Introduction Albania Armenia Azerbaijan Belarus Bosnia-Herzegovina Bulgaria Croatia Cyprus Federal Republic of Yugoslavia   Kosovo Former Yugoslav Republic of Macedonia Georgia Ireland Kazakhstan Kyrgyzstan Moldova Romania Russia Tajikistan Turkmenistan Ukraine Uzbekistan Central Asian Republics Regional Central and Eastern Europe Regional Eurasia Regional Abbreviations and Acronyms Glossary Previous Years' Activities 2001, 2000, 1999, 1998, 1997 Wednesday, 29-May-2002 18:53:04 EDT

(text taken from the FY 2002 Congressional Budget Justification)

U.S. National Interests

Security. Economic, political, and social stability mitigates conflict and the likelihood of war, decreases diversion of nuclear weapons, and enhances opportunities to secure U.S. commercial access and viable outlets for oil and gas resources. In December 2000, Ukraine shut down the Chernobyl nuclear power plant and commitments have been made by Lithuania, Bulgaria, and Slovakia to close their oldest nuclear reactors. Georgia's oil and gas regulatory body contributed to the successful construction of the first oil pipeline in the Caucasus region not to go through Russia, supporting the U.S. strategy of multiple pipelines from the Caspian to the West. U.S. assistance also helps these countries meet requirements for membership in regional organizations, which in turn enhances U.S. goals in Europe. Poland and Hungary have played important stabilizing roles in containing the repercussions of the conflicts in Southeast Europe.

Freedom. Encouraging citizen participation and fair and transparent governance supports the historic U.S. commitment to democratic ideals and human rights. During the last year, the United States supported the expansion of democracy in Southeast Europe, providing crucial help to democratic elections in Croatia and Serbia. USAID assistance to nongovernmental organizations (NGOs) and independent media gave a voice to citizens in both of these countries, bringing a decade of political misrule and Serbian expansionism to an end.

Justice. The development of transparent legal frameworks and support for the rule of law foster international investor confidence and help countries systematically address crime and corruption. These programs improve formal legal systems, demonstrate that disputes can be settled fairly, raise public awareness and engender respect for the rule of law among the citizenry. Funding transfers to the State Department and Justice Department are aimed at improving law enforcement skills and technologies.

Global Issues. Developing alliances with the people, institutions, and governments of the region makes it easier to address cross-border threats, such as infectious diseases. Armenia, Kazakhstan, Romania, Russia, Ukraine, and Uzbekistan are implementing programs to reduce the spread of sexually transmitted diseases and HIV/AIDS. Kosovo, the Central Asian Republics, Russia and Ukraine are addressing the growing threat of drug-resistant tuberculosis through USAID-funded programs.

Development Challenge.

Transition Status and Obstacles

The development challenge in Europe and Eurasia remains one of transforming previously authoritarian, centrally planned societies into participatory democracies with strong market economies. Since the beginning of the transition in 1989, remarkable changes have occurred. The private sector now accounts for about 65% of Gross Domestic Product (GDP) throughout the region and Freedom House ranks 11 of the 27 E&E countries as free and 10 as partly free.

Twelve years of experience reveals, however, that the region's transition cannot be accomplished quickly or without setbacks. Only the countries of the European northern tier are able to continue the transition without further bilateral assistance from the United States. They have advanced economic and democratic reforms and are on the path to accession to the European Union. By the end of 2000, USAID missions to these countries were closed.

Progress in the rest of the region is mixed. While promising changes have occurred, reform is far from complete. Key economic and political institutions are still being developed and corruption is widespread. According to Transparency International, five of the 11 most corrupt countries in the world are located in the E&E region. Years of ethnic violence have slowed the transition to democracy and private sector growth, particularly in Southeast Europe. Current ethnic clashes in the Former Yugoslav Republic of Macedonia are a reminder of how fragile peace and stability can be in that part of the world. In Eurasia, vested interests coupled with weak institutions remain serious problems. In too many cases, these societies are polarized between a few very wealthy beneficiaries of change and a great number of people who have been unable to access the benefits of transition. At the same time, social services are woefully inadequate, adding to the burden of the common citizen. The turmoil and pain resulting from incomplete reform have discouraged citizens and led many to long for the certainty of the old Soviet days.

Regional Strategy and Linkages to USAID's Four Pillars

USAID assistance activities are planned within a regional strategic framework, allowing for cross-national comparisons of transition progress. Country programs choose from a menu of twelve strategic objectives in the areas of economic restructuring, democracy and governance, and social transition. While policy reform, institutional development, and broad-based citizen participation are at the core of the E&E program, USAID develops cross-sector approaches to address critical obstacles and changing circumstances in the region. During FY 2001-2002, these include: balancing policy reform with grass-roots initiatives so as to broaden the benefits of reform; fighting corruption on many fronts (such as legal and ethics training, technical advice on deregulation and licensing, tax reform, investigative journalism, and anti-corruption campaigns); addressing the social impacts of transition; and promoting regional integration among neighboring countries.

E&E sector programs support Agency goals and are highlighted within the context of USAID's four pillars: Economic Growth and Agriculture; Conflict Prevention and Developmental Relief; Global Health; and the Global Development Alliance.

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Economic Growth and Agriculture: Half of USAID resources were devoted to economic and related sectors during FY 2000 in the E&E region. Given the program's major focus on development of market systems, performance in this area is strong-with exports for the region getting back to the pre-Russian financial crisis growth rate. Per capita foreign investment flows, while improving overall, have been ten times higher in the European northern tier than in Eurasia, demonstrating conclusively that investment follows meaningful reform. Successful economic policy reform is evidenced on a country-by- country basis in such areas as banking, fiscal management, adoption of international accounting standards, energy restructuring, and approval of environmental policy frameworks. Programs also assist entrepreneurs of micro, small and medium enterprises gain access to financing, training, new technologies and expertise so that they can build growing businesses. A small amount of resources have facilitated the break-up of collective farms and the development of agribusiness partnerships between the United States and agriculture firms in the region. Significant support to land reform in countries such as Georgia, Armenia, and Moldova is having a major impact on the agriculture sector. New programs aimed at mitigating the adverse impacts of transition such as social insurance reform, employment generation, and education reform also fall under this rubric.

Conflict Prevention and Developmental Relief: About 42% of USAID resources to the region were allocated to conflict prevention and developmental relief during FY 2000. E&E programs in humanitarian assistance and democracy-building respond to emergencies, build systems which promote and protect the rights of individuals and minority groups, and lay the foundation for the systematic development of market-oriented, democratic societies. The E&E bureau collaborates closely with the Office of Foreign Disaster Assistance and the Office of Transition Initiatives in USAID's Bureau of Humanitarian Response to respond to complex emergencies and post-conflict situations. Increasingly, USAID is building conflict prevention concerns into programs in countries at risk such as the Former Yugoslav Republic of Macedonia, Georgia, and the republics of Central Asia. Among donors, USAID has demonstrated a competitive advantage in delivering assistance in support of transparent political processes, independent media, NGO development, legal system reform, and local governance strengthening. Programs at the local level foster public-private working relationships to expand economic opportunity, mobilize resources, and improve services.

Global Health: In FY 2000, about 7% of USAID resources were allocated to health priorities in the region, including HIV/AIDS, infectious disease control, and maternal-child health. Health care in the region started to decline before the breakup of the Soviet Union, and continues to deteriorate today. The old system is overbuilt and undefended, and promotes outdated and ineffective health care practices. The health status of the population is characterized by declining life expectancy (unprecedented for any country during peacetime), increasing maternal mortality (largely due to high rates of abortion), increasing under age five child mortality, and surging epidemics of tuberculosis, HIV/AIDS, hepatitis and sexually transmitted diseases. According to United Nations' statistics, the steepest rise in new HIV infections worldwide took place in the former Soviet Union. Both tuberculosis and HIV/AIDS hit hardest in the most economically productive age groups (18-34). USAID is helping E&E countries cope with these conditions. International protocols for tuberculosis have been successfully demonstrated in the region. The introduction of community-based, primary health care practices has upgraded the clinical skills of family physicians, achieved cost-efficiencies, and saved lives, including a reduction in the rate of abortions.

Global Development Alliance: Under the agency's new initiative called the Global Development Alliance, USAID is developing new ways to engage present and potential partners (including foundations, private business sector, universities, PVOs, etc.) in the overseas development arena. USAID proposes to serve as a catalyst to mobilize the ideas, efforts, and resources of the public sector, corporate America, and non-governmental organizations in support of shared objectives in countries receiving U.S. assistance. In Europe and Eurasia, USAID has sought ways to involve U.S. private organizations as assistance partners and forge operational ties between institutions in the United States and their counterparts in the region. This approach brings additional resources and know-how to these countries, thereby permitting USAID's role to diminish over time. For example, USAID-supported Enterprise Funds have attracted U.S. private sector talent as Board of Directors and Fund Managers to help develop the private sectors in E&E countries. In addition to the $1 billion obligated by USAID, the 10 Enterprise Funds in the region have mobilized over $1 billion in other capital for direct investment funds, joint ventures and co-investment. Through the American International Health Alliance, USAID has supported more than 80 U.S.-E&E health partnerships. Volunteer hours and donations of the U.S. partners add up to nearly $3 for every $1 invested by USAID. To help support countries graduating from assistance, USAID partnered with the Soros Foundation Open Society Institute in 1998 to create the Baltic American Partnership Fund. With matching $7.5 million grants from USAID and Soros, the Fund links Baltic and American NGOs, enabling the local groups to be a force in sustaining the transition to market democracies.

External Debt

For most of the region, the volume of external debt remains manageable. While the ratio of external debt to exports has increased in many countries, the debt burden is manageable for most. Favorable economic growth trends, including export growth, have contributed to this situation. For example, the ratio of external debt to exports increased in the region overall from 109% in 1996 to 152% in 1999, yet debt service (or debt payments as a percentage of exports) was 16% in 1999 region-wide (a little more than half the worldwide developing country average of 27%); available 2000 data suggest this burden may be decreasing. Debt service has been highest in Romania (30% in 2000) and several countries in Eurasia, including Turkmenistan (47% in 1999), Kyrgyzstan (26% in 1999), Kazakhstan (28% in 1999), and Moldova (35% in 1999).

Program and Management Challenges

Because there is a vast disparity between the three subregions that comprise Europe and Eurasia, USAID's strategy is different for each of these geographical areas. USAID's assistance approaches vary according to the degree to which a country has progressed along the transition continuum. Strong country-specific programs are designed for those nations still facing significant transition challenges and to encourage those who have barely begun. Regional programs, also available to graduates on a cost-sharing basis, complement country programs by disseminating best practices and developing stronger linkages among countries and with the world economy. Legacy mechanisms are developed to sustain partnerships and generate resources from the private sector for countries that have graduated from USAID assistance, but where new systems remain fragile. To ensure that the United States' investment in the region is sustained in the longer term, USAID seeks to establish sustainable partnerships between the United States and E&E countries, between these countries and other regions of the world, and among the countries themselves. USAID's role is to help countries develop the sustained capacity to enter into fruitful economic, political and social relationships with others, at all levels of society.

Europe Northern Tier: Maintaining the Legacy through Sustainable Partnerships.

In the European northern tier, USAID is implementing several legacy and regional mechanisms that will help ensure the sustainability of transition to market democracies in this subregion. The legacy mechanisms are endowments managed by private foundations, such as the previously mentioned Baltic-American Partnership Fund. The Polish-American Freedom Foundation, which was established with proceeds from the USAID-supported Polish-American Enterprise Fund, promotes economic and democratic reform without further USAID assistance. On a regional level, the environmental partnerships (ECOLINKS) program helps to open European northern tier markets to U.S. environmental businesses while also addressing issues of environmental abuse. The Partners for Financial Sustainability program is available on a case-by-case basis to bolster past economic reforms and help improve local institutional capacity to deal with external financial shocks.

Southeast Europe: Promoting Stability Through Regional Integration

In Southeast Europe, USAID will focus on reducing ethnic tension, supporting democratic processes, furthering economic reforms, and promoting regional cooperation among these countries and their speedy integration into Europe proper. Programs are designed to establish common standards and practices in such areas as trade and customs, health, labor, energy, and the environment. This strategy is intended to facilitate economic relationships among neighbors, reinforce stability, attract foreign investment and increase competitiveness in international markets.

Kosovo, Macedonia, and Albania will be special challenges as the international community works to both prevent conflict while staying the course with structural reform of the economy, and develop the institutional and legal systems that underpin a market-oriented, democratic society. Efforts in the Federal Republic of Yugoslavia (FRY) will focus on resuscitating Serbia's economy while affirming the rule of law and promoting a democratic resolution to the question of whether Montenegro will remain a part of the FRY or become independent. In Bosnia and Croatia, USAID will continue supporting ethnic harmony and economic growth consistent with the objectives of the 1995 Dayton Accords. Programs in Romania and Bulgaria will promote economic growth while also seeking improved welfare for socially disadvantaged groups.

Eurasia: Staying the Course and Broadening the Benefits of Reform.

Progress on democratic transition and economic restructuring in Eurasia will take longer, bearing witness to the difficulties of implementing the fundamental changes required in this subregion. The challenge is to maintain a steady course focused on advancing reform, tailoring assistance programs to take advantage of opportunities to work with reformers at all levels of the society. Grass-roots efforts with NGOs, regional and local institutions, and small and medium enterprises broaden the benefits of transition and stimulate the demand for change at the national level. While policy dialogue at the central government level remains important, it is limited to those areas where reform prospects are good. Greater attention to the social impacts of transition is reflected in technical advice for reforming social benefits and services, expanded primary health programs, and initiatives to control the spread of infectious diseases such as HIV/AIDS and tuberculosis.

Within this context, programs are further adapted to country circumstances and key foreign policy considerations. The Administration is undertaking a series of foreign policy reviews, of which Russia is the first, with possible ramifications for the U.S. assistance program. In the Caucasus, a peaceful settlement to the Nagorno-Karabakh conflict could lead to the removal of Section 907 restrictions on aid to Azerbaijan and reopen Armenia's borders with Turkey and Azerbaijan. These events would significantly change the development context and pose new or different requirements for USAID's program. Given the legacy of authoritarian rule in Central Asia, the USAID strategy there focuses on the development of democratic culture at the grassroots level. The political landscape in the Western part of Eurasia is changing with yet undefined implications for USAID's program. The current political crisis in Ukraine, the outcome of recent elections in Moldova, and the possibility of elections during this year in Belarus -where reform has yet to begin-- suggest that the U.S. assistance environment in these countries may undergo a transformation during the next year. USAID remains poised to respond to new opportunities, as they emerge.

Other Donors

Donor coordination is an increasingly important tool in the E&E region, used both to maximize the impact of USAID assistance and to catalyze greater resource flows from other donors and the international financial institutions. USAID often finances the technical assistance needed to unlock major structural adjustment and sector lending by the World Bank.

Principal partners include the European Commission's programs for technical assistance to transition countries in Europe (PHARE) and Eurasia (TACIS), the World Bank, European Bank for Reconstruction and Development (EBRD), European bilateral donors, and Japan. Based on latest available information for official development assistance (1998), the United States stands out as the largest bilateral donor in Eurasia, followed by Japan and Germany. USAID also partners with the Asian Development Bank on activities in the Central Asian Republics. In Europe, the European Commission is the largest donor, with a contribution about four times that of the United States, which is the second largest bilateral donor after France. In 1999, European donors stepped up their assistance to Southeast Europe considerably, in the wake of the Kosovo crisis. To address concerns of regional stability, USAID has been actively engaged with the European Commission and the World Bank in planning a strong regional program in support of the Stability Pact for Southeast Europe. In Bosnia-Herzegovina, the international community-represented by bilateral donors, the international financial institutions and other international organizations such as the United Nations, the Organization for Security and Cooperation in Europe, and the North Atlantic Treaty Organization--works closely together to implement the Dayton Peace Accords.

FY 2002 Program

The FREEDOM Support Act (FSA) request level for Eurasia totals $808 million to fund continuing programs of USAID and other agencies supporting economic and democratic transition. A U.S. initiative begun in 2000 to reduce the risk of proliferation of technology and weapons of mass destruction will continue to receive FSA funding, particularly for Russia and Ukraine.

The Assistance for Eastern Europe and the Baltic States Act (AEEB) request level for Central and Eastern Europe totals $610 million, with the bulk of funding focused on country programs in the Balkans. USAID will continue to work with other donors in the context of the Stability Pact for Southeast Europe through regional program mechanisms. No funding will be provided bilaterally to northern tier countries. However, selected regional programs and the few legacy mechanisms described earlier will make funding and/or services available to these countries.

Under the Agency's Economic Growth and Agriculture area, USAID proposes $269 million under AEEB and $431 million under FSA to foster the emergence of competitive, market-oriented economies in which the majority of economic resources is privately owned and managed. USAID programs will place increasing emphasis on partnerships, assistance to small and medium enterprises, and corruption. Energy and environment programs are also included under this rubric, as well as a new initiative to help mitigate the social costs of transition through such activities as social insurance reform, employment generation, and education reform.

Under the Agency's Conflict Prevention and Developmental Relief area, USAID proposes $327 million in AEEB funds and $321 million under FSA to respond to humanitarian crises, facilitate the transition from emergency relief to more traditional development programs, and support transparent and accountable governance and the empowerment of citizens through democratic political processes and freedom of information. USAID also proposes use of $39.6 million in Economic Support Funds (ESF), including $24.6 million for Ireland and $15 million for Cyprus to promote reconciliation and conflict resolution.

Under the Agency's Global Health area, USAID proposes $13.5 million in AEEB funds and $55.6 million under FSA to fight the spread of infectious diseases, including HIV/AIDS and tuberculosis, and improve primary health care practice. USAID also proposes use of $6.5 million in Child Survival and Disease Programs to complement E&E efforts in this area.

Proposed AEEB and FSA funding under the economic growth and conflict prevention areas include other USG agencies participating in technical cooperation programs through inter-agency transfers from USAID, such as the Departments of State, Justice, Energy, Treasury, Agriculture, and Commerce, and the Environmental Protection Agency.

The E&E bureau has no regular, non-emergency P.L.-480 funds in the FY 2002 request year.