| U.S. Government Assistance to and Cooperative Activities with Eurasia -FY 2003 Released by the Bureau of European and Eurasian Affairs January 2004 II. Country Assessments and Performance Measures - Ukraine U.S. STRATEGIC INTERESTS
Ukraine’s strategic location on the eastern border of NATO and the European Union (EU), and its large and educated population make it a linchpin of stability for Eastern Europe. Ukraine can best contribute to regional stability by pursuing a democratic political transition in 2004 through a free and fair presidential election. U.S. Government (USG)-funded assistance programs are designed to help facilitate Ukraine’s transformation into a democratic society with a market-based economy, both of which are pre-conditions for achieving Ukraine’s stated objective of integration into NATO and the EU. A member of the Partnership for Peace, Ukraine opened its airspace in support of Operation Enduring Freedom and contributed the fourth largest contingent of troops to Operation Iraqi Freedom. Ukraine inherited an extensive weapons-of-mass-destruction (WMD) infrastructure from the Soviet Union, and it is in the U.S. interest to ensure that Ukraine’s residual technological capabilities are redirected to civilian purposes and that Ukraine implements appropriate controls over that infrastructure.
U.S. ASSISTANCE PRIORITIES
Democratic Reform Programs: In FY 2003, FREEDOM Support Act (FSA)-funded democracy assistance sought to encourage Ukrainians to participate in civil society as a means of promoting their interests and rights to create a more democratic, market-oriented Ukraine. These programs worked to strengthen the effectiveness of civil society organizations; help political parties to be more representative of citizens’ concerns; improve the credibility and competitiveness of the electoral process; and increase the availability of objective information through Internet access and independent media. USG-funded good governance programs were aimed at developing more autonomous and responsive local self-governance; developing a more effective, independent, and representative legislature; and promoting adherence to the rule of law. The Next Generation Initiative reached out to Ukraine’s future leaders by providing a large number of Ukrainian high school, undergraduate and graduate students with U.S.-based exchange opportunities.
Economic and Social-Sector Reform Programs: USG economic reform assistance focused on increasing trade and investment through market-opening international agreements and promoting Ukraine’s further integration into the global trading system, and on increasing the growth of small and medium-sized enterprises (SMEs) and the country’s agricultural sector. USG social-sector reform programs addressed the social and health needs of vulnerable groups, including the elderly, women, children, orphans, HIV-positive citizens and others most susceptible to social and economic risks. While more equitable economic growth will improve the quality of life for Ukraine’s citizens in the long run, deficiencies in the social and health sectors prevented the immediate needs of the population from being met, despite the country’s many economic gains. Activities to improve Ukraine’s investment climate included assistance in establishing a legal framework for commercial transactions and support for more transparent and efficient budget and tax policies.
Security, Regional Stability and Law Enforcement Programs: In FY 2003, USG security-related assistance was focused on dismantling Ukraine’s remaining WMD systems and preventing the proliferation of these weapons, their delivery systems and related expertise to rogue states. USG-funded nuclear safety assistance addressed a broad range of safety and security issues at nuclear plants throughout Ukraine. In addition, the USG contributed to the international effort to construct a new shelter at the Chornobyl accident site. The USG continued to promote regional stability by helping Ukraine enhance its interoperability with NATO forces. To this end, the USG provided the Ukrainian Government with $3.0 million in Foreign Military Financing (FMF) and $1.7 million in International Military Education and Training (IMET). In the area of law enforcement, the USG focused on strengthening Ukraine’s institutional capacity to stop human trafficking, strengthen export controls and related border security, and combat violations of intellectual property rights (IPR).
Democratic Reform
In 2003, NGO advocacy campaigns worked to improve Ukraine’s media and NGO legislation. For example, public hearings on censorship and freedom of speech held in December 2002 resulted in some improvements in media legislation. Several political blocs have been formed among political parties that received USG-funded non-partisan political party training. Four factions worked together successfully on committee assignments, draft laws and organizing public protests. USG assistance strengthened the capacity of NGOs to foster civic initiatives and advocate for increased government accountability. A USG-funded human-rights initiative helped 43 organizations to form a network that now monitors and reports on human rights issues.
USAID’s regional "anti-corruption NGO coalition" model focuses on promoting transparency and curbing corruption at the local level. Ukrainian NGOs in several communities are replicating this model through an innovative mentoring program, under which experienced NGOs provide advice to organizations in smaller towns. In FY 2003, USG-supported citizen advocacy offices provided legal consultations to over 7,000 people and helped resolve 1,000 corruption cases involving citizens’ rights. The program helped increase transparency in municipal property management systems, school finance, and personnel management policies in several regions of Ukraine, resulting in some municipal governments becoming more accountable and responsive to their citizens.
In an atmosphere of restrictions on media freedom, USG-supported legal programs provided media professionals with training on media law and legal defense, helping to achieve a 63% success rate in media-related legal cases. The USG also provided small grants to support independent media, funding the production and broadcast of more than 850 radio segments and 52 television news programs, and about 700 meetings at regional and national press clubs. On any given day, close to five million Ukrainians tuned in to the USG-funded "Reform Diary" radio program. As a result of these public education campaigns, citizen awareness on numerous social and economic reform issues increased by 4.1% over the previous year. The USG also funded public-access Internet facilities in 71 libraries across Ukraine, which together logged a total of over 100,000 user-sessions per month.
USG implementing partners worked with the Central Election Commission to ensure monitoring of parliamentary and local by-elections, and supported the Parliament in efforts to strengthen Ukraine’s electoral laws. In 2003, election-related amendments were added to the Criminal Code to deal with so-called "dirty election technologies." Training for election commission chairpersons helped reduce or eliminate election-law violations in places such as Melitopol and Chernihiv, which held parliamentary by-elections in FY 2003.
The USG assisted Ukrainian Government institutions in carrying out their functions more transparently by helping to establish a new press center for parliamentary correspondents that is physically located inside the parliament building, thus making it easier for Members of Parliament to provide information to their constituencies. Parliamentarians also began to reach out to their constituencies, holding a total of 77 parliamentary hearings on policy issues in FY 2003.
A USG-funded legal advocacy program increased the availability of quality pro bono legal services throughout Ukraine. Since October 2002, more than 4,000 clients have received legal services through this program. USG assistance also contributed to improved judicial administration by creating case-flow management software and implementing the new software in three pilot courts.
USG assistance helped 70 Ukrainian cities improve the management of their utilities, involve citizens in identifying problems, and set rational prices for services that allowed for capital improvements, resulting in improved basic municipal services delivered in a more fair and cost-effective way. The USG-supported Association of Ukrainian Cities (AUC) is an effective, financially self-sustaining model for municipal associations. In 2003, the AUC successfully advocated for laws on municipal property rights and an important amendment to the Law on Local Self-Governance. Although elected officials carried out municipal activities more transparently due to increased participation by a better-informed citizenry, local governments continued to lack fiscal and political autonomy.
FSA-funded assistance seeks to address Ukrainian institutional weaknesses that are constraining economic development, such as the lack of an independent court system, shareholders’ inability to defend their rights, an inadequate legal framework, weak budget and tax systems, and insufficient financial-sector regulation. In FY 2003, the USG-funded Commercial Law Center (CLC) trained commercial law professionals in arbitration, mediation, bankruptcy, enforcement of judgments, and legislative drafting. USG assistance helped parliamentary committees resolve differences between the progressive new Civil Code and the anti-market-oriented Economic Code in a manner favoring the Civil Code, thus making it easier for investors to operate in Ukraine. The Eurasia Regional Certified International Professional Accountants (CIPA) program of training, examination and certification of accountants, 85% of whom are women, continued to raise professional accounting standards in Ukraine.
In the area of corporate governance and effective regulation, a USG-funded banking supervision project facilitated the adoption of risk-based supervision at the National Bank of Ukraine, Ukraine’s central bank. Based on a successful pilot program, the project has begun training trainers to introduce the new methods to more than 800 bank examiners in FY 2004.
In FY 2003, the USG also provided assistance on Ukraine’s accession to the World Trade Organization (WTO), funding a U.S. advisor who began a project to improve Ukraine’s sanitary and phytosanitary (SPS) regulations. As a result, Ukraine made significant progress on its WTO accession negotiations. In response to a Ukrainian Government request for the USG to broaden the scope of the WTO accession project, USAID is designing a follow-on project to assist Ukraine once it becomes a member of the WTO.
USG-funded assistance has helped improve the regulatory environment for SMEs in Ukraine, as well as the management capacity of SMEs. A total of 2.66 million businesses have been registered, up from 1.79 million in 1999. In 2003, a successful USG-funded deregulation program facilitated the streamlining of 210 regulatory procedures by regional authorities and city councils: a total of 20 "one-stop shops" for business registration reduced registration time from 30 to 14 days, and additional one-stop shops will be established nationwide in FY 2004. Over 300 community roundtables and public hearings supported progressive regulatory changes, including a national regulatory policy law. More than 3,000 women who participated in USG-funded business management education subsequently started their own businesses (representing 30% of the program’s graduates), creating some 9,000 additional jobs, 70% of which are now held by women.
Under a USG-funded agricultural reform program, more than 450,000 individuals have received land titles, providing the recipients with twice the rental income as those without land titles, according to a recent survey. A USG-funded agricultural policy project facilitated the passage of enabling legislation for a grain warehouse receipt program, paving the way for the European Bank for Reconstruction and Development (EBRD) to provide a $10 million line of credit to two Ukrainian commercial banks, with the promise of $100 million once the program is completed. The agricultural policy project also helped to develop 50 reform-oriented legislative and regulatory acts, and helped to prevented the passage of nine regressive laws.
Improving access to credit is a key goal of USG assistance. In its first months of implementation, USAID’s Development Credit Authority agricultural credit program enabled the issuance of more than $160,000 in credit to small land-holders and mid-sized farmers, laying the groundwork for an extended lending program. A multilateral micro-lending program in which the USG is the major donor increased its loan disbursement levels, with 2,500 loans disbursed per month during 2003. Over 3,000 loans were made in September 2003 at an average of $4,800 per loan; as a result, the program’s total loan portfolio increased by 15% in the 4th quarter of 2003 to $86.1 million in outstanding loans to micro- and small businesses. Since inception, the USG-financed Western NIS Enterprise Fund (WNISEF) has made over $65 million in equity and debt investments in Ukraine.
In FY 2003, USG social-sector assistance continued to address the needs of vulnerable groups, including the elderly, women, children, orphans and others. Almost 30% of Ukraine’s population lived below the poverty line, a factor that contributed to low birth and life-expectancy rates and rising rates of infectious diseases (especially HIV/AIDS and tuberculosis), alcoholism and substance abuse. Domestic violence and human trafficking were serious concerns, as was the vulnerability of children and youth who lived on the streets, in institutions, or in dysfunctional families. USG health-care reform programs continued to support a shift in health-care services from costly tertiary care to community-based primary health care and family-medicine clinics. A total of 18 demonstration centers in six regions established under a U.S.-Ukrainian partnership resulted in the creation of 483 family-medicine clinics in three years, including 200 in 2003 alone. The clinics stopped the spread of 60 to 70% of the most common diseases at the primary-care level.
USG and other donor assistance for maternal and infant health services contributed to a decrease in maternal mortality from 24.1 cases per 100,000 in 2001 to 22 cases in 2002. Similarly, infant mortality fell from 11.3 cases per 1,000 live born in 2001 to 10.3 cases in 2002. The abortion rate continued to fall to 26 per 1,000 women of fertile age. These assistance programs complemented ongoing efforts to field-test new standards of care in reproductive health, including up-to-date "safe motherhood" approaches and pre-natal and post-natal care. USG assistance helped establish birth registries and a birth defects surveillance system in five pilot regions to help target prevention programs.
The USG’s five-year HIV/AIDS strategy for Ukraine focuses on improving information and services delivery to high-risk groups, reducing stigmatization and discrimination, and keeping HIV prevalence to less than 5% by 2008. Ukraine was recently designated an "intensive focus" country, and implementation of the new strategy will provide information and services to at least 60 percent of high-risk groups in select high-prevalence oblasts (regions). A project in Odessa designed to prevention of mother-to-child transmission of HIV/AIDS helped reduce the transmission rate from 24% in a baseline group to 6%. Under a USG-funded pilot DOTS (Directly Observed Treatment, Short Course) program in the Donetsk region, the cure rate for tuberculosis increased by 30%; the continued success of this program is likely to convince Ukrainian policymakers to implement DOTS nationwide.
The public pension system supporting Ukraine’s 14 million pensioners is funded only precariously by a workforce of only 20 million workers. In FY 2003, the USG helped the Ukrainian Government to stabilize the country’s public pension system and lay the foundation for a voluntary private pension industry. Critical pension reform laws on mandatory state pension insurance and on non-state pensions, drafted with USG assistance, were adopted in mid-2003. The State Commission for the Regulation of the Financial Services Markets, which will supervise private pension funds, insurance companies, credit unions, leasing companies and mutual funds, started operations in June 2003 and a new three-tier pension system will come into force in early 2004.
Following the collapse of the Soviet Union, Ukraine agreed to become a non-nuclear state, but it is still dealing with the legacy of its nuclear past: the remnants of several types of WMD and their delivery systems, as well as the potential proliferation of WMD expertise. In FY 2003, the U.S. Defense Department’s (DoD) Cooperative Threat Reduction (CTR) Program focused on finalizing the elimination of intercontinental ballistic missiles (ICBMs) and strategic bombers in Ukraine. The U.S. Department of Energy (DOE) provided handheld detectors and radiation pagers to Ukraine’s Border Guard Service and trained 24 officers in the use of the equipment. To help prevent the proliferation of WMD expertise, the USG funded civilian research undertaken by Ukrainian scientists through the multilateral Science and Technology Center of Ukraine (STCU), through the U.S. Civilian Research and Development Foundation (CRDF) and DOE’s Initiatives for Proliferation Prevention (IPP). The STCU began to develop a strategic plan to sustain funding through public-private industrial partnerships. Under the IPP Program, 26 Ukrainian institutes have been engaged and 10 U.S. companies have established joint collaboration with Ukrainian scientists.
The USG-funded Export Control and Related Border Security (EXBS) Assistance Program has assisted Ukraine in developing and strengthening its export control system in an overall effort to halt the proliferation of WMD, their delivery systems, and other destabilizing weapons. With continued USG urging, Ukraine finally passed a comprehensive export control law in March 2003, but still lacks the funding and expertise to effectively implement this law. Through the EXBS Program, the USG has also provided equipment and training for the Border Guard and Customs Service, helping to bolster enforcement capabilities at borders and ports of entry.
Given Ukraine’s dependence on nuclear fuels and its plans to complete and commission two new nuclear power plants in 2005 without Western financial assistance, the USG’s nuclear safety program, which supports critical improvements in nuclear safety at all of Ukraine’s nuclear power plants, is playing an increasingly important role. Much progress in the area of nuclear safety already has been achieved, including the installation of and training of specialists in operating full-scope simulators. The lack of effective emergency operating instructions is the most urgent safety deficiency currently plaguing Ukraine’s nuclear power plants (NPPs). Vital upgrades for sabotage protection were completed at the Khmelnytskyy NPP and are being implemented at the Zaporizhzhya NPP, thus improving nuclear reactor security. The Ukraine Nuclear Fuel Qualification Project trained Ukrainian specialists to establish an in-country technical capability to analyze, test, qualify and regulate nuclear fuels.
The USG is the largest single donor to the multilateral fund for the stabilization and reconstruction of the Chornobyl Shelter, providing an additional $10 million in FY 2003. In addition, the Nuclear Regulatory Commission (NRC) provided support to the State Nuclear Regulatory Committee of Ukraine (SNRCU) in issuing operating licenses for three currently operating pilot plants in Ukraine and supported the completion of the SNRCU’s new emergency response center. Technical experts from DOE's Global Nuclear Security Program performed vulnerability assessments to determine the need to upgrade safeguards and security systems of Ukraine’s nuclear facilities. Based on these assessments, the USG began upgrades at three facilities. The USG also began work on upgrading the physical security of the most dangerous radioactive material sources at Ukraine’s oncology clinics and research institutes.
USG assistance has contributed to Ukraine’s increasing capacity to promote regional stability through its growing involvement in peacekeeping activities. Ukraine is the fourth largest contributor of troops to Operation Iraqi Freedom (OIF), having contributed over 1,600 troops. The Ukrainian military has about 2,000 soldiers deployed in Sierra Leone, Kosovo, Lebanon, U.S. Central Command in Tampa, and in various United Nations observer groups deployed around the world. In FY 2003, Ukraine used Foreign Military Financing (FMF) funds to purchase automation and simulation equipment to support new curricula for staff officer development at the National Defense Academy. This effort is expected to lead to the development a modern cost-effective modeling and simulation training capability at key sites in Ukraine and to a revamping of Ukraine’s military education system along Western lines. In addition to FMF assistance, $1.0 million in Enhanced International Peacekeeping Capability (EIPC) funding helped Ukraine establish its own multinational-staff officer course to enhance the interoperability of Ukrainian peacekeepers with U.S. and NATO forces for joint participation in peacekeeping missions. Ukraine participated in 12 Partnership for Peace (PfP) exercises in FY 2003, and received $1.2 million in Peacekeeping Operations (PKO) funding to support its participation in the Kosovo Force (KFOR).
To foster long-term reform of the Ukrainian military education system, the USG provided Ukraine with $1.7 million in International Military Education and Training (IMET) funds to train 46 military and defense-associated personnel. Another 46 officers participated in courses at DoD’s Marshall Center, and 89 officers attended Marshall Center conferences. Under the auspices of the U.S. European Command’s (EUCOM) Joint Contact Team Program and the State Partnership Program with the California National Guard, 50 bilateral events were held in 2003 on topics ranging from traditional military subjects to border security and law enforcement.
USG law enforcement agencies worked closely with senior Ukrainian Government officials to help them develop an anti-money-laundering law and related regulatory framework that meet international standards. As a result, countermeasures imposed against Ukraine in December 2002 by the multilateral Financial Action Task Force on Money Laundering (FATF) were lifted in 2003. Since then, a Financial Intelligence Unit has been established and is functioning, and the National Bank of Ukraine has developed an effective bank-monitoring capability. The USG also funded training for bomb squads and for the investigation and prosecution of cyber-crimes. To fight trafficking in persons, the USG supported crisis centers that provided training and counseling to victims, and helped improve the Ukrainian Government’s ability to combat trafficking by helping to improve investigations, prosecutions, and regional cooperation with law enforcement agencies in destination countries.
Humanitarian Assistance
In FY 2003, the USG which funded the transportation of one airlift of critical medicines and medical supplies and 300 containers of surface-shipped medical equipment and supplies, clothing, food, and emergency shelter items. These programs are focused on assisting nearly 300,000 formerly displaced persons in Crimea with necessary humanitarian commodities and providing primary health care services in the Donetsk Region. The privately donated commodities, which were valued at a total of $30 million, were transported to Ukraine at a cost to the USG of $2.76 million.
COUNTRY PERFORMANCE MEASURES
In FY 2003, actions by the Ukrainian Government such as attempts to restrict the activities of political opposition figures indicated a lack of commitment to principles of democratic society. However, economic reform progressed, as Ukraine moved forward in its WTO accession process.
Economic Policy Reforms and Democratic Freedoms in Ukraine, 1991-2002
Democratic Reforms
Ratings of democratic freedoms are from Freedom House, Nations in Transit 2003 (2003) and cover events through December 2002. Economic policy reform ratings are from EBRD, Transition Report 2002 (November 2002), and cover events through September 2002. Economic policy reforms analyzed include price liberalization, trade and foreign exchange, privatization, legal, banking and capital markets, enterprise restructuring (credit and subsidy policy), and infrastructure reforms. Democratic freedoms analyzed include political rights (free and fair elections; openness of the political system to competing political parties and to minority group representation; governance and public administration) and civil liberties (free media and judiciary; freedom to develop NGOs and trade unions; equality of opportunity and freedom from corruption). Ratings are based on a scale of 1 to 5, with 5 representing the most advanced.
Ukraine has made significant advances in privatizing the economy over the past few years, including opening up markets to small and medium-sized enterprises. In contrast, social-sector reforms have been slower, and almost 30 percent of the population still lives below the poverty level. Health problems are serious and widespread, including growing HIV/AIDS and TB infection rates.
Economic Structure and Human Development in Ukraine, 1991-2002
Human Development Index
The Human Development Index (HDI) is based on three indicators using 2001 data: longevity, as measured by life expectancy; educational attainment, as measured by a combination of adult literacy and combined primary, secondary and tertiary enrollment ratios; and standard of living, as measured by real per capita GDP ($PPP). The HDI ranges from 0 to 1, with higher values representing greater human development. UNDP, Human Development Report 2003 (July 2003). Private-sector share of GDP is from EBRD Transition Report Update (May 2003).
SECTORAL PERFORMANCE MEASURES
DEMOCRATIC REFORM
Performance Indicator: Freedom House Nations in Transit 2003 Electoral Process rating
FY 2003 Results: Coalition-building among political parties was strengthened. Several political blocs have been formed among political parties. Four factions worked together extensively in the post-election period on issues such as committee assignments, draft laws, and public protests to a degree that surprised many political analysts. By-elections and local elections presented a mixed picture: while most were well monitored, few went smoothly. Violations and the use of administrative resources were marked in some cases.
Performance Indicator: Freedom House Nations in Transit 2003 Civil Society rating
FY 2003 Results: Participation by Ukrainian citizens in NGOs rose by 2.5% in 2003. The quality of news produced in targeted regional outlets improved, as did public awareness of important reforms. A civic culture steeped in skepticism and distrust, high levels of corruption and the lack of enabling legislation for NGOs and media continued to pose challenges.According to a public opinion poll, 60 to 70 percent of Ukrainians did not think they lived in a democracy and did not believe they could influence the government. Censorship, self-censorship, and harassment of journalists continued, and even increased.
ECONOMIC AND SOCIAL REFORM
Performance Indicator: Cumulative Foreign Direct Investment (Source: U.S. Embassy Estimate.)
FY 2003 Results: Ukraine’s foreign direct investment (FDI) grew at a strong rate of about 20% in the first nine months of 2003, with the trend remaining strong throughout the year. FDI increased from both Western countries and Russia, and flight capital appeared to be returning. In addition, Ukrainian businesses appeared to increase the reinvestment of profits domestically, signaling a stronger investment climate. Nonetheless, though growing steadily, Ukraine’s level of FDI remained well below those of its neighbors to the west and south.
Performance Indicator: Private-sector share of GDP (Source: EBRD)
FY 2003 Results: Ukraine continued its strong macroeconomic performance in 2003, with growth projected at between 7 to 8% for the year, despite reduced grain harvests. Foreign exchange reserves grew, and the country’s credit rating was upgraded. Personal incomes continued double-digit growth, fuelling 18% growth in the retail sector as consumption picked up. Growth was uneven (concentrated in Kiev and a few other large cities), and pockets of severe depression remained, particularly in rural areas.
FY 2003 Results: Increasing official attention to the HIV/AIDS epidemic was coupled with growing public awareness. Resources available to fight the problem in future will increase due a large award from the Global Fund to Fight AIDS, Tuberculosis and Malaria, as well as a World Bank loan. Remaining key challenges include improving administrative oversight and prevention efforts.
SECURITY, REGIONAL STABILITY AND LAW ENFORCEMENT
Performance Indicator: EBRD Corruption Index
FY 2003 Results: While corruption remained an extremely serious problem in Ukraine, improvements in the rule of law, increased transparency, and some economic reforms were slowly the reducing the space in which corruption could flourish. Ukraine did finally ratify a comprehensive export control law in March 2003, but implementation issues and enforcement remained problematic. FY 2003 FUNDS BUDGETED FOR U.S. GOVERNMENT ASSISTANCE TO UKRAINE TOTAL USG FUNDS BUDGETED: $196.94 (IN MILLIONS, AS OF 12/31/03) FSA FUNDS BUDGETED: $138.70 USAID - Chornobyl Shelter Fund - $9.94 Dept. of Agriculture (USDA) - Cochran Fellowship Program - $0.18 Dept. of State - ECA Public Diplomacy Exchanges - $23.38 Dept. of the Treasury - Technical Advisors - $0.99 Dept. of Energy - Nuclear Reactor Safety - $17.90 Dept. of Agriculture (USDA) - Emerging Markets Program (EMP) - $0.32 Dept. of State - ECA Public Diplomacy Exchanges - $2.80 Dept. of the Treasury - Technical Advisors - $0.20 Dept. of Defense - Destruction and Dismantlement - $20.00 Center for Russian Ldrshp. Dev. - Open World Program (fomerly RLP) $0.31 |
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Area: approx. 375,200 sq. miles, slightly smaller than Texas
