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U.S. Department of State

Diplomacy in Action

III. Regional Programs


U.S. Government Assistance to and Cooperative Activities with Eurasia
Bureau of European and Eurasian Affairs
January 2006
Report
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FSA REGIONAL PROGRAMS

U.S. STRATEGIC INTERESTS

The purpose of FSA regional assistance is to encourage the former Soviet states to work together on common concerns, restore the economic linkages and develop the common democratic practices that they need to make permanent their transition to market-based democracies. Regional programs in the Caucasus and Central Asia help to build confidence and provide humanitarian relief. Regional programs become increasingly important as country budgets diminish as they help to increase efficiency by involving two or more countries in areas of common interest, for example cross border water management and anti-corruption standards, and in some cases provide services (e.g. sector analyses) that country budgets can no longer sustain. Through regional programs that bring together several FSA countries, the U.S. pursues its interests in economic growth, trade, democratic reform, and in reducing international criminal and terrorist threats to U.S. citizens. In FY 2005, FSA regional funds also supported programs including analytical efforts to track progress towards transition, U.S. Trade and Development Agency feasibility studies to facilitate U.S. investment and exports to the region, and projects carried out by regional organizations, such as the Georgia-Ukraine-Azerbaijan-Moldova (GUAM) group. FSA funds also supported the U.S. contribution to the work in the former Soviet states of the Organization for Security and Cooperation on Europe.

DEMOCRACY PROGRAMS

U.S. ASSISTANCE PRIORITIES

The priority of regional democracy programs is to sustain the democratic reforms achieved in bilateral assistance programs, such as developing best practices among governments, helping non-governmental organizations become self-sustaining by working on a regional basis, and building ties between communities torn by war by getting civil society, media, and other democratic institutions to work together across borders.

OSCE: FSA COUNTRY ACTIVITIES

Twenty-two percent of the OSCE's FY 2005 budget was to support OSCE field mission and related costs in the countries of Eurasia. The U.S. share of this budget (14 percent) totaled approximately $6.4 million. Other funds were used to provide U.S. citizen staffing to policy and decision-making positions within the OSCE as well as to enable the participation of U.S. citizen monitors in OSCE election observation missions during FY 2005 in Belarus, Ukraine, Tajikistan, Kyrgyzstan, and Moldova.

In FY 2005, OSCE negotiators made progress towards breaking deadlocks in Moldova, Georgia, and between Azerbaijan and Armenia over long-simmering separatist issues. The OSCE has presented a package of Confidence and Security Building Measures for Moldova, supported by the Ukrainian and Russian Governments. After the democratic transition in Ukraine in December 2004, the OSCE has cemented a close working relationship with the newly elected Ukrainian government. The OSCE Project Coordinator in Ukraine has numerous projects underway to strengthen the electoral process, promote economic and social progress, protect and promote freedom of media, and to strengthen internal and border security. The new Ukrainian leadership has substantially stepped up efforts to assist the OSCE Chairman in Office in mediating resolution of the Transnistrian separatist conflict in Moldova. The OSCE office in Yerevan has a good working relationship with Armenian government authorities and has provided assistance in drafting badly needed amendments to Armenia's electoral code and in promoting freedom of the media.

The U.S. contribution supported ongoing OSCE programs in Tajikistan, Turkmenistan, and Kazakhstan that build civil society and democratic institutions and fight transnational crime and terrorism. In spring 2005 the OSCE played a key role in helping to prevent the spread of violence in Kyrgyzstan after the government was overthrown in the aftermath of fraudulent elections. The OSCE recommended reforms and assisted the new government in restoring stability. The OSCE has recommended and is implementing police training programs focused on respect for basic human rights. The OSCE assisted with preparations for July presidential elections and monitored them closely. In Uzbekistan, the OSCE has called for an international investigation to independently examine the tragic incidents which took place in Andijon in May 2005, and is attempting to build a dialogue with Uzbek authorities to promote basic respect for human rights, including better measures to ensure that excessive force is not used against civilians by security forces.

Extra-Budgetary Activities: In FY 2005, the USG also funded several extra-budgetary projects ranging from the promotion of human rights, democracy, and the development of civil society to improving good governance and rule of law, and enhancing OSCE countries' counter-terrorism collaboration. The following is an example of the type of projects implemented by the OSCE in FY 2005:

Assistance in Further Improvement of the Election Process in Ukraine: Through voluntary contributions totaling more than $1.2 million, the U.S. worked through the OSCE to help promote free and fair presidential elections in Ukraine at the beginning of FY 2005. The final round of the elections was carried out in a non-partisan and objective manner, resulting in an outcome that ultimately reflected the will of the voters and increased their political participation. Among other things, the OSCE field office in Ukraine provided training for domestic observer groups, journalists and judges, conducted voter awareness campaigns and provided free legal advice to voters, and printed and distributed copies of Ukrainian electoral law and regulations among the judicial, media, and other interested communities. The OSCE also brokered contact between elections officials and local observer groups and coordinated donor activities. In essence, this project helped empower local election observers, journalists, election officials, judges, and the public at-large to pursue a genuine democratic process. It should also be noted that the OSCE field office in Ukraine is building on this project with follow-on activities in FY 2006 aimed at continuing electoral reform and enhancing public participation in decision-making. USG contributions were thus able to support the electoral process in a way that provided the Ukrainian people with a process that they could trust. A major OSCE project in support of free and fair elections was the distribution of computer equipment (1,700 computers, 850 printers, and 29 servers). The computer equipment facilitated contact between registration officials and local observer groups, and assisted donor coordination activities, helping to reduce potential technical assistance overlap and making better use of scarce international donor assistance funds. This project will run through the Ukrainian parliamentary elections in March 2006 and will include a significant electoral reform component focusing on improving voter lists, public participation in decision making processes, public access to information, and civic education.

REGIONAL DEMOCRACY AND GOVERNANCE

Regional Democracy and Governance funding supports key metrics that permit USAID, the State Department, Congress, and partners to identify progress towards attaining the President's and Congress's goals in promoting democratic societies. This year, FSA funds supported three important analytical tools: Nations in Transit, which provides an overall evaluation of democratic progress in the each country of the Europe and Eurasia (E&E) region, the NGO Sustainability Index, which looks more in-depth at the progress of civil society sustainability, and the Media Sustainability Index, which measures media sustainability. These tools provided the basic data for USAID's Monitoring Country Progress reporting that is the basis for making country programming and strategy decisions. They are also used extensively by the Coordinator's office and USAID missions to make strategic programming decisions, such as where to focus resources in a particular country to fill gaps shown by the data.

Nations in Transit (NIT), produced by Freedom House, is an annual progress report on the status of democratic reforms in 27 E&E countries. USAID, the State Department, the Millennium Challenge Corporation, and other U.S. Government entities regularly use NIT measures as indicators to monitor country progress. NIT was used as the principal benchmarking instrument for determining phase-out dates for democracy assistance in the region. Freedom House published the ninth edition of NIT in 2005. In the past year, at the request of USAID, Freedom House added a distinct local governance score and sub-section to its country narratives. Interest and demand in NIT continues to grow, both in the U.S. and in E&E. Both governmental and non-governmental leaders from the E&E region have requested information about NIT's findings, as well as recommendations on changes needed to improve their scores.

The NGO Sustainability Index (NGOSI) is a comprehensive and comparative research tool that tracks the strength and viability of NGOs in the Europe and Eurasia region. The Index measures seven different dimensions of NGO sustainability, including legal environment, organizational capacity, advocacy, financial viability, service provision, infrastructure, and public image. The Index provides a wide-ranging and in-depth analysis of the NGO sector in each E&E country, and it is used by both Embassies and USAID missions for strategic planning and performance monitoring purposes. Unlike Nations in Transit, the Index focuses on the sustainability of the sector and can thus be used for country-specific program design, to cover gaps in sustainability. Because it has provided analysis for nearly a decade (2005 will be its 9th year), it is an unparalleled source for information on NGO trends in E&E. The 2004 Index (published in 2005) included three analytical papers, including a report on Lessons Learned in NGO Financial Viability.

The USG Regional Media Program focuses on regional, cross-border activities that support the development of independent media throughout Europe & Eurasia. The program aims to provide an integrated management architecture that facilitates and promotes country-specific and cross-regional learning in the five key areas of media sector development: investigative reporting; regional media law issues; media business sustainability; local television production; and the improvement of professional standards. A key component is the Media Sustainability Index (MSI), which has achieved wide recognition among media professionals as one of the best sources of information on media systems in the E&E region. Most USAID Missions use the MSI as the basis for their media program indicators; media development professionals regularly site the index as a source document; and the index has helped other donors craft comprehensive media development strategies.

OTHER DEMOCRACY PROGRAMS

The Title VIII Programused $3.0 million in FSA funds to support advanced research, junior scholar training seminars, graduate training, dissertation workshops, research labs, library resources, and public dissemination of research data and findings on Eurasia. It also supported specialized training in the languages of the region, both in the U.S. and in the region itself. Seven grants were awarded to organizations to carry out national, merit-based competitions to distribute these funds to individual scholars and institutions. Title VIII awardees conducted policy relevant research overseas and in academic centers or think tanks in the U.S. A few examples of recent research or currently in progress includes "The Traffic in Gaguaz Moldovan Women to Turkey: Experience and Impact in Moldova," "Historical Russian-Muslim Roots in the Caucasus," "Corruption and the Russian Oil Sector," "Restricting the Autonomy of Russian NGOs," and "Domestic Violence in Tajikistan." This year language training programs included, for example, Advanced Russian, Tuvan, Buryat, Ukrainian, Georgian, Uzbek, Chechen, Tajik, Kazakh, and Farsi. The Title VIII Program also held a workshop on "Preparing a New Generation of Americans in Language and Culture for Government Service." The Title VIII Program brings scholarly expertise to the service of the USG through policy forums, embassy policy "specialists in residence," research summaries, policy briefs, and by facilitating connections among non-government scholars and USG officials. Policy forums on Eurasia this year included "Islam in Contemporary Central Asia: The Soviet Legacy and its Implications," "The End of Russia's Regional Executive Elections: What Has Russia Lost?," "Election Fraud in Russia and Ukraine," "HIV and Migration in the Caucasus," "Potential for Conflict in Central Asia," and "Youth in Transition: Eurasia and Central East Europe."

FSA REGIONAL ECONOMIC GROWTH PROGRAMS

U.S. ASSISTANCE PRIORITIES

In the economic growth sector, USG assistance priority is to make market economies viable in the former Soviet states by advancing reforms while building (and in some cases rebuilding from the Soviet era) the economic, business, and trade links required for sustainability of economic reforms and economic growth.

REGIONAL ECONOMIC GROWTH PROGRAMS

Energy Regulators Regional Association: The Energy Regulators Regional Association (ERRA), established in 2001, has 23 member national energy regulatory agencies and 4 affiliate members. The seven member Presidium is headed by an elected President, currently from Bulgaria. ERRA's objectives include improved energy regulation in member countries; increased cooperation, communication and exchange of information; and, access to U.S. and other best practices. ERRA is currently focusing on developing replicable training course modules for both classroom and E-learning formats. USAID supports ERRA through a cooperative agreement with the U.S. National Association of Regulatory Utility Commissioners (NARUC).

Black Sea Regional Energy Cooperation: USAID and the U.S. Energy Association continued to support a Black Sea energy cooperation initiative to promote regional electricity transmission planning. Utilities from the Black Sea states, including Romania, Bulgaria, Turkey, Georgia, Ukraine, Moldova, and Russia have developed a common planning tool for identifying transmission system investment requirements to facilitate trade and improve grid reliability. Future demand and trade scenarios and specific investment projects are currently being considered. The project will help advance the broader consideration of East-West grid interconnection. There is potential for expansion of the Southeast Europe Energy to include Moldova, Ukraine, and Turkey.

Infrastructure Reform and Finance Project: FY 2005 saw the initiation of this new project designed to support Missions with analytical resources in evaluating and identifying key opportunities in the infrastructure sector (water, energy, transport, and telecommunications). The IRF Project has prepared or initiated country studies to support Mission strategy development in five countries, including Armenia, Azerbaijan, and Georgia. The project also engages in catalytic work intended to promote the early adoption of new techniques for financing and managing infrastructure in the region.

Energy Efficiency/Clean Energy/Urban Heating: The USG continues to promote energy efficiency in the region. With rising oil, gas, and heat prices, efficiency and low income programs are becoming even more important. USAID, the Alliance to Save Energy, and non-governmental and governmental experts are developing a comprehensive urban heating approach that takes into account experience and best practices over the past decade. The potential for municipal and residential energy efficiency is receiving special attention. This process will inform lending programs of the International Financial Institutions and other donors.

The Partners for Financial Stability Program (PFS): Financial sector reform has been a high priority in the region since the start of the FSA. Heretofore there have been no regional financial sector programs for the FSA countries similar to the PFS program created in 1999 for the Central & Eastern European countries (and expanded to South Eastern Europe in 2005). The PFS program in Central and Eastern Europe is designed to supplement bilateral mission financial sector activities and accelerate financial sector development and reform based on activities that bring countries together to learn from each other's experiences.

In 2005, the USG initiated assessments in the eight most economically advanced FSA countries to determine whether and how a regional approach will work, and how multi-country activities such as PFS can help accelerate financial sector reform and promote greater financial sector and economic integration.

Regional Transparency and Accountability: In FY 2005, the USG supported the development and use of new tools to promote transparency, accountability, good governance and compliance with global financial reporting standards throughout the region. The following anti-corruption tools were developed, tested, and disseminated to field missions and other interested parties including: a handbook for assessing corruption and integrity in governmental institutions; a model scope of work that provides a template for assessing corruption and integrity; an anti-corruption quick reference source that summarizes key publications on corruption and anti-corruption programs; and a supporting analytical framework for combating corruption and promoting integrity in the Europe and Eurasia region based on transparency, accountability, prevention, enforcement, and education. A pilot project developed an innovative assessment tool for determining compliance with international standards to improve financial transparency and accountability, promote global harmonization, and accelerate economic integration.

U.S. TRADE DEVELOPMENT AGENCY (USTDA) REGIONAL PROGRAMS

USTDA utilized FSA regional funds in FY 2005 to fund a number of activities that promote economic development, while also opening opportunities for U.S. business. These activities included feasibility studies on specific investment projects, such as coal bed methane in the Donetsk region of Ukraine, and underground gas storage in Kazakhstan, projects that will ultimately support the energy security of those countries. Also in the energy sector, USTDA is assisting the Government of Tajikistan in planning the rehabilitation of small hydro plants and ranking potential large hydro facilities. Beyond these studies, USTDA also provided broader technical assistance, such as a grant to the Ministry of Communications and Information Technology of Azerbaijan for restructuring of the ICT sector in that country and a grant in Ukraine to enhance civil aviation oversight. Another grant is funding an advisor to assist Azerbaijan in its WTO accession process.

SOCIAL REFORM AND HUMANITARIAN ASSISTANCE

U.S. ASSISTANCE PRIORITIES

Drastic increases in premature and unnecessary adult deaths and disability since the breakup of the Soviet Union undermine and threaten U.S. goals in national security, economic and democratic transition and social safety nets. The inability of E&E governments to deliver essential health, education, and other social services undermines citizen trust of and respect for government. Regional health programs therefore address critical region-wide health issues, making U.S. bilateral health sector assistance more cost effective by analyzing trends, identifying best practices, and sharing experience within the region. This sharing of regional expertise and experience has been particularly effective in securing policy change, spurring host country action and leveraging outside resources.

HEALTH PROGRAMS

Regional Health Analysis and Outreach Initiative: Each year, the USG selects a few critical health issues for further investigation and information sharing. In 2005, these included:

  • Access to family planning services: The highest recorded abortion rates in the world occur in Eastern Europe and Eurasia. Some women have as many as 18-20 abortions. This is why each year; Congress has identified five FSA countries as priorities for reprogrammed family planning dollars: Azerbaijan, Georgia, Kazakhstan, Russia and Ukraine. This has resulted in more than $24 million in supplemental non-FSA funding since 2004. A regional conference in Romania in March brought together government officials from eight Eastern European and Eurasian countries including Armenia, Azerbaijan, Georgia, Russia and Ukraine to examine how countries like Russia and Romania had succeeded in so dramatically reducing abortion rates through increased access to family planning. As a direct result of this visit to Romania, both the Governments of Georgia and of Ukraine changed their national family planning policies to increase access to family planning and contraceptives.

  • National health accounts (NHA): USAID with the Swedish International Development Agency, World Health Organization (WHO) and United Nations Fund for AIDS is bringing new realism into country health budgeting and planning by providing through NHA sound data on the actual costs (expenditures) of health care, including out of pocket expenditures. This helps governments understand the need for more substantial and targeted health investments and determine what services can be provided with what resources.

  • Infant and Child health: Many countries in Eurasia have a declining population. Maternal and child death rates are higher than they should be in a region where most births take place in hospitals under the care of a trained provider. A recent regionally-funded study determined that most child mortality occurred during or within the first month after birth and could be prevented with some basic changes in prenatal care, birthing practice, and neonatal care. Pilot family-centered maternity care programs in Ukraine and Russia that have applied these approaches show dramatic reductions in infant mortality and injury.

  • HIV/AIDS Surveillance and Systems: While some of the fastest growing HIV/AIDS rates of infection occur in Eastern Europe and Eurasia, the current surveillance and health service delivery systems are inadequate to track and respond effectively to the epidemic, and to keep and use critical donor sources such as those available through the Global Fund for Aids, Tuberculosis and Malaria (Global Fund). Two critical studies in 2005 examined these issues. The first looked at existing country surveillance systems and developed a manual to help countries with differing resource levels improve their tracking of the epidemic and develop the information they needed to qualify for Global Fund grants. A second study examined the health systems necessary for countries to implement and manage these grants. The latter is particularly important to ensure effective use of funds so that countries can qualify for the second tranche of funding for the final three years.


Strategic Health Interventions:

  • Global Fund HIV/AIDS, Tuberculosis (TB) and Malaria Grants: This program helps countries prepare winning grant proposals, meet the criteria for the disbursement of the first two years of funding, and successfully manage and report on their programs to qualify for the final three years of funding. This assistance has helped 11 FSA countries to successfully compete for 27 Global Fund HIV, TB and malaria grants with a total value of $597 million. Regional funds are being used to provide both training and direct technical assistance in the preparation or revision of grant applications, establishment of data bases and monitoring and evaluation systems, and the procurement and management of coordinating and oversight systems. This assistance has helped ensure that no E&E Global Fund grants were included in the Global Fund's considerable list of non-performing grants in 2005.

  • Improved Tuberculosis Treatment: There has been resurgence in TB infections, including the very dangerous multi-drug resistant TB, in the FSA countries. USAID has introduced and begun to roll out the World Health Organization-approved tuberculosis control protocol, DOTS, in eleven FSA countries including Georgia, Kazakhstan, Russia and Ukraine. With WHO, USAID supported the first regional training in the control and treatment of multi-drug resistant TB for participants from nine FSA countries. This is the first step in enabling these countries to qualify for assistance with the second line drugs needed to treat multi-drug resistant TB. A joint USAID-WHO ministerial conference in October 2006 will promote further rollout of TB treatment and policy support to address these regional threats.

Prevention of Iodine Deficiency Disorder (IDD): IDD is the world's leading causes of preventable mental retardation. UNICEF and the U.S. Congress have made the Europe Eurasia region a priority for prevention of IDD, because a lower proportion of households in this region have access to iodized salt. Since USAID initiated the regional grant to UNICEF in 2000, the number of households in E&E consuming iodized salt has increased from 26 percent in 2000 to 52 percent currently. In Kazakhstan, the number households consuming iodized salt have increased from 29 percent to 86 percent over the past five years. More than half of newborns in the region are now protected from brain damage due to iodine deficiency.

American International Health Alliance (AIHA) -NIS: Drawing upon its network of partners, health knowledge network, and learning resource centers, AIHA has contributed to improved HIV/AIDS prevention, care and treatment. The most notable achievement in 2005 has been the development and dissemination of Russian language training materials on the prevention of mother to child HIV/AIDS transmission. In 2005, 82 percent of learning resource centers (111) which link professionals with global health networks through the internet have become self-sufficient. The main challenge now will be to develop sustainable approaches to regional cooperation and sharing of information.

SOCIAL TRANSITION PROGRAMS

Analytic Task Force (ATF) - Social Transition: The Analytic Taskforce is the principal vehicle used by USAID's Europe and Eurasia Bureau to access expertise, analysis, and logistical support in the social sector. Its purpose is to discern where E&E countries are advancing toward phase-out goals in the social sector, or where a lack of progress could undermine related USG transition goals. ATF activities are principally divided into two categories - analysis and legacy.

  • Analytical Agenda. In 2005, the analytical agenda included analysis and written products on the following issues: an updated comparison of cross-country education sector trends that supplements human capital data in the Bureau's Monitoring Country Progress reports; in-depth analyses of education sectors in four countries, based on the identified vulnerabilities from the comparative cross-country education trends; promising practices in community-based social services in central and eastern Europe, and the former Soviet states including the Baltic states; assessment of vulnerable groups; cross-country analysis of gender disparity; and, a study of the importance of social sector investments for promoting economic growth and advancement of democracy. These studies have been and continue to be shared with the missions, and will inform strategy development and project design. Several of the analytical products are currently being used by USAID/Armenia in developing future interventions in the education sector, and have informed USAID/Georgia's design for its new program of support for education reform.

  • Legacy activities are efforts designed to promote local capacity in the E&E region to carry out social sector research and advocacy through establishing and strengthening networks of specialists who can gather and disseminate best practices and adapt them to individual country circumstances. In 2005, USAID/E&E's Social Transition team held the first Social Sector Think Tank Workshop that brought together social sector researchers from the region. This legacy activity is supported by a dedicated listserv for further promoting the exchange of information, research, interpersonal contacts, and advocacy on social sector issues. A follow-on activity in 2006 will establish an advisory council and set an agenda for a grants competition to stimulate research in high priority but underserved social sector areas.

Creating Caring and Responsible Classrooms: (Values Grant) is a partnership between a U.S. NGO, Children's Resources International (CRI), and local NGOs in Romania, Bulgaria, Ukraine, and Russia that implements morning meetings for elementary school children in order to influence democratic societal outcomes.

  • In a two-year period, CRI trained 30,706 teachers, 1146 principals and other school administrators, and 144 parents in Ukraine and Russia on how to conduct the practice of "Morning Meeting" in classrooms. Looking at both SEED and FSA programs, the number of individuals who were trained exceeded the target goals of the project by over 8,000 trainees.

  • A Morning Meeting Handbook and a Facilitators' Guide were developed and translated into languages appropriate to the countries that participated in this project. Overall, 26,000 copies of the Handbook and 860 copies of the Guide were distributed in Ukraine and Russia.

  • NGOs in each country have established Morning Meeting websites and will post Morning Meeting materials so that they may be easily accessible.

International Network of Disabled Youth Activist Teams is carried out by World Institute on Disability (WID) in conjunction with the Russian NGO 'Perspectiva' and five disability NGOs (two in Siberia and one each in Armenia, Azerbaijan, and Uzbekistan). The project focuses on building a network of disability advocates who will promote improved laws and policies for the disabled, and integration of the disabled into normal schools and labor market. The most notable activities for 2005 include:

  • The Second International Disability Film Festival "Breaking Down Barriers" held in Moscow, was attended by approximately one thousand persons and screened 113 films from 16 countries. The best films were transferred to DVD media and the copies were distributed to partner NGOs to be used during local film festivals.

  • Disability Awareness Trainings for Students At Mainstream Schools: Across the two years of the project, over 10,700 students have participated in these trainings. The numbers of schools requesting training is increasing faster than the number of available Disability Activist trainers.

  • Mass Media Competitions:Best media article on disability awareness competitions were held for newspaper, TV, and radio journalists, and generated much positive disability- focused articles and increased the interest of journalists to continue publishing on this subject. In the second year of the project, over 170 media articles covered various aspects of project activities.

  • Creation of locally produced Disability Awareness Films and PSAs: All of the partner NGOs have produced locally-created disability awareness films and PSAs and shown them on television and during film festival exhibitions. These disability- focused films have been very successful in generating positive interest and support from the mass media, government authorities, and the public in the Eurasia region.

Humanitarian Programs

In FY2005, regional funds supported the administration of State Department, EUR/ACE managed, humanitarian programs throughout Eurasia. In addition to administration of the program, these funds provided the funding for a Hospital Upgrade Project in Tajikistan. These limited regional funds supported a program that delivered and distributed nearly $150 million in humanitarian commodities throughout Eurasia in FY2005.

FSA Regional Security and Law Enforcement Programs

Eurasia Regional Law Enforcement: The UNODC Central Asia Regional Information and Coordination Center (CARICC) helped to improve the cooperation between Central Asian states and U.S. law enforcement in combating trans-border drug trafficking and organized crime. Participating countries formed project teams that drafted agreements that will form the legal foundation for countries' participation in the center and define the policies on the center's operations and standard procedures.

The UNODC Precursor Chemical project aims to prevent diversion of chemicals into Afghanistan and to improve control measures in the Central Asian states. During FY 2005, the project provided training for relevant agencies in Tajikistan, Kazakhstan and Kyrgyzstan, conducted national seminars to formulate national precursors control action plans, and distributed test kits and computer equipment.

The UNODC Project to Strengthen Drug Law Enforcement Capacities in Data and Information Collection is increasing capabilities of governments to collect, analyze, and share drug-related intelligence. Training was conducted and systems established in Kyrgyzstan and Uzbekistan. Procurement is underway for equipment in Kyrgyzstan, Kazakhstan, and Turkmenistan.

The International Law Enforcement Academy (ILEA) in Budapest is used to strengthen national law enforcement capabilities by providing training in modern methods and technologies. During FY2005, the ILEA trained participants from Moldova, Georgia, Russia, Azerbaijan, and Tajikistan. Trainees were drawn from a variety of agencies, including border guards, counter-narcotics and counter-terrorism investigators, and customs agents. Post-training evaluations confirmed that ILEA program participants applied the concepts they had learned and actively sought to transmit those concepts to their colleagues.

Georgia-Ukraine-Azerbaijan-Moldova group (GUAM): GUAM is a regional cooperation forum of Georgia, Ukraine, Azerbaijan, and Moldova that was established on the margins of the OSCE and Council of Europe in 1996-97. Uzbekistan joined in 1999 but withdrew in 2005. The GUAM Charter was signed in June 2001.

Under a USA-GUAM Framework Agreement signed in October 2002, the United States agreed to provide support for two initiatives that the GUAM countries adopted at the 2004 GUAM Summit: the Virtual Law Enforcement Center (VLEC) and the Trade and Transport Facilitation (TTF) project. The USA-GUAM Framework also established a Euro-Atlantic Advisory Team to assist the participating countries develop and implement these projects, made up of five senior officials seconded from the Governments of Bulgaria, Lithuania, Hungary, and Romania.

VLEC will bolster regional capacities for the exchange of criminal information in support of trans-border criminal investigations and coordinated law enforcement operations. During 2005 the United States helped establish a VLEC "node" in each GUAM member state capital, with the VLEC in Azerbaijan having begun operation. Member states hold regular meetings of Ministers of Interior to evaluate the regional crime situation and implement the VLEC project. U.S.-GUAM working groups include task forces on narcotics, trafficking of people and illegal migration, corruption, and terrorism. A Prosecutors Advisory Group (PAG) coordinated by Georgia aims to improve cooperation among prosecutors' offices in the region. U.S. legal advisors supported the creation of a PAG coordinator position in 2005.

The TTF project assists GUAM border control and customs agencies by simplifying customs procedures, developing best practices, and promoting inter-agency communication and cooperation. During 2005, senior customs officers from Lithuania and Hungary began assessing the state of customs administration and training requirements in each member country. The near term focus is on harmonizing customs legislation and training Customs and Border Guard personnel.

GUAM fora and working groups have become more active in the past year, but new types of inter-agency and international cooperation remain to be implemented. More efforts are needed to increase broader understanding and public awareness of the need for trans-border law enforcement and trade facilitation coordination. In late 2005 the GUAM countries began funding and placing personnel in the organization's secretariat in Kiev, which needs to evolve to accelerate regional cooperation.

FSA-FUNDED ENTERPRISE FUNDS

Congress originally authorized the Enterprise Funds through the SEED Act of 1989. That Act established the Funds as unique "public-private partnerships", whose purpose was to invest U.S. Government (USG) funds to support the private sector and nascent market economies of Poland and Hungary. Subsequent Foreign Appropriations Acts and the Freedom Support Act (FSA) extended the authorization to establish Funds in other Central and European countries, as well as in the New Independent States. There are ten Enterprise Funds, seven in Central Europe (Albania, the Baltic States, Bulgaria, Hungary, Poland, Romania, and Slovakia), and three in the former Soviet Union (Russia, the Western NIS countries, and the Central Asian Republics).

Enterprise Funds help create functioning market economies by investing in small and medium enterprises. This produces several results. It creates goods and services to meet consumers' needs, jobs for the employees, private capital to finance productive investment, and a tax base to pay for roads, schools, and pensions. Commercial banks, home mortgage banks, and small and micro loans programs constitute a special class of enterprises supported by the Funds that provide capital to large numbers of small enterprises and individuals so they can become property owners.

The effect of all this is to create a class of stakeholders who can promote the systemic changes in laws, institutions and regulations that will allow commerce to thrive. One of the most attractive aspects of this ground-up approach to reform is that the "change agents", i.e. the enterprises, are sustainable, growth-oriented entities whose influence increases geometrically over time.

The Enterprise Funds provide capital and technical advice in situations where financial markets are still evolving, and the legal/regulatory/institutional environment is not fully developed, such that foreign investors are reluctant to commit funds to emerging small and medium-sized enterprises. In time we expect that the business and financial models created by the Funds, and the constituency for reform that is represented by Fund clients, will help bring about dramatic improvements in their economies.

Each Enterprise Fund operates as an independent, autonomous organization, and is directed by a Board of Directors with the appropriate legal structure and authority to manage its resources. Under the FREEDOM Support Act the Funds have considerable autonomy, with the USG having oversight responsibility for their operations. This model was specifically designed so that the Funds could deliver assistance as rapidly as possible with enough flexibility to develop programs and use a variety of investment approaches to address the conditions found in each country.

USAID's Bureau for Europe and Eurasia has responsibility for managing all Enterprise Fund activities with oversight from the State Department's Office of the Coordinator of US Assistance for Europe and Eurasia. Since their formation in the early 1990s, the Enterprise Funds have created and saved thousands of jobs, transformed industry sectors, increased the levels of business experience and corporate governance, and have been an important U.S. foreign policy success.

The majority of the Enterprise Funds have now privatized their management companies in order to attract new private investment capital and provide future incentives for their employees. In addition to their efforts in making equity investments and long-term loans to small and medium-sized businesses, the Funds have introduced home mortgage lending, mortgage securitization, credit cards, pension funds, mezzanine financing, leasing, and investment banking. Each Fund has become a resource to which other investors have turned for information on the business climate in the countries of operation.

As of September 30, 2004 the ten funds (both SEED and FSA) have received from the USG about $1.17 billion. The following table shows the funding status of the three FSA-funded Enterprise Funds as of the end of FY 2004.

ANNUAL REPORT -  PREPARED FOR 2005

ENTERPRISE FUNDS IN EURASIA

Fund

Funds Authorized

Funds Obligated

Funds Expended

Enterprise Funds

 

 

 

The U.S.-Russia Investment Fund (TUSRIF)

$440m

$328.87m

$327.96m

Western NIS Enterprise Fund (WNISEF)

$150m

$144.97m

$133.70m

Central Asian-American Enterprise Fund (CAAEF)

$150m

$106.00m

$106.00m

 

 

 

 

Total

$740m

$579.84m

$567.66m


The U.S. Russia Investment Fund (Tusrif): The U.S.-Russia Investment Fund (TUSRIF) was created in April 1995 as the result of the consolidation of the Russian American Enterprise Fund (RAEF) and the Fund for Large Enterprises in Russia (FLER). The planned capitalization for TUSRIF was $440 million. To date, the USG has provided $328.9 million and this is expected to be the full amount of funding for this activity. TUSRIF has established a private investment management company, Delta Private Equity Partners, to manage TUSRIF funds and to raise funding from private sources.

As of September 30, 2005, TUSRIF had invested $312 million in 46 small and medium sized companies and had provided over $55 million in loan capital through 60 branches of 33 private Russian bank partners in support of 6,000 small companies. In addition to the $328 million in funding provided by USAID, TUSRIF has mobilized an additional $470 million in financing from international financial institutions and private investors for their clients and the four financial services companies created by TUSRIF (consumer finance, home mortgages, equipment leasing and auto leasing).

In July 2004 TUSRIF had an initial closing for their first private equity fund, Delta Russia Fund, LP. $31.4 million in private capital was signed up at that time. In May 2005 there was a second round of financing for the Russia Fund, L.P. which increased the total financing to $120 million. In the future, TUSRIF will only be investing USAID Grant resources for follow-on investments in the existing portfolio. New investment opportunities will be funded from the new private equity fund.

Liquidity in the equity market in Russia is improving and the Fund continues to have profitable exits from a number of its investments. In November, 2004, The Fund completed the sale of DeltaBank (its consumer finance bank) to GE Consumer Finance for $100 million, which values the bank at 4.3 times book value. In August 2005, The Fund announced the sale of DeltaCredit Bank (its mortgage bank) to Society Generale of France for $106 million, or 2.5 times book. In July, 2005, The Fund sold its interest in National Cable Network for a valuation which netted TUSRIF an internal rate of return of 66 percent. In September, 2005 The Fund reached agreement to sell Nevsky 49 (its hotel in St Petersburg) to a European group for a net return of $10 million. Early in CY 2005 the Fund sold its interest in CTC Media to Fidelity Investments Europe for a price that yielded an internal rate of return of 30.1 percent. The Fund expects to make profitable exits from the 11 remaining investments in its portfolio over the next 18 to 36 months.

In addition to the Funds investment activities it is engaged in a number of activities designed to reach out to the business community to promote a healthier and more transparent climate for Russian entrepreneurs. Three years ago the Fund used some of its USG Grant to create the U.S. Russia Center for Entrepreneurship (the "Center") to help educate Russian entrepreneurs and catalyze entrepreneurial success via a number of educational, networking and civic activities; since its inception the Center has sponsored and participated in over 90 events and worked with about 7,000 Russian entrepreneurs. In 2005 the Fund partnered with a few other private equity investment companies to establish the Russia Venture Capital Association ("RVCA"). The RVCA will help professionalize the venture capital industry in Russia and also promote a better understanding of investment opportunities in Russia. In 2005 the Fund also published a practical guide on sound corporate governance and practices for Russian entrepreneurs, entitled "Corporate Principles for Growth Companies".

Western NIS Enterprise Fund (WNISEF): The WNISEF was established in 1994 to accelerate private sector development in the three Western NIS countries, Ukraine, Moldova and Belarus, by providing technical assistance and capital to small and medium-sized enterprises (SMEs). Of the $150 million originally authorized, $144.9 million has been obligated. In the interests of conserving resources, WNISEF closed its representative office in Minsk in September 2003 but continues to monitor the country through the Kiev office in Ukraine.

During 2004, WNISEF strengthened its leading position in the private equity markets of Ukraine and Moldova with an inspired performance in both investments and exits. The Fund has outstanding investment commitments of $53.5 million in the following sectors: 39 percent in financial services; 30 percent in fast-moving consumer goods; 16 percent in industrial goods; and 6 percent in retail and distribution; and, 9 percent in miscellaneous. The majority of these are equity investments but several also include debt.

A summary of portfolio highlights is as follows:

  • WNISEF co-founded Energy Alliance, a full-service provider of energy efficiency to Ukrainian commercial industrial enterprises operating in one of the most energy-intensive economies in the world. The Energy Alliance attracted a $10 million loan from the EBRD after just 4 months of operation. The loan assures the company's ability to expand services throughout Ukraine. In July, Energy Alliance completed a pilot cogeneration project at Hostomel Glass Plant, the largest glass container manufacturer in Ukraine, where energy costs made up 15 percent of the total cost of goods sold.

  • Shvydko, the Fund' successful chain of quick-service restaurants specializing in traditional Ukrainian foods, received $3 million for expansion capital. The equity capital injection financed the company's rapid market expansion and opening of numerous new sites.

  • WNIEF portfolio company AVK, the second largest and one of the fastest growing confectionary group in Ukraine, issued $9.6 million five-year corporate bonds in order to expand new production lines.

  • The Fund registered their International Mortgage Bank (IMB) with the National Bank of Ukraine. The IMB is the first specialized residential mortgage bank in Ukraine and will develop as a leading mortgage lender. IMB is offering a range new product including a 10-year home acquisition loan, and 5-year home equity loans of up to $100,000 at competitive interest. The IMB attracted approximately $32 million in debt facility from OPIC to ensure growth of their mortgage portfolio.

  • In March, 2004, WNISEF sold its 100 percent stake in SBK to an Austrian company. SBK is the leading facade ceramic brick maker in Ukraine and one of the most recognized brand names in the construction industry. The equity was valued at $13.5 million, providing WNISEF with a 2.6 times cash-on-cash return.

  • ProCredit Bank, a WNIEF's portfolio company and a leader in Ukraine's micro and small business loan segment, attracted $8.5 million in debt facilities from OPIC, and $2.5 million from the Black Sea Trade and Development Bank. ProCredit also reached agreement with EBRD for an additional $4.5 million loan.

Central Asian-American Enterprise Fund (CAAEF): The Central Asian-American Enterprise Fund (CAAEF) was created in 1994 to promote the creation of small and medium-sized businesses in Central Asia. The CAAEF has a total authorized capitalization of $150.0 million with $106.0 million obligated to date. Business conditions in most of Central Asia are extremely difficult especially for equity investments, which make up the majority of the Fund's portfolio. FY 2001 was a particularly difficult year for the CAAEF. The Fund is in the process of winding down its operations and has liquidated the Fund's investments. Liquidation proceeds amount to approximately $16 million.



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