market economy
and functioning democracy. As the assistance program moves toward
phase-out, USAID is now strategically focused on strengthening
municipal governments as a means of consolidating economic reforms. As
an example, our "Partner City" program in Bielsko-Biala is a model
mechanism in which local democracy works, with programs that address
citizen needs and attract economic development. Dozens of active
grassroots organizations are helping city government develop
comprehensive economic development and housing strategies,
implementing small grants programs in environment, small business, and
cooperative housing. As part of its efforts to create an attractive
business climate, the city is privatizing land, enterprises, and
municipal services.
Other Program Achievements in Poland:
-- Mass Privatization. Over 13 million Polish citizens have purchased
share certificates to enable them to participate in the planned mass
privatization program. USAID assisted the Ministry of Privatization in
conceptualizing the program and designing the share distribution
system.
-- Environment. USAID-supported waste minimization projects helped 18
Polish companies achieve annual savings of $7.2 million, while
protecting the environment from further degradation.
-- Capital Markets. The stock market and bank transactions are now
efficient. Clearing and settlement of stock market trades occurs
within 3 days; interbank transfers and payment orders are cleared in
about four days. Two years ago these functions took several weeks.
-- Municipal Finance. The USAID-supported Association of Polish Cities
and the Union of Polish Metropolitan cities positively influenced
national legislation making municipal bonds more feasible and the
allocation of housing subsidies more equitable.
Hungary
-- Privatization. Four out of eight of Hungary's major state-owned
banks have been privatized.
-- Six electricity distribution companies and two power plants were
privatized in 1995, generating $1.5 billion in privatization revenues.
-- Capital Markets. Hungary's stock exchange, with 44 stocks listed,
is Central Europe's most liquid market; transactions in pharmaceutical
shares and trade companies are dominant.
-- Natural Resources. Improved environmental technologies are
providing cost savings to Hungarian industrial plants. Perrion Battery
Factory saves $65,000/year through reduction and cleanup of its waste
water flows. Borsod Chemical Factory saves $150,000/year through an
air emissions reduction program.
Croatia
-- Human Rights. A network of Croatian NGOs, assisted by USAID
grantees, has provided legal assistance and humanitarian support to
protect the human rights of refugee and displaced populations. These
NGOs handled some 3,000 legal cases involving human rights violations,
conscientious objection, repatriation, citizenship, eviction, social
benefits, and labor rights.
-- Civil Society. USAID provision of training and technical assistance
in Croatia has fostered the development of viable political coalitions
among opposition parties and more effective labor unions in support of
a broadening of options for citizens' participation in the political
process both at the local and national level.
-- Financial Sector. Croatia has made substantial progress in
restructuring its economy. USAID assistance in capital markets
development and bank supervision and rehabilitation has helped
establish a solid foundation for the development of a modern financial
sector needed to attract private investment and support sustainable,
broad-based, private sector-led growth.
-- Reintegration. USAID has played a key leadership role in Eastern
Slavonia with very limited resources to identify priority needs and
implement projects in the areas of civil rights protection, municipal
reconstruction and revitalization, and economic
reactivation/revitalization. This is an area where we need to put more
resources.
Lithuania
-- Commercial Law. A commercial law center has been established with a
modern legal library. American Bar Association advisors helped improve
the foreign investment law, passed in 1995.
-- Financial Sector. With USAID assistance in bank supervision, the
Bank of Lithuania was able to examine commercial banks, identify major
problems in ten banks, and assist the BOL in closing them, thereby
preventing further losses to depositors and maintaining the integrity
of the banking system.
-- Energy. With USAID assistance, safety was improved at the Ignalina
Power Plant and the regional electricity grid has been upgraded.
-- Politics. Municipal elections in 1995 saw parties increasingly
relying on issues-based platforms rather than personalities,
reflecting a maturing of the political system. Door-to-door
campaigning and promotion of parties at the local level was in
evidence for the first time. Efforts of USAID-funded International
Republican Institute helped bring about these changes.
-- Civil Society. USAID helped legislative initiatives to establish a
legal basis for NGO operations, including favorable tax status for
NGOs.
Romania
-- Privatization. USAID assisted in the restructuring of $56 million
in state assets which were subsequently sold by the State Ownership
Fund in a bid to increase Romania's private sector share of GDP, which
has increased from 39% in 1994 to 45% in 1995. USAID-funded advisory
services have helped hundreds of private firms grow.
-- Capital Markets. Romania approved a Securities and Exchange law,
created a new National Securities Commission, and opened the Bucharest
Stock Exchange in June 1995.
-- Media. Thirty-eight private television stations, 44 private radio
stations and 14 private newspapers are serving local and national
audiences.
Slovak Republic
-- Financial Sector Reform. 31 banks are registered with the National
Bank of Slovakia and major components of the financial sector reform
are in place. Accounting and bankruptcy laws have been passed and
interest rates respond to the supply and demand of the marketplace.
-- Capital Markets. The Bratislava Stock Exchange has seen steady
growth in both trading volumes and listings. Annual trading volume has
grown from $525,000 in 1993 to almost $1.3 billion in 1995.
-- Non-Governmental Organizations. A law on non-profit legal entities,
prepared with assistance from USAID-funded International Center for
Not-for-Profit Law, has received praise from the Slovak NGO community.
ICNL and other USAID-funded organizations helped the NGO community
mobilize against a bill passed by Parliament in June 1996 which
threatens to over-regulate foundations.
-- Environment. Major Slovak enterprises, including the Slovnaft oil
refinery, the Slovalco aluminum plant, and the Kovohuty Krompachy
copper smelting operation, are adapting technology which results in
substantial reductions in pollution.
Albania
-- Privatization. Vouchers were distributed to 1 million Albanians
(the total population is 3.2 million) and three privatization auctions
have resulted in the sale of 70 enterprises.
-- Land titling. USAID has taken the lead in implementing a property
registration system to provide secure tenure and provide the basis for
a land market. Over 256,000 final titles have been issued.
-- Agriculture. Timely availability of agricultural market statistics
and commodity situation reports resulted in early warning and
preventive actions being taken for the current wheat shortage.
-- Capital Markets. The Tirana Stock Exchange was opened in May 1996,
and will provide a venue for trading in government treasury bills,
bonds, and privatization vouchers.
Bulgaria
-- Local Focus. In response to halting progress on political and
economic reform a the national level, USAID/Bulgaria reoriented its
assistance program to focus on reform-minded municipalities with the
goal of replicating local successes throughout the country.
-- Local Government. Reform-minded local government leaders formed the
National Association of Reform Mayors and provided input on amendments
to the local government law.
-- Privatization. $26 million in small-scale privatization
transactions carried out with USAID assistance in 22 municipalities
helped make inroads at the local level while central-level
privatization stalled.
-- Fiscal Reform. Implementation of a VAT tax (implemented with
intensive IRS and Treasury Department assistance) has helped
rationalize the tax system while increasing revenues.
-- Employment. Some 600 chronic welfare recipients have been employed
through a USAID-supported social welfare-to-work program.