| U.S. Government Assistance to Eastern Europe under the Support for East European Democracy (SEED) Act -FY 2004 Released by the Bureau of European and Eurasian Affairs January 2005 II. Country Assessment--Poland
U.S. STRATEGIC INTERESTS
Poland has been a staunch ally of the United States in the Global War on Terrorism, most notably by contributing to the liberation and reconstruction of Iraq. It is also a close working partner in NATO, and has provided important assistance in the Balkans and Afghanistan. Poland has served as a model of successful economic transformation since its transition from communism after 1989, creating a sound financial market. With Poland’s accession to the European Union (EU) in May 2004, the U.S. Government (USG) decided to phase-out regionally funded SEED activities for Poland in FY 2004. USG-funded assistance programs for the Polish military will continue, reflecting strong bilateral international strategic cooperation. The U.S. Embassy will also continue its limited public outreach programs. SEED-funded assistance programs were very effective in helping Poland meet the challenges of transition and development. They were also influential in creating lasting institutional ties between Polish organizations and their American counterparts. OVERVIEW OF U.S. GOVERNMENT ASSISTANCE In FY 2004, the U.S. Government (USG) provided an estimated $ 40.34 million in assistance to Poland:
In FY 2004, a total of 46 Polish citizens traveled to the United States on USG-funded exchange programs. Although no new SEED funds were provided in FY 2004, implementers continued using regional SEED funding remaining from previous fiscal years, as described below. U.S. ASSISTANCE PRIORITIES Democratic Reform Programs: In FY 2004, the main priorities for U.S. democratic reform assistance were to maintain strong bilateral relations with Poland that can continue after its EU accession and to strengthen the operation of civil society. Poland has already achieved a fully functioning democratic society. Some legacies from its transition from communism remain, however, most notably in the relatively underdeveloped state of civil society and the country’s non-governmental organization (NGO) sector. Under the Democracy Commission Small Grants Program, the U.S. Embassy provided over $215,000 to 24 NGOs to foster a more active civic society and improve the ability of Polish NGOs to raise funds for ongoing activities. While supporting Poland's entry into the EU, the U.S. wants to maintain its historically close ties with Poland. The Embassy used the International Visitors Program to send 46 Polish decision-makers to the United States on a series of programs to improve their understanding of how the U.S. approaches a wide range of issues. Economic and Social Sector Reform Programs: In FY 2004, the USG provided $900,000 in bilateral technical assistance through the U.S. Labor Department's Local Partnership Program, which created an institutional structure to replicate several important models for local communities to address chronic high unemployment in Poland (18.9 percent in September 2004). Over 200 Polish local government units countrywide participated in this program, which ended on September 30, 2004. The U.S. also extended an estimated $80,000 of technical assistance to the financial sector in the final months of USAID's Partners for Financial Stability (PFS) Program. While Poland has established one of Central Europe's leading financial sectors, it needs further development to allow companies and local governments to generate the capital they require for sustained growth. Polish companies and municipalities are looking to create new investment vehicles to give them the needed flexibility to meet evolving financing requirements, including co financing to qualify for EU structural and cohesion funds. PFS assistance also was instrumental in supporting the Polish Central Bank’s ability to offer advanced training in banking supervision to countries of the Former Soviet Union and Southeastern Europe. Security, Regional Stability, and Law Enforcement Programs: In FY 2004, U.S. security-related assistance focused on supporting military modernization to meet Poland's NATO commitments and on providing Polish military leaders with the needed training to integrate their armed forces better with U.S. forces in NATO and elsewhere internationally, such as cooperation in Iraq. Poland received $2.28 million in International Military Education and Training (IMET) and $32.5 million in Foreign Military Financing (FMF). IMET funds supported eight training programs for Poland’s armed forces, including specialized operational training, a port security course, courses on planning and budgeting, and English language training. FMF funds were used primarily to support the refurbishment of C-130 transport aircraft, logistical support, and training for pilots and mechanics. An additional $500,000 in FMF was designated for the Enhanced International Peacekeeping Capabilities Initiative (EIPC), which will provide training equipment for the Kielce Peacekeeping Center. The U.S. Embassy issued six grants worth a total of $500,000 to five institutions to help Poland combat trafficking in persons (TIP), particularly along its borders with Belarus and Ukraine. The U.S. Embassy also provided $330,000 in equipment and training to improve the ability of Polish Customs Border Guards to detect nuclear and explosive material at border checkpoints and within the country. The bulk of these funds was expended during FY 2004 to purchase global positioning system (GPS) units, laptop computers and printers, and digital cameras to improve the ability of the Border Guards and Customs officials to pursue on-site investigations and coordinate enforcement activities with other Government of Poland (GOP) agencies. Under the State Department’s Export Control and Related Border Security (EXBS) Assistance Program, the U.S. Embassy provided training to Border Guard officials. In FY 2002, a letter of agreement (LOA) was signed with the GOP to provide $1.3 million in law enforcement assistance over several years to help Poland combat cross-border drug smuggling, corruption, and money laundering, and modernize its police force. In FY 2004, the U.S. Embassy developed five projects worth a total of $300,000, to implement this assistance, which is administered by the Bureau of International Narcotics and Law Enforcement Affairs (INL). SECTORAL ASSESSMENTS Poland enjoys a strong, multi-party democracy. After completing negotiations for Poland to join the EU in May 2004, Prime Minister Miller resigned amid concerns about continued high unemployment and a string of corruption allegation scandals involving senior officials. A technocratic government, headed by former Finance Minister Belka, took over in July and will govern until general elections are held in 2005. Poland's most significant remaining democratization challenges include raising the efficiency of the judicial system, improving education, and fostering a more active civil society. In FY 2004, USG democratization assistance aimed to improve the ability of Polish NGOs to establish themselves and generate funds. Polish NGOs still need help in developing techniques to raise independent revenue -- the GOP provides 30 percent of funding, foreign donors –18 percent, and the Polish private sector – 25 percent. Revenue-raising is particularly important to meet the necessary capital requirements to be able to register as an NGO. An estimated 100,000 Poles work full-time in NGOs, and up to one quarter of Poles volunteer in some fashion for the 50,000 foundations and associations. Strong grassroots civil organizations are crucial to enable Poland to overcome the legacy of decades of central planning. In FY 2004, the U.S. Embassy’s Democracy Commission approved $215,235 in grants for 24 projects with local NGOs. The Polish public is increasingly concerned about corruption. Transparency International and other international organizations have consistently described problems in Poland, often stemming from the country’s overburdened, inefficient judicial system and government red tape. Prime Minister Belka has taken a tough stance against corruption, dismissing several heads of state-owned enterprises because of ongoing investigations into allegations that they engaged in corrupt practices. The GOP has also cut the red tape involved in registering a business in hopes of reducing possibilities for corruption. Through the Democracy Commission, the Embassy supported the work of several small NGOs to address this issue. USAID’s Partners for Financial Stability (PFS) Program also funded programs to improve the rules on corporate governance, which will enhance transparency and accountability in Polish companies. Given the close, long-standing ties to the United States rooted in past Polish immigration (there are at least 10 million Americans of Polish ancestry), Polish public opinion generally supports USG policies and American ideas about democracy and free markets. Maintaining these close links after Poland joined the EU is a high priority for the United States. In FY 2004, the U.S. Embassy maintained an active International Visitor (IV) Program, spending $310,346 to send 46 future decision-makers to the United States for in-depth exchanges with U.S. counterparts on a wide range of issues, from human rights to economic policy and the arts. Economic and Social Sector Reform Poland was one of the leaders of the economic transformation of Central and Eastern Europe in the 1990s, having adopted an aggressive program of market-oriented reforms ("shock therapy") following the fall of communism in 1989. Economic growth averaged over five percent per year from 1996 through 2000, driven by double-digit rates of investment growth, as well as a substantial rise in private consumption. After two years of virtual stagnation (1.2 percent growth in 2002), the economy began to recover in 2003 (3.7 percent growth at year end) and is forecast to expand by 5.7 percent in 2004. Exports have been an important economic driving mechanism, growing 25 percent in 2004 (year-on-year through August). As a result, the current account deficit has fallen from 2.2 percent in 2003 to 1.5 percent (in September 2004). Exports have been strong for the past three years and increased further after Poland entered the EU in May 2004. For the first time in three years, investment has also grown (up four percent through July 2004), as companies upgraded production capacity. Foreign direct investment (FDI) has remained relatively constant over the last three years, at $6.4 billion in 2003 and is expected to total $6 billion in 2004. Through April, growth had come without sparking an increase in inflation. A large inflow of EU consumers taking advantage of low Polish prices, particularly for agricultural goods, gasoline and consumer items, pushed prices up sharply through the summer before showing signs of moderating in September. Inflation was forecast to settle at 4.5 percent at the end of 2004. Poland’s entry into the EU has been much smoother than most analysts expected. The technocratic government in place since July has managed to introduce several important fiscal reform measures and trimmed administrative expenses in the budget. It has also introduced a number of reforms to cut red tape, reduce the regulatory compliance burden for companies, and lower corporate tax rates, all in an effort to boost growth and create jobs. Thanks to a strong economy, tax revenues proved stronger than expected, reducing the budget deficit in 2004. The public sector deficit is expected to drop from 5.4 percent in 2004 to under four percent in 2005. The government hopes to address a number of issues before the 2005 general elections, including revamping the farmers’ pension system and reforming the finances of the public health sector. While the economy is improving, important challenges remain. Unemployment is still high (18.9 percent as of September 2004). Wages are low by Western European standards, with average gross monthly earnings of only $750. Despite new legislation that somewhat liberalized the labor market in 2002, companies complain that high labor taxes and the rigid labor code make it hard to increase employment. Worker mobility is limited, in part for social reasons, including the lack of affordable housing in larger cities and in part because of the general absence of effective worker retraining programs. The GOP remains concerned to increase the number of employed people (53 percent of the population is economically active, the lowest rate among Organization for Economic Cooperation and Development (OECD) countries. The GOP has had difficulties designing programs to bring the unemployed back into the labor market and to retrain workers from older industries. These programs are often left to the cash-strapped local governments to develop. The majority of U.S. economic assistance in FY 2004 was provided in the form of a $900,000 Department of Labor (DOL) program to help local governments to offer training to improve the ability of displaced workers to find new jobs. Poland still needs to develop its agricultural sector, which accounts for about 20 percent of the working population, but less than four percent of GDP. Most farms are a fraction of the size of their EU counterparts and would not likely survive without the generous subsidies that have become a major budget burden for the GOP. In three short months, the current government has reinvigorated the privatization program. Although it finalized a number of smaller sales, most important was the sale of 38 percent of Poland’s largest bank, primarily to individual citizens, through the stock market. The GOP plans one major sale a month over the next year, which is expected to make a significant dent in its remaining portfolio of companies (accounting for roughly 25 percent of GDP). Thanks to the bank sale, for the first time in three years, the GOP will meet or exceed its privatization revenue target of 8.8 billion zloty in 2004 ($2.4 billion). Poland has created one of Central Europe's most advanced financial markets, largely thanks to significant assistance from USAID and the U.S. Treasury Department in the 1990s. Poland’s market is at a crossroads, however. GOP officials are inclined to try to promote the development of the EU financial systems along Anglo-Saxon lines. The middling size of Polish markets, however, means reaching this goal will require sustained effort. Through the first eight months of 2004, the Warsaw Stock Exchange launched the third most initial public offerings (IPOs) in Europe – behind London, but equaling Paris. Polish officials have benefited considerably from technical assistance from USAID’s Partners for Financial Stability (PFS) Program, which provided important assistance in designing aspects of bond markets, securitization, the adoption of international accounting standards, and corporate governance. In FY 2004, the U.S. Embassy helped coordinate $80,000 in technical assistance on capital market development provided under PFS. The flagship program was assistance to the National Bank of Poland's Training Initiative on Banking Supervision (TIBS), which has created a training institution for banking supervisors from Eurasia and Central and Eastern Europe. In FY 2004, TIBS held five training programs for supervisors from more than 20 countries, teaching them advanced techniques for dealing with a number of issues, including currency risks and cross-border flows. PFS programs also helped develop a credit database to support a secondary mortgage market. With Poland poised to enter the EU, the PFS program wrapped up in March 2004. The U.S. Overseas Private Investment Corporation (OPIC), U.S. Export-Import Bank, and U.S. Trade and Development Agency (USTDA) all are active in Poland, supporting the development of U.S. trade and investment projects. Security, Regional Stability, and Law Enforcement Poland has significantly improved its ability to counter threats to security, regional stability, and the rule of law since 1989. Since joining NATO in March 1999, Poland has supported a number of top U.S. security priorities, including NATO enlargement and USG efforts to find a workable compromise on a European Security and Defense Policy (ESDP). At the end of 2002, Poland signaled its desire to maintain close defense ties over the long term by deciding to buy 48 F-16 fighters. In 2003, the GOP signed a letter of offer and acceptance worth $3.5 billion for the F-16 sale. The highlight of U.S. security cooperation with Poland, however, is Poland's strong contribution to both the liberation and the reconstruction of Iraq. It contributed troops to the liberation and has taken a leadership role in providing security for the reconstruction. The U.S. provided $32.5 million in Foreign Military Financing (FMF) in 2004 to help the GOP meet NATO force modernization obligations while also contributing equipment to Iraq. The Embassy also coordinated $2.32 million in IMET assistance to improve the professional education of Polish military officers. Poland still faces a security threat from organized crime, elements of which are involved in crossborder activities, including narcotics and trafficking in persons. Domestic drug use is also a growing problem. The domestic drug trade is controlled by three organized crime groups linked to international traffickers. In FY 2002, the U.S. signed a Letter of Agreement (LOA) with Poland to provide $1.3 million in assistance over several years to help it combat cross-border drug smuggling and money laundering, address the corruption issue, and modernize the police force. During FY 2004, LOA projects included the development of curriculum and teacher training to institute a new anti-corruption program in Polish schools; training in advanced computer investigative techniques and purchase of software and hardware for Poland’s Central Bureau of Investigation (CBI); training of police prosecutors and judges in courtroom security and witness protection issues; training the Ministry of Finance’s Financial Intelligence Unit; and training for both senior and working-level Polish National Police on anti-corruption and ethics issues. In FY 2004, the U.S. Embassy completed most of the assistance to Polish Border Guards and Customs officials under the EXBS Program. EXBS training and equipment donations, which together totaled about $313,000, substantially improved Poland’s ability to detect and interdict nuclear or chemical items being smuggled across its border. The EXBS Program is winding down in Poland at the end of FY 2004. Poland also faces challenges from groups involved in trafficking in persons (TIP). Up to 20,000 people are estimated to leave or transit via Poland annually through organized criminal rings. The GOP is currently very active in combating TIP, improving inter-ministerial cooperation, and dedicating greater resources to it. During FY 2004, the U.S. Embassy administered grants to five NGOs, totaling nearly $500,000. Projects included first-contact centers for victims of TIP, rape, and other violence; creation of an intervention center to provide psychological counseling for victims; training projects for members of the police, border guards, internal security agency, prosecutors, and NGO workers; a lawyers’ association project to identify barriers hindering TIP prosecutions and legal assistance; and an initiative to create more shelters and safe housing for trafficking victims. The GOP has also acted as a regional leader in the fight against terrorism. Poland has established a very sophisticated Financial Intelligence Unit (FIU) within the Ministry of Finance to combat money laundering and terrorism finance. The FIU also works closely with other CEE FIU's and provides assistance to Ukraine and the Balkans. During FY 2004, the Embassy worked with the Environmental Protection Agency (EPA) to provide innovative training to improve the ability of Polish law enforcement agencies to combat environmental crime. In cooperation with the State Department’s INL Bureau, EPA conducted a week-long seminar in September, training Polish officers in methods to detect and combat environmental crime. In terms of physical security, Poland has one research nuclear reactor, Swierk, built in the 1970s with Russian assistance and supplied by Russian fuel. A team of U.S. Energy Department (DOE) experts has been working under an International Atomic Energy Agency (IAEA) contract to help Poland improve physical security at its small fuel storage site. In FY 2004, DOE included Poland in a program to improve physical security for civilian institutions storing nuclear isotopes (e.g., hospitals). DOE spent $937,000 on 36 projects to upgrade physical security at a variety of institutions across Poland. ECONOMIC & DEMOCRATIC REFORMS, 1991-2004 Data are drawn from EBRD, Transition Report (November 2004) & Freedom House, Nations in Transit 2004 & Freedom in the World 2004. Ratings are based on a 1 to 5 scale with 5 representing the most advanced. ECONOMIC STRUCTURE AND HUMAN DEVELOPMENT, 1990-2004 World Bank, World Development Indicators 2004 (2004); UNICEF, Social Monitor 2004 (2004); EBRD, Transition Report (November 2004); and UNDP, Human Development Report (2004). POLAND
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Area: 312,685 sq km, slightly smaller than New Mexico 
