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U.S. DEPARTMENT OF STATE
ANNUAL REPORT TO CONGRESS ON THE NEW INDEPENDENT STATES
RELEASED: JANUARY 31, 1995
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[EDITOR'S NOTE: LIMITED COPIES OF THIS REPORT ARE AVAILABLE IN PRINT
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[FRONT MATTER]
Released by the Office of Ambassador Thomas W. Simons, Jr.
Coordinator of U.S. Assistance to the New Independent States
January 1995
Submitted pursuant to Section 104 of the FREEDOM Support Act (Public Law 102-511) -- January 1995
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I. Introduction
1
II. Assessment of Effectiveness and Overview of U.S.
Assistance in the NIS
- Armenia 9
- Azerbaijan 10
- Belarus 11
- Georgia 13
- Kazakhstan 14
- Kyrgyz Republic 16
- Moldova 18
- Russia 19
- Tajikistan 23
- Turkmenistan 24
- Ukraine 25
- Uzbekistan 27
III. Description of FREEDOM Support Act-Funded
Assistance 29
Projects in the New Independent States, 1994
- U.S. Agency for International Development 29
- U.S. Information Agency 71
- U.S. Department of Agriculture 83
- Peace Corps 85
- U.S. Department of the Treasury 88
- Title VIII Programs 90
- Department of Energy 92
- Nuclear Regulatory Commission 94
IV. Trade and Investment Initiatives 95
- Overseas Private Investment Corporation 95
- Trade and Development Agency 99
- Export-Import Bank 99
- Enterprise Funds 102
- U.S. Department of Commerce - BISNIS 105
- U.S. Department of Commerce - ABCs 109
- U.S. Department of Commerce - SABIT 115
- Bilateral Investment Treaties 119
- Generalized System of Preferences 120
- COCOM and Export Control 120
- Most Favored Nation Status 121
V. Small Business Development Programs 123
VI. Cooperative Threat Reduction Program 124
VII. U.S. Department of Agriculture Food Assistance 128
VIII. Humanitarian Assistance Programs 131
- Armenia 132
- Azerbaijan 133
- Belarus 134
- Georgia 135
- Kazakhstan 136
- Kyrgyz Republic 137
- Moldova 138
- Russia 139
- Tajikistan 140
- Turkmenistan 141
- Ukraine 142
- Uzbekistan 143
IX. Other U.S. Assistance Programs in the New Independent
States 144
- USAID NIS Farmer-to-Farmer Program 144
- USDA Technical Assistance Programs in
the NIS 146
- Department of Commerce - Bureau of Export
Administration 149
- Arms Control and Disarmament Agency 150
X. Assessment of Progress on Meeting Standards of
Section 498A of the Freedom Support Act 152
- Armenia 152
- Azerbaijan 158
- Belarus 164
- Georgia 170
- Kazakhstan 176
- Kyrgyz Republic 182
- Moldova 187
- Russia 192
- Tajikistan 207
- Turkmenistan 213
- Ukraine 219
- Uzbekistan 226
XI. Evaluation of the Use of "Notwithstanding"
Authority 232
XII. International Financial Institutions and
Initiatives 239
- International Monetary Fund 239
- World Bank 240
- European Bank for Reconstruction and
Development 243
Appendix 1: Cumulative Charts: Obligations, Expenditures,
and Commercial Financing and Insurance [NOT AVAILABLE IN
THIS ELECTRONIC FILE]
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[TEXT]
I. INTRODUCTION For two generations the Soviet Union was a threat to the United States. Its nuclear and conventional weapons threatened our physical survival and that of our allies and friends around the world. Its policies threatened vital national interests. Its ideology, and the means the Soviets used to promote it, threatened our most basic and cherished values. To meet that threat, we fought the Cold War. We mobilized and expended vast resources-- economic, military, and moral--to counter the Soviet challenge. And we were successful. We preserved our liberties, we preserved our capacity to grow in freedom, and we maintained the strength to embark on great new national endeavors once the Soviet Union had collapsed and the Cold War ended.
Among these endeavors is our national effort to help and encourage the New Independent States (NIS) of the former Soviet Union to transform themselves into partners in the international community. Fitfully, painfully and in dispersed order, one after another of these emerging new nations has chosen the historic path from dictatorship to democratic governance; from state-owned, and state-run command systems to market economies where individuals make their own economic decisions; and from over-militarized, arbitrary foreign and national security policy-makers to reliable partners in expanding structures of international peace.
Neither the United States alone nor any combination of outside actors will determine the success or failure of these transformations. This will depend on the will and capacity of the peoples and governments of each New Independent State. It is they who must bear the pain and run the risks. But whether they succeed or fail makes a difference to the United States. It is the difference between continuing mobilization to meet threats from this region--in other words, continuing the Cold War--and a new American capacity to meet challenges at home and abroad in the 21st Century. It is also the difference between lagging behind and taking the lead in developing new commercial relationships that will benefit U.S. companies and U.S. workers. We owe it to ourselves to do what we sensibly can, within our limited resources, to help make their transformation a success.
This is what the NIS assistance program has sought to do--to make a critical difference at a crucial moment in a historic transition that is in our national interest. Though it has had its problems, it has also had important successes. These successes are accumulating. 1994 was on balance a good year.
Assistance Strategies
Assistance is a vital component of U.S. policy toward the NIS. We want to achieve enduring, normal, and productive bilateral relations with each New Independent State and to encourage such relations among them and between them and their partners in the world community. The United States supports each country's emergence as an independent, democratic, and prosperous nation. We also believe that over the long term, stability and prosperity--and hence independence--require broad and enduring progress toward democracy and market-based economic management. Over that long term, each is essential to the other. Our assistance program is therefore geared to support democratic and market reform and reformers. In the four nuclear successor states of the former Soviet Union, we also have a significant program of weapons dismantlement, destruction and non- proliferation.
As called for by Section 102 of the FREEDOM Support Act, an Assistance and Economic Cooperation Strategy for all 12 New Independent States was prepared in January 1994. The Office of the Coordinator of U.S. Assistance to the NIS, working with the broader assistance community, has also prepared specific country--and in the case of Central Asia, regional- -assistance and cooperation strategies. The final two country strategies--for Belarus and Georgia--are now in preparation. In addition, the Russian strategy underwent a formal review mandated by the Coordinator and an update is nearing completion.
By strategic design, NIS assistance is a high-impact program for the decade of the 1990s. With a limited investment of time and assistance on our part, many of our assistance and cooperation partners are capable of becoming full, democratic, prosperous members of the international community in the short or medium terms. They will choose their own forms of democracy and the market, and the transition will not to be complete for decades. But reform and reformers can make it irreversible within years. Working closely with other donor countries and multilateral organizations, our job is to help these reformers.
Given differences in the level of development and pace of reform among the NIS, our strategy envisages three distinct types of assistance, delivered in the expectation that as reform proceeds most or all will no longer need substantial assistance by the end of the decade.
In the first phase, the accent is on humanitarian aid--food, fuel, and medicine to cushion the initial shock of beginning transition. In 1992 and 1993, most of our resources went to this type of assistance, both through government-to- government programs and through private voluntary organizations. Millions were fed; more millions were kept warm; millions were vaccinated and provided with other essential medical services. As economies stabilize, humanitarian aid becomes less necessary. In several states- -Tajikistan, Armenia, Azerbaijan and Georgia, for example-- it remains essential.
In the second phase, countries that choose reform--and demonstrate their political commitment to pursue democracy and market-based economic management in practice--can expect substantial bilateral technical assistance and modest capital to help them build the institutions, laws, and regulations of modern democratic societies and modern economies. Here our partners number in the thousands rather than the millions; but they are the reformers and decisionmakers who make the policies and provide the examples for the millions. Iowa farmers take their know-how to Ukrainian farmers, Uzbek students study in Kansas, Peace Corps Volunteers from Michigan teach English in Moldova, financial sector advisors work with colleagues in half a dozen NIS ministries, retired American executives share their expertise in the Kyrgyz Republic. In 1994, the program continued to target disproportionate resources on those NIS that had chosen reform in 1992-1993--Russia, the Kyrgyz Republic, Moldova and Kazakhstan. But it also geared up to increase resources for the "second wave" of states in the process of choosing comprehensive reform after two years of delay and decay--Ukraine, Armenia, Georgia, Belarus--and thereby permit the United States to lead international support efforts on their behalf.
In the third phase, as economic stability takes hold and economic vitality grows under market conditions, there is extra U.S. Government support for the private-sector engagement in the trade and investment that must supersede assistance and provide the foundation for normal economic relations. Using funds from both the FREEDOM Support Act and their own appropriations, OPIC, TDA and the Export- Import Bank are responding to project proposals from firms, and demands for their services--and for the modest capital available through enterprise and private venture funds-- thereby reflecting progress and encouraging private sector development and the growth of a market environment. In 1994, Russian-American ventures were the primary beneficiaries, given the continuing progress of reform in Russia, but Kazakhstan, Ukraine and others should receive increased support as reform in those countries proceeds.
Because the program is transitional by design, the strategy includes firm plans to end most assistance by the end of the decade. For example, the Russian program identifies 1998 as the last year for new obligations. By the dawn of the new century, therefore, private sector trade and investment should be the normal basis for U.S. economic relations with all or most New Independent States.
The Four Components of the NIS Assistance Program
The overall assistance program is composed of four distinct components: technical and economic assistance funded by the FREEDOM Support Act, dismantlement and demilitarization assistance funded by the Cooperative Threat Reduction Program ("Nunn-Lugar" Program), food assistance funded by the U.S. Department of Agriculture, and humanitarian assistance provided by private and U.S. Government sources. In varying combinations (excluding "Nunn-Lugar" resources), these programs also provide the U.S. contribution to IMF/IBRD-led stabilization efforts in newly-reforming NIS. Through FY1994, total cumulative (since the initial appropriations to these programs in FY1992) appropriations for the FREEDOM Support Act and Cooperative Threat Reduction assistance programs totaled $4.48 billion, total cumulative obligations for all programs (including food and humanitarian assistance, which fall outside the assistance appropriations process) totaled $6.55 billion, and total cumulative expenditures totaled $4.68 billion. Appropriations, obligations and expenditures for each of the four components of the assistance program through the end of December 1994 are as follows:
Appropriated Obligated Expended
FREEDOM Support Act $3.21 billion $2.5 billion $1.1 billion
-funded assistance projects
Cooperative Threat $1.27 billion $473 million $100 million
Reduction Program
USDA Food Assistance $2.42 billion $2.32 billion
Humanitarian Assistance* $1.16 billion $1.16 billion
TOTALS $4.48 billion $6.55 billion $4.68 billion
* Public and private donations transported by the U.S. Government.
Of the $4.68 billion of expenditures in the overall assistance program, the Russian Federation has received $2.28 billion, or somewhat less than one-half of the total cumulative expenditures in the NIS (the Russian share of assistance funded only under the FREEDOM Support Act is also less than one-half of the total expenditures in the NIS). Armenia has received the second largest amount of assistance from the United States--over $444 million--and by far the most assistance per capita; but the bulk of this assistance has been in the form of humanitarian and food assistance. Ukraine, which has only recently begun to implement a serious economic reform program, has received the third largest amount of overall assistance, $392 million, but has received the second largest amount of technical and economic restructuring assistance.
For FY1995, Congress appropriated $850 million under the FREEDOM Support Act and $400 million under the Cooperative Threat Reduction Program. (FY1995 funding for USDA food assistance and humanitarian assistance has not been finally determined.) In FY1994, the Russian Federation was allocated approximately 65 percent of new FREEDOM Support Act funding, but is slated to receive only approximately 45 percent of the FY1995 assistance funds allocated under the FREEDOM Support Act.
The Cooperative Threat Reduction Program, initiated in FY1992, was established to decrease the threat of weapons of mass destruction by assisting the former Soviet republics in the following areas: safe and secure transportation, storage and nonproliferation. The program operates in the four nuclear states of the former Soviet Union--Russia, Ukraine, Belarus and Kazakhstan. U.S. negotiators initially encountered numerous difficulties and delays as they sought agreements on specific weapons dismantlement and destruction projects. After a slow start, in FY1993 and FY1994 over 30 agreements were signed and implementation of these agreements began in earnest. Obligations through December 1994 increased four-fold over the previous year to $473 million and continues to increase rapidly. Congress has been notified of proposed obligations for an additional $535 million to implement these agreements, for a total of $969 million.
Significant Developments in the 1994 Program
Across the length and breadth of the eleven NIS time zones, 1994 was the year when the $2.5 billion in new multi-year funding provided by the Congress in September, 1993, began to roll out and demonstrate serious impact in support of reform. The accent was on technical assistance, the offer of the best of American know-how and expertise in field after field to reformers willing and able to use it. Thousands of NIS citizens at every level of education and in a score of fields came to this country; thousands of knowledgeable Americans in scores of organizations arrived to share their expertise with area counterparts. In sector after sector--privatization and post-privatization support, economic restructuring, energy, the environment, health, small business development--new laws, new regulations, new institutions, new ways of doing things emerged and began to take root in country after country, at the central and local levels. The bulk of this report is a record of some of these achievements--and some of the problems encountered along the way, but a number of significant developments deserve highlighting in this introduction:
Following President Kuchma's bold decision this fall to undertake a comprehensive economic reform program, we mounted a broad and substantial assistance program in Ukraine.
Ukraine also provided the first major test of the program's capacity to support macro-economic stabilization and micro- economic restructuring programs agreed between newly reforming NIS, the International Monetary Fund ,and the International Bank for Reconstruction and Development; with our active engagement, it was successful.
As the progress of reform increased the demand for direct support of U.S. trade and investment, we enhanced the emphasis on this aspect of the program, while maintaining our stress on core technical assistance to help create the conditions required for the healthy functioning of a market economy. For example, OPIC provided over $700 million in financing for projects in the NIS in 1994.
As reform progressed in Russia and the other NIS embarked on the reform path, the proportion of assistance targeted at Russia and non-Russian NIS shifted toward the latter, up from 35 percent in FY1994 to over 55 percent in FY1995.
Coordination with other donors to maximize synergy and minimize redundancy made significant progress, in international donor's fora and in bilateral consultations, particularly with the European Union; the establishment in Moscow of an assistance unit attached to the Ambassador's Office improved issue management of the region's largest program.
Training and exchange programs exploded, toward Marshall Plan proportions, and began to put in place the solid underpinning in human experience and contact that sound future U.S.-NIS relations will require. In all, almost 12,000 people from the NIS participated in training and exchange programs in 1994.
Structure of the 1994 Annual Report
The 1994 Annual Report on the U.S. assistance program in the NIS is divided into eleven sections, with one appendix containing figures for obligations, expenditures, and commercial financing and insurance. Information used in this report was gathered from Washington agencies involved in the assistance program, the U.S. Embassy in each of the twelve NIS states, and assistance providers in the field. The Annual Report was prepared by the Office of Ambassador Thomas W. Simons, Jr., Coordinator of U.S. Assistance to the NIS.
II. Assessment of Effectiveness and Overview of U.S. Assistance in the NIS
The following assessments and overviews provide a snapshot of the U.S. assistance program in each New Independent State in 1994. These assessments are based on information provided by our Embassies and other field-based assistance providers, as well as the U.S.-based representatives of various government and non-governmental agencies involved in the NIS assistance program. They contain information on the climate for economic and political reform in each state, specific strategic objectives, budgetary outlays and program problems. For complete information on specific assistance programs, please refer to those particular sections of this Annual Report.
Overall, the U.S. assistance program in 1994 made a significant contribution to the reform process. Stronger commitment to reform in a number of states--most notably Ukraine, Moldova and Armenia--as well as the continuing economic reform in Russia provide clear evidence of progress. Moreover, we achieved greater focus in our programs, ensuring that the assistance we provide is the assistance that is required and desired. A number of projects--such as the grain storage facility project--have been eliminated completely or significantly altered in light of our strategic objectives. In Russia, we have also instituted a regional assistance strategy that helps us better concentrate our efforts on those regions in Russia most likely to use our assistance productively and we have established an assistance unit in Embassy Moscow to better coordinate the numerous assistance activities underway in that country.
For the most part, programs underway are helping achieve the primary U.S. strategic goal --to establish enduring, normal and productive bilateral relations with each New Independent State and to encourage such relations among them and between them and their partners in the world community. We have also contributed to the emergence of each country as an independent, democratic and prosperous state--which must be seen as a long term process. The U.S. assistance strategy for the NIS has three primary objectives:
Foster the development of a competitive, market-oriented economy in which the majority of resources are privately owned and managed.
Support the transition to transparent and accountable governance and the empowerment of citizens, working through their civic and economic organizations and democratic political processes that ensure broad-based participation in political and economic life, and respect for human rights and fundamental freedoms.
Strengthen the capacity of these states to manage the human dimension of the transition to democracy and a market economy, and help sustain the neediest sectors of the population during the transition period.
In response to the changing conditions in some NIS states, the focus of the U.S. assistance program has also moved significantly away from humanitarian assistance and into economic and technical assistance--and in Russia to a program which features strong support for U.S. trade and investment as well.
The assistance program, however, continues to struggle with a variety of different problems, ranging from difficulties with the actual provision of assistance to problems in determining the proper course of action. A number of Embassies have expressed concerns that their expertise and authority have not been adequately sought or taken into account in the development of assistance projects. Occasionally, specific assistance programs run into problems because of the lack of experience or knowledge of the assistance providers in the field, and sometimes because of the demands of program developers and designers in Washington. A common criticism has been the lack of follow- up assistance--we provide advice or training, only to leave the scene before gauging what the next steps should be and how to implement those next steps. We are continually striving to address these problems as they appear.
In recognition of the well-publicized problems with crime and corruption in countries throughout the NIS, our programs have also been designed to minimize these risks. For example, assistance is provided through contracts with U.S. firms and organizations to deliver technical assistance rather than through grants to NIS governments. Indeed, relatively little assistance is directed at government at all. The Inspectors General of agencies and departments delivering assistance are taking extra efforts to ensure that they are exercising their audit responsibilities in a manner appropriate for these types of activities.
Armenia
The U.S. assistance program in Armenia in 1994 continued to help provide essential support for the Armenian people during the continuing tough period of embargo and transition, with increasing emphasis on assisting the development of legal and institutional structures to facilitate the growth of its democratic government and a market economy. The Armenian Government has taken some of the steps necessary to move forward with essential reforms, including the privatization of most of the country's arable land. With the establishment of a tentative cease-fire in Nagorno-Karabakh and the first signs of economic stability, the reform climate in Armenia has shown signs of improvement. Finally, Armenia has moved boldly and courageously toward agreements with the IMF and IBRD that will permit comprehensive reform to go forward for the first time.
U.S. technical assistance in the near term will focus on helping Armenia to get key elements of the legal and institutional framework in place. Initial efforts are strengthening the knowledge of and tools available to policy- makers who play key roles in the stabilization and restructuring process. These efforts will complement those of the World Bank, the IMF, and--given the likely lag before those institutions become fully engaged in Armenia--will provide assistance in selected areas slated for later multilateral support. Our efforts will build on economic reform objectives set by the government and the progress they have already achieved. Our assistance program in Armenia can be divided into these general categories:
Activities to provide food, medicine, and fuel assistance.
Activities that support macroeconomic stabilization and economic restructuring.
Activities aimed at creating the legal framework needed for a functioning market economy.
Activities aimed at strengthening civil society and participatory democracy.
As of December 31, 1994, the U.S. Government had obligated a cumulative total of $124 million in technical assistance, $266 million in food assistance, and $104 million in humanitarian assistance. Over $444 million of assistance had been expended as of this date. In FY1994 alone, the U.S. budgeted $83 million for technical and humanitarian assistance to Armenia. (See Appendix 1 for a complete description of obligations and expenditures.)
Foremost among the various elements of U.S. assistance is the impact of the substantial grants of food grains and heating fuels provided to Armenia this year, including 230,000 tons of wheat and 50,000 tons of kerosene, transport of heavy fuel oil, donated medicines and surplus agricultural commodities. The President, Prime Minister and most levels of Armenian society repeatedly thank the United States for the life-sustaining function of this food and fuel assistance and the underpinning it provides to the government's reform program and the country's economic stability and political independence. Other key U.S. initiatives in Armenia include support for energy, housing, training and exchanges programs, and economic restructuring programs.
While the overall positive impact of U.S. assistance to Armenia this year has overshadowed most shortcomings, several continuing problems have limited the degree of success and cost-effectiveness. In particular, the lack of early, comprehensive action on the deteriorating, ill- managed transportation system in the region continues to haunt U.S. assistance efforts. According to our Embassy, the delivery of urgently-requested assistance for energy system improvements and economic advice and data processing was time consuming and long-delayed by USAID's process requirements and centralized contract authorities. The Embassy also reports that handling the large number of requests for information from Washington adds significantly to the workload of the small field staff.
The U.S. plans to continue supporting Armenia's economic and political reform program in FY1995. Despite significant cuts in the overall NIS assistance budget, FY1995 funding for Armenia as a percentage of the overall NIS budget is slated to rise, and we will be challenged to lead the international community's efforts to support comprehensive Armenian reform in the context of emerging IMF/IBRD programs. U.S. assistance will primarily go to support humanitarian and food needs, with significant resources also directed at promoting exchanges and training, economic restructuring, private sector development and housing.
Azerbaijan
The U.S. assistance program in Azerbaijan--limited by U.S. legal restrictions--has played an important role in providing humanitarian assistance to refugees and internally- displaced persons, and encouraging the country's transition to a market economy and democracy. U.S. Government assistance to the Government of Azerbaijan is prohibited by Section 907 of the FREEDOM Support Act until Azerbaijan takes steps to cease offensive uses of force and lift embargoes against Armenia. As a result, all U.S. assistance is directed at individuals and organizations not associated with the Government of Azerbaijan.
Although Section 907 of the FREEDOM Support Act prohibits bilateral government-to-government assistance of the type available to the other NIS, our strategic objectives in Azerbaijan are the nonetheless the same as those of the other states. Our necessarily limited assistance program in Azerbaijan can be divided into these general categories:
Emergency aid to refuees and displaced persons.
Educational and entrepreneurial training and exchange programs.
Democracy-building projects.
As of December 31, 1994, the U.S. Government had obligated a cumulative total of $30 million in technical assistance, $30 million in food assistance, and $20 million in humanitarian assistance. Over $60 million of assistance had been expended as of this date. In FY1994 alone, the U.S. budgeted $12 million for technical and humanitarian assistance to Azerbaijan. (See Appendix 1 for a complete description of obligations and expenditures.)
The bulk of U.S. assistance to Azerbaijan has focused on addressing immediate humanitarian needs by providing food, medicines and shelter to the neediest segments of the Azerbaijani population. A few other assistance projects, however, were carried out in 1994, including:
A USAID-funded training and exchange program which brought representatives of private sector Azerbaijani groups to the United States for training.
The USIA Secondary School Exchange Program, which brought a group of 15-17 year-old students to the United States to live and study in 1994.
The U.S. plans to continue to do what it can to support and encourage economic and political reform in Azerbaijan in FY1995. U.S. assistance will primarily go to support training and exchange programs, private sector rural development, and food aid.
Belarus
The small amount of U.S. assistance extended to Belarus in 1994 was on the whole effectively utilized to encourage the beginning of reform in Belarus. U.S. assistance to Belarus focuses on encouraging the country's transition to a market economy and democracy. In addition, through the Cooperative Threat Reduction program, the U.S. seeks to assist the Belarus Government in fulfilling its commitment to denuclearization and nonproliferation, including through facilitating the conversion of Belarus defense industries. The election of President Aleksandr Lukashenko in July 1994 may signal a new spirit of reform on the part of the Belarus Government, but the lack of prior Belarusian Government action thus far on economic reform has limited extensive U.S. engagement in this sector. If Belarus reaches agreements with the IMF and IBRD, thereby joining the "second wave" of newly reforming NIS that demonstrate strong and practical commitment to reform, U.S. leadership will be important to international community efforts to support these efforts.
The focus of our program in Belarus mirrors that of other NIS:
Activities to foster the development of a competitive, market-oriented economy in which the majority of resources are privately owned and managed.
Activities to promote democratic institution-building.
Activities designed to help sustain the neediest sectors of the population during the transition period.
As of December 31, 1994, the U.S. Government had obligated a cumulative total of $36 million in technical assistance, $195 million in food assistance, $62 million in humanitarian assistance, and $23 million for the Cooperative Threat Reduction program. Over $268 million of assistance had been expended as of this date. In FY1994 alone, the U.S. budgeted $12 million for technical assistance to Belarus. (See Appendix 1 for a complete description of obligations and expenditures.)
U.S. initiatives in Belarus include support for programs in energy, the environment, privatization, training and exchanges, and private rural sector development, and a large food assistance program. The U.S. Embassy reports that humanitarian medical assistance and technical assistance directed at supporting municipal authorities have been highly successful. Other aspects of the programs are:
Projects to strengthen professional legal associations and to support efforts to create legal continuing education programs.
Efforts to support the development of indigenous non- governmental organizations (NGOs).
Farmer-to-Farmer exchange programs and other agricultural technical assistance.
The establishment of a system of privatization auctions and support for the development of advertising and public education strategies.
Continuing support for a hospital partnership program between the Children's Hospital of Pittsburgh and three medical facilities in Minsk.
Despite the overall positive assessment of the U.S. assistance program in Belarus, we have experienced a few problems. For example, the Embassy reports that some USAID projects have moved forward without receiving proper concurrence from the Ambassador. The Embassy also has raised concerns about delays in the implementation the Cooperative Threat Reduction program in Belarus--the largest source of assistance available now to Belarus. According to one Embassy report, "seemingly endless delegations have bewildered and strained the resources of both the Embassy and the Belarusian Ministry of Defense leading the Minister of Defense to publicly criticize the program." U.S. Department of Defense officials are addressing these concerns directly with the Minister of Defense.
The U.S. plans to support and encourage economic and political reform in Belarus in FY1995. U.S. assistance will primarily go to support training and exchanges, with significant resources also directed at environmental and energy programs, and health care. The U.S. also plans to provide up to $10 million in food commodities in 1995. Should the Belarusian Government move forward with a significant reform program, we would consider expanding the program to include support for economic restructuring and privatization.
Georgia
U.S. assistance to Georgia was crucial to the economic, social and political survival of Georgia in 1994. Our assistance program has focused on assisting Georgia's transition to a market economy and democracy, and to helping the country maintain a safety net for its vulnerable population. Our initiatives have also contributed to increased efforts in Georgia by other international donors. Together, U.S. assistance and our urging that other donors increase contributions have demonstrated support at a time when its leaders faced a discouraging array of problems in their efforts to build a viable nation. Despite a wide range of serious domestic political, military and social problems, the Georgian Government has taken some of the steps necessary to move forward with a sound reform program, including the privatization of much of the country's arable land, and is working intensively with the IMF and IBRD to reach agreements that will put deep, comprehensive reform on track. With the freeing of the price of bread and fuel and the first signs of economic stability, the reform climate in Georgia has shown signs of improvement.
The focus of our program in Georgia mirrors those of other NIS:
Activities to provide food, medicine, and fuel assistance.
Activities that support macroeconomic stabilization and economic restructuring.
Activities aimed at creating the legal framework needed for a functioning market economy.
Activities aimed at strengthening civil society and participatory democracy.
As of December 31, 1994, the U.S. Government had obligated a cumulative total of $60 million in technical assistance, $227 million in food assistance and $143 million in humanitarian assistance. Over $367 million of assistance had been expended as of this date. In FY1994 alone, the U.S. budgeted $35 million for technical and humanitarian assistance to Georgia. (See Appendix 1 for a complete description of obligations and expenditures.)
Major U.S. initiatives in Georgia include support for energy, training and exchanges, democratic reform and economic restructuring, and a large humanitarian food, fuel and medicine assistance program (see the humanitarian assistance section of the Annual Report for more detail). Specific projects include:
Efforts to improve energy efficiency through weatherization of factories and apartments and installation of dedicated power lines to ensure service to critical facilities such as hospitals and bakeries.
Election training and voter education.
Support for a medical partnership between Grady Memorial Hospital (Emory University) and the Morehouse School of Medicine and two medical facilities in Tbilisi.
Support for several short-term and one long-term economic advisor for the Georgian Government.
Training and exchange programs to benefit parliamentarians, other government officials and students.
The United States plans to continue supporting Georgia's economic and political reform program in FY1995. Despite significant cuts in the overall NIS assistance budget, FY1995 funding for Georgia as a percentage of the overall NIS budget is projected at this point to double, and if Georgia negotiates IMF/IBRD programs that embody comprehensive reform, the U.S. will play a key role in leading international efforts to support them. U.S. assistance will go primarily to help meet humanitarian and food needs, with significant resources also directed at promoting exchanges and training, economic restructuring, health, and energy.
Kazakhstan
The U.S. assistance program in Kazakhstan began achieving more concrete results in 1994 as many programs moved from the planning or pilot stage to full, country-wide implementation. Our assistance program is designed to help create the conditions for sustained economic restructuring and democratic development. In addition, through the Cooperative Threat Reduction program, the United States seeks to assist the Kazakhstani Government to dismantle and eliminate weapons of mass destruction located on its territory and to facilitate the demilitarization of Kazakhstan. This assistance has played a role in helping Kazakhstan to undertake and implement its exemplary denuclearization commitments. A major success in this area was the transfer of 600 kg of highly enriched uranium from Kazakhstan to safe storage in the United States in November 1994.
During President Nazarbayev's visit to Washington in February 1994, President Clinton pledged to provide additional humanitarian and technical assistance, commercial agricultural credit guarantees, assistance for the safe dismantlement of nuclear weapons, and U.S. investment resources valued at about $311 million.
Our assistance program in Kazakhstan can be divided into these general categories:
Activities to promote private enterprise growth and to facilitate defense diversification.
Activities to support the development of constitutional and legal frameworks that provide the basis for a democratic society operating under the rule of law.
Activities to reform health care finance and health service delivery.
As of December 31, 1994, the U.S. Government had obligated a cumulative total of $147 million in technical assistance and $34 million in food assistance, $81 million in humanitarian assistance, and $5 million for the Cooperative Threat Reduction program. Over $184 million of assistance had been expended as of this date. In FY94 alone, the U.S. budgeted $127 million for assistance to Kazakhstan--including part of the initial $30 million tranche for the Central Asian- American Enterprise Fund. (See Appendix 1 for a complete description of obligations and expenditures.)
Major U.S. initiatives in Kazakhstan include support for privatization, economic restructuring, training and exchanges, and the first stage of a regional program to address health and environmental problems related to the desiccation of the Aral Sea. Specific projects include:
Economic advisors who supported efforts to draft a new tax code and the budget, and helped introduce government securities.
Support for the establishment of the Kazakhstani Securities Commission, stock exchange, and other capital market development projects.
Election assistance and training directed at the judicial and legislative branches.
Training and exchange programs that focused on parliamentarians, other government officials and entrepreneurs.
Student exchange programs.
The assistance program, however, has run into a few problems. For example, the accelerated pace in implementation of privatization and other economic restructuring initiatives has been matched, if not outpaced, by the spread of corruption and organized crime. According to our Embassy, without a complementary legal and regulatory framework, privatization is likely to reinforce the worst consequences of an uneven playing field. The Embassy suggests that we focus more on helping the government move more rapidly to establish comprehensive commercial and civil laws as well as openness and transparency in its activities.
Corruption and implementation difficulties are also key factors--in Kazakhstan and across the NIS--that must be taken into account in our assistance program. U.S. assistance funds are provided through assistance implementors, grantees and NGOs--not through NIS government structures--so as to minimize the potential for diversion. Nevertheless, endemic corruption can undermine efforts to move toward political transparency and effective markets. Assistance cannot solve the corruption problem, but we are taking steps to help in the development of a clear, comprehensible and equitable environment, especially in terms of defining what constitutes legal economic activity. Problems in implementing programs are compounded by the distances and breakdown in transport and communication links within the region--for example, what once was a two-hour flight between two Central Asian capitals has become a 24 hour expedition involving several different modes of transport.
The United States plans to continue supporting Kazakhstan's economic and political reform program in FY1995. Despite the sharp cuts in the FY1995 NIS assistance budget, as a percentage of the overall budget, the U.S. has budgeted slightly more for technical assistance programs in Kazakhstan in FY1995 than in FY1994. U.S. assistance is targeted on support for the government's privatization and economic restructuring programs, as well as additional funding for the Aral Sea project. Newly privatized enterprises in Kazakhstan will likely be prime recipients of loans and equity investments from the Central Asian-American Enterprise Fund.
Kyrgyz Republic
The U.S. assistance program in the Kyrgyz Republic in 1994 has in general been effective. In particular, the food aid, transfers of medicine, and privatization efforts have either addressed critical needs or spurred the Kyrgyz Government to quicken the pace of economic reform. In 1994, the Kyrgyz Government had taken many of the steps necessary to move forward with a sound economic reform program--evidenced by the support expressed by the international donor community at the June 1994 World Bank Consultative Group meeting. The Kyrgyz Government's leading role in the region in its commitment to democracy and the rule of law, however, was still open to some question in 1994 and remains a cause for concern. Recent political developments--such as the shutting down of two anti-government newspapers and a presidential-engineered parliamentary boycott--may lead to reduced U.S. support for some assistance projects, and the consequences for our program and the policy it serves could be significant if a cessation or significant curbing of democratic and economic reform becomes widespread.
Our assistance program in the Kyrgyz Republic can be divided into these general categories:
Activities to support the development of a competitive, market-oriented economy.
Activities to support the transition to transparent and accountable governance and respect for human rights and fundamental freedoms.
Activities to provide humanitarian food assistance to vulnerable segments of the population.
As of December 31, 1994, the U.S. Government had obligated a cumulative total of $62 million in technical assistance, $143 million in food assistance and $50 million in humanitarian assistance. Over $202 million of assistance had been expended as of this date. In FY1994 alone, the U.S. budgeted $57 million for technical assistance to the Kyrgyz Republic--including $7 million which was awarded on the basis of performance. (See Appendix 1 for a complete description of obligations and expenditures.)
Major U.S. initiatives in the Kyrgyz Republic include support for the government's privatization and economic restructuring programs, as well as projects in the energy sector and projects in support of democratic reform. These projects include:
A highly successful health partnership between the Kansas State University Medical Center and the Kyrgyz Ministry of Health.
A focused Farmer-to-Farmer program which has brought U.S. experts with concrete agricultural experience to help Kyrgyz farmers.
Technical assistance to create new energy sector laws and regulations, help privatize utilities, and to improve the infrastructure of district heating and power transmission systems.
Long-term advisors to assist the Central Bank and the State Committee on Economics.
Peace Corps programs to teach English.
Educational exchange programs.
Despite successes, the U.S. assistance program in the Kyrgyz Republic has had its share of problems. The Embassy recommends that more attention be given to the rule of law and the training of the next generation, i.e., training at the university level and not training at the working level (existing training programs appear to have had little impact on recipients in terms of how they do their jobs). The Embassy also favors a better mix and a better regional distribution of programs that provide immediate visible benefits to the population and long-term technical assistance programs. The absence of a permanent USAID representative in Bishkek that can coordinate the various independent programs has been a problem, but just such an individual is expected in January 1995.
The United States intends to continue supporting the Kyrgyz Republic's economic and political reform efforts in FY1995-- provided the Kyrgyz Government continues its support for economic and democratic reform. Despite the sharp cuts in the FY1995 NIS assistance budget, the U.S. plans to spend slightly more--as a percentage of the overall budget--for technical assistance programs in the Kyrgyz Republic in FY1995 than it did in FY1994. U.S. assistance in FY1995 is targeted on continued support for privatization and economic restructuring, as well as programs in health sector reform and training and exchanges. Moreover, newly privatized enterprises in the Kyrgyz Republic will likely be prime recipients of loans and equity investments from the Central Asian-American Enterprise Fund.
Moldova
The U.S. assistance program in Moldova has proven critical to the pace of that country's economic and democratic reform. Supported by U.S. assistance and diplomacy, the Moldovan Government has taken many of the steps necessary to move forward with a sound reform program, such as establishing a foreign exchange market, unifying the exchange rate, and liberalizing prices. Despite a series of natural disasters, Moldova has generally adhered to its obligations under IMF/IBRD programs, and if additional support is required in 1995 to enable it to sustain its reform commitments, it can expect a sympathetic hearing from the international community, including the United States.
Our assistance program in Moldova can be divided into these general categories:
Activities which assist in the privatization of state-owned assets and develop the institutions necessary to support a market economy.
Activities to assist the Moldovan Government to incorporate the concept of rule of law into its institutional practices and improve the understanding of democratic institutions and practices.
Activities to provide necessary food, fuel, energy supplies, and essential vaccines and pharmaceuticals.
As of December 31, 1994, the U.S. Government had obligated a cumulative total of $57 million in technical assistance, $91 million in food assistance and $55 million in humanitarian assistance. Over $155 million of assistance had been expended as of this date. In FY1994 alone, the U.S. budgeted $34 million for assistance to Moldova, including $14 million which was awarded on the basis of performance. (See Appendix 1 for a complete description of obligations and expenditures.)
The U.S. assistance program in Moldova includes a variety of distinct projects, but support for privatization and the establishment of a market economy remain the largest component of our assistance program. High-ranking Moldovan officials have told our Embassy that without the expertise and infrastructure support provided by U.S. contractors, the Moldovan privatization process would not have gotten off the ground. Among the other forms of assistance are:
Long-term advisors who provide technical assistance to the Moldovan Government on taxation, government securities, and budget issues.
Farmer-to-Farmer exchange programs and other agricultural technical assistance.
Voter education and election monitoring projects.
Support for vaccine policy and a childhood immunization support program.
Training and exchange programs for professionals and students.
USDA food assistance, which has helped to alleviate the consequences of a severe drought.
Late in the year, Moldova suffered a disastrous flood. The U.S. responded with nearly $450,000 in emergency assistance, and has worked with the European Union to insure that food and other basic needs will be taken care of in the coming year.
The U.S. plans to continue supporting Moldova's economic and political reform program in FY1995. Despite significant cuts in the overall NIS assistance budget, FY1995 funding for Moldova is projected to remain at 1994 levels, an indication of the strong support of the U.S. for Moldova's courageous reform efforts. In addition, we will be expected to contribute to any additional support required to help Moldova sustain its programs with the IMF and the IBRD. U.S. assistance will primarily go to support the government's privatization program, with significant resources also directed at promoting exchanges and training, economic restructuring and health care reform. In addition, the United States plans to support private enterprise development through the newly-created West NIS Regional Enterprise Fund. The United States also plans to provide up to $12 million in food commodities in 1995.
Russia
The U.S. assistance program in Russia, the largest and most diverse in the NIS, moved into full swing during 1994. Technical assistance activities were launched or expanded in all the major project areas targeted at supporting democratic and market reforms. In some areas, such as mass privatization, activities peaked and were brought to a successful conclusion. Exchanges and training programs also grew rapidly in 1994. In addition, programs in direct support of trade and investment, including three new U.S. Government-supported enterprise funds which began operation this year, experienced a major increase in activity.
Over the past year, the U.S. assistance strategy for Russia has evolved in response to changing needs and conditions in Russia as well as changes in the resources available for the program. During the early transitional phase, humanitarian aid loomed large in our assistance program because of the pressing need for food, medicine and other essential commodities. As economic activity reduced the need for humanitarian assistance in Russia, the United States moved quickly to expand technical assistance directed at helping Russia create the laws, regulations and institutions necessary for a democracy and market economy to function. Now that elements of a market economy have begun to emerge, the United States has placed more emphasis on helping Russia spur private sector development by increasing direct support for trade and investment.
At their summit in September 1994, President Clinton and President Yeltsin reaffirmed the common interests of the United States and Russia in maintaining a cooperative relationship. President Clinton pledged that the U.S., through a broad program of partnership, would continue to assist Russia in achieving its goals of fundamental democratic and market reforms. But the two Presidents also agreed that the United States and Russia should move as rapidly as possible beyond assistance to a normal economic relationship.
The Joint U.S.-Russian Commission headed by Vice President Gore and Prime Minister Chernomyrdin has provided an additional channel for coordinating bilateral assistance and advancing cooperative efforts on such matters as public health, energy, the environment, space, trade and investment. The regular meetings of the Commission have provided a forum to focus high-level attention on specific issues of interest and spur practical cooperation to resolve them. For example, our common undertaking with Russia and Western partners to build an international space station is a direct result of the Gore-Chernomyrdin process. One direct result is a $400 million contract between NASA and the Russian Space Agency for goods and services related to the space station project.
A detailed list of U.S. assistance projects is provided in following sections of the Annual Report. Assistance programs in Russia fall generally into three broad categories: programs to promote market reform through expansion of private sector activity; programs to support and promote the development of democratic institutions and political processes; and programs to enhance the capacity to delivers social services in ways that are fiscally sustainable and compatible with a market economy, with particular attention to vulnerable groups. In addition to our efforts directed at economic and political reform, we also support efforts to facilitate and accelerate the destruction and dismantlement of weapons of mass destruction and to address issues of non-proliferation. Several achievements in 1994 are particularly noteworthy:
With the assistance of U.S. advisors and technical support, the Russian State Property Committee completed a mass privatization program that privatized 71,000 small state enterprises and over 16,000 medium and large state enterprises, encompassing 70 percent of Russian industry and 40 percent of the work force. Over 40 million Russians received shares in the privatized enterprises, giving them a direct stake in the success of Russia's emerging market economy.
U.S. supported pilot projects on housing reform stimulated a wave of privatization of housing units. Over 30 percent of Russian households now occupy homes they own themselves.
Approximately 10,000 Russian high school and university students, teachers, entrepreneurs, business managers, public administrators, lawyers, journalists and other provisions participated in training and exchanges programs United States, gaining new skills, insights into a democratic, market-oriented society, and opportunities for networking with counterparts both in the United States and Russia.
The rapid expansion of contacts between Russian and U.S. non- governmental organizations involving private farmers, small business entrepreneurs, independent media, new democratic political parties and charitable groups.
An upswing in activity under U.S.-supported trade and investment programs, including the first investment commitments of the Russian-American Enterprise Fund and Fund for Large Enterprises in Russia, the opening of new Commerce Department American Business Centers in seven Russian cities, the approval by OPIC of investment projects totaling almost $700 million, and U.S. Export-Import Bank loan commitments amounting to $1.6 billion.
The expansion of destruction and dismantlement projects under the Department of Defense Cooperative Threat Reduction program, such as providing specialized equipment for strategic offensive arms elimination and to assist in the dismantlement and destruction of ICBMs and heavy bombers.
During 1994, Russia moved significantly toward the establishment of a functioning market economy and strengthened democratic institutions. Up until the invasion of Chechnya, Russia had experienced a period of relative political stability and the first measurable economic improvements since the collapse of the Soviet Union in 1991. With the mass privatization program completed, thousands of Russian enterprises began the difficult but essential process of restructuring to produce marketable goods efficiently. While macroeconomic conditions remain unstable, the government is clearly paying more attention to developing appropriate monetary and fiscal policies, and discussions with the IMF on a major new adjustment program are now underway. In the political arena, there was an evident strengthening of democratic processes. Many grassroots citizen organizations emerged and became vocal advocates of diverse causes, including human rights and environmental protection. Russians in many regions now receive their news from independent newspapers, television, and radio stations. New political parties, labor unions and advocacy groups are also being heard all across the political spectrum.
Russia's new political and economic institutions nonetheless remain fragile. And while many U.S. assistance activities have had a direct, positive impact on democratic and market reforms, it is still too early to ascertain whether the changes supported by our programs will endure over the long term.
As of December 31, 1994, the U.S. Government had obligated a cumulative total of $1.4 billion in technical assistance, $1.2 billion in food assistance, $475 million in humanitarian assistance, and $291 million for the Cooperative Threat Reduction program. Over $2.27 billion of assistance had been expended as of this date. In FY1994 alone, the U.S. budgeted $1.6 billion for technical assistance to Russia. (See Appendix 1 for a complete description of obligations and expenditures.)
The U.S. assistance and economic cooperation strategy for Russia is part of a broader strategy that encompasses all of the New Independent States. Russia figured prominently in the early phase of U.S. assistance to the region because the need was greatest there and because Russia was in the forefront of political and economic reform. With reform taking hold in Russia and U.S. assistance beginning to achieve its objectives, we are now in a position to start phasing down activities there and shifting even more resources to programs in other NIS. By 1998 all new assistance obligations to Russia are expected to cease.
A number of recurring issues continue to cause problems both for the U.S. assistance program and for U.S. businesses interested in projects in Russia. Among the most basic are logistics--finding office and living space at an acceptable price, obtaining phone lines, recruiting staff, and finding accurate information about how to do business. To a large extent, lack of information and poor coordination among Russian Government entities perpetuates the arbitrariness of the Soviet era. Both Russian and American business people have difficulty learning Russian government regulations which pertain to their activity. While assistance programs are by law exempt from customs duty and certain taxes, poor coordination within the Russian Government results in continuous problems in this area requiring the intervention not only of the Embassy but also all other donor nations. The problem of weak coordination is exacerbated by ambiguities and rivalries within the Russian Government, where clear lines of authority have not yet been drawn and where organizations and, at times, personalities jockey for position. The growing criminal problem has not yet caused serious problems for assistance officials or contractors, but its effect on the overall business climate is definitely negative.
The United States intends to continue supporting democratic and market reforms in Russia in FY1995 provided that there is a commitment among Russian governmental, non-governmental and private entities to make further progress. Depending on the outcome of a review now underway evaluating U.S. trade and investment programs, the coming year could bring a greater emphasis to assistance in this area. However, technical assistance programs and training and exchanges will continue to comprise the bulk of the U.S. aid budget. Aside from possible emergency needs, there are no plans for broad-based humanitarian assistance in Russia during FY1995.
Assistance from the United States and other donors is playing an important role in helping Russia grapple with key reform issues. In the end, however, the success of democratic and market reforms in Russia will depend primarily on what Russians themselves do. Effective government policy, growth of a dynamic private sector and active support of the Russian people will be key ingredients of success. In developing an assistance strategy, therefore, we have sought to focus limited U.S. resources on key areas that can contribute directly to systemic change and support reform efforts already underway within various levels of government (both central and local), the business community and non-governmental organizations.
Tajikistan
The relatively modest U.S. assistance program in Tajikistan in 1994 was effective in addressing key humanitarian needs. At the same time, steps were initiated to begin training and technical assistance programs in Tajikistan without shifting away from the all too evident humanitarian requirement.
Our assistance program in Tajikistan can be divided into these general categories:
Activities to provide emergency food and relief supplies.
Activities to support the transition to transparent and accountable governance and respect for human rights and fundamental freedoms.
Activities to strengthen Tajikistan's capacity to help sustain the neediest sectors of the population during the transition period.
As of December 31, 1994, the U.S. Government had obligated a cumulative total of $32 million in technical assistance, $77 million in food assistance and $22 million in humanitarian assistance. Over $103 million of assistance had been expended as of this date. In FY1994, the U.S. planned to spend approximately $18 million for assistance to Tajikistan- -excluding agricultural commodity programs. (See Appendix 1 for a complete description of obligations and expenditures.)
The vast majority of assistance resources were earmarked for humanitarian assistance projects--most of which were channeled through UN programs. Other assistance efforts included:
Training and exchange programs for government officials and other professionals as well as student exchanges
USDA-funded food assistance.
The establishment of a USIA American Center in Dushanbe which houses an educational and commercial library, academic advisors, and a meeting center.
A few problems with various aspects of the program have been noted. For example, the Embassy reports that the selection process for training participants initially gave too much authority to the Tajik Government and a lack of follow-up assistance severely limited the benefits gained from the training and exchange program. In particular, the Embassy cites the lack of any in-country component as a serious drawback. (USAID began a follow-on program in November 1994 to determine the degree of effectiveness of the program and to help the participants apply their training once they have returned to Tajikistan--the results of this effort are not yet available.) The Embassy also reports that the Farmer- to-Farmer program has done a great job of exposing Tajiks to new ideas and methods, but because of Tajikistan's internal problems, there are few opportunities for them to expand the lessons of this experience beyond the initial recipients.
The United States intends to continue to provide humanitarian assistance to Tajikistan as the effects of the civil war and political instability continue to burden large segments of the Tajik population. Because the Tajik Government and opposition forces have implemented a recently negotiated cease-fire and taken some additional steps toward ending the conflict, we will expand our assistance program to include modest economic and political reform projects. USDA plans to provide an additional $7 million in Food for Progress grant food assistance.
Turkmenistan
With some noteworthy exceptions, the low levels of U.S. assistance provided to date to Turkmenistan have had little tangible effect on either economic or political reform. The Turkmenistani Government has placed primary emphasis on stability and security with tight controls on both economic and political activity. Our assistance program is intentionally small, and will remain so unless the Turkmenistani Government decides to embark on a serious reform program, but we want to try to keep the door open to change and influence from the outside world.
Our assistance efforts can be divided into two general categories:
Activities to foster the development of a competitive, market-oriented economy in which the majority of resources are privately owned and managed.
Activities to support the transition to transparent and accountable governance and respect for human rights and fundamental freedoms.
As of December 31, 1994, the U.S. Government had obligated a cumulative total of $27 million in technical assistance, $75 million in food assistance and $19 million in humanitarian assistance. Over $115 million of assistance had been expended as of this date. In FY1994, the U.S. budgeted approximately $8 million for technical assistance to Turkmenistan--excluding agricultural commodity programs. (See Appendix 1 for a complete description of obligations and expenditures.)
Given the difficult economic and political climate, our assistance program has focused on a small number of specific projects, including:
A regional effort to address health and environmental problems related to the desiccation of the Aral Sea, the single largest assistance project in Turkmenistan.
A training and exchange program that has provided valuable training and familiarization opportunities focusing on economic and bank restructuring and health issues.
A joint U.S.-Japan childhood immunization support program.
Establishment of a medical partnership between the Cleveland Clinic and a local medical facility.
The United States, Israel and Turkey signed a Memorandum of Understanding in October to cooperate on assistance to the Turkmenistan and Uzbekistan rural and agricultural sectors (see similar section on Uzbekistan below).
According to our Embassy, the least effective U.S. assistance programs in Turkmenistan are those which fail to follow-up on their initial overtures. Local officials have reportedly complained that many visitors, primarily commercial, visit and promise elaborate projects, but are never heard from again.
The United States plans to continue encouraging economic and political reform in Turkmenistan in FY1995. U.S. assistance in FY1995 is targeted on continued support for the Aral Sea regional initiative and continued funding for a training and exchange program. Should the Turkmenistani Government undertake a serious privatization program, newly privatized Turkmen enterprises will be eligible for loans and equity investments from the Central Asian-American Enterprise Fund.
Ukraine
The progress of the U.S. assistance program in Ukraine reflects quite closely the progress of the Ukrainian Government over the past year in economic and democratic reform. At the start of the year, there was neither the political will nor government commitment to put in force a systemic and comprehensive economic reform program. But by the fall of 1994, the Ukrainian Government had embarked on the path of comprehensive economic reform in conjunction with an IMF Systemic Transformation Facility drawing and negotiations for a full Stand-by Agreement. In response, USAID provided a $72 million energy sector grant--which supports both macro-economic stabilization and specific energy sector reforms--as part of an international effort to support the IMF's Systemic Transformation Facility program. During the past six months, the individual pieces of our assistance program have begun to coalesce. Our assistance program has shifted in emphasis from humanitarian to technical aid and will move toward support for trade and investment as rapidly as possible.
Our assistance program in Ukraine can be divided into these general categories:
Activities to expand privatization and private sector development at local and national levels.
Activities that support macroeconomic stabilization and economic restructuring, and activities aimed at creating the legal framework needed for a functioning market economy.
Activities to support fair and free elections and voter education.
Activities to help create the conditions for a law-governed society by strengthening elements of the legal framework.
As of December 31, 1994, the U.S. Government had obligated a cumulative total of $325 million in technical assistance, $93 million in food assistance, $106 million in humanitarian assistance and $129 million for the Cooperative Threat Reduction program . Over $392 million of assistance had been expended as of this date. In FY1994, the United States budgeted approximately $211 million for technical assistance to Ukraine--excluding agricultural commodity programs and the energy sector grant--all of which was obligated before the end of the year. (See Appendix 1 for a complete description of obligations and expenditures.)
The U.S. assistance program in Ukraine includes a variety of different projects, including weapons dismantlement and destruction assistance under the Cooperative Threat Reduction program--the initial focus in 1994 was on democratic institution-building and training and exchange programs, but since the government committed itself to comprehensive economic reforms, we have realigned our priorities. Among the projects are:
Support for privatization through training, technical advisors, logistical support, the purchase of privatization vouchers, and legal advisors.
Projects to support the banking industry and regulation.
A power sector restructuring project.
Extensive support for the Central Electoral Commission prior to and during the presidential and parliamentary elections.
The establishment of a USIA America House in Kiev as well as educational and professional exchange programs.
Peace Corps activities focused on small business development and English language instruction.
Department of Defense Cooperative Threat Reduction assistance focused on dismantlement and elimination of SS-19 and SS-24 missiles.
In 1995, the United States will provide new bilateral technical assistance to support economic restructuring, privatization, private sector development, energy sector reform, exchanges and training, democratic institution- building and the rule of law. The United States also will provide an estimated $75 million in security assistance under the Cooperative Threat Reduction program. Furthermore, the U.S. Government will be expected to provide additional support once Ukraine comes to agreement with the IMF on a Stand-by Agreement. We will look in the first instance to export credit financing as a means of providing such support.
The United States has also promised assistance to Ukraine in the context of the G-7 Action Plan for the early closure of Chernobyl and the reform and revitalization of Ukraine's energy sector. The United States pledged $38 million over two years in such assistance at the G-7 meetings in Naples.
Uzbekistan
The U.S. assistance program in Uzbekistan in 1994 had a mixed record. On some fronts, such as economic reform, there has been some measure of success. But on the democratic reform side, the record has been spotty. The Uzbekistani Government has finally begun planning for serious economic reform--and has just reached agreement with the IMF on a Systemic Transformation Facility--but for most of 1994, a gradualist approach hindered U.S. assistance efforts.
Our assistance program in Uzbekistan can be divided into these general categories:
Activities to foster the development of a competitive, market-oriented economy in which the majority of resources are privately owned and managed.
Activities to support the transition to transparent and accountable governance and respect for human rights and fundamental freedoms.
Activities to assist the Uzbekistani Government incorporate the concept of rule of law into its institutional practices and improve the understanding of democratic institutions and practices.
As of December 31, 1994, the U.S. Government had obligated a cumulative total of $38 million in technical assistance, $5 million in food assistance and $23 million in humanitarian assistance. Over $43 million of assistance had been expended as of this date. In FY1994, the U.S. planned to spend approximately $22 million for technical assistance to Uzbekistan--excluding agricultural commodity programs. (See Appendix 1 for a complete description of obligations and expenditures.)
Major U.S. assistance efforts include the first stage of a regional program to address health and environmental problems related to the desiccation of the Aral Sea, significant funding to support privatization and economic restructuring, and a training and exchange program. The Embassy has made particular mention of the usefullness of the USIA and USAID exchange programs. Specific projects include:
Support for small-scale privatization and auction programs.
Providing a long-term economic advisor to the Ministry of Finance on reform and management issues.
Training and exchange programs for government and private sector officials as well as a student exchange program.
Peace Corps English-language training programs.
The United States, Israel and Turkey signed a Memorandum of Understanding in October to cooperate on assistance to the Turkmenistan and Uzbekistan rural and agricultural sectors. The three sides agreed to provide mutual support to programs establishing private demonstration farms, rural agribusiness centers, and training and exchanges. U.S. support for the initiative will come from existing technical assistance and exchange programs.
A number of problems have plagued U.S. assistance efforts in Uzbekistan. For example, the privatization process which showed signs of early success later fell off track. The Embassy cites personality problems as well as the Uzbekistani Government's own uncertainty about how to proceed with privatization. The Aral Sea program has received criticism for concentrating too much on seminars and studies and too little on action to address the problems. The Embassy also faults the Uzbekistani Government for unnecessary delays in the selection process for exchange programs.
The United States intends to continue to encourage economic and political reform in Uzbekistan in FY1995. U.S. assistance in FY1995 is targeted on continued support for the Aral Sea initiative, training and exchange programs, a health sector reform program, and economic and legal restructuring programs. Should the Uzbekistani Government proceed with a serious privatization program, newly privatized enterprises will be eligible for loans and equity investments from the Central Asian-American Enterprise Fund.
III. DESCRIPTION OF FREEDOM SUPPORT ACT-FUNDED ASSISTANCE PROJECTS IN THE NEW INDEPENDENT STATES, 1994
U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT
As the U.S. Agency for International Development (USAID) enters a third year of assistance to the NIS, our assistance activities have taken shape around three U.S. objectives of fostering the emergence of a market economy, supporting democratic transition, and strengthening the capacity to manage the human dimension of the transition. USAID assistance is provided through thirteen sectoral projects, twelve described below and one, Enterprise Funds, described in the Trade and Investment Initiatives section. A description of these projects, including some of the key results of USAID efforts, follows.
SPECIAL AND EMERGENCY HUMANITARIAN INITIATIVES
USAID has obligated a total of $248 million, including $135 million in FY1994, and expended a total of $197 million for its Special Initiatives program, primarily to provide emergency and humanitarian assistance to the New Independent States (NIS) of the former Soviet Union. For the republics facing an extended crisis, the goal in 1995 will be to develop and fund activities that bridge the gap between emergency aid and developmental assistance.
Emergency Medical Assistance
Through a Presidential Medical Initiative, USAID funded Project HOPE to send donated medicines and medical supplies worth more than $176 million (retail) to 377 NIS health facilities in 12 republics and 110 cities.
In response to critical medical needs identified in each of the 12 republics of the former Soviet Union, USAID has procured over $7.6 million (wholesale) emergency medicines and related supplies.
USAID, in collaboration with the Government of Japan, provided vaccines, vaccine transport and storage equipment, and technical assistance to Moldova, Kyrgyz Republic, Georgia and Turkmenistan to help meet the primary vaccine needs for 1993/94.
Save the Children is carrying out emergency health activities in Armenia, Azerbaijan, Georgia and Relief International is undertaking a similar program in Tajikistan.
In response to the emergency health crisis in Ukraine, USAID is funding a $15 million program for the immediate procurement of vaccine to combat a diphtheria epidemic; the procurement of insulin for juveniles; and the development of a health education program to reduce the incidence of hepatitis B among health workers. The use of this U.S. supplied vaccine has already shown a slowing down of the epidemic.
Emergency Response/Food Supply
USAID is providing milk for infants and milk and other foods for pre-natal and post-partum mothers in Armenia, Azerbaijan, Georgia and Tajikistan. A U.S. private volunteer organization (PVO) and the World Food Program (WFP) are handling distribution.
USAID responded to the national emergency in Armenia through a $15 million winter fuel program, providing both kerosene heaters and kerosene fuel, which reached over 203,000 families and 400 schools on a regular basis last winter. For this winter, a $6 million kerosene fuel program is in progress again to cover the most vulnerable population groups.
Also for Armenia, 100,000 metric tons of bulk grain was delivered from the U.S. Strategic Wheat Reserve under P.L. 480 Title II emergency food assistance.
Over $9 million has been targeted to assist in the feeding of vulnerable groups and in providing spring and winter wheat seeds to Armenian farmers. New programs are under consideration in 1995 to expand the capability of domestic food production.
In Azerbaijan, USAID has provided $2 million to the U.N. High Commissioner for Refugees (UNHCR) and the International Committee of the Red Cross (ICRC) for assistance to displaced persons, refugees and conflict victims. U.S. PVOs serve as "implementing partners" for a significant portion of this assistance. Approximately $9 million has also been provided through Save the Children to U.S. PVOs operating in Azerbaijan.
Since late 1992, USAID has responded to emergency needs in Georgia with: $19.3 million in food for women and children; $3.5 million in emergency medical assistance, and a $2.8 million regional logistics unit (CLAU) through WFP to improve logistical support and donor coordination. Efforts led by the Coordinator's Office in 1994 have been successful in coordinating humanitarian commodities deliveries with the European Union to prevent the overloading of the weakened Caucasus logistics network. The U.S. funding of the CLAU is now leveraging additional funding from both the EU and bilateral sources. The mid-term goal of this effort is the repair and strengthening of the Georgian port and rail infrastructure.
In addition, 100,000 metric tons of bulk grain from the U.S. Strategic Wheat Reserve and $2 million in winter fuel have recently been provided for Georgia.
In response to the humanitarian needs created by civil strife in Tajikistan, USAID is providing approximately $13 million in emergency and humanitarian assistance. Most of this assistance is being channeled through U.S. PVOs and "implementing partners" with international organizations such as UNHCR, being engaged in their areas of expertise. On a more direct basis there is a $6 million grant to CARE USA under a Vulnerable Groups Feeding Program.
Capacity Building/Emergency Management Training
USAID is training NIS government institutions and personnel in modern emergency response techniques and the development of complimentary information systems. Tajikistan, Armenia and Georgia are the initial targeted countries.
Early Warning Systems
USAID and the Centers for Disease Control and Prevention (CDC) conducted a household survey last winter to project the level of preparedness of Armenian families for the approaching winter. In 1995, the activities of CDC are being expanded to provide early-warning public health surveillance systems in both the republics of Georgia and Armenia.
Special Initiatives
USAID will provide additional funds for the U.S.-Israel Joint Cooperation Program to provide training, technical assistance and cooperative scientific research in the Central Asian Republics.
ENERGY EFFICIENCY AND MARKET REFORM
The U.S. Agency for International Development has obligated a total of $247 million, including $82 million in FY1994, and expended a total of $154 million to assist NIS countries in the transition of their energy sectors to market systems and to improve the safety of their civilian nuclear power plants. A reliable energy supply at affordable prices is vital to the success of NIS reform programs because of energy's critical role in industry, commerce and the household.
Energy Policy Reform and Strategy Development
USAID is working jointly with the Russians to develop alternative strategies for future investment in Russia's power sector, including upgrading or phasing out the least safe nuclear power plants.
In cooperation with DOE and TDA, USAID is helping develop strategies for power and heat supplies to replace Russia's plutonium production reactors.
Assistance has been provided to Russia, Ukraine and Armenia in the drafting and modification of oil sector and energy laws. In Russia, tax policy, model leasing agreements and tender documents have also been developed to attract foreign investment in the oil sector.
Energy Sector Restructuring
In Russia, USAID assistance in power sector restructuring and privatization has focused on planning, drafting a market- based legal and regulatory framework, electricity pricing, access to financial markets, and promotion of domestic and international investment.
USAID is cooperating with the World Bank in Ukraine to support the competitive restructuring of the power sector. USAID assistance to the Ministry of Energy contributed to the G-7 Action Plan for early closure of Chernobyl. Regulatory procedures, tariff methodologies, legal and contractual documents and development of commercial generation and distribution companies are areas where USAID is assisting.
In November, USAID provided a $72 million grant to Ukraine as part of a multi-donor effort to help the Ukrainian government achieve IMF balance of payments targets for the end of CY 1994. This balance of payments support, which was conditioned on energy price reform and power sector restructuring, will allow Ukraine access to loans and financial assistance from the IMF and other donors.
In the Kyrgyz Republic and Armenia, USAID efforts target energy sector policy, legislation on sector reorganization, establishment of regulatory bodies, and electricity tariffs.
USAID has supported the establishment of partnerships between the private U.S. utility industry and Russian and Ukrainian power sector organizations. Partnerships promote exchange of managerial, technical and financial knowledge of utility operation in a market economy. A partnership is also planned for Moldova.
In cooperation with the World Bank, assistance is being provided in Russia to improve oil and gas sector regulations to assure non-discriminatory access to oil export pipelines. USAID is helping SIDANCO, one of Russia's major vertically integrated oil companies, place its operations on a sound commercial basis. USAID assistance to the Ministry of Fuel and Energy focuses on divestiture of state shares in oil sector enterprises and the development of an oil products retail and wholesale market.
The U.S. Geological Survey (USGS) has helped establish modern petroleum geology and geophysical data processing centers and geochemical labs in Russia. In Ukraine, USGS is assisting in the establishment of improved seismic data interpretation facilities for Western oil companies.
Coal sector restructuring and mine safety is the focus of assistance from U.S. labor-industry partnerships in Russia, Kazakhstan and Ukraine at Vorkuta, Kemerovo, Karaganda and Donetsk. In the Kyrgyz Republic and Armenia, two countries with limited indigenous fossil resources and highly dependent on imports, assistance is being provided to evaluate the feasibility of enhanced coal exploration and production.
Energy Efficiency Improvement
USAID helped improve the efficiency of district heating systems in seven cities in Armenia, Belarus, Kazakhstan, the Kyrgyz Republic, Russia and Ukraine, resulting in a 30 percent improvement in efficiency and decreased carbon dioxide, sulfur and other emissions. Non-governmental energy efficiency centers have been supported by USAID in Moscow and Kiev, in cooperation with DOE.
An investment plan for the replacement of inefficient electrical motors and other electrical equipment throughout Russian industry was completed, and nine large industries were audited. Potential investment in the Russian electrical transmission system, which will lead to significant electricity savings, and U.S. trade opportunities have been identified.
Weatherization of hospitals, schools and other critical buildings is on-going in Yerevan, Armenia. A plan to weatherize and meter apartment blocks and rehabilitate the district heating system of Bila Tsirka, Ukraine was completed and is expected to lead to a World Bank Global Environmental Fund grant.
Nuclear Power Plant Safety and Regulation
In support of the multilateral Nuclear Safety Account (NSA), USAID has provided $14 million for assistance to Russia and Ukraine to improve civilian nuclear power safety through the EBRD. Additional efforts funded by the FREEDOM Support Act are implemented by the Department of Energy and the Nuclear Regulatory Commission
Commodities and Mobilization of Financing
In addition to commodities being provided under some of the activities described above, USAID assistance has included commodities and equipment in a number of very carefully selected situations, primarily in Armenia, Georgia and Ukraine.
In Ukraine, USAID has funded the procurement of critically needed resins for a combined heat and power plant in Kiev for installation before this winter.
In Armenia, equipment for four mini-hydro installations has been funded. Commodities to benefit the Ministry of Energy, state energy institutions, and the Yerevan City Council, including spare parts and materials to rehabilitate and maintain power plants, district heating plants and gas transmission companies are also being procured. Drilling consumables are also being supplied to operate a recently acquired oil drilling rig.
In select cases, USAID has assisted in the preparation of loans to mobilize funds from the multi-lateral donors. These include gas distribution efficiency in Russia (World Bank); Hrazdan power generation facility in Armenia (EBRD and World Bank); thermal and hydro power in Georgia (EBRD); natural gas delivery in Russia (World Bank).
ENVIRONMENTAL POLICY AND TECHNOLOGY
The U.S. Agency for International Development has obligated a total of $79 million, including $68 million in FY1994, and expended a total of $19 million for a program to ensure that environmental quality goes hand-in-hand with economic and democratic reforms in the New Independent States. The initiative is implemented by USAID, the Environmental Protection Agency (EPA), the U.S. private sector, and U.S. non-governmental organizations in cooperation with their NIS counterparts in the public and private sectors.
Policy and Institution-Building
USAID is strengthening government and NGO institutional capacities--at national, oblast, kray and other local levels- -to promote environmental and natural resource management policies linked to sustainable economic development. USAID is also providing financial and technical support to improve the ability of government and the private sector to pursue environmentally sound restructuring of key sectors and enterprises (industry, forestry, agriculture).
The Russian Far East Sustainable Natural Resources Management Program, which is focused around sustainable forestry and biodiversity issues in Khabarovsk and Primorskiy Territories (kray), includes an important component on policy and institution-building. Policy reform is a pre-requisite to supporting Russian efforts to develop a sustainable forest management system. This component will be led by the Harvard Institute for International Development (HIID). An HIID forest policy advisor is already working to develop forest economics training within the kray governments and federal forestry service. HIID will also strengthen the policies and incentives for effective management of forests including an examination of current laws and policies and their shortcomings, namely the lack of enforcement. The program will increase the total economic value of extracted timber and other forest products while reducing negative ecological impacts to a forest ecosystem to achieve a "win-win" situation. Third, the project will help determine the most cost-effective incentives and methods for forest regeneration. Finally, the project will help develop a methodology to value market and non-market costs and benefits of a successful multiple- use forest management system focused on conserving biodiversity.
In addition to the above activities, in Russia and the Central Asian Republics HIID will support the preparation of projects suitable for funding from international sources such as the Global Environmental Fund (GEF).
In Russia, HIID will assist in making an initial evaluation of proposed programs to be funded under the Small Grants, Small Enterprise and Conservation Trust funds, based on their likely impact on local communities and local habitats.
USAID is undertaking a number of environmental demonstration projects.
In the Western NIS, USAID will help reduce contamination of the Dniepro River Basin -- the water supply for 30 million Ukrainians. Assistance has been provided to upgrade water supplies in Georgia.
In Russia, a number of demonstration projects are underway which will showcase the economic and environmental benefits produced by sound environmental planning and management. This includes air and water quality/pollution control planning in the industrial cities of Volgograd, Novokuznetsk and Nizhii-Tagil and a watershed management project outside Moscow.
Public Awareness and Environmental Accountability
USAID is supporting partnerships between U.S. non- governmental environmental organizations and their counterparts in the NIS to strengthen NIS management capabilities and enhance public participation in environmental management. Support is also being provided for public education programs to improve public awareness of environmental problems and efforts to solve them.
The Institute for Soviet-American Relations (ISAR), a U.S. non-governmental organization participating in the project, has begun a small grants program to strengthen NIS NGOs and build links between U.S. and NIS environmental NGOs. Thus far, approximately 200 grants have been awarded to NIS NGOs and joint US-Russian NGO partnerships. Some grants were used for media programs designed to raise awareness of local environmental concerns, others will support development of better management practices for environmental NGOs.
Aral Sea Initiative
In October, 1993, Secretary of State Christopher announced that the U.S. would provide $15 million in assistance to the Central Asian Republics to help in efforts to halt further degradation in the Aral Sea Basin. USG assistance programs in Kazakhstan, Uzbekistan and Turkmenistan are designed to: 1) provide potable water and public health protection to communities most affected by waterborne diseases and increasing infant morality; and 2) provide technical assistance and training to support regional cooperation in water management. A number of rapidly implementable potable water projects and regional water management activities were developed to fulfill this commitment and are in various stages of implementation.
In Kazakhstan, the preliminary design has been completed for a project that will utilize local labor and USG supplied materials to upgrade and rehabilitate an existing water distribution system. The initial public health assessment has been completed and laboratory equipment will be shipped by early 1995.
The Turkmenistan project includes the construction of a reverse osmosis water treatment plant. The construction of the building to house the facility is well under way and all of the major process equipment has been shipped. The environmental health components of this project include the development and application of health education materials and provision of sanitation facilities.
Technical assistance to improve the operation and maintenance of two major water treatment plants is included in the Uzbekistan project. The design of the technical assistance and the initial public health assessment have been completed and laboratory equipment will be shipped by early 1995.
HEALTH CARE IMPROVEMENT
The U.S. Agency for International Development has obligated a total of $93 million, including $69 million in FY1994, and expended $40 million to improve health care systems in the NIS.
Supply of Critical Vaccines, Pharmaceuticals and Equipment
Vaccine and Pharmaceutical Production
To address deteriorating vaccine production in Russia, USAID supported the provision of commodities, equipment and short- term technical assistance to reestablish the productive capacity of existing plants producing vaccines for measles, polio and DPT (diphtheria, pertussis and tetanus).
Merck and Lederle provided raw materials and input for production, as well as training in U.S. standard good manufacturing practices.
The U.S. Food and Drug Administration (FDA) has provided technical support in vaccine quality control regulation.
The FDA successfully negotiated a Memorandum of Understanding (MOU) with the Russian Government which simplifies the import registration procedures for high quality pharmaceuticals and vaccines which have been FDA approved. The FDA will negotiate similar MOUs in Ukraine and Kazakhstan in 1995.
Medical Technology Transfer Activity (MTTA)
In Russia, USAID is promoting private enterprise and U.S. investment in the health sector as well as improving regulatory, manufacturing and management practices for critically needed pharmaceuticals. The MTTA program is designed to accelerate U.S. investment in the production and distribution of these drugs through technical assistance, training and the guaranteed purchase of product, by developing a partnership between U.S. pharmaceutical firms and the U.S. Government to "seed" a more self-sufficient private pharmaceutical industry. In December, USAID made awards to four U.S. pharmaceutical firms (Merck, MIR, Searle and Bristol-Myer Squibb) to study environmental assessments of manufacturing ventures proposed by these firms for production of critically needed medicines. If the studies show sufficient potential, USAID will award additional funds to develop these ventures, with the U.S. firm matching the USAID contribution on the basis of a two-to-one ratio.
Vaccine Security
Increasing the capacity of NIS republics to successfully manage their national immunization and disease control programs on a sustainable basis is central to USAID's vaccine security objective. To continue and expand the work started under the Children's Vaccine Program and the U.S.- Japan Joint Immunization Initiative, USAID's BASICS Project (Basic Support for Institutionalizing Child Survival) is providing assistance to improve the efficacy and efficiency of immunization programs in the NIS. BASICS is providing technical assistance to strengthen the institutional and self-sustaining capacity of the NIS Ministries of Health to plan, support, implement and monitor/evaluate immunization and disease control programs. In 1995 BASICS activities will be concentrated in the Central Asian Republics and Moldova; however, limited assistance will be provided NIS- wide.
Interagency Immunization Coordinating Committee
USAID has played a prominent role in developing the Interagency Immunization Coordination Committee (IICC) where all donors can share their plans in assisting the development of national immunization programs in the NIS. USAID will work with the donors to ensure coordination of technical assistance, training and commodities. The IICC was launched at a conference in Kyoto, Japan, on July 25-27, 1994, which brought major donors and NIS delegations together to discuss immunization and disease control activities in the NIS. USAID is providing support for the IICC Secretariat which is based in the World Health Organization (WHO). During the first meeting of the IICC, held in Amsterdam on November 11-12, USAID highlighted the need for a regional diphtheria control strategy as one of the most pressing health concerns in the NIS today. USAID is participating in the development of a WHO/UNICEF strategy and implementation program for diphtheria control in the NIS.
Health Care Finance and Service Delivery System Reform
Although most NIS republics have passed legislation enabling privatization of health care facilities and reforming health care financing through insurance, there remains an enormous task of improving the quality of health care while maintaining access to health services.
Health Care Financing and Service Delivery Reform (ZdravReform)
USAID is supporting a program to test innovative methods of improving the efficiency, accessibility and sustainability of health services delivery and the use of incentives to reward quality of care. The ZdravReform program has now established field offices in Russia (Moscow), Central Asia (Almaty) and Ukraine (Kiev). In Russia, advisors targeted the Siberia region (Kemerovo, Novosibirsk, Tomsk and Altay kray oblasts). In Central Asia, efforts began intensively in Karakul (Kyrgyz Republic) and South Kazakhstan oblasts. In the Kyrgyz Republic, contractors are working with government officials to test a pilot health insurance system.
In Kazakhstan, reduced hospital stays and increased use of primary care physicians have resulted in incentives to increase efficiency in health care delivery.
The program has just launched a major new effort to spearhead the privatization of the Kazakhstan national pharmaceutical procurement and distribution system.
In Ukraine, workshops for pharmaceutical industry representatives which focused on investment strategies and the global economics of the industry, and study tours to the U.S. and Canada for health care officials have facilitated programs to plan alternative health care financing methods.
In Russia, five "fast track" grants were recently announced in Siberian oblasts to test cost-effective payment systems, establish multi-specialty outpatient group practices as an alternative to expensive hospital care, and identify policy/legal changes needed to permit the success of these innovations.
Advisors in Russia also worked with World Bank officials in Central Russia to explore possible opportunities for coordinated efforts in health care reform.
Health Care Partnerships
The Health Care Partnerships Program links U.S. hospitals and clinics with relevant NIS health care institutions to address significant mortality and morbidity issues, improve health care organization and introduce market-oriented solutions to hospital and health care delivery and finance problems. U.S. participating institutions now include 48 hospitals/health systems, in 16 states including 18 medical schools. In the NIS, 43 hospitals in 10 republics are participating. The partnerships also involve ministries of health, local and regional health system administrations and schools of health sciences, to ensure the viability and sustainability of the changes being made throughout the health system. Of the 23 active partnerships, one is supported through an individual grant to the Children's Health System, Inc., and 22 are supported through a cooperative agreement with the American International Health Alliance (AIHA).
The program has resulted in nearly 2,000 exchanges of health professionals, approximately half of which have been to the U.S.
U.S. partnerships have made in-kind (voluntary) contributions of $35 million, including $10 million in donated equipment and supplies.
In addition to the individual partnership activities, the AIHA partners have collaborated in more than 40 workshops, seminars and conferences on such topics as health reform, health services management, nursing administration, infection control, pre-hospital emergency care, prenatal assessment, family centered birthing and pediatric nutrition. Four regional centers have been established for training of trainers in pre-hospital emergency medicine.
The NIS partnerships are having a significant impact on the quality, efficacy and productivity of health care delivery in their communities. Their work has resulted in: decreased lengths of stay in all institutions; improved infection control techniques; training of 115 NIS professionals in health care administration and management; reduced rates of abortions due to family planning programs in four partnerships; establishment of five neonatal resuscitation resource centers; active dissemination of information from target hospitals to surrounding areas; and, a new emphasis on the role of nurses in patient care and administration.
Health Information and Response Capabilities
USAID is supporting the Centers for Disease Control (CDC) in establishing public health surveillance and monitoring systems in the Caucasus, Central Asia and Russia. These systems include the development of emergency preparedness plans and efforts to strengthen the epidemiological capacity of Ministries of Health for disease monitoring, investigation and control. This program aims to improve the collection, analysis and dissemination of timely health data to decision-makers to in order for them to develop and monitor health programs. Currently, CDC is assisting NIS health officials with high priority diphtheria and polio control activities in the NIS.
Women's Health Initiatives
USAID has developed a 3-year program to support the modernization, improved effectiveness and financing of women's reproductive health care in Central Asia. Emphasizing increasing access to family planning services, the program was designed to reduce reliance on abortion, which results in adverse health consequences and high levels of maternal mortality.
Selected clinical sites were upgraded with modern equipment, and 60 service providers trained in improved clinical skills and training techniques.
Through seminars and clinical training, hundreds of physicians and other health care providers received updated information on modern contraceptives, sound clinical practice, infection control and counseling.
Qualitative research was used to develop mass media messages on the health benefits of birth spacing. And critical to program sustainability, a contraceptive marketing effort was launched in Kazakhstan: 1,500 pharmacists were trained, and women of Kazakhstan can now buy a variety of high quality affordable contraceptives in drug stores.
Strategies for similar programs of assistance for Russia and Ukraine were developed in late 1994, and implementation will begin in early 1995.
Country- or Region-Specific Health Problems
In spring 1993, a regional Environmental Health Workshop was held in Uzbekistan to bring officials of both health and ecology together to learn about new techniques in epidemiology and risk assessment. Follow-up country specific activities have been developed in conjunction with training programs.
To better understand the prevalence of the reported high rates of anemia among women and children in the NIS, USAID is supporting surveys in the Aral Sea region of Uzbekistan and the Kzyl-Orda region of Kazakhstan. The Uzbekistan study found that the major cause of anemia was nutritional and not caused by chemical toxicity which could be attributed to environmental pollution which is of widespread concern in the Aral Sea region. Results from the Kazakhstan study will be available in mid-1995.
PRIVATE SECTOR INITIATIVES
The U.S. Agency for International Development has obligated a total of $543 million, including $375 million in FY1994, and expended $259 million in developing a free market private sector in Russia and the other NIS. These programs are producing a private sector founded on the principles of private ownership and the free exchange of goods and services.
Privatization
Privatization activities concentrate on implementing policies and effecting transactions to move state-owned assets into the hands of private owners. USAID typically initiates privatization voucher distribution programs, auctions of large enterprises, small-scale privatization, demonopolization initiatives, and complementary public education programs.
The mass privatization program in Russia was successfully completed on July 30, 1994. Results from USAID's and other agencies support for the program include: 144 million vouchers were distributed; 22,000 medium-to-large companies are now joint stock companies; and more than 40 million Russians are now active shareholders. By June 1994, voucher usage among Russia's urban population reached 93 percent. Eighty-six of 88 Russian regions participated in the privatization program. According to recent reports, 70 percent of all Russian state property has been privatized. Following the voucher privatization programs, USAID is supporting privatization by cash auctions. The sale of the balance of joint stock companies and residual shares held by the government for cash will allow this portion of the privatization process to be partially self-financing, cause municipalities to support the process, act as instructive mechanisms for secondary market participants, and introduce the necessary capital into enterprises. A goal of cash auctions and other forms of mass privatization is to depoliticize the enterprises so that managers no longer turn to the state for subsidies or credits in times of financial distress.
USAID is implementing privatization assistance programs in Ukraine, the Kyrgyz Republic, Kazakhstan, Moldova, and to a lesser extent in Uzbekistan and Belarus. In each country, USAID funds auction systems to transfer state-owned assets to private individuals and entities; small-scale cash auction systems are being implemented along with more complex mass privatization systems for larger enterprises: For example, more than 6,000 small enterprises were privatized in Kazakhstan and 98 percent of the citizens now hold coupons allowing them to participate in the mass privatization program. The results have been impressive. A recent survey of newly privatized small enterprise shows: an increase in average employment per firm of approximately 20 percent; substantial financial investment on the part of new owners; increased business revenues; higher employee salaries; and a wider assortment of goods and lower overall prices offered by privatized enterprises relative to the public sector. In Kazakhstan and the Kyrgyz Republic, the mass privatization programs are targeted for completion by December 1995. USAID has funded the printing and distribution of vouchers, related public education programs, special demonopolization and antimonopoly initiatives, and the creation of bidding and clearing systems. At the same time, USAID is working with the governments to lay the groundwork for capital market institutions and share trading infrastructure.
Instituting rational and enforceable land ownership rights is an essential part of the NIS transformation. USAID activities throughout the region are intended to accelerate the privatization of urban and agricultural land, broaden and strengthen ownership rights, and introduce mechanisms to provide legally enforceable and easily tradeable land titles. In Russia, for example, USAID is assisting municipalities to transfer their land rights to private enterprises and to design procedures and marketing strategies for the sale of surplus land. There is also a program to help develop an integrated land and real estate information system, which enhances the ability of citizens to research land titles and complete transactions, and generally improves the quality, quantity and timeliness of the information flow for all users and contributors. Other activities involve technical assistance to reorganize farms, train real estate appraisers and build local capacity to survey public opinion on land and real estate privatization.
Detailed privatization and business plans for the Port of Murmansk have been completed and are being adapted to the Port of St. Petersburg.
Post-Privatization
Building upon the successful transfer of state-owned assets to private ownership, USAID is assisting Russia and the other NIS in building the business and legal infrastructure necessary to help newly-privatized enterprises operate and prosper. USAID supports local counterparts who actively engage in: effecting legal reform; creating systems of financial intermediation, including stock exchanges; strengthening essential free market institutions, including independent antimonopoly, securities, and trade commissions; and developing a private-sector capacity to service private firms.
A USAID-funded team oversees the Russian Privatization Center, which is continuing to transfer state-owned assets to the private sector and is coordinating donor activities involving a range of post-privatization functions. Regional and urban clearing and settlement organizations are opening across Russia, attempting to standardize and improve the share trading process; and initiatives to develop share registries, depositories, custodians and transfer agents are emerging as Russia's capital market develops.
A complementary package of activities follows the mass privatization programs. The model Russian Privatization Center is being expanded to the regional level through ten local privatization centers. Training in accounting standards and regulations for privatized enterprises is being conducted. New securities clearing and settlement organizations receive technical support to link widely dispersed securities markets. In the Kyrgyz Republic approximately 300 enterprises were privatized in FY1994. USAID's efforts in FY1995 concentrate on generating broader market reform and encouraging new market participants. Principal activities include capital market development, special demonopolization initiatives, and corporate and commercial law reform.
USAID is widely and deeply engaged throughout the NIS in providing technical assistance to develop efficient and transparent capital markets, foster initial public offerings, and institute the essential business and legal infrastructure for securities markets. In Kazakhstan and the Kyrgyz Republic, for example, USAID has initiated programs to start the whole range of institutional and legal functions which are essential for an operational capital market. This includes the development of stock exchanges, clearing and settlement organizations, share registries and depositories, securities commissions, and methods to promote fair and efficient corporate governance and share trading practices.
USAID support for legal reform includes encouraging the adoption of business and commercial laws that rationally follow from privatization and related post-privatization initiatives. Pilot activities with privatization investment funds, securities trading, share registration and transfer, and corporate governance have yielded proposals for legal reform at the national level. Also, local counterparts are seeking legal reform to break up monopolies, articulate and implement corporate and commercial laws, determine land rights, promote competition, and generally enable the development of private ownership and the free exchange of goods and services. An example of this activity are the USAID-funded technical advisors who helped the commission appointed by President Yeltsin to draft the new Civil Code. Part I of the code, passed by the Duma in December 1994, focuses primarily on issues such as sales, negotiable instruments, letters of credit, and secured transactions. We are continuing to work with the commission to complete Part II of the Code, which will include securities, banking, and tax codes.
Market transition in the NIS is impeded by the monopolistic structure of industrial production and trade, and the paucity of analysts and other market participants trained in market economics. USAID funds activities designed to reduce monopolistic control and build a cadre of skilled market participants. For example, In Russia and Ukraine, USAID is helping to implement anti-monopoly laws and related enforcement mechanisms. In Kazakhstan, USAID has worked with the government to dismantle holding company structures and strengthened the antimonopoly commission, which plays an important role in breaking up state monopolies and promoting competition.
A program to assist private farmers and new cooperative farm groups whose lands have been privatized is underway in four pilot areas of Russia. This program will help communities develop methods of financing social services, previously provided by state and collective farms. The program also will expand the number of viable agribusinesses and help create new agricultural credit supply systems for private farms and agribusinesses.
Business Development
In addition to assisting recently privatized firms, USAID provides assistance to meet the special needs of new and small businesses. these will be the principal source of new employment and income as the NIS countries restructure their economies and shut down unproductive and non-competitive state-owned enterprises.
USAID/Moscow's New Business Development Activity provides advice to local governments on improving the legal and regulatory framework for business development. Additionally, it provides training, commodities and advisory services to local training institutions, local governments supportive of private business development, member-based business associations, and private business support services. The NBDA implements its activities and programs through six offices in Russia: Ekaterinburg, Novosibirsk, St. Petersburg, Smolensk, Vladivostok and Voronezh.
The Enterprise Development Project (EDP) has established five Local Business Centers in Russia which provide consulting services to new and existing small and micro businesses on subjects such as business planning, financial analysis, and how to comply with local and (if appropriate) federal regulations. The consulting help is provided in two forms: advice on the running of the Business Centers and advice directly to area businesses. In both cases the aim is practical help in business planning and problem solving in response to the specific and immediate needs of the individual client or organization.
The Foundation for International Community Assistance (FINCA) implements a micro-enterprise development project in the Kyrgyz Republic and Kazakhstan consisting of: credit services, business management and training; and institutional development of financial intermediaries. The project provides credit for working capital and small assets through a network of democratically managed village banks (informal community savings and loan funds); pre-loan training to potential borrowers on how to obtain loans; training to borrowers on business management, planning and marketing; and organizational and technical assistance to village banks.
The Technology Management and Transfer Group of Virginia Tech, together with the Atlas Group, a consulting firm, is developing a business incubator for technology commercialization at the Academy of National Economy in Moscow. The facility allows individual scientists and engineers to remain at their home institutes, helping the research groups remain viable and become sources for economic development. The incubator facility provides support services to commercialize technologies developed at the research institutes.
The Morozov Project seeks to develop management education in Russia by establishing a network of local business training institutions committed to providing managers with the skills necessary for success in a market economy. These institutions work together to develop core curricula and teaching materials, and themselves receive technical assistance and training from Western professionals. This is accomplished through an "adoption" process whereby local institutions are teamed with Western business consultants, and through a "twinning" process whereby Russian curriculum development teams are paired with Western professors and faculty. To date, Morozov has established seven key strategic regions, and has 41 Business Training Centers (BTC's) and candidate BTC's in Russia.
Through the Citizen Democracy Corps' Business Entrepreneur Program, American volunteers provide on-site assistance to private and privatizing small and medium business and to public and non-governmental organizations that support business development in the NIS region. CDC's volunteer advisors are experienced senior level entrepreneurs or managers who volunteer their time for two to three months.
Junior Achievement International will expand its activities in Russia to provide economic education and entrepreneurship programs to over 1 million high school and college students over the next two years.
Washington State University is working with the State University of Krasnoyarsk and private sector organizations to establish a Small and Medium Enterprise Development Center modeled after successful programs WSU has run in the United States and in Romania.
US West, with the assistance of USAID, Russian Government bodies, U.S. businesses and institutions, is establishing three self-sustaining Business Skill Development Centers in Russia (Moscow, St. Petersburg and Nizhny Novgorod) in 1995. These Centers instruct Russian managers, workers, small business owners, and entrepreneurs, using a broad range of practical methodologies, to successfully work in, manage and develop businesses in a market-based economy.
Through the establishment of a $10,000,000 credit/equity fund, the Fund for Democracy and Development (FDD) is providing funds for start-up expenses, investment in new technology, upgraded equipment, etc. to entrepreneurs and small enterprises. To compliment the credit/equity fund, FDD is also managing a banker's technical assistance and training program designed to instruct Russian banks and bankers in lending specifically to new or small business.
The Center for Citizen Initiatives' Economic Development Program (EDP) gives support and assistance to promising local entrepreneurs and to new business owners providing them with a combination of business training, business services, consultants and media education, both in the United States and in the NIS. It currently operates in St. Petersburg, Rostov-On-Don, Volgograd, Yekaterinburg, Voronezh and Moscow in Russia.
The Technical Assistance Center for Market Economy (TACME), established by the University of Alaska, is dedicated to training Russians in modern business methods, increasing U.S. business activity in the Russian Far East, and improving U.S.-Russian business ties. To date, TACME has opened four local training centers from which an average of 35 entrepreneurs graduate per month.
Opportunity Inte