Businesses and private citizens are becoming more aggressive in complaining about corruption. It is widely recognized that corruption taints many aspects of Albanian society, eroding public confidence, undermining the rule of law, deterring foreign direct investment (FDI), and delaying Albania’s integration into Euro-Atlantic structures. Petty corruption remains pervasive among central and local governments, as does the large-scale corruption at higher levels. While much of the legal framework for combating corruption is in place, the Government of Albania (GOA) remains weak on implementation. However, initial steps taken to mitigate human trafficking led the State Department to raise Albania’s ranking to Tier II in 2002, compared to its previous Tier III ranking. While the new Prime Minister recently launched a well-publicized anti-trafficking campaign, it remains unclear whether or not the GOA has the requisite political will to follow through.

The trafficking issue is at least partially symptomatic of the inequalities faced by women, who have a low level of participation in decision-making processes and in domestic politics. The parliamentary system is a mix of direct election and proportional representation. In 2001, women made up only 7 percent of the direct candidates and 15 percent of proportional candidates. There were no women on the Central Electoral Commission, and only 7 percent of Zone Election Commissions members and 8 percent of Voting Center Commission members reportedly were women. There is further evidence of this trend in the UNDP Gender-Related Development Index, which ranked Albania 74th out of 146 countries, the lowest in Europe.

Economic OverviewAlbania is enjoying significant growth and macroeconomic stability. In 2001, economic growth was 6.5 percent, the budget deficit was 3.1 percent of GDP, and external reserves remained at 4-5 months of imports. The budget is at 8.5 percent of GDP, and domestic financing is expected to expand to 7.3 percent. Estimated FDI reached $220 million in 2001, then fell to $153 million in 2002. Estimated FDI per capita is only $174 in cumulative terms since 1989, the region’s lowest. Estimated inflation for 2002 is about 4.1 percent, as compared to 1-2 percent in previous years. However, first-quarter inflation has already reached 6.6 percent, due to increased energy imports and money supply caused by withdrawals of deposits from a large state bank that failed to be privatized. While the GOA’s role in the economy continued to shrink, its plans to sell several large, state-owned enterprises in 2002 were not realized.

Albania’s trade deficit continued to grow rapidly. Imports exceeded $1.2 billion in 2001, while exports reached $302 million, resulting in a trade deficit of almost $900 million. Exports continued to decline, primarily because of a lack of industrial production, and the surge in imports was due to increased domestic demand, as well as to large increases in electricity imports. The GOA’s foreign sovereign debt is well over $900 million and, with planned project investments or financing, is expected to rise to over $1.1 billion. Future GOA revenues are likely to be diverted from domestic investment to service and retire foreign debt. Financing was secured by high levels of external assistance, workers’ remittances ($750 million, or 18.1 percent of GDP), and private sector activity largely resulting from Albania’s initial set of structural economic reforms.

Albania remains one of Europe’s poorest countries and the Eastern European country with the highest level of poverty, ranked 85th out of 162 countries on the 2001 Human Development Index. While the GOA-registered unemployment rate was 14.4 percent in 2001, unofficial estimates of those who are either unemployed or engaged in informal or illegal activities range between 30 and 40 percent of the workforce. Studies indicated that inequality in national income distribution is increasing steadily, and conditions for the majority of the population remain onerous. In relative terms, 29.6 percent of all Albanians are poor, and half of them are in the extreme poverty category. In absolute terms, 46.6 percent of all Albanians are below the poverty line of $2 per capita per day, while 17.4 percent have incomes of under $1 per capita per day. Although the available statistics generally are not gender disaggregated, informed experts agree that such poverty falls disproportionately on women and children.

In summary, the current domestic political and economic situation offers some grounds for optimism regarding Albania’s prospects for future stability and economic growth. However, the current fragile stability could be quickly and easily undermined by either endogenous or exogenous factors. The unfavorable trends in political and economic inequality and the incidence and severity of widespread poverty are issues of increasing concern.

Overview of SEED AssistanceFrom 1992 through the end of FY 02, the U.S. had provided more than $330 million in assistance to Albania to support long-term development and facilitate its transition to a modern democracy with a market-oriented economy. This includes $18 million through the 1999 SEED Supplemental Act and $12 million in budget support contributed to the GOA to ease the fiscal pressures caused by the Kosovo refugee emergency. USG assistance falls into the following categories:

• Economic reform, including activities supporting agriculture and agribusiness development, growth of private small and medium enterprises, improving the availability of financing to entrepreneurs, and strengthening banking supervision.

• Democratic reform, including support for civil society to increase citizen awareness of public issues and assist in elections, strengthen legal institutions and the rule of law, facilitate the decentralization process, and improve GOA capacity to address corruption and trafficking issues.

• Social sector and humanitarian programs, including partnerships with U.S. health organizations to assist in family planning and other interventions, primarily for reproductive health.

The Current Transition Context

Despite the significant progress made since 1997-98, Albania still faces major obstacles in completing the transition process and sustaining equitable, broad-based economic growth. Moreover, the costs of transition to date are seriously undermining public support for further reform. These include a rise in both income poverty and elements of human poverty; an increase in income inequality and wealth inequality; rising gender inequalities; growing unemployment, underemployment, and informal employment; and persistently high levels of morbidity.

To some extent such transition costs were inevitable in the short to mid term, but they were unnecessarily exacerbated by poor timing and/or GOA delays in implementing major reforms. Successful completion of the transition phase requires Albania to continue, if not accelerate, the economic and democratic reform process to stimulate private sector investment and civil society development, while mitigating the transition costs to the general public. With Increased political and economic stability, Albania could play a larger, more productive role in reducing regional ethnic tensions and increasing regional stability.

Program ImpactAlbania made significant progress in enterprise development during FY 02. According to the GOA’s Institute of Statistics, the number of registered business entities increased by 4 percent, and the informal economy as a percentage of GDP dropped from almost 70 percent to about 54 percent. According to a study by the Institute for Development and Research Alternatives, the quality of commercial lending by the banking sector improved dramatically, as the percentage of standard loans to total loans increased from 59 to 88 percent. The 2001 Annual Report of the Bank of Albania indicates that confidence in the banking sector continued to rise, as deposits grew by 20 percent, providing substantial liquidity for new investments.

Economic Reform

Private Enterprise Development:

Opportunities International’s micro-credit program maintained its remarkable on-time repayment rate of 96 percent, with an interest rate of 24 percent. The program has become financially self-sustaining, and the number of active clients remained about 1,760. Many micro-credit clients are multiple borrowers, as the sole entrepreneur transitions to small-scale businesses. In addition, many former micro-credit borrowers gained business skills and confidence, which enabled them to grow into small businesses.

The Chemonics Small Business Credit and Assistance Program directs an array of training, counseling, credit, and guarantees to viable businesses with growth potential. It established a $750,000 guarantee agreement with the National Commercial Bank, and within two months, eight loans were processed. A $2 million credit line with the Albanian credit agency PSHM is demonstrating that credit risk is best managed by a combination of character and cash flow factors, rather than an emphasis on collateral.

The demand for services and assistance from the USAID-supported Regional Development Agencies in Albania increased by 45 percent, as small and medium businesses acknowledged the value of business planning and market development. Bank loans to medium-sized businesses secured by the loan guaranty from the USAID Small Business Credit and Assistance Program increased by almost 40 percent from FY 01. During the last six months, agribusiness clients of the USAID-supported International Fertilizer Development (IFDC) program invested $2,336,000 to increase production and for product development. An agriculture association credit union made $156,000 in commercial loans to members, an increase of 32 percent from 2001.

With IFDC support, Albania’s private sector agribusiness council, KASH, joined the Ministry of Economy’s Business Advisory Council to guide the GOA’s agribusiness development initiative. In addition, private sector demand for trade advice from the USAID-supported Albanian Center for International Trade (ACIT) continues to grow. ACIT initiated a public information program and a series of roundtables to incorporate business interests and inputs from the private sector into the successful negotiation of free trade agreements with Croatia, Macedonia, Montenegro, and Serbia. On the advice of USAID advisors, the GOA recently established a Small and Medium Enterprise Development Agency further to support private sector investment activity and the Agency for Direct Foreign Investment. The GOA budget for 2003 includes funds for both agencies, which are also receiving continued training and advice from USAID.

The absence of certified registrations and competing or confusing ownership claims interferes with land development. The Associates for Rural Development is addressing this issue through implementing the first registration of immovable property. First registration develops parcel descriptions and is accompanied by verified ownership documentation. This provides businesses and persons with improved access to credit through land collateralization. Nearly one-third of the 3,000 cadastral zones are now registered, another one-third are in process, and the balance is to be completed in two years. As urban land markets are the most active with the boom in residential housing, first registration is being aided by municipal governments that are attempting to enforce land use planning and construction licensing.

In addition, the University of Maryland’s International Institutional Reform in the Informal Sector (IRIS) set up an electronic and remote moveable registry system, that now is housed in the Ministry of Finance. Banks and other lenders have registered over 1,500 claims to secure interest rights in moveable property. The first foreclosure in response to a default in payment of property secured by the registry was carried out successfully under the micro-credit program of Opportunities International.

The University of Nebraska successfully launched an MBA program at the University of Tirana. Applications continued to rise, and two classes were added to meet the demand. The University anticipated GOA decentralization efforts by creating an MPA program to develop a skilled cadre of municipal administrators. The Harry T. Fultz School continued to focus on secondary education by helping students acquire technical skills to meet an increasingly sophisticated labor market. Student enrollment on a fee basis remained constant at 450, and the newly awarded grant to establish a community college will introduce highly specialized technical training.

The USAID grant to the American Harry T. Fultz Foundation in FY 01 enabled all major secondary schools to participate in the Junior Achievement Program in FY 02. Previously, this program was limited to Tirana, due to funding constraints. Teachers outside the capital now are receiving training in basic economic and business concepts, and specialized courses in business ethics, law, and entrepreneurial development are becoming available. With the Harry T. Fultz Foundation’s support, the Albanian Foundation for Economic Education of Youth is expected to qualify for future direct USAID funding to implement the Junior Achievement Program, rather than acting as a subcontractor.

Agriculture and Agribusiness Development: Subsistence agriculture continues to dominate Albania’s economy and employment. Before 1991, agricultural imports were limited, and traditional exports included tomatoes, cucumbers, and peppers. But agricultural conditions changed dramatically during the 1991 destruction of state-owned properties, including collective farms, fruit trees, and irrigation systems. Young people left to work in Greece and Italy, leaving the old and very young behind. Remittances have substituted for farm incomes. Traditional domestic markets were subsequently flooded with imports.

Land reform followed, but the laws governing land redistribution were flawed. The legislative intent was to provide shares of arable land to all rural families. This resulted in holdings too small to be cost competitive with large-scale, low-unit-cost, mono-culture foreign producers. Consequently, USAID agriculture programs had to start by creating a monetary and marketable surplus culture for agriculture and gradually move into the formation of agribusinesses. Significant progress has been made in selected sub-sectors in terms of import substitution. Domestic producers now fully serve Albania’s market for fresh eggs. Greenhouse production of tomatoes dominates domestic markets and is expanding into export markets as well. The USAID agricultural initiative now is moving into other agricultural sub-sectors with export and/or import substitution potential.

The IFDC program recognized that trade associations were an efficient conduit for training and distribution of market and product information. The umbrella agribusiness council (KASH) became a powerful lobby for farmers and agribusinesses. Of the 17 associations established within KASH since the program started, eight are now financially self-sufficient. Member services charged on a fee basis are now sufficient to support association costs. Regional and annual meetings produce options for the GOA regarding taxation schemes, import and export tariffs, and needed agriculture sector credits. The GOA recently initiated an agriculture sector guarantee fund and also engages KASH actively in preparing free trade agreements.

In 2001, IFDC targeted its efforts on existing and potential business leaders. This enabled IFDC to narrow its assistance to a manageable but very influential and progressive clientele. The current focus is on extra virgin olive oil, horticulture, herbs and spices, poultry, and fresh fish. Staffs were organized by teams, with emphases on commercially based consulting services, regional competitiveness, and technological improvement. Using Israeli greenhouse technology, for example, Albanian tomato producers are now starting to edge out imports. Additional greenhouses have been purchased, and soon there will be sufficient production to serve potential export market niches in free trade agreement countries. As a result of IFDC interventions, agribusiness clients invested $2,336,000 of their own capital in technology to increase productivity and quality.

The Land O’ Lakes program is helping local livestock enterprises to compete effectively with foreign imports in domestic markets. Domestic egg production fully serves Albania, and locally produced poultry has captured almost 75 percent of that market. Milk production is up by 45 percent, as milk collection stations are paying premium rates for fresh milk with high butter fat and low bacteria. Although imported UHT milk still controls a major share of the domestic market, local producers have captured 88 percent of the market for processed milk products, including cheese, yogurt, and ice cream, up from 54 percent a year ago. A “Seal of Quality” project has been launched to carefully selected producers, processors, distributors, wholesalers, and retailers to maintain and reinforce high quality and sanitary standards.

Trade: Foreign trade accounts for about 38 percent of GDP. However, imports were $1.2 billion, while exports were $302 million, creating a trade deficit of nearly $900 million. Almost 70 percent of exports involved piecework processing of shoes, clothing, and textiles that depend on cheap, uneducated labor. Albanian consumers and businesses now prefer imported products and services, and foreign producers have overwhelmed domestic competitors as a result. In response, the USAID-funded Chemonics Small Business Credit and Assistance Project is identifying and working with private sector firms that have export potential. A competitiveness analysis identified the following sectors for targeting a combination of business assistance and credit: fish, olive processing, herbs and spices, and thermal insulation.

The trade imbalance reflects the openness of Albania’s borders to imported goods and services, supported by an estimated $750 million of remittances annually. The Albanian Center for International Trade, within the Institute for Contemporary Studies, is helping the Ministry of Economy to negotiate free trade agreements with other Balkan countries, and with WTO conditions. It also encourages Albanian businesses to use favorable treaty provisions to further export development. Although it is too early to identify trade-related advantages for Albanian businesses, the American Chamber of Commerce and the Chamber of Industry and Business distribute this information to their membership.

Financial Sector: Two USAID programs are responsible for major improvements in the Bank of Albania’s (central bank) organization, operations, and bank supervision. Before ending in September, the Barents bank supervision program, in consultation with the World Bank, established an on-site and off-site bank supervision department that meets EU standards. The Financial Services Volunteer Corps (FSVC) assistance now spans all central bank functions, including research, anti-money laundering, information technology, monetary policy, payments, internal audits, human resources development, bank supervision, and deposit insurance. Growing recognition of the Bank of Albania’s role in supervising bank credit programs increased the percentage of standard loans to total loans from 88 to 94 percent. The Small Business Credit and Assistance program, Georgetown training program, World Learning, and FSVC continued to provide training in commercial lending to Albanian banks. Domestic credit offered by these banks increased 10.2 percent from the previous year.

Energy Sector: The deleterious effect on the economy of the energy sector’s poor performance is substantial. Frequent, prolonged power outages in cities and villages caused major costs for businesses, as they bought alternatives to electricity utility generation. The lack of reliable power sources discourages private investment in the industrial sector. The electric utility depends heavily on hydro-generation, which accounts for 93 percent of domestic generation capacity. To make matters worse, there have been no major investments in generation, transmission, or distribution in the last 15 years. The percentage of non-payers exceeds that of those who do pay. Moreover, the GOA has failed to pay for imported electricity, and the arrears are becoming unmanageable. Technical losses average 35 percent, and many villages cannot operate electric appliances or machinery even for basic purposes.

USAID energy sector assistance to the GOA had a positive impact in mobilizing IFI support in starting to address the foregoing problems. In response to an urgent request by the World Bank to draft a major policy statement with specific commitments for energy sector reform, USAID used its technical expertise to help kick start the targeting of IFI energy investments. The policy statement was prepared, with substantial GOA and Albanian Energy Regulatory Agency (KESH) collaboration, and was presented to donors in Brussels. Donor approval of the statement unleashed more than $120 million in commitments for energy sector projects, including a power plant near Vlora to reduce dependency on the unreliable hydroelectric power system. However, power blackouts continue to hinder economic expansion, driving up unit costs of production and reducing the economy’s competitiveness.

The Pierce Atwood law firm continued to strengthen the Albanian regulatory agency’s institutional capacity, such as by drafting legislation needed for energy sector reform and preparing implementing rules and regulations. The National Association of Regulatory Utility Commissioners arranged for the Indiana State Utility Commission to pair with KESH. CORE International is providing expertise to the GOA’s high-level Energy Sector Task Force, as well as assisting KESH to unbundle its generation, transmission, and distribution. The U.S. Energy Association, which is providing internships and training to KESH in the organization, management, and operation of an unbundled utility, is also supporting this.

Regional Infrastructure: The USAID-funded Regional Infrastructure Project (RIP) is assisting the Ministry of Transport systematically to register all land expropriated for roads and highways. RIP shifted GOA emphasis for restoration of the railroad from east-west to south-north, thus providing a future direct rail connection through Montenegro to European markets. Creditors and donors were increasingly concerned about the GOA’s failure manage large-scale infrastructure projects effectively. In response, a monitoring system was developed to institutionalize construction performance and accountability. The system enabled the GOA to draw down on construction credits. For example, RIP is incorporating individual development schemes and current financing options into a master development plan for the Port of Durres. Once the plan is approved, the EIB and EBRD will release construction credits.

Democratic ReformFrom the fall of communism until 1997, progress toward establishing strong non-governmental organizations (NGOs), independent media, and democratic political parties in Albania was severely hampered by the collapse of the pyramid schemes. Albanian society today continues to reflect the resulting polarized political environment, though this polarization is slowly abating. Citizen participation is increasing, and public discourse is markedly more civil, a major improvement given past excesses. Over the past year, program efforts focused on strengthening Albania’s civil society organizations that are independent of political parties, providing independence and accountability to the judicial system, and mobilizing citizen action against trafficking and pervasive corruption.

NGO Development: USAID has participated since 1995 in developing Albania’s NGO sector, first with the Democracy Network Program, which ended in 2000, and then with Partners for Democratic Change.

Partners for Democratic Change (PDC) established a Center for Change and Conflict Management that is now under Albanian management. The Center completed its assessment of the needs of Albania’s NGO community regarding alternative dispute resolution and management capacity building. Unique in its depth and breadth, the needs assessment gives a thorough picture of the NGO sector’s strengths and weaknesses. The donor community now uses the published assessment and the Albanian NGO Directory to focus technical and funding assistance to the NGO sector. PDC extends training and technical assistance, along with small grants, to help build capacity provide social services.

The USAID-sponsored International Center for Not-for-Profit Law (ICNL) followed up on the passage of a liberal NGO law last year by working with the judiciary, advocates, and NGOs on the practical aspects of implementing the law. ICNL introduced standardized forms to be used in the various steps of the NGO registration process, trained lawyers key to the NGO sector on the provisions of the law, and soon will train the Chief Judge of and the six Judges within the Tirana District Court tasked with registering NGOs.

To establish successful NGOs, citizens must understand and value the basic processes and practices that characterize a democracy. The National Democratic Institute (NDI), with USAID sponsorship, began the Civic Forum program in Albania in 2000. Local coordinators have worked since then with over 200 groups in about 75 rural and urban communities to improve citizens’ understanding of democracy and to equip them with the skills they need to undertake community advocacy efforts. At the close of FY 02, 14 field coordinators had engaged more than 1,500 citizens in central Albania, including nearly 50 groups pursuing initial community organizing efforts.

Changes in citizens’ understanding and behavior are increasingly apparent. For example, in Kamez, a sub-district of Tirana that has grown rapidly in the last seven years, a group of pensioners demanded low-cost bus tickets to allow them greater freedom of movement and access to markets, shops, and services. Meetings with senior municipality officials yielded few results but generated growing support for the reduced fares. After months of taking their case various stakeholders and decision-makers, the pensioners secured the right to discounted fares. While the economics may be questionable, the pensioners’ persistence and appreciation that different stakeholders needed to be brought into the organized effort reflect a deeper understanding of participatory democracy.

The density and diversity of the NGO sector have continued to grow, giving Albanians an expanded choice of NGOs to represent them in public matters. Empowered citizens, in turn, make their NGOs stronger, more effective, and representative, and present their concerns directly to the GOA, without going through a political party. The expaned NGO presence at the regional level and below has contributed to the devolution of decision making to local actors. The NGO sector has significantly increased the awareness of GOA and the public at large regarding its activities and contributions. However, the sector as a whole still remains too dependent on international donor largesse.

Elections and Political Party Development: The International Foundation for Electoral Systems (IFES), sponsored by USAID, followed up last year on the recommendations provided by OSCE’s Office for Democratic Institutions and Human Rights, following the 2001 elections. IFES surveyed local government election officials and members of the judiciary further to identify areas in the election process needing improvement. Based on this survey, IFES sponsored the establishment of the Albanian Association of Local Government Officials and commenced a professional development program for the staff of the Central Electoral Commission (CEC).

Major improvements to the voter registry process continued, including a GIS mapping exercise of polling districts, with leveraged donor funding from the Netherlands and Italy. Proposed changes to the electoral code were offered to the Parliamentary Bi-Partisan Commission on Elections, formed in June 2002. IFES sponsored European visits for CEC members and staff to give them election administration experience outside Albania. In partnership with World Learning, 15 members of the Association of Local Government Election Commissioners observed election procedures in Bosnia.

With USAID sponsorship, NDI began its Political Party Leadership Development Program, known locally as ZHUP, in 2000. In FY 02, 144 young political activists from 12 parties participated in ZHUP training workshops throughout Albania. Topics included communications, negotiation skills, coalition building, voter contact, and the role of politicians in government. Late in FY 02, NDI initiated a series of party branch building workshops, in which more than 110 activists from four parties took part.

ZHUP participants increasingly are recognized as having unique skills and knowledge and are sought as trainers in Albania and throughout the Balkan region. Seventeen ZHUP participants facilitated workshops in FY 02. Finally, ZHUP participants designed and delivered projects to disseminate the knowledge they had gained in the program. These projects included creating a Code of Conduct that was signed by all youth forums of Albanian parliamentary parties; a multi-party seminar series in seven cities called “Together”; and voter outreach programs by five of the larger political parties.

Local Government Assistance and Decentralization: USAID is conducting activities to improve public administration by local officials, within the framework of transparent, accountable local governments, with the goal of providing improved public services. For example, workshops were held with municipal officials responsible for solid waste collection and disposal. As a result, the officials learned how to determine the real costs of such services and set collection fees accordingly. Waste collection services improved in over half of the municipalities represented at the workshops.

The Urban Institute (UI), USAID’s implementing partner, is conducting activities to support improved public management in Albanian municipalities and the GOA's strategy for devolving authorities and resources to local governments. UI has worked closely with the National Decentralization Committee and the inter-ministerial “Group of Experts" to implement fiscal decentralization, property transfer, and the use of a formula by the Ministry of Finance to distribute un-earmarked funds to all local governments in 2002. The distribution of such funds to local governments in this manner de-politicized the process and ensured that local governments were able to plan to use the funds effectively for their constituencies’ benefit.

UI has been instrumental in assisting the Ministry of Local Government to maintain a focus on the decentralization process that requires close cooperation between local and central government officials. To this end, UI expanded its training of local officials to include expenditure management, focusing on modern budgeting, citizen participation, and revenue management, paying particular attention to local taxes and solid waste fee structures for services. This work continues to be coordinated with Dutch, German, and Swedish donors, as well as with the Council of Europe, OSCE, and UNDP.

Legal Framework: The Central European and Eurasian Law Initiative of the American Bar Association (ABA/CEELI), with USAID sponsorship, maintained its focus on three areas: a) judicial training, whereby the magistrates school continues to support the training of new and sitting judges, to increase the effectiveness and legitimacy of the court system; b) legal organization, through the strengthening of the Albanian Constitutional Convention, Association of Judges, and national and local-level bar associations; and c) legal education, through the development, publication, and distribution of professional journals, and continuing support for the law library and curricula for the University of Tirana Law School.

Consistent with the above, ABA/CEELI assisted the National Judicial Conference (NJC) through financial and logistical support to the annual meeting of all Albanian judges. The NJC adopted amendments to its Charter at the meeting, adding a nominating commission and imposing member dues. Two prominent members of the U.S. Federal judiciary led a workshop for NJC officers on effective leadership. A second Court-Media workshop was conducted, and an Index of Albanian legislation for the 1990-2001 period was developed and distributed to all judges.

The improvement of legal professional education remained a central goal of ABA/CEELI. Professors of the Albanian Magistrates School (AMS) were trained to teach a Legal Writing and Reasoning course, formerly taught only by ABA/CEELI faculty, using ABA/CEELI-developed materials. In addition, financial and logistical support was provided for the first continuing education program for sitting judges and prosecutors in AMS’s six-year history. Also, the Legal Writing and Reasoning course was taught at the University of Tirana Law School for the first time for credit within the regular curriculum, while Moot Court competitions were coordinated for the students. Finally, a Business Writing course was given, complete with course manual, for the administrative staff of the AMS and the Law Faculty.

Regarding civic legal education, ABA/CEELI, together with the Tirana Legal Aid Services Center, published a newspaper series on the basic legal rights of citizens. Twenty thousand copies of a brochure on domestic violence rights were distributed. A practical guide for citizens concerning rights under the Administrative Procedures Code and the Right to Information Law was developed. Three citizen roundtables with the anti-corruption Citizen Advocacy Office were conducted. Finally, ABA/CEELI funded the Center for Peace through Justice to train village women in their legal rights.

In FY 02, East-West Management Institute, Inc. (EWMI), sponsored by USAID, continued to help Albania implement its large body of recently enacted but poorly enforced commercial laws. EWMI provided comprehensive, multiple-day training to 92 judges in banking law, 91 judges in creditor/debtor law, 67 judges in commercial construction contracts, and 29 judges in civil trial practice, as well as a specially designed, four-day course in basic commercial law concepts for 17 judges from smaller courts. EWMI also organized and delivered introductory computer training for 297 judges and court staff throughout Albania. EWMI was instrumental in building institutional capacity at the magistrates school so that it could begin educating sitting judges, helping the school develop and finalize a long-term strategic plan, and assisting the school to draft/publish its first program for continuing judicial education.

EWMI improved the administration of Albania’s court system by providing introductory management and budget training to all court chancellors. By bringing chancellors and chief judges together for joint professional training, EWMI also helped reduce friction between chief judges and the Ministry of Justice, which appoints chancellors. Working with a local software developer, EWMI designed and installed pilot statistics software at the Tirana District Court, enabling the chief judge and chancellor of Albania’s largest court to collect and report caseload statistical data more efficiently to central court authorities.

The Albanian Judicial Conference, made up of judges, is constitutionally mandated to appoint nine of the 15 members of the High Council of Justice, the nation’s highest judicial governing body. Due to lack of staff and administrative capability, the Conference previously appointed High Council judges hurriedly and undemocratically at an annual meeting. In FY 02, due largely to the new Secretariat Office of the Judicial Conference developed and funded by EWMI, two judge openings on the Council were filled through a careful, fair election held after debate at a special meeting of the Conference. Eleven qualified candidates lobbied their peers and vied for the two seats in an open, transparent process. The media focused on the event, which Albania’s President praised as an advance of democracy.

EWMI also completed a database of all Albanian legislation enacted since 1991, and, in cooperation with the Chief Justice of the Supreme Court, published a compilation of all precedential Supreme Court cases rendered since the Constitution was enacted. Previously, the judges’ only access to Albanian law was through back issues of the Official Gazette, which have never been published collectively or annotated.

Media: The USAID-sponsored Promedia Program, under IREX, achieved success in the formulation and conduct of televised campaign debates during the national election cycle. It worked with 23 separate local TV stations. Debates followed an American model, in which each candidate was asked the same question by a non-partisan moderator and was allowed an equal period to reply. Questions were based on local issues identified by a panel of voters. The model was so well received that all TV stations replicated the debates, using the same format, without program assistance. IREX continues to conduct training in business management for all forms of media, along with ongoing curriculum development for journalism students and support for start-up professional associations. IREX is also working with the Albania Media Institute to provide Internet access for the entire journalism community over the next years.

Promedia works with civil society organizations and local government implementers to promote a better appreciation of citizen participation in community improvement projects through an immensely popular TV series called “The Heroes of Albania.” The mayor of Tirana acknowledged the program as the impetus for several private/public alliances. This includes new paving and sidewalks for several main roads, where private citizens and businesses matched municipal funds to pay for the projects. Twenty more episodes were produced during FY 02, and the network of stations airing the program increased to 23. Financial management remained a key focus for IREX. The team visited 19 TV stations, mostly in the regions, and six of the local newspapers providing a simple Excel/Access-based program to help the organizations maintain their revenues and expenditures in a logical manner, providing the basic financial information to run their companies.

IREX also issued the first independent ratings survey of viewer’s habits to the broadcast industry. The method was based on a viewing diary maintained for 28 days. The survey was taken in 14 metropolitan areas and the results distributed to all TV stations. Working with World Learning and MSI, IREX held a month-long training for journalists, utilizing the talents of some key personnel from “60 Minutes.” It is the intention to replicate that format and produce a semi-monthly program aimed at exposing corruption and trafficking. IREX resurrected a program from last year called “Lajme Mir” (Good News), but added a photojournalism course to the project and provided 35mm cameras to the participants. The success of this training is shown by the plethora of photos now appearing in the dailies.

The National Council for Radio and Television (NCRT) was initiated in 1998 but, unfortunately, none of its members had a clear idea of their responsibilities. Over the past three-and-a-half years, it has issued 61 TV licenses, far too many for a country with slightly over three million inhabitants. IREX, working with the Danish International Development Agency (DANIDA) and the OSCE, initiated a frequency-mapping program to bring some order to the licensing situation. An experienced engineer was hired to visit each broadcasting and retransmission facility in the country and input the data obtained into a software program. From that information, the NCRT will develop a frequency plan to eliminate the interference problems affecting broadcasters.

Anti-corruption and Anti-Trafficking: In November 2001, the GOA unveiled a four-year national strategy to combat trafficking in human beings. Its objectives include: a) identifying the reasons for trafficking and its methods, current field experience, and gaps in legislation; b) raising public awareness of the problem; c) ensuring the education of women and children regarding their rights, civil liberties, and legal protections; d) improving the social conditions of women; and e) strengthening prevention efforts.

USAID’s implementing partner, Management Systems International (MSI), continued its program to combat corruption and human trafficking. MSI opened the Citizen’s Advocacy Office (CAO), where citizens can bypass GOA offices to bring complaints about corruption. The CAO is staffed by local lawyers and paralegals, who assess the merits of a complaint and then take appropriate action by instituting direct legal action, referring it to the Prosecutor General’s Office, or dropping the case. A weekly morning TV program that deals directly with corruption issues and features the head of the CAO led to explosive growth in the case load. Additional staff was hired and the office expanded in FY 02. DANIDA funding has since enabled the CAO to open offices in the towns of Burrel and Peskopje, and SNV (the Netherlands Development Agency) proposes to fund offices in five more towns.

With MSI support, the Albanian Coalition against Corruption (ACAC) grew to over 140 members, comprising NGOs, business associations, and individuals. ACAC holds well attended and reported monthly public forums on corruption and trafficking issues. There also are six committees targeting specific corruption issues, one of which deals with human trafficking. The work plans for the Executive Committee and the six target committees were reviewed and renewed for the coming year. Both ACAC and MSI work closely with the GOA’s anti-corruption and anti-trafficking units. NDI, through its Civic Forum initiative, and PDC, through its women’s groups, also promote anti-corruption and anti-trafficking.

With USAID support, the International Office of Migration (IOM) became active in anti-trafficking and community empowerment activities. This included: a) establishing MOUs for cooperation with key GOA agencies; b) direct assistance to trafficking victims through a reintegration center; c) strengthening the capacity of police in counter trafficking and irregular migration; d) research into attitudes and perceptions regarding trafficking among vulnerable groups; e) establishing strong relationships with NGOs to mobilize local communities to combat trafficking; and f) the launching of two mass information campaigns.

With funding through the Embassy’s Public Affairs Office (PAO), the Democracy Commission’s Small Grants Program made numerous awards to local NGOs in FY 02. For example, grants for public awareness and educational campaigns on problems related to trafficking and prostitution were given to: a) the Council of Social Service Associations in the Durres district; b) the Counseling Center for Women and Girls in Pogradec; c) the NGO Useful to Albanian Women in Tirana; and d) the NGO Women in Development -- Shkodra Branch. Additional grants were awarded to the Elbasan Women’s Forum to conduct a survey on the trafficking of women, and TV Arberia and Children’s Rights Center of Albania (CRCA) to produce a series of documentaries on trafficking.

The U.S Justice Department’s International Criminal Investigative Training Assistance Program (ICITAP) focused on total information management (TIMs), institutional development, combating organized crime, anti-trafficking, and establishing a GOA Internal Affairs Unit (IAU). Regarding TIMs, an agreement was brokered between the Ministry of Public Order (MPO) and the Albanian National Police for designing and establishing an interagency computer and data base network to strengthen enforcement capabilities. As a result of inputs from ICITAP advisers, the Organized Crime Vice-Directorate within the Albanian National Police is being restructured and brings together a single Directorate responsible for economic crimes, money laundering, drug control, anti-terrorism, anti-trafficking, and an analytical unit.

ICITAP is pursuing a three-year strategy to combat organized crime and trafficking by placing groups of international advisors in each of Albania’s three major trafficking venues -- Rinas Airport and the seaports of Durres and Vlora. ICITAP is also supporting the Vlora Anti-Trafficking Center, which was established through an agreement among Albania, Greece, Italy, and Germany. A police expert/prosecutor is now serving as an advisor to Albania’s Prime Minister to oversee/monitor the GOA’s National Anti-Trafficking Strategy. This led to the design and implementation of an operations plan to cut off illegal trafficking of persons via speedboat. Reporting directly to the Minister of Public Order, the new International Affairs Unit is now conducting transparent, verified, and sustained investigations, and, for example, has stopped the practice of “recycling” corrupt police officers who have been terminated.

Another U.S. Department of Justice activity in Albania is the Overseas Prosecutorial Development Assistance and Training (OPDAT) program. In FY 02, OPDAT continued its core mission of training Albania’s judges and prosecutors. It also expanded into such areas as establishing an organized crime task force, setting up and coordinating a network to share information on Albanian and Albanian-American organized crime, reviewing and recommending legislation to protect witnesses and crime victims, and advocating on behalf of mutual legal assistance and extradition treaties between the U.S. and Albania. OPDAT is also assisting the GOA to develop a strategy to locate and freeze assets of terrorist financers, and encouraging regular reporting on the activity of the Prosecutor General’s Office.

Social Sector and Humanitarian ProgramsUSAID’s primary assistance to Albania’s social sector is in primary health care (PHC), with a special focus on women’s health. PHC is a major component of the Ministry of Health’s (MOH) 10-year strategy to improve health care access and quality. In October 2002, the MOH presented its Ten-Year Development Strategy of the Albanian Health System, which will serve as the basis for the country’s health care reform program.

Reproductive Health: Continuing the work begun under a predecessor project, the USAID-financed John Snow, Inc. (JSI) team extended training from the original pilot area to 18 districts, accounting for 69 percent the Albania’s population. Under the current JSI project, reproductive health has been expanded beyond family planning and contraceptive technology toward a more comprehensive approach. New curricula have been developed in STI/HIV/AIDS prevention and the promotion of breastfeeding and quality antenatal care. To date, JSI has trained 50 MOH trainers to use these curricula.

Project interventions are expanding reproductive health services to all health centers throughout the country. Previously, contraceptives had been available typically at a single hospital-based center and only in the larger towns. The addition of as many as 17 more service delivery points in a single district increases access, particularly in mountainous areas and for low-income women. USAID funding has ensured that the logistics management information system (LMIS) is now nationwide and claims an 89 percent reporting rate among service delivery points in Albania’s 36 districts.

The above information is critical to informing the discussions at the newly established Contraceptive Security Commission. The Commission, consisting of the MOH, UNFPA, USAID, JSI, social marketing organizations, private sector representatives, and NGOs, is tasked with guaranteeing Albania’s contraceptive security. Quarterly Family Planning Data reports show method mix, source of supply, and Couple Year Protection (CYP), as well as forecasting the adequacy of contraceptive supplies and supporting informed distribution systems.

The USAID-funded JSI project provided much of the technical assistance and consensus building that resulted in the passage of Albania’s first Reproductive Health Law. This law certifies Albania’s transition from a pro-natalist society to one where couples are assured access to modern contraception methods.

Health Care Reform: Through the PHRplus Project, USAID is helping Albanian counterparts to strengthen primary health care, with an emphasis on reproductive health. With both national and local-level health officials and providers, the PHRplus team is developing a pilot program that will become a model for nationwide replication within the next three years for restructuring the primary health care system. Four primary health care centers representing both urban and rural settings in Berat and Kucove Districts serve as the model sites.

At these sites and building on the recently completed Social Sector Rehabilitation and Support Program rehabilitations in these PHC facilities, critical tools are being developed from the community and primary health care levels. These tools include a fully functioning health information system, developing a working structure from which to create an efficient and useful decentralization structure, an analysis of financing and the development of costing tools accurately to determine the needed level of resources, and improving the clinical skills of staff, as well as establishing internationally acceptable clinical practice guidelines. In the development of these tools, all stakeholders are included to ensure not only the broadest exposure but also the widest skills update possible.

Reproductive Health (RH) Survey: For the first time ever in Albania, an RH survey is under way. Through the collaborative efforts of the MOH, UNFPA, UNICEF, and USAID (utilizing the Department of Health and Human Services), a survey on the reproductive health of Albanians is to be completed by the end of 2002, with results expected early in 2003. From this survey, baseline information on RH topics such as childbearing, contraceptive use, maternal/child health, and health behaviors and attitudes, more informed health policies and health services will be developed.

The above information will provide key inputs for planning, monitoring, and evaluating USAID-funded health activities, improved inter-donor program coordination, and development of GOA funding priorities. The actual designing, testing, and conducting of the nationwide survey, as well as the subsequent analysis of the results, will strengthen the capacity of the Institute of Public Health and the National Institute of Statistics.

Health Partnerships: USAID also provides varied assistance to the Albanian health care system through the American International Health Alliance (AIHA), with support to three partnerships. The Tirana/Providence partnership brings together two hospitals serving women and children, the Women and Infants Hospital of Rhode Island and the Maternity Hospital in Tirana. Through this partnership, a model Women's Wellness Center (WWC) was opened to provide and integrate a comprehensive array of primary care services for women of all ages. More than 30,000 women have already accessed it. In the past year, a seminal cervical cancer screening option was developed and is now providing Albanian women with state-of-the-art screening and care services. In addition, the MOH has replicated the WWC in the Maternity Hospital II, demonstrating this model’s effectiveness.

A second partnership between the Lezha District Health Authority and McGee Hospital in Pittsburgh, Pennsylvania, has been established to strengthen relevant components of primary health care. Finally, efforts are under way to model primary health management training and health promotion activities in Albania’s Institute of Public Health with Romania’s Institute of Health Management, thereby demonstrating the untapped potential of East-East relationships.

Cross-Sectoral ProgramsWith USAID’s financial support, World Learning’s newly contracted and expanded Participant Training Program organized 18 training programs. Ten programs supported the growth of private enterprise, three promoted increased citizen participation, two supported improved legal systems, and one each supported better health care and special and cross-cutting initiatives. Two Albanians took part in a conference in the U.S., while another 68 participated in training programs or conferences in other countries, generally in Central and Eastern Europe. From the total of 70 participants in U.S. or third-country training, 39 percent were women. World Learning also organized six in-country training programs for 317 Albanians, 54 percent of them women.

Participant Training Programs:

Five grants were awarded to former training program participants to implement some aspect of their action plans. Whether for grants or in-country training programs, World Learning staff helped inexperienced NGOs or institutions improve their ability to organize and financially manage effective training and development activities. Albanians continued to benefit greatly from training and worked hard to make changes after their training.

Other Training Programs: Included in the Mission’s Cross-Sectoral training programs are the Ron Brown and Fulbright Scholarships, English Language Training, and a variety of short-term media campaign workshops funded through the Public Affairs Office (PAO). The Democracy Commission’s Small Grants Program, also funded through the PAO, enabled two NGOs in Tirana to carry out specialized training programs. These included the Women’s Advocacy Center, to conduct seminars for judges, prosecutors, and lawyers on the application of laws against trafficking, and Women 2000, to educate high school youth in Durres, Kruja, Lezha, Kurbin, Lushnje, Mallakaster, Berat, and Kucova on the risks of trafficking, and to conduct training programs for police members on trafficking issues.

The International Criminal Investigative Training Assistance Program (ICITAP) and the Overseas Prosecutorial Development Assistance and Training (OPDAT) Program of the U.S. Department of Justice carried out major training programs in Albania. ICITAP conducted 13 courses in FY 02 and provided training to 310 police officials in money laundering, drug control, anti-trafficking, and anti-terrorism. Recognizing that criminal justice system training is largely ineffective unless accompanied by major changes in law enforcement operations, OPDAT has paired with ICITAP in joint training programs on organized crime, money laundering, asset forfeiture, and terrorist financing.

Using the resources of the Embassy’s International Visitor’s Program, OPDAT also has sent prosecutors to the U.S. and other countries for training. Working with an Embassy program that provides “legal” English training to police and prosecutors, OPDAT is funding the publication of an Albanian-English legal glossary, and has recommended expanding the English language program to include judges. Finally, OPDAT is establishing training programs at the Albanian Magistrates School. The support includes the provision of American legal experts to conduct courses addressing organized crime, trafficking, police-prosecutor relations, and judicial ethics.

Graduation StrategyGiven its fragile political and economic situation, Albania still faces a difficult transition process and, as Europe’s poorest country, cannot be considered a candidate for graduation from USG assistance in the immediate future. Significant efforts against organized crime and corruption are required. There is a continued need for major legal and regulatory reforms at the sector and sub-sector levels to restructure the economy, reduce corruption, and stimulate private-sector investment. Important reforms in the rule-of-law and governance areas are needed to sustain Albania’s nascent democracy, strengthen its civil society, and protect the rights of women, children, and minorities. These reforms and their effective implementation are necessary if Albania is to achieve sustainable democratic and economic transitions.

ALBANIA
FY 2002 FUNDS BUDGETED
FOR ASSISTANCE TO CENTRAL AND EASTERN EUROPE
SUPPORT FOR EAST EUROPEAN DEMOCRACY (SEED) FUNDS
USAID/E&E - BUREAU FOR EUROPE & EURASIA
- Private-Sector Development	12.25
- Democratic Reform	7.65
- Social Sector Reform	3.78
- Cross-Cutting/Special Initiatives	5.33
TOTAL USAID/E&E BUREAU	29.00
OTHER USAID PROGRAMS
- Parking Fines	0.037180
TOTAL OTHER USAID PROGRAMS
TOTAL USAID	29.04
TRANSFERS TO OTHER AGENCIES
U.S. DEPARTMENT OF COMMERCE
- Commercial Law Development Program (CLDP)	1.00
TOTAL U.S. DEPARTMENT OF COMMERCE	1.00
U.S. CUSTOMS SERVICE
- Trade and Transport in SE Program (SECI)	0.20
TOTAL U.S. CUSTOMS SERVICE	0.20
U.S. DEPARTMENT OF STATE
- INL Bureau/ Anti-Crime Training & Technical Assistance (ACTTA)	2.75
- EUR Bureau/Democracy & Public Diplomacy Projects(OSCE,OHR,SBS)	0.71
- ECA Bureau Public Diplomacy Programs / Regional Programs	0.99
- IIP/ International Information Programs	0.01
- Bureau of Public Affairs	0.03
TOTAL U.S. DEPARTMENT OF STATE	4.49
U.S. DEPARTMENT OF TREASURY
- Treasury Advisors	0.48
TOTAL U.S. DEPARTMENT OF TREASURY	0.48
BROADCAST BOARD OF GOVERNORS	0.05
TOTAL TRANSFERS TO OTHER AGENCIES	6.21
PERFORMANCE FUND
TOTAL FY 2002 SEED FUNDS
BUDGETED FOR ALBANIA	35.25

BOSNIA-HERZEGOVINA

Political Overview

The year 2002 saw a number of concrete achievements in both the Serb-dominated Republika Srpska (RS) and the majority Muslim and Croat Federation of Bosnia and Herzegovina, including the first ever Bosnian-run elections, which were conducted professionally and peacefully. Bosnian authorities took several decisive steps to help combat international terrorism, including shutting down non-governmental organizations (NGO) designated by the UN Security Council 1267 Sanctions Committee as being associated with al-Qaida. Other significant areas of progress included steps toward restructuring the judicial system, including re-competing every judicial and prosecutorial position, and the passage of laws bolstering State competencies, including a Demining Law, State Electricity Law, Copyright Law, Consumer Protection Law, and Law of the State Attorney’s Office. Returns of refugees and displaced persons have accelerated, and the year-end total should be about 100,000 minority returns, an increase of about 10 percent over 2001. In addition, 62 percent of all property claims have now been resolved. Also, some 78 persons (12 during 2002) indicted for war crimes have been transferred to the International Criminal Tribunal for the Former Yugoslavia (ICTY). Out of a total of 129 publicized indictments, 24 indictees remain at large (some indictees have died or their cases were withdrawn or dismissed). The State Border Service reached 100 percent deployment on Bosnia and Herzegovina’s (BiH) borders, and a State Information and Protection Agency was created to coordinate nationwide law enforcement, as well as provide protection for dignitaries and facilities.

Bosnia’s relations with its neighbors continued to improve in 2002, as moderate leaders in BiH, the FRY, and Croatia focused on common interests and State-level relationships. Members of the BiH Presidency, Yugoslav President Kostunica, and Croatian President Mesic held an unprecedented trilateral summit in Sarajevo, on July 15, 2002. The summit resulted in a joint commitment to promote good-neighborly relations, adherence to international obligations including to the Dayton Accords and ICTY, return of refugees and displaced persons, free trade, and a regional approach to fighting terrorism and cross-border crime. A dispute over the location of a border crossing in Kostajnica was resolved amicably. While campaign statements attributed to President Kostunica raised anxiety about the FRY’s commitment as a guarantor of BiH’s territorial integrity, steps like cutting off most FRY funding to the RS military demonstrated Belgrade’s intention to respect the Dayton Accords.

The October 5 national elections were characterized by widespread voter apathy, resulting in a record low turnout of just under 54 percent. Although nationalist parties returned to power, they lost votes overall compared with previous elections. The poor showing by several moderate parties, especially among Muslims, was interpreted as a sign of voter dissatisfaction with incumbent governments and the slow pace of reform. High Representative Paddy Ashdown has made clear to the new governments that they must follow through on the previous government’s commitments to implement economic, rule-of-law, and education reforms. While the new nationalist governments publicly endorsed the High Representative’s reform agenda, their willingness to carry out those reforms remains unknown. Greater activism and conditionality on assistance by the international community (IC) will be required in the near term to further advance Dayton implementation, the reform process, and BiH’s progress on the road to Europe.

Judicial reform and instituting the rule of law are top-priority objectives for the IC, as reflected in the High Representative’s “Jobs and Justice” program. The judiciary remains subject to political influence, and law enforcement authorities have made little headway against corruption and organized crime. Legal and government mechanisms to combat terrorism and organized crime are hampered by the lack of a functioning, cohesive state-level criminal justice system, including state-level justice and interior ministries, intelligence agency, and customs, tax and financial authorities. Institutional development and legal reforms, notably a new Criminal Code and Criminal Procedure Code, as well as reinforced Citizenship, Immigration, Money Laundering, and many other laws, must go hand-in-hand.

The sale of military aircraft equipment and maintenance services to Iraq by the RS-based company Orao underscores that BiH’s current entity-level controls over military exports are insufficient to ensure compliance with UN and other international arms embargoes. The IC has sought a full investigation and accounting of illegal RS arms transactions, punishment of those responsible for the illicit sales, as well as the creation of a strong state-level arms export control regime.

The Orao scandal has also made clear the need for stronger state-level command and control of entity militaries and defense industries through bolstering the capacity of the Standing Committee on Military Matters (SCMM). The SCMM took steps to enhance its capacity to oversee, coordinate, and eventually implement BIH defense-policy matters and will be built up to a functioning unit with a role in the Council of Ministers. However, additional progress on strengthening the state dimension of defense will be necessary for BiH to meet NATO’s conditions for participation in the Partnership for Peace. A sound military reform strategy, including further troop reductions and restructuring of the armed forces, is among the High Representative’s top priorities.

Economic Overview

BiH’s slow progress toward a market economy is one reason many parties from the moderate, multi-ethnic Alliance for Change coalition did poorly in the 2002 elections. The Alliance had expressed strong commitment to accelerating economic reforms, building a viable market economy led by the private sector, and creating a more business-friendly investment climate. Although it did keep some of these promises, with much prodding from the IC, it failed to convince voters of the importance of such reform.

BiH completed Free Trade Agreements with neighboring Croatia, FRY, Macedonia, Slovenia, and Turkey during 2002. It also submitted a memorandum for admission to the World Trade Organization (WTO). U.S. assistance from the Commerce Department’s Commercial Law Development Program (CLDP) helped Bosnia’s WTO team fine-tune the initial application. The CLDP advisor also gave the BiH team advice on amending trade laws whose provisions fell outside of WTO standards. In the banking sector, U.S. assistance helped to create a state-level deposit insurance agency. Unfortunately, most RS banks are yet to participate in the program.

Despite foreign trade and banking sector gains, the BiH formal economy remained dependent on external aid. A recent USAID study estimated that such aid, including military programs, accounted for almost 14 percent of GDP. Official statistics put real GDP growth in 2001 at about 5 percent. Although reliable statistics are unavailable, domestic trade and commerce appear to be expanding, and U.S.-provided business consulting and lending have helped reinforce that trend. Exports have climbed to about one-third of their pre-war level, far from adequate to generate the revenues needed to compensate for projected declines in donor assistance. These figures are indicative of a general downward trend, but with estimates of the informal economy ranging from 20-60 percent of GDP, they may be misleading. What is clear, however, is that officials have failed to implement enough of the reforms necessary to make BiH more competitive, particularly in exports.

The difficult task of privatizing state-owned enterprises is ongoing. Privatization of small-scale enterprises has been completed in both entities. The sale of a number of so-called “strategic enterprises” in both entities was disappointing, as most drew little interest by legitimate investors. The U.S. was responsible for the tendering process used in what privatizations of strategic companies have occurred. After much delay, other donors (World Bank and the European Commission) have now launched their assistance efforts. The U.S. continues to focus on the corporate governance of newly privatized companies and improving the climate for foreign and domestic direct investment.

Bosnia’s complex legal and regulatory framework, weak judicial structures, and corrupt system of public administration discourage investment. BiH ranks last in the region in foreign direct investment (FDI). The outgoing BiH government was keenly aware of these shortcomings, recognizing the investment climate as a crucial ingredient for both growth and poverty reduction, and had developed a prioritized agenda for improving the situation. This Poverty Reduction Strategy Program (PRSP), a World Bank initiative, sees growth of an export-focused economy as the best way to return income levels to their pre-war level by 2005. The U.S is providing targeted U.S. support for such reforms and will continue to do so in FY 03.

International Financial Institution (IFI) concern continues to focus mainly on budgetary issues on both the state and entities levels. The IMF, World Bank, and European Commission all have made plain that continued budgetary assistance is contingent upon these governments’ ability to keep their respective budgets balanced and their budgetary processes transparent.

In the global war against terrorism, Bosnian authorities cooperated in enforcing UNSC resolutions in freezing the assets (and ordering the closure) of several NGOs with terrorist ties, including Al-Haramayn, Global Relief Foundation, and the Benevolence International Foundation.

Since its inception in 1996, USAID’s program in BiH has shifted focus from emergency assistance to restore basic living conditions and enable the resumption of economic activities to one with the following strategic objectives: 1) accelerated development of the private sector (by supporting macroeconomic reforms, sound fiscal policies, and a viable banking system); 2) a more participatory, inclusive democratic society (by fostering independent media, free and fair elections, a responsive, transparent government, citizen advocacy, a robust civil society, and a professional, independent judiciary); and 3) sustainable minority returns (through the provision of community-based services).

Bosnia continues to undergo a challenging transition as it attempts to adapt itself to modern, Western-style concepts of political and economic processes. Progress occurs in fits and starts. For example, nationalist parties recently regained power at the state and possibly both entity levels, bureaucratic redtape continues to stifle the creation of new businesses, while inefficiency and obstructive tendencies within the court system hinder the ability to obtain justice. Nevertheless, despite its war and communist-era legacies, Bosnia continued to improve its situation steadily throughout FY 02.

The USAID SEED assistance program was responsible for numerous positive changes that took place in BiH during FY 02. For example, significant resources were directed toward training election officials. As a result, Bosnian institutions for the first time administered elections, which were widely hailed as free and fair. Media training became more focused and targeted to a more sophisticated clientele. Achievements included higher-than-expected advertising revenues for the nation’s first commercial TV network, as well as the opening of the first independent printing press in BiH. USAID was a key promoter of the current initiative to restructure the nation’s judicial system and re-compete judicial positions. On the business side, USAID-sponsored courses on credit risk and consumer lending helped banks to increase their lending significantly. A comprehensive assessment of banking needs also led USAID to support the creation of a movable property collateral registry that will further lift constraints to lending. USAID facilitated sustained high levels of refugee returns for another year with the repair of community-level infrastructure, as well as the provision of small, income-generation grants and loans to returnees.

Overview of SEED Assistance

Program Impact

Economic Policy Reform and Restructuring

The U.S. Mission concentrates its economic reform support on modernizing the BiH economy and financial institutions and helping to create conditions conducive to internal and external investment. It supports transparency and accountability in economic decisions and actions, and promotes the continued development of a free market. USAID’s strategic objective in economic reform is to foster private-sector led growth and employment generation.

Public Sector Accounting: The USAID Public Sector Accounting Project is developing automated accounting and budget execution systems for the State, Federation, and Republika Srpska (RS) Treasury Departments. In January 2002, after a period of intensive training and development, new financial information management systems (FIMS) were turned on (“went live”) in the Ministries of Finance of the Federation and RS. Subsequently, a system to serve the Ministry of Treasury at the state level was activated in May 2002.

Implementation of the FIMS for the Federation’s 10 cantons began in June 2002. In September, the Federation Prime Minister and the Deputy Minister of Finance and the Ministers of Finance from all cantons signed a significant Cooperative Agreement to pursue this objective. Upon completion of the work in the cantons early in 2004, modern, compatible, and transparent financial management systems will cover almost the entire nation, leading to budget reforms and, eventually, the prospect for self-sustaining, long-term fiscal balance.

Key Public Sector Accounting Results: The results achieved during FY 02 appear certain to ensure the sustainability of reforms. The systems supported by USAID in the state and the RS were expanded by 100 percent and 28 percent respectively, with inward investments from the cooperating governments and a significant donation of computer hardware from the EU to the state.

The Project provided about 1,200 person-days of general and specialized training in FY 02, bringing the cumulative total to 2,400 person-days. The outcome of this training is reflected in the largely successful operating record of accomplishment (nine months in each of the two entities and five months in the State). Refresher courses and retraining will be available as needed.

• Establishment of single treasury accounts and closing of individual bank accounts previously held in the name of government agencies or institutions, as required by the IMF.

• Enormous improvement in reporting capability and the capacity to produce auditable statistics; for example, over 80 different financial reports are now available from the Federation system, and the IMF has praised the usefulness of the new reports.

• Greater ability to anticipate and correct intra-year budget shortfalls; the Federation Ministry of Finance purportedly averted a Convertible Marks (KM) 27 million (about $13.5 million) in unbudgeted commitments in the first eight months of operation. The RS has noted comparable results.

• Increased transparency -- the Minister of the State Treasury has requested technical assistance in publishing budget execution results on a new web site to be developed.

Finally, the system offers a powerful internal control capability to limit corruption. Over 400,000 accounting transactions and payments aggregating KM 1.9 billion (about $950 million) were processed and recorded through the three systems during FY 02.

In summary, before introduction of the FIMS, public sector spending was decentralized among various government agencies. Budget monies were apportioned by the ministries of finance to the agencies and transferred to bank accounts controlled by these budget beneficiaries. The agencies, and subsidiary spending units they supervised, managed hundreds, if not thousands of individual bank accounts holding public funds. The cash-based system was easy to corrupt and lacked accountability and transparency. Government agencies could incur commitments beyond the amounts budgeted.

By comparison, the FIMS vests control in each government’s central treasury. The system records spending on a commitment basis and matches obligations against the budget authorization, making it possible to control deficit-inducing actions. Transactions are documented and easier to audit. Own-source revenues of the spending units are also subject to more controls. Most of the individual agency bank accounts will have been closed, and government finances will be managed through treasury single accounts (as required by the IMF).

Corporate Governance: This project is accelerating private sector growth and development through two activities --Private Sector Accounting Reform and Corporate Governance for Business Investment.

The Private Sector Accounting Reform project seeks to achieve improved access to market-driven business skills. Conversion to international accounting standards (IAS) and international standards of auditing (ISA) is essential for enterprises in both entities to attract investment and measure performance accurately. Assistance will be given to self-regulatory organizations (SROs) in both entities charged with certifying and licensing professional accountants and auditors. The goal is to provide cross-entity cooperation between SROs. Adoption of IAS by enterprises to be listed on the stock exchanges is also being promoted in cooperation with USAID’s Corporate Governance for Business Investment activity.

The Corporate Governance for Business Investment project is helping both entities achieve economic growth through integration of the government and private sector into international financial markets, by building capacity to implement effective corporate governance practices in those markets. Improved corporate governance practices are essential for BiH to attract investment and accurately measure market performance and viability of private enterprises. The program’s ultimate goal is to instill market discipline as a form of effective business and professional conduct by all market participants, while providing safeguards against abuse and malpractice through effective prudential regulation to create an enabling environment for free enterprise. The project’s three major components are: 1) Securities Commission development; 2) privatization follow-through; and 3) public education and training program.

Key Corporate Governance Results: In the Private Sector Accounting realm, agreements to modernize the accounting and auditing curriculum in conformance with best international practices were reached with all eight universities throughout the country during FY 01. The project continued to work with seven of the eight universities (the Croat university in Herzegovina withdrew) in FY 02. USAID negotiated royalty agreements with the publishers of several preeminent accounting texts and translated the books into the local language. The books were made available both to students participating in the newly designed courses and to accounting and auditing professionals seeking to upgrade their skills through continuing professional education programs. For FY 02, the project distributed to BiH university students over 7,500 newly translated Western textbooks covering five courses in accounting, auditing, and finance. Last summer, USAID sponsored the local training of 18 BiH professors in Intermediate Accounting, Auditing, and Finance, presented by U.S. university professors. The program’s success has grown, and the 14 professors from Serbia, Montenegro, Macedonia, and Kosovo who asked to attend the summer training program this year were accommodated.

The new curriculum program of 14 new Western accounting, auditing, and related business courses is also being used to upgrade the skills of existing accountants and auditors through a program of continuing professional education.

Over 220 enterprises in the Federation received a combination of classroom and on-site training to assist them in preparing IAS-based financial reports. Preliminary results show a marked improvement in financial reporting for these enterprises, which represent those currently publicly traded or the most widely held enterprises.

A major breakthrough was achieved near the end of FY 02, when a public debate began on a new accounting/audit law, which OHR has orally agreed to support as a nationwide law, bringing harmony of international accounting and audit standards and international standards for the Training, Testing and Certification of accountants and auditors throughout BiH.

The Corporate Governance for Business Investment activity is beginning to address the problems of political interference in the economy and corruption. USAID advisors have drafted critical legislation on corporate governance issues in the Federation and the RS that address the regulation of private corporations and financial markets. After companies have been privatized, it is essential that systems are in place to allow citizens to trade their new shares, and to ensure that the trading is conducted in an open, transparent manner. Securities Commissions, the normal means to perform this watchdog function, have recently been established in both entities. With USAID assistance, the legal environment for business is being overhauled. In a move that presages a single, state-level Securities and Exchange Commission, both Commissions have joined the International Association of Securities Commissions (IOSCO) and collegially share a single BiH vote.

The Corporate Governance for Business Investment activity also launched the BiH Corporate Governance Forum, a new state-level partnership of public and private sector leaders formed to instill a local commitment to better governance practices. USAID advisors assisted local leaders working cooperatively in the Federation and the RS to launch the Forum at the state level, develop a multi-ethnic Advisory Board, and implement two working sessions for BiH professionals.

Privatization: Since 1996, USAID advisors have played a key role in drafting and facilitating the passage of privatization legislation, the establishment of key privatization institutions, and conducted training for government officials, enterprise managers, and the media on the privatization process in both the Federation and the RS. USAID also conducted a privatization education program throughout the country to increase public awareness of and confidence in the process. USAID privatization assistance ended in December 2001.

Key Privatization Results: Privatization has progressed steadily in BiH. The majority of small and medium-sized enterprises (SMEs) in both the Federation and the RS are already privatized. Privatization of large firms in both entities has proceeded much more slowly, with only a small fraction of government-held equity in these firms privatized to date. However, international and domestic privatization authorities have achieved recent success in advancing the privatization of strategic enterprises.

As an International Advisory Group on Privatization (IAGP) member, USAID extended assistance through the Business Consulting Project (BC -- formerly part of the Business Development Program) and named advisors for the privatization of 15 (of 86) enterprises in the Federation and 10 (of 52) enterprises in the RS. The USAID BC work on privatization included financial and operational review of the companies prior to privatization, preparing companies for sale, assisting investors in their due diligence, evaluation of bids, selection of winners, and conducting and completing contract negotiations. The USAID advisors were officially appointed members of the Tender Commission, in accordance with the tender rules.

USAID-led tender privatization of strategic enterprises resulted in several successful sales, despite the difficult business environment. By the end of the BC activity in December 2001, privatization sale-purchase contracts for five enterprises in the Federation were signed, with negotiations based on specific bids received. Four additional enterprises had also entered into negotiations based on specific bids submitted. Examples of successful USAID tender privatizations where strategic partners were found for BiH companies are sales of the Tuzla-Lukavac Cement factory, to Austrian Alas International, and the Standard Sarajevo furniture factory, to the German Schieder Gruppe. The investments will meet several key strategic goals, including employment retention, post-conflict economic recovery, encouraging FDI, improving environmental conditions in local industries, and energy savings in production.

Business Development Program: USAID’s Business Development Program (BDP) provides commercial credit in the form of quick-disbursing loans (average loan size in 2002 was KM 460,000, about $270,000) to private businesses, commercial banks, and micro-credit organizations (MCOs). BiH banks serve as agents, identifying viable enterprises, transferring funds to the borrowers, receiving and processing loan payments, monitoring loan implementation, and ensuring loan collections.

Key BDP Results: BDP expanded lending operations and opened a branch in the Mostar region during 2000. USAID decided to expand to the Herzegovina-Bosna (Livno) Canton in early October 2001. During 2002 alone, BDP approved five loans totaling $750,000 for the Mostar region, and eight loans totaling $700,000 for the Livno Canton. The loans disbursed are calculated to have generated 17,500 jobs. Of 591 approved loans, 574 have been disbursed, and 218 have already been repaid.

BDP has been a significant contributor to private sector reactivation. As of September 2002, 590 loans to Bosnian enterprises worth about $135 million¹ had been approved, reflecting the tremendous demand by BiH firms anxious to expand business activity but lacking working capital and medium-term financing.

¹Does not include 43 Consumer Mortgage Loans totaling $1.25 million and 10 Lines of Credit to Financial Institutions, totaling $8.8 million (noted later in the report).

An example of a typical BDP borrower is Atlantik pp. Located in Banja Luka, this privately owned company started as a small printing craft shop in 1988, operating in a leased facility with 25 employees. Atlantik used its first USAID loan of $350,000 to purchase raw materials and printing equipment, as well as to finish building its own production plant. As demand for its products increased, Atlantik applied for and received a second USAID loan for $316,000 to purchase additional printing machines and raw materials. Last year, the company generated sales of $1.6 million and a net profit of $308,500. The USAID loans enabled Atlantik to hire 64 new workers, 20 percent of whom are returning refugees.

On-site advisory assistance and training in credit-related areas were provided to BDP agent banks during the past year. Furthermore, BDP’s work with commercial banks led to significant “risk sharing” during FY 02, thereby fulfilling an important objective of the program. Lines of credit totaling $7 million were approved to five banks. The successful emergence of MCOs in BiH offered another opportunity for BDP to provide financial support, while transferring risk to the financial sector and reaching borrowers in a greater geographical area. Four MCO lines of credit totaling $1.8 million were approved in FY 02.

As with any lending operation, BDP experienced delinquency and default when state-owned and certain privately owned borrowers reached the larger principal repayment stage. When a borrower falls behind, the program institutes an intensive “recovery” effort to help the company adjust its business plan to changing markets and get back on track with loan payments. If the recovery intervention fails, or if the borrower is unwilling to repay the loan, USAID initiates foreclosure, sale of assets, and related court proceedings against the company in default. In many cases, BDP’s Bosnian legal staff has had to use precious staff time to educate judges in the credit process and the value of credit to economic growth.

Despite collection difficulties, BDP learned from underwriting mistakes, organized a Special Assets Department, and transferred these “lessons learned” to the commercial banks. For example, Special Assets managers have visited commercial banks to discuss collection techniques, strategy, and organizational changes. BDP then instituted an agent bank training internship program in 2002, focused on managing problem loans. Three agent banks sent collection officers for daily classes, followed by client visits. Although this program is relatively new, the banks have expressed strong interest in having more staff trained. Lastly, banks know the quality of staff development in Special Assets. Two of BDP’s veteran collection officers have gone to fill key positions in the banking sector, one to Raiffeisen Bank and the other to Universal Bank as Director of the Tuzla Canton, the bank’s largest branch.

Another primary BDP objective was to maintain an adequate environmental monitoring system and, to the extent practicable, conduct informal on-the-job training of BDP and bank staff. BDP’s Environmental Unit has developed an assessment and monitoring system to deal with the environmental impact of its financing activities based on not only U.S. standards, but also Bosnian Law. Some lending proposals have been rejected because of unmitigable risks to the environment. Pre-disbursement conditions related to environmental concerns -- covenants and undertakings to mitigate environmental risks -- are incorporated in loan documentation and monitored. In its lending activity, BDP has encouraged "Environmental Marketing," a concept that provides for loans to fund projects that are specifically beneficial to the environment. In so doing, it places greater emphasis on pollution prevention and clean technologies for the future.

The BDP Environmental Unit has developed special training modules that it is delivering to select Banks engaged in on-lending with BDP resources. The twofold objective is to: 1) help Bosnian banks formulate their own environmental impact assessment and monitoring criteria based on high standards and make them applicable not only to loans made with BDP resources, but also to their own; and 2) identify key staff in each bank to assume continuing responsibility for carrying out a lending program with proper environmental procedures.

Many private enterprises, commercial banks, and MCOs have borrowed from BDP under commercial lending standards. This entailed non-donor, “real world” terms and conditions, including the creation and projection of Western-style financial statements, loan monitoring on a monthly basis, adherence to loan covenants and repayment schedules, developing negotiation skills, and actually using legal remedies for default or non-performance. Many borrowers have qualified for second and third loans from BDP, based not on connections or illegal payments, but on merit and performance. Some now borrow from agent banks eager for interest and fee income from firms that “performed” under BDP loan agreements. Perhaps BDP’s greatest impact is in preparing hundreds of BiH borrowers, employing thousands of workers, successfully to obtain and repay future commercial financing, when BDP no longer exists.

Bank Development and Training: The Bank Development and Training (BDT) project continued its two-pronged approach to developing the banking sector through its classroom training and in-bank technical assistance. Working from a comprehensive Financial Sector Assessment conducted in April, the project re-directed its activity in the final quarter to address needs to strengthen secured financing mechanisms for the overall banking and financial institutions sector.

Key BDT Results: BDT supplemented the BDP’s work with agent banks by addressing the need for skills in credit risk analysis and management. This was accomplished by expanding the portfolio of training subjects to include formal credit training seminars. Five courses, covering credit risk analysis, credit risk management, problem loan management, and consumer lending, were presented to 86 participants from seven banks, plus government agencies. The additional credit training addressed the need to strengthen credit skills evidenced in an analysis of several commercial banks in February, and has supported the increased commercial bank lending activity seen in 2002.

A second new subject area added to the training seminar portfolio was training trainers. A two-week training-of-trainers program imparted skills in curriculum development and presentation to participants from several commercial banks. Training skills, along with functional capabilities, provide a base of BiH bankers who can conduct training in their own banks and collectively through a local training center.

A total of 149 participants from nine commercial banks, the Central Bank, Banking Agency, and related organizations attended the 12 seminars offered in FY 02. The training materials have been consolidated in a CD-ROM as an easy-to-use reference for the local banks. The training has motivated participants to make significant changes in the ways they do business. For example, after attending BDT training, UPI Bank established an Asset and Liability Committee and performed a GAP analysis. Other banks have begun addressing their loan applications in a more systematic and equal way by bringing themselves more in line with world standards.

Technical assistance from BDT resident advisors continued, with the two remaining participating banks addressing asset and liability management, financial reporting and budgeting, auditing, operations, and human resources management. An April survey of senior managers at the two banks indicated the usefulness of the support. The respondents stated that the assistance resulted in a simplified organizational structure, standardized job descriptions, more efficient work procedures, the foundation for a management reporting system, and mechanisms for better risk control.

With the considerable changes in the banking sector over the life of the project, a comprehensive assessment of the current needs of banks and related financial institutions was conducted in April. In part, as a result of the assessment’s conclusions, and in support of a broad-based effort to improve the commercial legal environment in which banks operate, the project re-directed its focus. Using available obligated funds, the project was extended -- on a no-cost basis – for about 30 months (through 2004). The re-focused project will assist the BiH entity governments to establish a pledge registry system for property (vehicles, equipment, and other movable property) used to secured financing. A more efficient secured financing system is expected to encourage banks and other financial institutions to expand their extension of credit, particularly to small businesses and individuals. The activity is in the initial assessment phase, with efforts to support the government ministries to design and implement the pledge registry system beginning in the fourth quarter of FY 02. Meetings to date with the various stakeholders -- banks, borrowers, courts, ministry officials, and other international organizations -- indicate strong interest and support for implementing an effective, efficient pledge registry system.

The Community Reintegration and Stabilization Program (CRSP): FY 2000 was the first year for USAID’s Community Reintegration and Stabilization Program (CRSP). Now into the third year of a planned three-year effort designed to meet the needs of minority returnees, particularly in infrastructure reconstruction, CRSP followed on the heels of the Municipal Infrastructure and Services Program (MIS), a four-year endeavor to meet urgent infrastructure reconstruction needs in support of economic recovery and refugee returns. Under MIS, 767 projects were completed in the energy, water, transportation, health, and education sectors, including joint USAID/SFOR projects, for a total budget of $265 million. MIS ended on December 31, 2000. The completion of CRSP is scheduled for December 31, 2003.

Nearly three million people fled their homes at the height of the Bosnian crisis, 700,000 becoming refugees outside the country and the rest internally displaced. USAID developed CRSP specifically to assist minority returnees and displaced persons return to their homes, thus helping to reestablish a multi-ethnic society. Assistance to minority refugee returnees through CRSP focuses on re-establishing access to basic services in target communities, improving economic self-sufficiency, and strengthening the power and water sectors for the continued delivery of basic services.

Re-establishing Access to Basic Services in Target Communities: CRSP facilitates the return of minority members to their communities by providing basic services, such as the repair and/or rehabilitation of water, electricity, schools, and transportation services (streets, small roads, and bridges). Projects are undertaken only in areas where returns have taken or are taking place and are done in partnership with other donors providing housing repair or reconstruction. Projects are identified in consultation with the IC and through consultations with Bosnian state and local officials. USAID leverages its resources by entering into partnerships with other donors, who provide funds for housing reconstruction, while USAID carries out infrastructure repair. In this way, each partner stretches scarce resources. USAID serves larger numbers of minority refugees than other donors because of its cost-effective methods and exclusive focus on infrastructure. For example, the average donor-reconstructed house costs $10,000. USAID can provide water and electrical hookups to two families for $8,000 or less.

CRSP supports Community Infrastructure Rehabilitation Projects (CIRPS), which are implemented in partnership with local officials and U.S. Army-led SFOR troops throughout the country. CIRP projects were designed to provide short-term employment for minority return area residents and to implement rapidly high-impact community activities, such as minor road and bridge repairs, school and health clinic rehabilitation, potable water system rehabilitation, and repairs to low-voltage power networks.

Improving Economic Self-Sufficiency in Target Communities: Under CRSP, USAID has begun a series of actions to strengthen economic activities in returnee communities to ensure the sustainability of minority returns (e.g., that those who have returned do not sell their property and leave again). These actions include small income-generation grants and loans to individuals, community groups, businesses, and legal aid services, as well as the facilitation of linkages between producers in minority communities and internal and external markets. The income-generation grants and social loans target individuals and families in minority return communities who cannot yet access micro-credit. The grants incorporate community repayment and have a maximum value of $2,000. Successful grant recipients are subsequently eligible for social loans --partial payback (50-70 percent) loans of up to $2,500.

Institutional Strengthening: The purpose of USAID’s institutional strengthening activities is to reinforce those institutions responsible for the delivery of power and water -- critical basic services.

Key CRSP Results: A total of 97 projects was initiated under CRSP in FY 02. They include:

• 70 small-scale, home electric supply projects, directly benefiting over 3,074 minority families;

• Nine water projects, directly benefiting 834 minority families;

• One transportation project, benefiting 3,500 minority families;

• Six schools, benefiting over 2,364 children; and

• 11 CIRP projects worth $.8 million that will benefit 263 minority returnee families.

During FY 02, USAID completed or began implementing community-level infrastructure projects that benefit over 10,000 minority returnee families.

CRSP’s flexibility allows USAID to respond to planned and spontaneous minority refugee return activities sponsored by the IC. Since the Dayton Peace Agreement was signed, 907,968 people have returned to their homes, of which 63 percent are Bosniaks, 23 percent Serbs, and 13 percent Croats. In the first nine months of the 2002, UNHCR registered returns of almost 81,000 people. For the second year in a row, the greatest return of Bosniaks was to areas where some of the worst wartime ethnic cleansing occurred -- primarily in the Eastern RS municipalities of Srebrenica, Bratunac, Milici, Vlasenica, and Zvornik.

In FY 02, USAID remained focused on the Srebrenica, Bratunac, Milici, Vlasenica, and Zvornik regions. In Srebrenica, several hundred Bosniak men were massacred in July 1995, when Serbs forcibly overran the UN-protected zone. USAID started its assistance to Srebrenica in FY 01, with the repair of the electric grid for the village of Suceska. This project complemented the reconstruction of 40 houses carried out by the U.S. Bureau for Population and Refugee Migration (BPRM). During FY 01, USAID further supported the returnees by rehabilitating the village health clinic and school. These efforts sparked the spontaneous return of additional Bosniaks and in FY 02 caught the attention of other donors. Also in FY 02, USAID began implementation of power projects for 42 Bosniak returnee families in Suceska, 47 families in Vlasenica, and 256 Bosniak returnee families in Bratunac villages.

During FY 02, significant returns of Serb minorities to Cantons one and ten also occurred. USAID managed to support and sustain these returnees successfully, by combining community infrastructure reconstruction projects with the income generation/grants/loans component of its Grants Program. In the municipality of Bosanski Petrovac, USAID launched power projects that will make electricity available to 205 Serb returnee households. Other areas with extensive Serb returns are Bosansko Grahovo, where USAID provided 137 power connections, worth $600,000, and Sanski Most, which received 181 power connections, worth $700,000.

In 2001, USAID received a special waiver from the State Department exempting it from Lautenberg Amendment restrictions on working in the RS municipalities of Pale, Foca, and Prijedor. In FY 02, this waiver allowed USAID to concentrate, for the first time, on Bosniak return sites within Prijedor municipality. In FY 02, USAID carried out power and water infrastructure repairs in support of 320 Bosniak minority returnee families.

USAID’s Grantee (UMCOR) disbursed 655 grants and social loans in 2002. In addition, micro-credit loans are available for returnees through three MCO’s contracted by UMCOR. These loans have assisted returnees in such enterprises as a medicinal herb project, begun by two women, with significant results. It started, under their management, with 35 returnee families and has since expanded to employ 62 returnee families, both in the RS and the Federation. At a recent Festival of Education, this project was cited as one of the best in BiH.

USAID’s institutional strengthening activities continued to focus on making public utilities self-sustainable and operational within acceptable EU standards. Of the 100-plus local water companies receiving in-country, across-the-board universal accounting training during FY 01, an estimated 30 percent had already converted their old accounting systems to the new one in FY 02, while others were awaiting the new fiscal year before also doing so. USAID funded the new accounting software that was developed specifically to meet the needs of these water utilities. This project standardized billing and accounting procedures across the country, enabling the utilities to cooperate and exchange ideas with each other. All the water companies continued their direct access to the software developer for technical support. USAID also awarded a contract that focuses on pilot water companies in four key municipalities. Hands-on technical support is being provided for two years, after which the companies will serve as models in successful operations for the rest of the country. The project aims to encourage the water companies to become semi-autonomous to the point of being financially self-sustaining, stable operations whose creditworthiness will help them qualify for future EBRD, World Bank, and other loans.

To promote institutional strengthening, USAID also financed two major studies that were part of a consortium of international organization assistance grouped under the World Bank umbrella. All of the organizations are providing funds for infrastructure improvements and the purchase of new, more modern equipment that will position the BiH government better to enter the EU. The studies focused on restructuring and privatization of the electricity sector and the establishment of State and Regulatory Agencies for this sector. Completed in December 2001, the first study has provided a blueprint to which the two entities, the World Bank, and the other international donors all have subscribed. This led to the second study, Entity Regulatory Reform, which in turn resulted in the passage of the first State Law for a Public Utility, a project that provoked both entities finally to come to grips with the idea of a single economic space in the electricity sector. Subsequently, USAID engineered the enactment of two entity electricity laws and the preliminary approval of the two entities’ Action Plans for Restructuring and Privatization, plans that will set the course for the eventual privatization of the entire electricity sector.

Continuing its strong support for the Brcko Arbitrage Decision, USAID reconstructed power, roads, water systems, and schools in the Brcko area. These projects primarily targeted minority returnee areas. To date, including FY 02 support worth $1.3 million, USAID has spent more than $25 million to repair infrastructure in the Brcko District. Under the CRSP Program, USAID identified eight large-scale activities, worth about $6.2 million, and five small-scale CIRP activities, worth abround $340,000.

The Commission for Real Property Claims (CRPC) Hand-over to Local Authorities: $200,000 as part of $3.3 million appeal to fund a project to hand over the CRPC responsibilities and duties, including inherent hard data, to local authorities.

In the context of Annex 7 and its specific mandate, CRPC aims to strengthen the capacity of local authorities to take over the return process by handing over the assets it used in deciding property claims. This project’s target groups include domestic authorities at the municipal, canton, entity, and state levels. In the final year of its mandate, CRPC will adopt 20,000 decisions for occupancy right claims and solo private property claims; continue updating CRPC's Repossession Tracking Database (RTD) with new repossessions; strike out claims that have already been repossessed and dual claims; expand the Integrated Property System (IPS) database to identify dual claims by including at least 20 additional municipal databases; transfer undecided (black box, uncontested properties, and solo) claims to local authorities; obtain an agreement with UNHCR Legal Aid Centers or the Ombudsman to take over undelivered certificate delivery; assist in building the Appeals Body’s capacity to take over the reconsideration of CRPC decisions; transfer databases to local bodies; transfer CRPC archives to State Archives; hand over CRPC equipment and supplies; and perform a final audit.

Witness Protection Program: $300,000, for housing and economic assistance to extremely vulnerable individuals (EVIs). Recently approved for FY 02 program, valued at $200,000.

Starting in 2001, BPRM has funded assistance to about 20 EVIs in BiH, in coordination with UNHCR, with similar assistance planned in 2002, with SEED funds. Those recently approved funds ($200,000) will be used to assist up to 21 EVI cases over a nine-month period, beginning November 15, 2002. International Catholic Migration Commission (ICMC) implemented the BPRM-funded program in 2001. ICMC will carry out the project utilizing FY 02 SEED funds and has submitted a $300,000 proposal to SEED for FY 03 as well. The program will provide housing for and economic inputs to the EVIs. The economic inputs aim to foster conditions for a sustainable livelihood in the new location or in their current place of displacement. The USG and the Dutch were the first to provide these EVIs this type of assistance. Both the Swedish and Swiss governments later allocated funds as well. The Dutch and Swedish governments have matched or contributed slightly more than the initial $200,000 from the USG. Typically, UNHCR refers the caseload to USAID’s implementing partner ICMC, which then assesses the families' needs and provides the required assistance. BPRM allocated funds directly to the ICMC office in the U.S. and has done the same for the SEED funds. Thus far, UNHCR has not received funds directly from the USG to implement this program. UNHCR expects the caseload to increase, and a $300,000 proposal has been submitted in anticipati