U.S. Department of State

II. Country Assessment--Serbia and Montenegro (Serbia, Montenegro, Kosovo)

U.S. Government Assistance to Eastern Europe under the Support for East European Democracy (SEED) Act

Bureau of European and Eurasian Affairs

January 2006

Country Overview

Country Facts

• Area: 39,518 sq mi (102,350 sq km), slightly smaller than Kentucky
• Population: 10,829,175 (July 2005 est.)
• Population Growth Rate: 0.03% (2005 est.)
• Life Expectancy: Male 72.15 yrs., Female 77.51 yrs. (2005 est.)
• Infant Mortality: 12.89 deaths/1,000 live births (2005 est.)
• Gross Domestic Product (GDP): $26.27 billion (purchasing power parity, 2004 est.)
• GDP Per Capita Income: $2,400 (purchasing power parity, 2004 est.)
• Real GDP Growth: 6.5% (2004 est.)

Overview of U.S. Government Assistance

In FY 2005, the USG allocated an estimated $1.88 million in assistance that was not disaggregated between Serbia and Montenegro, including:

• $0.59 million in democratic reform programs; and
• $1.29 million in security, regional stability, and law enforcement programs.

In FY 2005, the USG allocated an estimated $73.61 million in assistance to Serbia, including:

• $41.55 million in democratic reform programs;
• $25.01 million in economic reform programs;
• $0.15 million in humanitarian programs;
• $3.75 million in security, regional stability, and law enforcement programs; and
• $3.15 million in cross cutting and other programs.

In FY 2005, a total of 310 residents from Serbia traveled to the United States on USG-funded exchange programs.

FY 2005 Assistance Overview

SERBIA

U.S. STRATEGIC INTERESTS

The nations of Southeast Europe are an integral part of the President?s vision of a democratic, prosperous, and secure Europe. The countries of the Balkans are working to overcome a legacy of ethnic division and economic decline and are making progress toward long-term recovery and reconciliation within and among the states of the region. SEED programs help protect the national security of the United States by promoting continued political and economic reforms and by enhancing local capacities to combat terrorism, trafficking, organized crime, and corruption.

Burdened by the legacy of socialism, war, and Milosevic-era authoritarianism, Serbia and Montenegro (SaM) lags far behind most other states in the region in terms of certain key reforms and Euro-Atlantic integration. U.S. policy is focused on enhancing stability in this region by accelerating Serbia and Montenegro?s (SAM) full integration into Euro-Atlantic institutions. Success in SaM is key to the U.S. Government?s (USG?s) overall Balkan strategy. SaM?s size, location, ethnic composition, and economic potential make it a linchpin for durable stability in this region. The country will also play a critical role in resolving the main unresolved legacies of the breakup of Yugoslavia: Kosovo; the future of the SaM State Union; war crimes prosecution; and shattered economies.

KEY ISSUES

A number of important developments in 2005 affected USG assistance. First and foremost was the decision by the U.S. Secretary of State in June to certify that SaM?s steps early in the year to turn over more than a dozen indictees to the International Criminal Tribunal for the Former Yugoslavia (ICTY) met the requirements of U.S. law for continued assistance. (In January, the Secretary had suspended aid to Serbia due to insufficient ICTY cooperation.) This decision freed up close to $10 million of U.S. assistance to the Serbian central government that had previously been frozen. Nevertheless, Serbia?s continuing inability to transfer all remaining indicted war crimes suspects, including Ratko Mladic, to The Hague Tribunal and come to terms with its past hindered progress toward EU and NATO integration and has hampered relations with the United States. The lack of a broad consensus over these issues and over the country?s general direction has polarized domestic politics and strengthened extreme nationalist forces.

Developments in Kosovo continued to affect regional stability and to dominate political life in Serbia. In order to mitigate potential instability arising from Kosovo developments and to foster stability in ethnically sensitive regions, the USG continued to direct substantial resources to vulnerable areas in Serbia and Montenegro. Substantial USG assistance was directed to three municipalities along the Serbia-Kosovo boundary line (in which large numbers of ethnic Albanians reside), the predominately Bosniac (Muslim) area of Sandzak, and to the ethnically diverse region of Vojvodina.

Fundamental disagreements between SaM?s two constituent republics about the future of the State Union complicated relations between Montenegro and Serbia, rendered many of its institutions dysfunctional, and slowed the process of Euro-Atlantic integration. The Montenegrin Government announced it will hold a referendum on independence in the first half of 2006. The USG has strongly encouraged both republics to strengthen ties with each other regardless of the outcome of that referendum, and USG assistance efforts in both republics have been targeted at supporting inter-republic cooperation and at facilitating their integration into Euro-Atlantic institutions.

Although public corruption and organized criminal activity ? including trafficking of people, weapons, and drugs ? remain serious problems, there were some positive developments in the rule of law. In December, Serbia?s Special War Crimes Chamber handed down its first conviction against Serb defendants for their role in over 200 executions at Ovcara (Croatia) in 1991. Several other war crimes trials are currently underway in the court.

In order to strengthen the underpinnings necessary for the development of stable democratic institutions and accelerate its integration into the Euro-Atlantic community, the USG continued re-directing its assistance toward economic development and job creation in FY 2005. Although economic growth and reform continued in 2005, this economic progress was not fast enough to satisfy a struggling population, a trend that fed the ultranationalist political parties in Serbia. By the end of FY 2005, over 60 percent of USG assistance to Serbia was in the economic development area.

COUNTRY PERFORMANCE MEASURES

Serbia Democratic Reform

The "radar" or "spider web" graphs below illustrate Serbia?s democratic performance during 2004. Ratings are based on a 1 to 5 scale, with 5 representing the greatest advancement. These charts provide a disaggregated look at each of the indices and are reported to Congress on a regular basis. The gray shaded area represents 2004 performance levels, while the two dark lines indicate how each country compares in its progress vis-?-vis two standards: (1) the average of Romania's and Bulgaria's performance in each indicator as of 2002 (2002 was the year that Romania and Bulgaria ? the "threshold countries" ? were invited to join NATO and received favorable indications of future EU membership); and, (2) where the country stood in each indicator in 1999. Together, these charts provide a broad picture of where remaining gaps are in a country?s performance, and to what extent these gaps are being filled. For more information, including a detailed explanation of each indicator shown in the graph, see USAID/E&E/PO, "Monitoring Country Progress in Central and Eastern Europe & Eurasia," No. 9 (April 2005), found online: www.usaid.gov/locations/europe_eurasia/country_progress/.

 

 The graph shows Serbia?s democratic reform scores in 2004* (the gray shaded area) as compared to the average of Romania?s and Bulgaria?s democratic reform scores in 2002 (the bold line) when they were invited to join NATO and received favorable indications of future EU membership.

*Actual 2005 not yet available.

 

 

The graph shows Serbia?s democratic reform scores in 2004* (the gray shaded area) as compared to its democratic reform scores in 1999. For example, Serbia has made progress in all of the six areas with the greatest in Civil Society and Independent Media.

 

*Actual 2005 not yet available.

 

 

Serbia Economic Reform

The "radar" or "spider web" graphs below illustrate Serbia?s economic performance during 2004. Ratings are based on a 1 to 5 scale, with 5 representing the greatest advancement. These charts provide a disaggregated look at each of the indices and are reported to Congress on a regular basis. The gray shaded area represents 2004 performance levels, while the two dark line indicates how each country compares in its progress vis-?-vis two standards: (1) the average of Romania's and Bulgaria's performance in each indicator as of 2002 (2002 was the year that Romania and Bulgaria ? the "threshold countries" ? were invited to join NATO and received favorable indications of future EU membership); and (2) where the country stood in each indicator in 1999. Together, these charts provide a broad picture of where remaining gaps are in a country?s performance, and to what extent these gaps are being filled. For more information, including a detailed explanation of each indicator shown in the graph, see USAID/E&E/PO, "Monitoring Country Progress in Central and Eastern Europe & Eurasia," No. 9 (April 2005). Found online: www.usaid.gov/locations/europe_eurasia/country_progress/.

The graph shows Serbia?s economic reform scores in 2004* (the gray shaded area) as compared to the average of Romania?s and Bulgaria?s economic reform scores in 2002 (the bold line) when they were invited to join NATO and received favorable indications of future EU membership.

 

*Actual 2005 scores not yet available.

 

The graph shows Serbia?s economic reform scores in 2004* (the gray shaded area) as compared to its economic reform scores in 1999. For example, Serbia has made progress in four of the five areas with the greatest in 3 year Avg Inflation.

 

*Actual 2005 scores not yet available.

 

 

FY 2005 Country Program Performance

Democratic Reform

Serbia is a transitional, multi-party democracy. The assassination of Serbian Prime Minister Zoran Djindjic in 2003 significantly undermined political reform in Serbia. Democratic parties have proved unable to form effective coalitions, leading to weak leadership and fragmented reforms. This has produced a disillusioned public still waiting to see the tangible benefits of democratic government. Frequent elections in past years and frequent turnover in governing institutions have seriously undermined capacity. The Milosevic-era constitution of 1990 is still in place, and important changes are needed to ensure effective checks and balances in government. Corruption in all branches of government and the weakness of parliament and the courts aggravate these conditions. Resistance to devolving resources and authority to local governments has further slowed the reform process. The ultranationalist Serbian Radical Party (SRS) is the largest party in Serbia.

The civil society sector remains weak. Since the democratic changes of October 2000, few of the NGOs that worked to oust Milosevic have redefined themselves as effective reform advocates. NGOs need a more supportive legal framework, greater cooperation among themselves, improved public outreach, stronger staff and institutional capacity, and more diverse funding sources. Draft figures for the 2005 NGO Sustainability Index show the sector remains in mid-transition. The Serbian government has failed to implement needed reforms relating to broadcast media. August 2005 amendments to the Broadcasting Act compromised the impartiality of the Broadcasting Council, responsible for granting long overdue licenses and frequency allocation. The August amendments further delayed the privatization of municipal broadcast media until 2007, ensuring that these outlets remain subject to political influence during the next round of local elections. With some exceptions, the print media is generally sensationalist and unreliable.

At the local level, municipalities grapple with high unemployment and non-performing enterprises awaiting privatization. However, lack of delegated authorities and control of resources, as well as inadequately trained civil servants, have left them with insufficient tools to confront these problems. Municipal infrastructure systems suffer from more than a decade of neglect, putting an additional burden on municipal coffers. State property in the municipalities has not yet been transferred to local governments, preventing municipalities from acquiring credits to upgrade local public services. The non-reformist Socialist Party (SPS) and Radical Party (SRS) did well in September 2004 local elections; mayors from those parties now control 40 of Serbia?s 164 municipalities.

U.S. ASSISTANCE PRIORITIES

USG FY 2005 democracy programs in Serbia focused on: promoting the independence of the judiciary; strengthening legal associations; providing grants, training, networking opportunities, and technical assistance to a broad range of civil-society organizations; promoting NGO advocacy capacity; supporting efforts to reform the media framework and improve capacity; and improving the ability of political parties to communicate with the public. The USG has also funded several initiatives to promote Serbia?s cooperation with the ICTY.

PROGRAM PERFORMANCE

Judicial Reform and Rule of Law: The USG?s Serbia Rule of Law Project is designed to increase efficiency and reduce backlog in Serbia?s general jurisdiction courts and to provide assistance to Serbian law faculties. USG also worked with key legal associations to help them develop as organizations that can respond to their members? needs and provide important training. The Magistrates? Association of Serbia is becoming a self-sustaining organization with capacity to implement legal reform projects funded by national and international donors, while membership in the Young Lawyers of Serbia has grown from a handful of lawyers in late 2003 to more than 400 members in 2005. USG assistance has also focused on the development of the Humanitarian Law Center (HLC) as a research institution focused on truth and reconciliation. The commercial court assistance program has been actively engaged in activities including: training and professional development for judges and court personnel; improvement of court operational and financial management; development of new performance monitoring capabilities; support for change of outdated laws, regulations, and procedures; and, communications assistance for public education.

Civil Society: In November 2004, the Serbian Parliament adopted the Law on Free Access to Information after a two-year campaign of lobbying and pressure from the civil society sector. The sector also continues to lobby the Ministry for Public Administration and Local Self-Government, which has recently been responsive to civil society suggestions on the NGO draft law, though the legislation has still not been passed after five years. NGOs played an important role in official acknowledgement of the 10^th anniversary of the 1995 Srebrenica massacre. USG programs with Serbian trade unions and associated civil society organizations implemented activities designed to encourage social dialogue, dispute resolution, coalition building, and educational services to workers' representatives and a new generation of union leaders. Three Labor Counseling Centers provided legal counseling to workers, technical assistance on collective bargaining, assistance in interpreting laws on privatization, bankruptcy, shareholder rights, and corporate governance, and advice to laid-off or retired workers. USG small grants programs addressed issues such as access to justice, police torture, and domestic violence.

Media: The USG supported training to media professionals to raise the standards of professional journalism and its technical capacity, support local associations, improve business management practices, encourage specialized reporting on transitional issues, and advocate for legal reform. The USG also continued assistance to Serbian media in covering war crimes trials from the ICTY in The Hague and producing domestic programming on human and minority rights. With USG support, eight shows on truth and reconciliation were broadcast on national television. The series attracted an average weekly audience of 400,000. The USG also provided technical support to municipal media managers in preparing privatization bid documents and distributed a handbook on media privatization that will assist local media and municipalities.

Political Process and Election Assistance: USG assistance focused on improving the ways in which government and political parties communicate successes, respond to citizen concerns, and set realistic expectations regarding the reform process. Programs also helped civic organizations contribute to public debate on political reform. Activities also included promotion of participation in political processes by women and youth, and the continued development of a long-term local NGO, the Center for Free Elections and Democracy (CeSID).

Community Revitalization: By the end of FY 2005 CRDA-E (Community Revitalization and Development Assistance - Economic Development) was active in 577 communities throughout the country, covering a population of more than four million people. The program initiated or continued work on 713 projects and completed work on 180 last year. Although the communities are highly appreciative and desperately in need of the improved infrastructure as well as income-generating activities that result from the activity, citizens consistently report that an important element of the program is that for the first time they are being heard. By providing citizens with a means to voice their concerns and priorities, the program has motivated them to work together to achieve common community goals and contributed to strengthening grass-roots democracy in Serbia.

Decentralization and Local Governance: The Serbian Local Government Reform Program (SLGRP) is active in 83 municipalities throughout Serbia, covering more than 80 percent of the total population. As a result of its efforts, transparent and accountable budgeting and financing systems have been or are being established in 70 municipalities and 67 participating towns have held public budget hearings for the first time. Public-private partnerships to create business improvement districts have been established in four municipalities. In 2005, nine new citizen assistance centers and one-stop permitting centers started, bringing the project total to 23. Assistance was provided to the Serbian local government association, the Standing Conference of Towns and Municipalities (SCTM), to become an effective advocate for local governments. More than 95 percent of Serbian municipalities are now participating in the SCTM's quarterly and annual meetings. The SCTM has also been officially recognized by the Serbian Government as the representative of local government interests. As of the end of FY 2005, SLGRP had leveraged $3.7 million from other donor agencies, $0.2 million from international NGOs, and $2.9 million from participating municipalities, for a total to date of $6.8 million.

Public Diplomacy: USG-funded public diplomacy programming in Serbia in FY05 assisted democratic reforms through: support for local NGO projects; media training; educational and academic exchange programs; translation and publishing of American books; and the U.S. Speaker Program. In FY05, the Democracy Commission Small Grants Program primarily supported grass-root projects from indigenous NGOs in underdeveloped regions outside of the capital. Projects included support for development of a free market economy through business associations and public education programs; empowering youth; helping build tolerance and reconciliation among different ethnic and religious groups; and explaining Serbia?s international obligations, such as the ICTY, to the general public. The Civic Education Program "Project Citizen" was introduced into the curriculum of primary schools in Serbia as an elective subject for 7^th graders. "Project Citizen" was highly successful in raising students' civic awareness, with a particular emphasis on problem identification in local communities and the search for solutions. Under the English Teaching Program, USG funds were used to create classes in specialized English at local law faculties, pedagogical institutes and the Foreign Ministry.

Approximately 100 Serbian journalists participated in a series of in-country Media Training programs in FY05. The participants particularly praised the media management, libel avoidance, and conflict resolution reporting programs. The American-Serbian/Montenegrin Youth Leadership Exchange (ASMYLE) Program got off to an excellent start in FY05 as the first round of recruiting was completed. Fifteen students departed in early January 2006 for a six-month exchange at U.S. high schools. FY05 funds were also used for recruitment for the next academic year when 100 students are expected to participate. USG assistance also brought American guest speakers to Serbia who gave presentations throughout the country on topics ranging from the Global War on Terrorism, U.S. history and foreign policy, prevention of HIV/AIDS, IPR issues and the management of cultural institutions. SEED assistance to Serbia in the Democratic Reform Sector is slated for phase-out in 2011.

MEASURES OF PROGRAM EFFECTIVENESS

In order to determine how U.S. Government assistance affects a country, U.S. embassies set targets for improvement called "performance indicators." Data for these indicators are collected by research institutes, embassies and international organizations. By examining data over time, U.S. policymakers better understand whether specific assistance programs are making their intended impact and, if necessary, how to adjust these programs to improve the impact.

Please find below two important indicators in the area of Democratic Reform. In the charts, the "Baseline" refers to a starting point from which to measure progress or regression over time. The embassy and its partner organizations then agree on a "Target" figure that they hope to achieve as a result of U.S. assistance programs. The "Rank" figure is the resulting measurement. "FY" stands for "fiscal year," the period of the U.S. budget that runs from October 1 - September 30 of the following year. "CY" stands for "calendar year," or January 1 ? December 31.

Performance Indicator: NGO Sustainability Index 2004. Seven different dimensions of the NGO sector are analyzed each year in the NGO Sustainability Index: legal environment, organizational capacity, financial viability, advocacy, service provision, NGO infrastructure, and public image. The NGO Sustainability Index uses a seven-point scale, to facilitate comparisons to the Freedom House indices, with 7 indicating a low or poor level of development and 1 indicating a very advanced NGO sector. Source: The 2004 NGO Sustainability Index for Central and Eastern Europe and Eurasia. Found online: www.USG.gov/locations/europe_eurasia/dem_gov/ngoindex/2004/.

Economic Development

Last year saw a quickening recovery of Serbia's economy, which continued into 2005. GDP is projected to grow by 4.5 percent in 2005. Annual inflation rose to above 13 percent by end 2004, and by November the year-to-date figure for 2005 was 15.2 percent. A revised budget for 2005 was passed in July, envisaging a surplus for the full year of about 2 percent of GDP. Tax reform in 2005 saw the adoption of a value added tax, which generated a 40 percent cash revenue increase in real terms. By mid-2005 around 1,250 enterprises had been successfully privatized. A new bankruptcy law entered into force in February 2005. Financial intermediation also progressed. Loan interest rates fell due to increased competition. Bank privatization advanced in 2005 with the tendering and sale of several banks to foreign investors. Only around 7 percent of GDP was made up of domestic credit to the private sector in 2004, expected to slightly increase to 8.5 percent by end-2005, behind all the other countries in Central and Eastern Europe.

The EBRD anticipates $1.6 billion in FDI by 2005 year-end, a 60 percent increase. Foreign trade increased 12.3 percent to $12 billion in the first 10 months of 2005, and exports climbed 35.5 percent in January-October, bringing down the foreign trade deficit by 10.7 percent to $4.8 billion. Though Serbia continues to have high trade deficits, these are offset by remittances (17 percent of GDP in 2004). Risk perceptions continue to slow investment, fostered by a still underdeveloped business environment and other factors. Implementation of much business legislation remains slow, with one notable success in facilitating business startups. The number of business associations is on the rise but the lack of coordinated private-sector lobbying means business? participation in the reform process is limited. Large remittances, which served as an important subsidy source during the 1990?s and help balance trade deficits, are now reducing incentives for employment. Around one third of the workforce holds their primary or secondary job in the gray economy.

In an agreement signed with the London Club in 2004, Serbia?s debt was exchanged for bonds valued at approximately $57 million in April 2005. In November 2005 the rating agency Standard and Poor?s assigned Serbia a credit rating. The Serbian government is currently in negotiations with the IMF, which would lead to a $700 million debt write-off from the Paris Club.

U.S. ASSISTANCE PRIORITIES

USG objectives in FY 2005 were to support projects that resulted in rapid, tangible benefits (e.g., jobs) to SAM citizens; improve economic policy and governance in Serbia; improve the business environment for private sector growth; enhance the financial sector?s contribution to economic growth; and increase Serbia?s participation in global trade and investment. In many instances, focus shifted from drafting laws to successful implementation.

PROGRAM PERFORMANCE

Economic Policy and Institutional Reform: Assistance focused on increasing the ability of the National Bank of Serbia to regulate the entire financial sector and to support the development of a sound insurance industry. FY 2005 saw the enactment of several key laws that USG advisors helped to draft, and a modern banking law was passed in November 2005, with significant assistance from the USG in drafting the law. USG also advised on strengthening implementation of existing laws, including amendments to the privatization and bankruptcy laws. USG conducted a comprehensive actuarial analysis of the current state pension system.

Tax: At the Ministry of Finance?s request, the USG assisted Serbia in introducing a VAT tax on January 1, 2005. Consumption tax revenues increased by 40 percent in real terms, wiping out Serbia?s fiscal deficit, and yielding a small surplus for 2005.

Enterprise Development, Trade and Finance: USG assistance worked to strengthen the commercial court system and supported the establishment of three key institutions for business development. Assistance was provided to business groups to advocate for policy changes and firms and businesses to improve their market competitiveness. The new Law on Enforcement Procedure, passed in November 2004, reduced the average number of days for enforcing contracts from 1,028 to 635. In FY 2005, progress of negotiations on each state?s membership in the WTO quickened. The USG advised on legislation to bring Serbia?s laws into conformance with international and/or EU standards. A number of key laws were enacted in FY 2005. At the end of September, the microfinance facility Opportunity International Serbia (OIS) was serving 2,998 clients, with an active portfolio of approximately $7.5 million. To date, OIS loans have created 3,602 new jobs and sustained an additional 19,812.

Community Revitalization through Democratic Action-Economic Focus (CRDA-E): Over 85 percent of the program?s 713 projects targeted economic infrastructure or income-generating activities. By the end of FY 2005, these activities created 10,700 full-time equivalent jobs and generated $22 million in additional income and $2.7 million in increased agricultural sales. Counterpart contributions average 50 percent of the total project costs, demonstrating excellent buy-in.

Development Credit Authority (DCA): DCA is a tool that the USG is using to expand lending to municipalities as well as micro-enterprises and SMEs. In the DCA's first phase, a $10 million Loan Portfolio Guarantee for Municipal Lending with Raiffeisen Bank in Belgrade was signed in September 2005. This 15-year facility will enable municipalities in Serbia to get loans for capital investments on affordable terms.

Donor Relations: The United States is Serbia?s largest bilateral donor and coordinates its work with the Government of Serbia, other donors, and international finance institutions. Other major bilateral donors include Germany, Sweden, Canada, and the United Kingdom. Serbia?s primary multilateral donor is the European Agency for Reconstruction; others include the World Bank, the European Bank for Reconstruction and Development, the European Investment Bank, and the Organization for Security and Cooperation in Europe. The UNDP is also active, as are the UNHCR, the International Catholic Migration Commission, and the Danish Refugee Council. USG formally and informally coordinates with all donors working in overlapping program areas.

Other Economic Assistance: Serbia and Montenegro's debt posture improved further during FY 2005 with continued USG support, including assistance in the restructuring of London Club commercial debt, concluded in March 2005 with issuance of a Eurobond to replace older loans. Another achievement was publication of SaM's first rating from Fitch Ratings, issued as "BB-"in May 2005. Public debt now has declined to less than 60 percent of GDP, from more than 100 percent in 2002. USG assistance also played a key role in preparation of Serbia's new debt law, which Parliament approved in July, 2005.

The rapid recovery of Serbia's banking sector continued in FY 2005, with assistance from SEED programs. Three state-owned banks; Jubanka, Continental Banka and Novosadska Banka, were sold to foreign investors during this period. The USG provided hands-on assistance in restructuring of the banks and their subsequent privatization. Work continued on preparation of four more banks for sale. During FY 2005, the percentage of banking system assets in private sector banks increased from 59 percent to 73 percent.

In FY 2005, SEED-funded technical assistance and capacity building programs in Serbia aimed to increase agricultural production, improve plant and animal health, and increase food safety; and speeding Serbia's integration into world market institutions. Success can be illustrated through the vast improvement in many of Serbia's agricultural institutions and increased production and exports in 2005. The USG sponsored training for 16 fellows from Serbian agricultural and food institutions at four U.S. Land Grant Universities.

USG advisors continued to work to strengthen Serbia's anti-money laundering/counterterrorist financing (AML/CFT) regulatory and enforcement program. With this assistance, the Serbian Administration for the Prevention of Money Laundering (SAPML) made significant progress in developing its AML regime, despite major institutional and financial obstacles. SAPML received technical assistance in such areas as information technology (IT) development and AML/CFT training. USG advisors produced a training video on the recognition of suspicious transactions and the role of the FIU. Technical assistance was provided through FY05 in revising Serbia?s money laundering statute to bring it fully into compliance with international standards of the Financial Action Task Force and EU Directives. The updated law was enacted in November 2005. However, even with the accomplishments of Serbia?s SAPML, limited cooperation between the FIU and its counterparts, including the Ministry of Interior, Tax Administration, Office of the Prosecutor, and the Customs Administration, remains an impediment to more effective results.

A $500,000 USG grant to promote occupational safety and health in Serbia resulted in the creation and distribution of an Operations Manual provided to every labor inspector in Serbia. SEED assistance in Serbian in the Economic Reform Sector is slated for phase-out in 2010.

MEASURES OF PROGRAM EFFECTIVENESS

In order to determine how U.S. Government assistance affects a country, U.S. embassies set targets for improvement called "performance indicators." Data for these indicators are collected by research institutes, embassies and international organizations. By examining data over time, U.S. policymakers better understand whether specific assistance programs are making their intended impact and, if necessary, how to adjust these programs to improve the impact.

Please find below two important indicators in the area of Economic Reform. In the charts, the "Baseline" refers to a starting point from which to measure progress or regression over time. The embassy and its partner organizations then agree on a "Target" figure that they hope to achieve as a result of U.S. assistance programs. The "Rank" figure is the resulting measurement. "FY" stands for "fiscal year," the period of the U.S. budget that runs from October 1 - September 30 of the following year. "CY" stands for "calendar year," or January 1 ? December 31.

Performance Indicator: Foreign Direct Investment (FDI - cumulative per capita). The rating is based on a 1 to 5 scale, with 5 representing most advanced. Source: USG/E&E/PO, Monitoring Country Progress in Central and Eastern Europe & Eurasia. April 2005, No. 9. The 2005 rank is based on 2004 data. Analysis derived from World Bank, World Bank Development Indicators 2004; World Bank, Transition: The First Ten Years 2002; EBRD, Transition Report 2004. Found online: inside.USG.gov/EE/po/mcp.html.

By the end of FY 2005, there had been a 40 percent increase year-on-year in FDI, and the EBRD anticipates $1.6 billion in FDI by 2005 year-end, a 60 percent year-on-year increase. USG assistance contributed to this growth through activities to improve the environment for business development, such as promoting the growth of promising sectors of the economy, streamlining business registration processes, enhancing the availability of credit to small- and medium-sized enterprises, strengthening the commercial court system, and providing assistance to business groups to advocate for policy changes.

Performance Indicator: Private Sector Share of GDP. This indicator measures the annual private sector output as percent of GDP. The rating is based on a 1 to 5 scale, with 5 representing most advanced. Source: USG/E&E/PO, Monitoring Country Progress in Central and Eastern Europe & Eurasia. April 2005, No. 9. Analysis from World Bank, World Bank Development Indicators 2004; World Bank, Transition: The First Ten Years 2002; EBRD, Transition Report 2004. Found online: www.inside.USG.gov/EE/po/mcp.html.

Social Reform and Humanitarian Assistance

Embassy Belgrade has no programs in this area. Crosscutting programs that may be listed in this category in other countries fall under economic and democratic reform assistance for Serbia.

Security, Regional Stability and Law Enforcement

After the fall of Milosevic regime in 2000, Serbia took the path towards democratic reforms, including strengthening the rule of law. However, the burden of war crimes and organized crime remained primary obstacles. After the assassination of PM Djindjic in 2003, Serbia passed new legislation creating specialized institutions and procedures to strengthen the prosecution of both organized crime and war crimes. In 2004 and 2005, the USG supported the prosecution of organized crime and war crimes through equipment donations, training, legislative assistance and the promotion of regional cooperation. This enhanced capacity has resulted in the first Special Court war crimes verdict, convicting 14 out of 16 defendants for the murder of 200 Croatian civilians and POWs nearby Vukovar in the "Ovcara case." It also resulted in the crime conviction and maximum penalty for the leading Organized Crime figure, Milorad Ulemek Legija for the political murder in the "Stambolic" case (Serbian former President). Assisting Serbia's efforts to combat transnational organized crime will enhance the country's security and regional stability, while the prosecution of war crimes will unburden the country from past ethnic crimes and further integrate it into the international community. USG assistance will continue to focus in these key areas. Furthermore, we will intensify efforts to assist Serbia in combating corruption and promote further reforms to strengthen rule of law improvements in the judicial system.

U.S. ASSISTANCE PRIORITIES

Compared to FY 2004, the USG quadrupled (to almost $4m) assistance in the area of judicial reform and rule of law activities in FY 2005. The USG continued to focus significantly on bolstering Serbia?s domestic capacity to prosecute war crimes cases and to combat organized criminal activities, issues that continue to challenge Serbia?s democratic transition. In FY 2005, the USG implemented a broad range of criminal justice/rule of law programs, focusing on: organized crime and war crimes; corruption; money laundering and financial crime; trafficking in persons; police reform and capacity building; and export control and border security. Assistance to the Special Court for War Crimes and Organized Crime has enabled the prosecution of high-profile cases, e.g. the Ovcara, Zvornik, Scorpions, Djindjic, and Stambolic cases. The USG assisted in the drafting of the Witness Protection Law and in the development of a witness protection program and unit, which are essential tools for prosecuting high profile OC and WC cases. Through training, donations and advisors, SEED-funded programs contributed to war crimes and organized crime police capacity building. SEED programs also strengthened judicial independence and professional accountability.

PROGRAM PERFORMANCE

Rule of Law/Corruption: USG advisors trained in excess of 500 judges, prosecutors and police officials in specially devised training courses on investigative techniques and financial and organized crime, both in SaM and the United States. They provided in excess of $125,000 in technical assistance to courts and organized a U.S. study visit for 20 top judicial officials. The USG also assisted in the formation of South East Europe Prosecutor's Advisory Group (SEEPAG), a 12-country regional cooperation mechanism for prosecutors, at the SECI Center in Bucharest, Romania, and supported the establishment of its Secretariat in Belgrade.

Organized Crime: USG advisors provided technical assistance and training to the Special Prosecutor for Organized Crime to enhance investigative techniques in prosecuting organized crime and drug trafficking. The Special Courts continued trials of organized crime cases, including the high profile trial of the assassination of former Prime Minister Djindjic and approximately 14 other organized crime trials and numerous pending investigations. The other high profile case, the assassination of former President of Serbia Ivan Stambolic, ended with 40 year conviction of Milorad Ulemek Legija, who is still standing trial for Djindjic assassination. To date there have been 20 organized crime indictments naming over 200 individuals. Moreover, there were eight first instance judgments and two final judgments (affirmed convictions by the Supreme Court on appeal).

In FY 2005, SEED funds provided a full range of equipment donations, training courses focusing on special investigative techniques and study visits to the United States. One advisor has been embedded as a senior police advisor to the Organized Crime Unit. This advisor works closely with the Unit to formulate specially designed training, using a "task force systematic approach" to assure that prosecutors and police work more closely together.

War Crimes: SEED funded programs continued to focus on enhancing Serbia?s war crimes prosecution capacity by providing training programs for the War Crimes Prosecutors and judges, as well as for the war crimes investigation unit within the Ministry of Interior. This training included proper case management in large trials, the use of informants and plea-bargaining, and international humanitarian law. Such assistance will become increasingly critical as the mandate of ICTY expires in 2010 and the burden of war crimes prosecution shifts to domestic courts in the region. In addition, USG advisors provided legislative drafting expertise and assisted SaM in drafting War Crimes Law Amendments that enabled the use of the evidence gathered by the ICTY. USG advisors facilitated regional cooperation, which resulted in the signing of two bilateral prosecutors' cooperation agreements (Serbia - Croatia; Serbia - Bosnia). These agreements together with enhanced bilateral case cooperation enabled Serbian investigative judges to interview witnesses in Croatia (Ovcara case) and Bosnia (Zvornik). Finally, USG advisors have also initiated the concept of the first ever Victim Witness Assistance Unit in the Belgrade District Court, a project that will continue to develop in FY06. This assistance will augment the victim assistance already provided by the USG-funded NGO, the Humanitarian Law Center (HLC).

Witness Protection: USG advisors have continued to provide highly effective technical assistance on the development of a witness protection program, including training, equipment donations, legislative drafting assistance and promoting regional cooperation. The Witness Protection Law drafted with U.S. assistance was finally adopted by the Serbian Parliament. The results include 100 percent success rate in protection, bilateral exchange agreements and a new law.

Anti-Money Laundering: The United States has continued assistance to the Serbian Administration for the Prevention of Money Laundering (SAPML). This included the development of Serbia's anti-money laundering regime by providing AML/CFT training and technical assistance in Information Technology (IT) development and most notably by assistance with legislative drafting which resulted in the adoption of the new AML Law which is in compliance with the international standards.

Border Security: USG advisors have provided needed equipment, advice, and training to the anti-trafficking police, prosecutors, and judges. These programs, combined with other SEED-funded programs that focus on victims, served as a comprehensive approach to combating human trafficking. A robust program of training to customs and other officials; needed equipment; as well as legislative assistance has already led in part to enhanced seizures at many of the Serbia borders. Phase-out of SEED assistance for Serbia in the Security and Law Enforcement Sector is not foreseen before 2014.

MEASURES OF PROGRAM EFFECTIVENESS

In order to determine how U.S. Government assistance affects a country, U.S. embassies set targets for improvement called "performance indicators." Data for these indicators are collected by research institutes, embassies and international organizations. By examining data over time, U.S. policymakers better understand whether specific assistance programs are making their intended impact and, if necessary, how to adjust these programs to improve the impact.

Please find below two important indicators in the area of Security, Regional Stability and Law Enforcement. In the charts, the "Baseline" refers to a starting point from which to measure progress or regression over time. The embassy and its partner organizations then agree on a "Target" figure that they hope to achieve as a result of U.S. assistance programs. The "Rank" figure is the resulting measurement. "FY" stands for "fiscal year," the period of the U.S. budget that runs from October 1 - September 30 of the following year. "CY" stands for "calendar year," or January 1 ? December 31.

Performance Indicator: Constitutional, Legislative, and Judicial Framework Rating, (7-point scale: 1 indicates good governance, 7 indicates poor governance). 2005 rank is base on 2004 data. Source: Freedom House, Nations in Transit 2005. Found online: www.freedomhouse.org/template.cfm?page=47&nit=381&year=2005

Performance Indicator: Governance Index. Measures the stability of the governmental system; the authority of the legislative bodies; decentralization of power; the responsibilities, election and management of local governmental bodies; and legislative and executive transparency. (7-point scale: 1 indicates good governance, 7 indicates poor governance). The 2005 rank is base on 2004 data. Source: Freedom House, Nations in Transit, 2005. Found online: www.freedomhouse.org/template.cfm?page=47&nit=381&year=2005

FY 2005 Assistance Overview

Overview of U.S. Government Assistance

In FY 2005, the USG allocated an estimated $21.76 million in assistance to Montenegro, including:

• $11.59 million in democratic reform programs;
• $7.12 million in economic reform programs;
• $1.40 million in security, regional stability, and law enforcement programs; and
• $1.65 million in cross cutting and other programs.

In FY 2005, a total of 178 residents from Montenegro traveled to the United States on USG-funded exchange programs.

U.S. STRATEGIC INTERESTS

The Republic of Montenegro is the smaller constituent republic of the State Union of Serbia and Montenegro. The primary U.S. interest in Montenegro, as throughout Southeast Europe, is promoting the political and economic development that is central to maintaining peace and stability in the region and to integrating it into a Europe whole, free, and at peace. Through regional and bilateral efforts, the U.S. also fights terrorism and extremism; trafficking in persons, weapons, and drugs; and organized crime and corruption. In pursuing these goals, the United States promotes its highest national objective, the security of the United States and its citizens.

KEY ISSUES

Montenegro escaped the worst of the nationalist conflicts that plagued the former Yugoslavia during the 1990s, but its economy was burdened by sanctions. Politically, it has yet to complete its transition from socialist era structures or to resolve the nature of its relationship with Serbia. The governing coalition is pursuing the establishment of an independent Monetegrin state and announced plans to hold a referendum on independence in the first half of 2006.

In 2005, the Government of Montenegro (GOM), with U.S. Government (USG) assistance, revised its economic reform agenda with the goal of passing and implementing legislation and government policies designed to establish a market-based economy and which advance the GOM's goal of full World Trade Organization (WTO) and European Union (EU) membership, either within the State Union or as an independent state. Politically, the GOM has begun to take steps to increase civic participation and to make itself accountable to the public, but socialist-era structures and attitudes linger. In addition, corruption at all levels continues to be a significant problem in Montenegrin society and must be substantially addressed if reforms are to take root.

USG assistance in FY 2005 helped the GOM in its significant efforts to pass over 33 different pieces of economic and democratic reform legislation that have expanded opportunities for citizens to actively participate in the transition of the Republic. Selected key laws in the area of democratic reforms that were passed in the last year included a law allowing citizens freedom of access to government information, a notary law, and a mediation law, which will reduce some of the routine non- dispute based administrative duties burdening courts and court administrators. Non-government organizations (NGOs) continued to expand their participation and perform watchdog duties.

Montenegro has made substantial progress with USG assistance in improving macroeconomic stability of the Republic. Overall inflation for 2005 is below 3 percent; the budget deficit fell by over 30 percent from 2004, to 5.95 million Euros from January through October 2005, and is on target to be just over 2 percent of GDP in 2006. Under a revised and modern tax system, VAT accounts for over a third of tax revenues, consistent with EU norms, which enabled both income and profit tax rates to be reduced while maintaining government revenues. Consequently, tax rates on corporate profits were reduced from 20 percent to 9 percent, which was a factor in significantly increased foreign direct investment in FY 2005.

Overall USG assistance in Montenegro has shown an increasing focus on economic development, seen as the essential foundation for building enhanced social and political stability. USG programs included water and waste water improvements in the coastal regions of Montenegro, which improved the quantity and quality of services, reduced public health threats to residents and tourists, and reduced environmental degradation so that the number of customers, including tourists, receiving uninterrupted water supply noticeably increased.

While the GOM has made significant progress in passing legislation to address social, economic, and political problems, it must do more to increase its institutional capacity to more effectively and efficiently implement those laws. The USG continued to support grassroots initiatives promoting inter-ethnic tolerance and reconciliation. In addition, programs that increase efficiency, transparency and fairness of the judiciary and other institutions diminish potential irritants within Montenegro's ethnically heterogeneous society. Similarly, economic development programs in multi-ethnic communities ensure there is a bigger slice of the pie for everyone, and a common desire to maintain stable conditions for continued growth.

The USG supports Montenegrin efforts to resolve its state status through a democratic process that is free, fair, and in accordance with recognized international standards. Regardless of the decision that is ultimately made by the Montenegrin voters on the question of independence, USG assistance will continue to support Montenegro's transformation into a democratic society that enjoys the fruits of a free market while contributing to regional stability.

COUNTRY PERFORMANCE MEASURES

Montenegro Democratic Reform

The "radar" or "spider web" graphs below illustrate Montenegro?s democratic performance during 2004. Ratings are based on a 1 to 5 scale, with 5 representing the greatest advancement. These charts provide a disaggregated look at each of the indices and are reported to Congress on a regular basis. The gray shaded area represents 2004 performance levels, while the two dark lines indicate how each country compares in its progress vis-?-vis two standards: (1) the average of Romania's and Bulgaria's performance in each indicator as of 2002 (2002 was the year that Romania and Bulgaria ? the "threshold countries" ? were invited to join NATO and received favorable indications of future EU membership); and, (2) where the country stood in each indicator in 1999. Together, these charts provide a broad picture of where remaining gaps are in a country?s performance, and to what extent these gaps are being filled. For more information, including a detailed explanation of each indicator shown in the graph, see USAID/E&E/PO, "Monitoring Country Progress in Central and Eastern Europe & Eurasia," No. 9 (April 2005). Found online: www.usaid.gov/locations/europe_eurasia/country_progress/.

The graph shows Montenegro?s democratic reform scores in 2004* (the gray shaded area) as compared to the average of Romania?s and Bulgaria?s democratic reform scores in 2002 (the bold line) when they were invited to join NATO and received favorable indications of future EU membership.

 

*Actual 2005 not yet available.

 

 

Montenegro Economic Reform

The "radar" or "spider web" graphs below illustrate Montenegro?s economic performance during 2004. Ratings are based on a 1 to 5 scale, with 5 representing the greatest advancement. These charts provide a disaggregated look at each of the indices and are reported to Congress on a regular basis. The gray shaded area represents 2004 performance levels, while the two dark line indicates how each country compares in its progress vis-?-vis two standards: (1) the average of Romania's and Bulgaria's performance in each indicator as of 2002 (2002 was the year that Romania and Bulgaria ? the "threshold countries" ? were invited to join NATO and received favorable indications of future EU membership); and (2) where the country stood in each indicator in 1999. Together, these charts provide a broad picture of where remaining gaps are in a country?s performance, and to what extent these gaps are being filled. For more information, including a detailed explanation of each indicator shown in the graph, see USAID/E&E/PO, "Monitoring Country Progress in Central and Eastern Europe & Eurasia," No. 9 (April 2005). Found online: www.usaid.gov/locations/europe_eurasia/country_progress/.

The graph shows Montenegro?s democratic reform scores in 2004* (the gray shaded area) as compared to the average of Romania?s and Bulgaria?s democratic reform scores in 2002 (the bold line) when they were invited to join NATO and received favorable indications of future EU membership.

 

*Actual 2005 not yet available.

 

 

FY 2005 Country Program Performance

Democratic Reform

The Government remains stable and public opinion polls show that, even with a difficult economic situation, governing institutions enjoy the confidence of close to half the voters. Notable this fiscal year was the end of the opposition?s 16-month boycott of parliament, in October 2004. With their return, the legislative process slowed considerably, but parliamentary committees began for the first time to employ oversight functions and exercise their authorities. Following an effective NGO campaign in October, the government ceded to public and parliamentary pressure and abandoned plans to develop hydroelectric capacity in the Tara River Canyon. In May, there was debate on no-confidence in the government, attended for the first time by the Prime Minister and his cabinet. In June, the parliament, with votes of a majority of the opposition and the governing party, adopted a joint declaration on EU Integration ? a precedent for reaching consensus. Debate about the referendum on independence that the government plans for spring 2006 dominated the rest of FY 2005. Direct elections for the State Union Parliament were postponed, requiring an amendment to the Constitutional Charter with agreement that in any future referendum the member states would cooperate with the European Union on the conditions for its holding. The Government won a series of by-elections at the local level, capitalizing on the opposition's disarray. Political parties split into camps that are sure to confront each other in the coming year. The challenge is to ensure that confrontation is peaceful, based on dialogue and the highest degree of consensus.

Organized crime and corruption remained serious issues for Montenegro in FY 2005. The judicial system is still problematic, with judiciary reform lagging behind reform in the executive and legislative branches. The inability to have contract disputes tried in a timely manner or to enforce judgments will negatively impact investment. The central government is gradually improving cooperation with local governments. The legal framework for putting in place a decentralized local self government system is progressing; however implementation is slow. Local governments are over-staffed but, at the same time, lack the management systems and skilled personnel required to govern effectively. Local budgets are poorly controlled and executed and local public communal service enterprises remain challenged by outdated infrastructure and poor management practices.

In the past year, support for reforms increased as opportunities expanded for citizens to express opinions, exercise political and economic rights and monitor government performance. Mobilization of non-governmental organizations (NGOs) as watchdogs at both national and local levels significantly improved citizens? capacity to participate effectively. On media reform, the Broadcasting Agency awarded frequencies to 40 radio and 16 television broadcasters under the first public tender for frequency allocations, and advertising rules and programming standards were adopted. Although significant progress was made over the past three years in implementing media reform, further improvements in business and reporting practices, and enforcement of the code of ethics for journalists, are needed to ensure an independent media is sustainable.

U.S. ASSISTANCE PRIORITIES

Montenegro?s reform efforts to date risk backsliding unless democratic institutions are strengthened and institutions work to root out corruption and hold offenders accountable. USG FY 2005 programs in Montenegro targeted assistance to various government and non-government institutions and emphasized increasing opportunities for public participation. Activities included work with the parliament to increase constituent outreach and public hearings on reform legislation, training for judges and court administrators through a model court program, strengthening the role of NGOs in providing oversight of government by providing sub-grants for watchdog activities, training and networking opportunities for journalists and broadcasters, and improving the ability of political parties to communicate with the public.

PROGRAM PERFORMANCE

Judicial Reform and Rule of Law: The USG continued to provide technical assistance to improve the structure and operations of the judiciary. The new Administrative and Appellate Courts have reduced the Supreme Court caseload and have begun to ensure that jurisdiction conflicts are resolved promptly. Assistance was also provided to the GOM to reduce the backlog of court cases, assist in efficiently allocating administrative tasks throughout the court system, and strengthen overall court operations. The USG has promoted progressive legal infrastructure change through workshops and conferences that support the drafting and implementation of civil legislation.

Civil Society: Assistance focused on NGO governance, including formulation of an NGO Code of Ethical Conduct. Notable program successes: two Regional Advocacy Centers increased their sustainability; four national NGOs contributed to building rule of law, succeeding to change the government policy-making process and draw attention to the implementation of laws through watchdog projects. USG support assisted development of a modern system of labor-management relations by helping to establish laws and institutions in the areas of social dialogue, economic transition, strategic planning and collective bargaining. In addition to assistance to the National Economic and Social Council of Montenegro, 14 active local Economic and Social Councils were established.

Media: Assistance focused on implementing media reform legislation, including: training for leaders of the New Public Broadcasting Service regarding adoption of various programming principles; assisting the Broadcasting Agency (BA) to develop the digital frequency plan required by the International Telecommunications Union and to ensure that the BA functioned as a neutral and professional entity. Assistance was provided to MINA, an independent, respected news agency that is the source of 65 percent of the news reported locally.

Political Process and Election Assistance: The parliamentary strengthening program helped the parliament make steps toward revising rules of procedure, computerizing legislative research methods, and supplementing meager human resources through a very successful student internship program. To address the challenges of a hierarchical, closed political system, the nonpartisan parliamentary program also worked to strengthen parties by carrying out multiparty youth leadership and training of trainers? seminars.

Community Revitalization: The USG Community Revitalization through Democratic Action (CRDA) program works to provide citizens a means to voice concerns and priorities. In FY 2005, the CRDA program executed 25 civil works projects, four energy-related projects, four transportation projects and 11 school projects. The total value of those projects was approximately $8.5 million. In partnership with the Ministry of Health, CRDA constructed, equipped, and launched a Regional Women?s Reproductive Health Center for northern Montenegro which also hosts victims of trafficking and domestic violence.

Decentralization and Local Governance: The Good Local Governance (GLG) project helped municipalities establish local government structures, systems, and practices. During FY 2005, local assemblies in 24 percent of the municipalities received assistance on policy and budget setting, review, monitoring and evaluation. Fiscal decentralization benefited greatly from mobilization of the municipal treasury system. E-banking assistance is also underway. Achieving transparent operations has been facilitated by creating, equipping with software and hardware and training staff for treasury departments in 90 percent of municipalities.

Donor Relations: USG assistance continued to be closely coordinated with other donors. The UNDP, with funding from the European Agency for Reconstruction, Germany, Canada, and the Netherlands, is working on the environment, enterprise development, and civil society. The Open Society Institute, the Organization for Security and Cooperation in Europe (OSCE), and the Council of Europe have small rule-of-law programs. Funding for humanitarian aid has declined, with remaining programs coordinated by UNHCR.

Public Diplomacy: Public diplomacy programs assisted democratic reforms through support for local NGO projects; media training; educational and academic exchange programs; translation and publishing of American books; and the U.S. Speaker program. The Democracy Commission Small Grants Program supported grass-root projects from indigenous NGOs, several of which were aimed at encouraging inter-ethnic tolerance and reconciliation. Media training programs in Montenegro and the U.S. trained over 80 journalists in topics including professional standards, business and court reporting, investigative journalism, and management and leadership. A new American-Serbian/Montenegrin Youth Leadership Exchange (ASMYLE) began, with the first students departing in early January 2006 for a six-month exchange at U.S. high schools. American Speakers gave presentations throughout Montenegro on topics ranging from intellectual property rights to public-private job development programs. SEED assistance in the democratic reform sector in Montenegro is slated to end in 2011.

MEASURES OF PROGRAM EFFECTIVENESS

In order to determine how U.S. Government assistance affects a country, U.S. embassies set targets for improvement called "performance indicators." Data for these indicators are collected by research institutes, embassies and international organizations. By examining data over time, U.S. policymakers better understand whether specific assistance programs are making their intended impact and, if necessary, how to adjust these programs to improve the impact.

Please find below two important indicators in the area of Democratic Reform. In the charts, the "Baseline" refers to a starting point from which to measure progress or regression over time. The embassy and its partner organizations then agree on a "Target" figure that they hope to achieve as a result of U.S. assistance programs. The "Rank" figure is the resulting measurement. "FY" stands for "fiscal year," the period of the U.S. budget that runs from October 1 ? September 30 of the following year. "CY" stands for "calendar year," or January 1 ? December 31.

Performance Indicator: NGO Sustainability Index 2005. Seven different dimensions of the NGO sector are analyzed each year in the NGO Sustainability Index: legal environment, organizational capacity, financial viability, advocacy, service provision, NGO infrastructure and public image. The NGO Sustainability Index uses a seven-point scale, to facilitate comparisons to the Freedom House indices, with 7 indicating a low or poor level of development and 1 indicating a very advanced NGO sector. The 2005 rank is based on 2004 data. Source: USG, The 2004 NGO Sustainability Index for Central and Eastern Europe and Eurasia. Found online at www.USG.gov/locations/europe_eurasia/dem_gov/ngoindex/2004/.

Performance Indicator: Media Sustainability Index 2005. The MSI assesses five "objectives" in shaping a successful media system: 1) free speech; 2) professional journalism; 3) plurality of news sources; 4) business management; 5) supporting institutions. The MSI uses a four-point scale, with a 0-1 range indicating unsustainable, anti-free press, a 1-2 range indicating an unsustainable mixed system, a 2-3 range indicating near sustainability, and a 3-4 range indicating a sustainable, free media environment. The 2005 rank is based on 2004 data. Source: USG/IREX, Media Sustainability Index 2004. Found online: www.irex.org/msi/index.asp.

Advances in this sector during the past year were demonstrated by the Media Sustainability Index (MSI) for 2005 (preliminary results), which showed improvements in three essential key areas: the legal and regulatory indicator rose from 1.77 in 2001, rose in 2005 to 2.7 in 2005 (reaching near sustainability); the indicator for professional journalism rose from 1.34 in 2001 to 2.20 in 2005; and the business management indicator rose from 1.16 in 2001 to 2.28 in 2005.

Economic Reform

In FY 2005 broad indicators of macroeconomic stability continued to improve. Inflation for 2005 was under 3 percent and the budget deficit was on target to be just over 2 percent of GDP. VAT now accounts for over a third of tax revenues, consistent with EU norms. Personal income tax rates were reduced by 10 percent and profit tax from 20 percent to 9 percent. Government debt stock is on track to be 40 percent of GDP by the end of 2005. Consequently, interest rates have declined, with T-bill rates down sharply from 13 percent in late 2004 to less than 3 percent in September 2005. Banking is increasingly well regulated according to international standards and in January 2005 the monopoly payments system was fully dismantled and replaced by the new Inter-Bank Payment System (IPS). Bank deposits and lending continued their dramatic rise: private deposits rose by 66 percent in the year to September 30 and private borrowing by 37 percent. These positive trends were consolidated in October 2005 as the Montenegro privatized the last remaining majority state-owned bank. Several economic reform laws were passed to reduce barriers to starting and conducting business. Important legislation on consumer protection and streamlining permitting remains in the final stages of development. Implementation of the bankruptcy law remains mixed. Steps to enhance market performance were made with amendments to the Securities Law and to improve corporate governance, restructuring, and finance, by the new Law on Accounting and Audit, which ensures internationally recognized certification of auditors.

In April 2005 the GOM adopted its revised Economic Reform Agenda (ERA), which presents a public policy commitment to a liberalized, open economy with transparent and decentralized democratic institutions. In addition to providing clear reform commitments to the public, the ERA is used by the GOM as a tool for donor coordination. Central to successful implementation of the ERA will be actions to increase formal private-sector employment and reduce unemployment in order to reduce the size of the gray economy. As a small, open economy with no independent currency, managing the current account deficit (CAD) is of critical importance to sustain macroeconomic stability and ensure investment for growth and development. Montenegro?s CAD after grants fell from 12.8 percent in 2002 to 7.3 percent in 2003 and rose to 9.3 percent in 2004. The large, one-time inflows of foreign direct investment in 2005 (e.g., the privatizations of Telekom, Kombinat Aluminijuma Podgorica, and Podgorickabanka alone generated over ?200 million and there was a steady increase in tourist sector investment) ensure the impact of the CAD on macroeconomic stability will be significantly lower in 2005, but it remains a key policy parameter.

Although Montenegro continues to be politically and economically stable, a number of development challenges remain. The legislative and institutional frameworks needed to ensure a stable free market economy are not yet complete. Public opinion polls flag improved living standards and job creation as priorities. It is unlikely that public confidence in government will increase significantly until citizens see tangible results in these areas.

U.S. ASSISTANCE PRIORITIES

The USG increasingly targeted assistance to economic development, especially to projects aimed at providing rapid, tangible results to citizens (e.g., jobs). USG priorities in assisting further economic reforms also aimed to strengthen the institutional capacity of key entities such as the Ministry of Finance, Tax Administration, and Central Bank. Efforts focused on improving macroeconomic stability. While Montenegro still has many issues to address, the government?s reforms enacted through 2005 have placed it on a solid footing to compete successfully in the global economy and its long-term outlook is positive.

PROGRAM PERFORMANCE

Economic Policy and Institutional Reform: USG programs continued to help the GOM consolidate reform through improved implementation. At the Ministry of Finance revenues now pass through the central budgetary account and are subject to public disclosure. Progress continued toward rationalizing the structure of expenditures, although they remain weighted toward wages and social transfers. Analytical capacity and procedures were improved for budget analysis, planning and management, and revenue forecasting. The treasury put in place a centralized payroll system for public sector salaries. The Interim Debt Management Strategy, of critical importance to debt management policy in a Euro-based economy, was approved in August and used for re-balancing the 2005 budget and for preparing the 2006 Budget. The Institute for Strategic Studies and Prognoses, an effective local economic think-tank, continued to develop the research and analytical capability of young Montenegrin social scientists through strong policy analysis on key areas of current reform.

Tax: Improved tax policy analysis helped transform the tax system into a modern, competitive system, based on self-assessment and in line with international practice and EU standards. After recent rate reductions, Montenegro has the lowest profits tax rate and simplest VAT in Southern Europe, creating a competitive tax structure to encourage business.

Enterprise Development, Trade and Finance: The competitiveness project provided assistance to private firms, business associations and government counterparts in the tourism, agriculture and wood sectors. A key success resulted from support to the Ministry of Tourism on development tenders, including the tender for one of the most prestigious resorts in the Republic, Sveti Stefan. Activities to strengthen private sector development continued with the Center for Entrepreneurship and Economic Development and Montenegro Business Alliance (MBA). The MBA continues to gain members and stature as an effective business voice and valued partner for the GOM in working to improve the business climate. Program activities also provided crucial assistance to trade and investment policies that will allow Montenegro to participate effectively in the liberalized global trade regime. The GOM should be able to proceed smoothly with its WTO accession, which opened on a separate track in February 2005. After just over three years of operation, USG-supported Opportunity Bank (OB) now has 70,980 customers. At the end of direct USG support for this project in September 2005, OB is able to stand on its own as a local leader in micro-enterprise and small business banking.

Community Revitalization through Democratic Action-Economic Focus (CRDA-E): CRDA programming efforts through community-driven projects demonstrated a natural progression towards local economic growth activities. CRDA-E community and sub-regional development councils selected, designed and carried out 291 economic and social development projects worth nearly $7 million, with overall USG contributions equally matched by public, private, and community contributions. In just five months, CRDA-E support for new businesses helped 110 new entrepreneurs through a micro-grant program, and working with the olive growers on the coast of Montenegro has helped bring a traditional industry back to life.

Coastal Water and Waste Water Earmark: The USG implemented water and waste water improvements in the coastal regions of Montenegro as part of a $12 million Congressional earmark. The project improved the quantity and quality of services, reduced public health threats to residents and tourists, and reduced environmental degradation. As a result, the number of customers including tourists receiving uninterrupted water supply noticeably increased.

Budget Reform: The USG worked closely with the Ministry of Finance to develop a modern, Western- standard budget system to replace the socialist era budget process. A number of government organizations received training in how to transition to Program Budgeting. A USG debt adviser supported the Finance Ministry's development of a Debt Management Strategy, leading to the payment of almost all short-term government debt.

Agriculture: The USG supported agriculture in Montenegro, seeking to increase agriculture production; improve plant and animal health and improve food safety; and enhance Montenegro's trade and its integration into the world market institutions, including enabling the Montenegrin meat processing facilities to export to the U.S. and other international markets.

Donor Relations: The USG coordinates closely with other donors in order to avoid duplication, leverage USG assistance, and identify potential successors for assistance in areas where the USG will no longer work due to funding constraints. The European Agency for Reconstruction became Montenegro?s largest donor in 2005. Its main areas of focus are: public administration reform, judiciary reform, integrated border management, energy and enterprise restructuring and privatization. The programs of the World Bank and the European Bank for Reconstruction and Development are focused on economic growth and infrastructure investments, while the International Finance Corporation centers on small and medium-sized enterprise development. Coordination takes place at all levels, starting from the high-level collaborative framework of the GOM?s economic reform agenda and continuing through regular meetings at the level of program managers and assistance implementers. Phase-out of SEED assistance in the economic reform sector is slated for 2010.

MEASURES OF PROGRAM EFFECTIVENESS

In order to determine how U.S. Government assistance affects a country, U.S. embassies set targets for improvement called "performance indicators." Data for these indicators are collected by research institutes, embassies and international organizations. By examining data over time, U.S. policymakers better understand whether specific assistance programs are making their intended impact and, if necessary, how to adjust these programs to improve the impact.

Please find below two important indicators in the area of Economic Reform. In the charts, the "Baseline" refers to a starting point from which to measure progress or regression over time. The embassy and its partner organizations then agree on a "Target" figure that they hope to achieve as a result of U.S. assistance programs. The "Rank" figure is the resulting measurement. "FY" stands for "fiscal year," the period of the U.S. budget that runs from October 1 ? September 30 of the following year. "CY" stands for "calendar year," or January 1 ? December 31.

Performance Indicator: Foreign Direct Investment (cumulative per capita). The rating is based on a 1 to 5 scale, with 5 representing most advanced. Source: USG/E&E/PO, Monitoring Country Progress in Central and Eastern Europe & Eurasia. April 2005, No. 9. The 2005 rank is based on 2004 data. Analysis derived from World Bank, World Bank Development Indicators 2004; World Bank, Transition: The First Ten Years 2002; EBRD, Transition Report 2004. Found online: inside.USG.gov/EE/po/mcp.html.

In CY2005, per capita FDI in Montenegro reached an all-time high, and was the highest in the Balkan region. USG assistance supported privatization which encouraged foreign investment in the key tourism and telecom sectors.

Performance Indicator: Private Sector Share of GDP. This indicator measures the annual private sector output as percent of GDP. Source: USG/E&E/PO, Monitoring Country Progress in Central and Eastern Europe & Eurasia. April 2005, No. 9. The rating is based on a 1 to 5 scale, with 5 representing most advanced. The 2005 rank is based on 2004 data. Analysis derived from World Bank, World Bank Development Indicators 2004; World Bank, Transition: The First Ten Years 2002; EBRD, Transition Report 2004. Found online: www.inside.USG.gov/EE/po/mcp.html. 

Social Reform and Humanitarian Assistance

The USG has no programs in this area in Montenegro.

Security, Regional Stability, and Law Enforcement

Montenegro's key challenges in the area of security and law enforcement are improving the effectiveness and reputation of the police and judiciary to control the borders, combat trafficking, halt money laundering and fight organized crime and corruption. In 2005, Montenegro separated the intelligence services from the police, began to remove inefficient and corrupt judges from the bench, took full responsibility for the fight against human trafficking, and its Financial Intelligence Unit (FIU) joined the Egmont Group.

U.S. ASSISTANCE PRIORITIES

In 2005, the USG continued its emphasis on assisting border security and rule of law development. A major USG program supported the renovation of the police training center, a police advisor and the establishment of the forensic lab. USG assistance facilitated training and provided equipment to law enforcement and judicial bodies in response to new investigative techniques introduced by revisions to the Law on Police and the Criminal Procedure Code. The new techniques and equipment, including the use of wiretaps and informants, will give Montenegro its first effective tools to investigate and prosecute corruption. Previously, conviction rates in corruption cases were around 5 percent. USG assistance continues to support the Montenegrin FIU and strengthens action taken by Montenegro in 2002 to criminalize money laundering.

PROGRAM PERFORMANCE

On financial crime, after helping Montenegro pass its new Law on the Prevention of Money Laundering, U.S. assistance in FY 2005 focused on helping to set up the republic?s new anti-money laundering agency, the FIU. In addition to getting the new agency operational and in compliance with international standards, USG assistance was instrumental in securing membership of Montenegrin FIU in the Egmont Group, a 101-member international organization for Financial Intelligence Units. Membership in Egmont has already enabled Montenegro to assist local police and other authorities in money laundering investigations where activities involve other jurisdictions. The FIU is also the central point of contact in international efforts to freeze the assets of terrorists and others sanctioned by the UN Security Council. The USG is providing additional specialized training for the law enforcement and financial sector.

The USG has embedded an advisor in the Chief State Prosecutor's Office who focuses on assisting Montenegrin criminal justice authorities in reform of the new criminal procedure code, and providing training in specialized investigative techniques. Regarding witness protection, the USG has used the Southeast European Prosecutors Advisory Group (SEEPAG) as an informal forum where justice ministry representatives of the various member states can gather and exchange assistance and information. Montenegro's new (April 2004) Code of Criminal Procedure introduced new investigative measures that are widely accepted in many other countries. USG assistance, both training and equipment, is helping to overcome a reluctance to use these new and highly effective techniques. The Council of Europe has followed the U.S. lead in supporting use of these techniques. A separate USG program will continue to focus on implementation programs for prosecutors and judiciary in conjunction with the new criminal procedure code.

A SEED-funded senior police advisor was placed in the Montenegro Organized Crime Unit. This advisor worked closely with the Unit to formulate specially designed training and to ensure that prosecutors and police work more closely together. The USG continued to provide technical advice and assistance to the organized crime police and on establishing the forensic lab in Montenegro, to open FY 2006.

The USG supported a local NGO-run shelter for victims of trafficking. Montenegro will fully fund the shelter from January 2006. The USG also funded training for Montenegrin officials on protection and assistance for victims of trafficking. USG law enforcement advisors continue their work with Montenegrin law enforcement and judicial officials to equip and train their anti-trafficking police unit. Phase-out of SEED assistance in the Security and Law Enforcement Sector in Montenegro is not foreseen before 2014.

MEASURES OF PROGRAM EFFECTIVENESS

In order to determine how U.S. Government assistance affects a country, U.S. embassies set targets for improvement called "performance indicators." Data for these indicators are collected by research institutes, embassies and international organizations. By examining data over time, U.S. policymakers better understand whether specific assistance programs are making their intended impact and, if necessary, how to adjust these programs to improve the impact.

Please find below an important indicator in the area of Security, Regional Stability and Law Enforcement. In the chart, the "Baseline" refers to a starting point from which to measure progress or regression over time. The embassy and its partner organizations then agree on a "Target" figure that they hope to achieve as a result of U.S. assistance programs. The "Rank" figure is the resulting measurement. "FY" stands for "fiscal year," the period of the U.S. budget that runs from October 1 ? September 30 of the following year. "CY" stands for "calendar year," or January 1 ? December 31.

Performance Indicator: Judicial Reform Index. The JRI covers six essential categories: quality education and diversity; judicial powers; financial resources; structural safeguards; accountability and transparency; and efficiency of the judiciary. The higher the percent the more positive the rating. Source: ABA/CEELI. Found online: www.abanet.org/ceeli/publications/jri/jri_montenegro.pdf.

FY 2002 Baseline	FY 2003 Target	FY 2004 Actual
percent rated "positive" = 16.75 percent	50 percent positive	48 percent positive

While FY 2004 demonstrated a 48 percent positive score across the 30 factors addressed in the Judicial Reform Index (JRI 2002), representing a 37.5 percent increase from the previous years, the FY 2004 set target of a 50 percent positive score was not met but came near to reaching the target. The reality is that the judicial system of Montenegro is still a system in transition. In particular, Montenegro?s legal system is struggling to support a market economy where judges who have had little or no experience with economic disputes arising outside the scope of state-owned enterprises acting within a state plan are now called upon to make reasoned and independent judgments on difficult commercial issues. Moreover, the past few years have placed a significant burden on Montenegro?s national court system, the weight of which is only now beginning to be understood. Low salaries dwarfed by the amount in controversy in cases judges are called upon to decide, lack of experience in business related cases, the inaccessibility of higher court decisions for guidance, the unfamiliarity of counsels? arguments, have all contributed a weak court system at the very time that an independent judiciary is most needed.

ABA/CEELI did not issue a Judicial Reform Index score for Montenegro in FY 2005. USG assistance programs, including ICITAP, USAID programs, and the Intermittent Legal Advisor directly provided training and advice raising the quality and education standards in the law enforcement and judicial sectors. USG funded training of officials in the provision of protection and assistance to trafficking victims contributed to the precedent-setting conviction of organized trafficking groups in CY 2005. USG liaison with the Montenegrin judiciary has supported their efforts to increase transparency and efficiency of the judiciary, leading in late CY 2005 to the beginning of a thorough review of judicial performance, and the dismissal of sub-par judges.

Click for FY 2005 Funds Budgeted for U.S. Government Assistance to Montenegro [PDF format]

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 Kosovo

FY 2005 Assistance Overview

Overview of U.S. Government Assistance

In FY 2005, the USG allocated an estimated $84.44 million in assistance to Kosov, including:

• $15.78 million in democratic reform programs;
• $16.34 million in economic reform programs;
• $3.35 million in humanitarian programs;
• $39.40 million in security, regional stability, and law enforcement programs; and
• $9.57 million in cross cutting and other programs.

In FY 2005, a total of 54 residents from Kosovo traveled to the United States on USG-funded exchange programs.

U.S. STRATEGIC INTERESTS

U.S. policy in South Central Europe is to help create a Europe whole, free, and at peace. In Kosovo, these goals take on a special urgency as the legacy of inter-ethnic conflict continues to pervade the territory.

Kosovo is about to enter a distinctly new phase in its development, with FY 2006 marking perhaps the most important year since the 1999 NATO intervention. A political process has begun to determine Kosovo?s status and prepare it for Euro-Atlantic integration. Working closely with our Contact Group allies and fellow UN Security Council members, the United States will help Kosovo make further progress in its democratic, multi-ethnic development.

The USG vision is to transform Kosovo into a stable, democratic society, at peace with its neighbors and on an irreversible path to European integration ? regardless of its status outcome. Managing this transition will be the key challenge for the United States, and the region, in the coming years.

KEY ISSUES

Kosovo?s major problems include a struggling economy with high unemployment, corruption, crime, weak adherence to and respect for the rule of law, and the need for greater protection of minority rights. After more than six years of UN administration and oversight, Kosovo institutions are assuming greater responsibility for major governmental functions, although the United Nations Mission in Kosovo (UNMIK) maintains its key role in sensitive areas like protection of minority rights and law and order. With little experience in formal governance, the Provisional Institutions of Self-Government (PISG) lack capacity in many sectors, and are severely challenged to deal with these issues. In addition, Kosovo must deal with the animosity that still exists between Kosovo?s ethnic Albanians and other ethnicities, particularly Kosovo Serbs.

In October 2005, the United Nations Security Council formally approved commencement of final status negotiations for Kosovo, based on the recommendation of UN Special Envoy Kai Eide. Eide also noted that more work needs to be done on implementation of the Standards for Kosovo, especially in the areas of rule of law, decentralization, and minority rights and returns. U.S. assistance was critical in helping reach this stage and will be critical as well in preparing Kosovo to implement the final status outcome.

In this regard, USG assistance is targeted at helping Kosovo contribute to regional stability by: enhancing democracy and the rule of law; achieving economic stability; establishing democratic institutions; fostering respect for minority rights; and facilitating the return of displaced persons.

Democratic Reform: While there has been some progress in developing an independent, professional media and civil society, challenges for Kosovo?s nascent democracy include establishing an effective rule of law system and representative, transparent central and local government institutions. In FY 2005, USG funding focused on continued development of an independent, effective and impartial system of justice; enhancing the role of the independent media and a nascent civil society; and strengthening a multi-party political system that is representative of and responsive to its constituents. USG assistance helped UNMIK and the PISG draft legislation to reform the Kosovo judiciary in order to ensure the independence of the court system. Technical assistance also developed Kosovo?s criminal procedure code commentary and anti-trafficking strategy. With USG assistance, Kosovo?s private media continued to make strides towards financial and political independence. Training in media ethics and public speaking has helped address the professional development needs of Kosovo?s media sector. Kosovar non-governmental organizations (NGOs) improved their advocacy skills and organizational capacities by focusing on pertinent issues like the implementation of the Standards for Kosovo and economic development. The development of democratic institutions at the central and municipal levels improved, but more work needs to be done to strengthen accountability, transparency, proper oversight of the executive branches and the expenditure of public funds, implementation of legislation, and effective representation of constituents.

Economic Reform: Kosovo?s economy continues to be adversely impacted by political and social uncertainty as final status negotiations commence. Further constraining Kosovo?s economic potential is an incomplete transition from command to free market economic principles. These constraints on private-sector growth have left the public sector as the predominant force in the economy. Combining to seriously impede economic development, the value of exports continues to comprise only five percent of imports; unemployment is high, with estimates ranging from 30 percent - 60 percent; systemic problems with the electricity utility plague daily electricity supply; and telecommunications services are substandard and vastly overpriced.

Despite these challenges, there have been positive gains in FY 2005. The Ministry of Finance and Economy was increasingly able to carry out its budget and tax administration mandate; privatization finally began in earnest with over 100 socially owned enterprises being sold for over ?100 million; and private investment grew at a healthy 5.3 percent. Deposits in local banks grew 19 percent, indicating increased trust in the financial sector. Furthermore, there were signs that wage and price deflation, necessary to correct the distortions of the heavy international presence since the war, is now underway. The PISG deserves credit for committing to and supporting an ambitious economic reform agenda. However, the resolution of final status will put enormous pressures on Kosovo?s leadership to deliver prosperity. How Kosovo responds to these pressures will have tremendous impact on its long-term development.

Social Reform and Humanitarian Assistance: Serious deficiencies in human and institutional capacity affect all Kosovars, particularly in the health and medical sectors. Low levels of education and technical skills inhibit the proper functioning of Kosovo?s institutions as UNMIK transfers more governing competencies to the PISG. While donors and the international community have focused efforts on identifying and addressing these issues, it will take Kosovo many years to overcome the current adverse economic, educational, health/medical and social conditions.

In FY 2005, USG assistance encouraged an open, safe climate for minorities, facilitated the return of internally displaced persons (IDPs), and focused on resolving outstanding human, institutional, and health capacity deficiencies that adversely impact all Kosovars and impede the development of a multi-ethnic society. In FY05 SEED funding helped start the process of relocating ethnic Roma, who have been living since 1999 in lead-contaminated camps in Northern Kosovo. The USG?s conflict mitigation activities have assisted Kosovo during this transition period to develop innovative ways to ease tension and promote reconciliation. The International Commission on Missing Persons (ICMP) and UNMIK?s Office of Missing Persons and Forensics (OMPF), with USG assistance, continued to play a vital role in identifying missing persons and increasing dialogue between Belgrade and Pristina on this sensitive issue.

Security, Regional Stability and Law Enforcement: Organized crime and corruption are two of the biggest threats to Kosovo?s stability and the sustainability of its law enforcement institutions. In FY 2005, there was limited success in a few high profile cases related to organized crime, including human and drug trafficking. Corruption is also a widespread phenomenon. In some government agencies, such as the Kosovo Customs Service, serious efforts have been made to combat institutional corruption by putting effective systems of accountability in place. However, the PISG has not taken the necessary administrative and legislative actions to fight or prevent all forms of governmental corruption. In addition, clan solidarity, codes of silence, low wages, language barriers and inexperienced local law enforcement institutions have all contributed to this failure.

During FY 2005, SEED funds provided U.S. police officers to the UNMIK civilian police force (CivPol), which is responsible for public security and law enforcement in Kosovo. Approximately 270-300 experienced U.S. officers contributed to daily security, and developed capacities in Kosovar law enforcement institutions to fight organized crime, corruption, and terrorism. In FY05, U.S. CivPol focused on maintaining a flexible, fully operational police force that mentors and monitors the Kosovo Police Service (KPS) and can also respond quickly to emergency events, such as the riots of March 2004. USG assistance also supported the KPS and Kosovo Police Service School (KPSS) by hiring instructors and purchasing equipment to train KPS officers in evidence collection, investigative techniques, intelligence gathering and covert operations.

COUNTRY PERFORMANCE MEASURES

Kosovo Democratic Reform

The "radar" or "spider web" graphs below illustrate Kosovo?s democratic performance during 2004. Ratings are based on a 1 to 5 scale, with 5 representing the greatest advancement. These charts provide a disaggregated look at each of the indices and are reported to Congress on a regular basis. The gray shaded area represents 2004 performance levels, while the two dark lines indicate how each country compares in its progress vis-?-vis two standards: (1) the average of Romania's and Bulgaria's performance in each indicator as of 2002 (2002 was the year that Romania and Bulgaria ? the "threshold countries" ? were invited to join NATO and received favorable indications of future EU membership); and, (2) where the country stood in each indicator in 1999. Together, these charts provide a broad picture of where remaining gaps are in a country?s performance, and to what extent these gaps are being filled. For more information, including a detailed explanation of each indicator shown in the graph, see USAID/E&E/PO, "Monitoring Country Progress in Central and Eastern Europe & Eurasia," No. 9 (April 2005). Found online: www.usaid.gov/locations/europe_eurasia/country_progress/.

The graph shows Kosovo?s democratic reform scores in 2004* (the gray shaded area) as compared to the average of Romania?s and Bulgaria?s democratic reform scores in 2002 (the bold line) when they were invited to join NATO and received favorable indications of future EU membership.

 

*Actual 2005 not yet available.

 

 

Kosovo Economic Reform

The "radar" or "spider web" graphs below illustrate Kosovo?s economic performance during 2004. Ratings are based on a 1 to 5 scale, with 5 representing the greatest advancement. These charts provide a disaggregated look at each of the indices and are reported to Congress on a regular basis. The gray shaded area represents 2004 performance levels, while the two dark line indicates how each country compares in its progress vis-?-vis two standards: (1) the average of Romania's and Bulgaria's performance in each indicator as of 2002 (2002 was the year that Romania and Bulgaria ? the "threshold countries" ? were invited to join NATO and received favorable indications of future EU membership); and (2) where the country stood in each indicator in 1999. Together, these charts provide a broad picture of where remaining gaps are in a country?s performance, and to what extent these gaps are being filled. For more information, including a detailed explanation of each indicator shown in the graph, see USAID/E&E/PO, "Monitoring Country Progress in Central and Eastern Europe & Eurasia," No. 9 (April 2005). Found online: www.usaid.gov/locations/europe_eurasia/country_progress/.

The graph shows Albania?s economic reform scores in 2004* (the gray shaded area) as compared to the average of Romania?s and Bulgaria?s economic reform scores in 2002 (the bold line) when they were invited to join NATO and received favorable indications of future EU membership.

 

*Actual 2005 scores not yet available.

 

 

FY 2005 Country Program Performance

Democratic Reform

After more than six years of United Nations administration and oversight, Kosovo institutions are assuming greater responsibility for major governmental functions, although UNMIK maintains its key role in sensitive areas like protection of minority rights and law and order. In October 2005, the United Nations Security Council endorsed the start of final status negotiations, which are being led by U.N. Special Envoy Martti Ahtisaari. Regardless of its final political status, the Provisional Institutions of Self-Government (PISG) continue to work towards effective self-governance as called for in UN Security Council Resolution 1244 (1999). While there has been some progress in developing an independent, professional media and civil society, challenges for Kosovo?s nascent democracy include establishing an effective rule of law system and representative, transparent central and local government institutions. With little experience in formal governance, the PISG lack capacity in many sectors.

Kosovo?s major problems include a struggling economy with high unemployment, corruption, crime, weak adherence to and respect for the rule of law, and the need for greater protection of minority rights. With very low capacity, Kosovo?s developing institutions are severely challenged to deal with these issues. In addition, Kosovo must deal with the animosity that still exists between Kosovo ethnic Albanians and other ethnicities, particularly Kosovo Serbs. USG assistance, along with UNDP funding, supported "early warning" reports which highlighted the tensions that still exist between Kosovar Albanians and Kosovo Serbs, including deep divisions on Kosovo?s final status. As final status discussions take up the difficult issues that exist between these ethnic groups and among Serbia and Montenegro and Kosovo more broadly, anxiety and tensions are likely to rise.

U.S. ASSISTANCE PRIORITIES

The USG?s assistance priorities in democratic reform are twofold: first, helping Kosovo?s civil society, government, and media become more effective institutions in achieving and advocating for good governance; second, helping Kosovo develop democratic institutions critical for its European and regional integration goals. USG assistance was particularly important in the justice sector as Kosovo began to lay the foundation for two new ministries ? justice and interior ? and to create a body responsible for administration of justice and reform of the court system.

PROGRAM PERFORMANCE

In FY 2005, USG funding contributed substantially to developing transparent, accountable and responsive governance and an independent media and civil society. USG-funded training and technical assistance to judges, prosecutors, courts, and other judicial institutions helped create basic administrative and management systems independent of the executive branch. Extensive technical assistance to the Kosovo Assembly and municipalities helped the legislative body pass a number of laws needed to achieve international norms of good governance. Training of political parties, civic groups and the media helped these entities better articulate citizens? interests, develop skills in civil participation, and raise public awareness of activities and issues that affect their everyday lives.

Justice Sector/Legal Reform: USG assistance in FY 2005 improved the functioning and sustainability of the justice sector and related institutions; fought organized and economic crimes, trafficking in persons and corruption; promoted the drafting and enactment of modern criminal justice laws and regulations; and fostered respect for the rule of law and judicial institutions. USG funding is now helping to ensure a smooth transition of the justice sector from UNMIK control to eventual Kosovar control. USG assistance contributed to an intensive, policy-driven debate on the draft Law on Courts and Law on Prosecutors (drafted with USG support) amongst key Kosovar stakeholders that resulted in the passage of modern legislation embodying international standards of practice and oversight. This was the first time such an approach was taken, leading to significant understanding and ownership by the Kosovars of their emerging legal system. SEED assistance supported drafting of amendments to the Kosovo criminal procedure code and the publication of the Kosovo Supreme Court Bulletin. USG assistance also contributed to implementation of the recommendations regarding judicial governance, independence, and court administration made in the 2004 Judicial Assessment and Reorganization Team report. USG assistance provided training and technical assistance to justices, public prosecutors, and court staff. USG funds also supported the development of a criminal procedure commentary project, the Kosovo Chamber of Advocates, and a legal clinic/moot courtroom to advance the professional skills of law students, judges, and prosecutors. More training and technical assistance will be needed, since Kosovo?s capacity in the delivery of judicial services is minimal. The USG coordinates its activities in this sector with the European Agency for Reconstruction (EAR).

The USG assisted in developing an anti-trafficking strategy for Kosovo, organized public awareness campaigns on trafficking as a global problem that affects Kosovo, and provided surveillance equipment for UNMIK DOJ?s anti-trafficking unit, resulting in arrests. USG-funded training and technical assistance programs addressed corruption and ensured that laws and regulations were in place to require transparency in government, particularly in financial institutions and procurement offices. USG-technical assistance strengthened the financial systems of government so that almost 100 percent of all transactions are handled electronically by readily monitored bank transfers without cash exchanging hands. However, much more work needs to be done to combat the widespread problem of corruption.

Local Governance: Following the November 2004 parliamentary elections, Kosovo?s new government created the Ministry of Local Government Administration (MLGA). The USG immediately provided technical assistance to help shape policies for decentralization, municipal finance, and the election of local officials. USG funding also continued to support the Local Government Initiative (LGI) to strengthen performance in four areas: legislative framework for local governance, municipal revenues/finances, transparency/accountability, and local economic development planning. In addition, the LGI worked with municipalities to enhance citizen participation in municipal affairs by increasing public hearings and improving the public?s perception of the accessibility of those municipal governments. While there have been slight improvements, more training and technical assistance is needed to enhance overall performance and more resources are needed to expand the well-received program to other municipalities.

To complement LGI?s efforts, in FY 2005 the USG expanded the Municipal Integration and Support Initiative (MISI) into nine municipalities, focusing on areas where the process of minority return and reintegration remains problematic, and emphasizing the reintegration of Kosovo Serb residents. The MISI partnered directly with municipal leaders and officials, along with local ethnic minority and majority communities, in setting up action plans that present tangible steps each municipality commits to undertake, within a set timeframe, to demonstrate its commitment to IDP returns and reintegration. In FY 2005, 75 percent of the obstacles to more effective integration described in the nine Municipality Action Plans were addressed, and 32 small-scale infrastructure improvements were then implemented, using highly participatory methods.

Democratic Institutions/Political Processes: In FY 2005, progress continued in building the capacities of Kosovo?s political parties and the Kosovo Assembly. USG technical assistance helped the legislative body pass a number of laws needed to achieve international norms of good governance in accordance with the Kosovo Standards Implementation Plan. Following the 2004 parliamentary elections, several prominent Kosovo parties entered into opposition for the first time and nonpartisan USG assistance helped to shape them into a constructive force for good governance. As a result of USG assistance, political parties more effectively used polling and research data to make timely policy and strategic decisions, as well as better represent their constituents? views. The Assembly became more proactive, launching six actions during FY 2005 to review the implementation of laws and performance of the executive branch. In an effort to encourage greater participation by Kosovo Serbs in Kosovo?s political life, the USG assisted in the registration of the newly formed Serbian Democratic Party of Kosovo (SDS-KiM), and helped the party organize its first National Convention at which the party statutes and platform were adopted.

Building on the work with the political parties, USG assistance to the Central Assembly committees focused on institutionalizing the use of public hearings as a tool by which decision-makers can not only inform the public of upcoming legislation, but also gather citizen input on the legislation through a standardized process of public consultation. Seventeen public hearings were held at the central level, exceeding USG targets for public hearings at the local and central levels. As a result of USG training on executive oversight, Central Assembly members and party caucuses launched six actions to review the implementation of laws and performance of the executive branch. However, the legislative body still lacks the capacity to provide oversight of the executive?s implementation of laws and expenditure of public funds. Political parties in the Assembly also have only limited capacity to effectively communicate with their constituencies, plan for and manage resources, and administer their organizations in a transparent and democratic fashion.

Citizen Participation: In FY 2005, USG assistance to civil society involved improving the organizational and advocacy capacity of NGOs, and developing new partnerships with central government that involved drafting policy papers on decentralization, economic development and other issues. For example, the Kosovar Institute for Policy Research and Development assisted the government in drafting the new Election Law, and the Kosovar Research and Documentation Institute worked in all municipalities to improve communication and reporting skills of local governments. The Kosovo business community has been the most active group in advocating for its interests. The Association of Kosovo Businesses (AKB) launched an impressive campaign that promoted the consumption of local products and continued its efforts to create infrastructure and better credit conditions for growth of local businesses. USG funding assisted the NGO Advocacy Network to carry out a campaign promoting Kosovo Standards, bringing this issue closer to communities in 15 municipalities through public debates.

Media Development: USG assistance continued to support the enhancement of an independent, self sufficient media focused on increased professionalism, effectiveness and sustainability. The two USG-supported Kosovo-wide independent television stations, RTV 21 and Kohavision (KTV), have become serious players in the media market. In a peer survey conducted with 192 journalists from broadcast and print media, KTV was rated as the most professional and independent TV station in Kosovo. Both RTV 21 and KTV now cover approximately 80 percent of their operational costs. The USG-assisted Kosovo Terrestrial Transmission Network (KTTN) has become completely independent of the government and able to cover 70 percent of its operational costs. USG support of KTTN will end soon and its board recently decided to commercialize the organization.

The Kosovo Assembly passed a long-awaited law establishing the Independent Media Commission (IMC) in 2005. USG assistance played a key role in educating the public about the importance of independent media. As a result, the IMC law is not only well understood, but is also one of the best in the region. The law establishes an independent regulatory body to control the playing field between the private and public media, provides safeguards for the protection of media independence and governs the licensing and performance of broadcast media. USG support to the Association of Independent Broadcasters of Kosovo and the Association of Professional Journalists of Kosovo has enabled them to improve other aspects of the legal framework for media in Kosovo. They have been successful in convincing the Legal Office of the Prime Minister to de-criminalize libel and defamation laws and change some of the tax provisions for importing printing paper for newspapers. As a complement to this initiative, USG-funded technical assistance supported a local media association?s development of a code of ethics for print media and trained print and media journalists to improve their investigative reporting skills and to practice the highest professional standards in their reporting.

Public Diplomacy Programs: In FY 2005 the U.S. Office in Pristina?s Public Diplomacy (PD) Section supported programs that focused on the development of a democratic, diverse, multi-ethnic society with full protection of minority rights and respect for and adherence to the rule of law. PD awarded 22 Democracy Commission Small Grants Program grants for projects ranging from conflict resolution training for teachers in Roma schools to a business development program. The grants were primarily used in the areas of democracy, human rights and human capacity building (women?s issues, youth issues, ethnic tolerance, media, handicapped persons, and schools? capacity development). The USG funded the opening of two new American Corners, in the multi-ethnic city of Prizren and in the Serb-majority area of North Mitrovica. The Mitrovica Corner has become the impetus for the construction of a new library annex (tripling the size of the existing structure) by UNMIK and the municipality. The USG provided support to the municipal library in Skenderaj for a small center that provides information on the United States. The U.S. Speakers Program focused on topics such as trafficking in persons, government and institution spokespersons training, media ethics, standardizing cultural preservation efforts, and optimizing library access. In addition, USG assistance administered a television cooperative (TV Co-ops) program that sent Kosovo TV crews to the U.S. to participate in a cooperative video production on community policing and on philanthropy and volunteerism in the United States. Both programs are in the final post-production stages of editing, and are scheduled to be shown in Kosovo early in 2006.

MEASURES OF PROGRAM EFFECTIVENESS

In order to determine how U.S. Government assistance affects a country, U.S. missions set targets for improvement called "performance indicators." Data for these indicators are collected by research institutes, embassies and international organizations. By examining data over time, U.S. policymakers better understand whether specific assistance programs are making their intended impact and, if necessary, how to adjust these programs to improve the impact.

Please find below an important indicator in the area of Democratic Reform. In the chart, the "Baseline" refers to a starting point from which to measure progress or regression over time. The U.S. Office and its partner organizations then agree on a "Target" figure that they hope to achieve as a result of U.S. assistance programs. The "Rank" figure is the resulting measurement. "FY" stands for "fiscal year," the period of the U.S. budget that runs from October 1 - September 30 of the following year. "CY" stands for "calendar year," or January 1 ? December 31.

Performance Indicator: NGO Sustainability Index 2005. Seven different dimensions of the NGO sector are analyzed each year in the NGO Sustainability Index: legal environment; organizational capacity, financial viability; advocacy; service provision; NGO infrastructure; and public image. The NGO Sustainability Index uses a seven-point scale, to facilitate comparisons to the Freedom House indices, with 7 indicating a low or poor level of development and 1 indicating a very advanced NGO sector. The 2005 rank is based on 2004 data. Source: USAID, The 2004 NGO Sustainability Index for Central and Eastern Europe and Eurasia. Found online: www.usaid.gov/locations/europe_eurasia/dem_gov/ngoindex/2004/.

Kosovo?s economy continues to be adversely impacted by political uncertainty, social instability, and growing anticipation and anxiety as final status negotiations commence. Further constraining Kosovo?s economic potential is an incomplete transition from command to free market economic principles. The cumulative effect of these factors has inhibited private sector growth, leaving the public sector as the predominant force in the economy. While statistics in Kosovo are estimates, pending completion of a census, estimates of Kosovo unemployment range from 30 percent to 60 percent. Combining to seriously impede economic development, the value of exports continues to comprise only five percent of imports, systemic problems with the electricity utility plague daily electricity supply, and telecommunications services are substandard and vastly overpriced.

Despite these challenges, there have been positive gains in FY 2005. The Ministry of Finance and Economy was increasingly able to carry out its budget and tax administration mandate; privatization finally began in earnest with over 100 socially-owned enterprises being sold for over ?100 million; and private investment grew at a healthy 5.3 percent. Deposits in local banks grew 19 percent, indicating that the financial sector is earning the trust and confidence of the people. Furthermore, there were signs that wage and price deflation ? necessary to correct the distortions of the heavy international presence since the war? is now underway. The PISG deserves credit for committing to and supporting an ambitious economic reform agenda. However, the resolution of final status will put enormous pressures on Kosovo?s leadership to deliver prosperity. How the PISG reacts to these pressures will have tremendous impact on Kosovo?s long-term development.

U.S. ASSISTANCE PRIORITIES

The USG considers three economic issues paramount to ensuring a smooth transition for Kosovo over the coming years. First, economic institutions require the capacity, systems, and processes to continue developing and implementing sound and transparent policies as the current international mission transitions more responsibility to local institutions. Secondly, the private sector must develop the sophistication, flexibility and innovation needed to capitalize on increasing investor interest and become more competitive in regional and global markets. Thirdly, support for the energy sector, a key foundation for Kosovo?s economic growth, is needed to ensure that the necessary administrative, legislative and regulatory frameworks are in place to help generate reliable power and market conditions conducive to attracting foreign investment and increasing local private sector commercial activities.

PROGRAM PERFORMANCE

U.S. assistance in FY2005 supported economic reforms enabling governmental and financial institutions to carry out their responsibilities in the areas of fiscal and monetary policy, tax collection, financial markets, pensions and privatization. USG assistance also stimulated private sector growth, improved electricity bill collection, and helped draft laws and regulations pertaining to the energy sector. The agricultural sector continued to receive special emphasis through programs that helped Kosovar farmers standardize product quality, lift production towards pre-war levels, and increase production of farm and dairy products. These efforts resulted in the limited creation of new jobs, new markets, import substitution and exports.

Institutional Development: SEED funding for training and technical assistance helped several Kosovo economic institutions achieve significant gains during FY 2005. USG efforts to strengthen the performance of Ministry of Finance and Economy (MFE) staff meant that Kosovars were much more involved in the 2005 budget process than in previous years, which accords with International Monetary Fund (IMF) recommendations and international best practices. According to the United Nations? October 2005 report, A Comprehensive Review of the Situation in Kosovo: "When the armed conflict ended in 1999, there was an almost a complete lack of economic structures and legislation. Today, such structures have been established and modern legislation exists in many essential areas. The establishment of regulators and the continuing development of the banking sector are among the achievements contributing to potential economic development. A well-functioning Ministry of Finance and Economy has -- in cooperation between international and local experts -- developed a framework for the management of a modern economy." USG assistance was instrumental in realizing a 17 percent increase in tax collections in 2005 compared to the previous year.

The Banking and Payments Authority of Kosovo (BPK) continued to develop the capacity to properly guide the development of a sound banking system. As a result of SEED-funded training and mentoring efforts, Kosovars assumed the top management positions in all three of BPK?s departments - banking, insurance, and pensions. These professionals now capably supervise the activities of financial intermediaries in accordance with international standards. Signaling a critical vote of confidence by consumers in the banking sector, in 2005 there was a 19 percent increase in bank deposits. The Kosovo Pension and Savings Trust (KPST) was developed and implemented with USG-funded technical assistance and support, and is considered one of the most advanced pension system in the Balkans. More than 100,000 vulnerable citizens, predominately the elderly, are receiving monthly pensions from the fund. With total fund assets exceeding ?140 million ($168 million), the program is able to implement more sophisticated pension products and contribute to the development of Kosovo?s capital markets.

Private Sector Development: In FY 2005, SEED assistance helped Kosovo?s privatization program accelerate its work and it is now on track to privatize or liquidate most socially-owned enterprises (SOEs) by the end of 2006. While not the panacea many in Kosovo expected, privatization is freeing up capital and assets that can be more efficiently managed by the private sector. As a result of USG efforts and SEED-funded technical assistance, Kosovo is laying the groundwork for becoming a legitimate place to invest by building a stable economic environment with private-sector-friendly institutions and laws. Private investment in Kosovo, a main gauge of economic growth, exceeded targets, growing from $420 million in 2004 to $443 million in 2005.

SEED assistance continued to focus on the agricultural sector as an important engine to Kosovo?s economic growth and private sector development. SEED-funded programs like the Kosovo Cluster and Business Support (KCBS) project helped private industry prepare for the opportunities and challenges that will follow final status resolution. The KCBS project focuses on the production and marketing chain of Kosovo?s most promising industries, with the goal of helping Kosovo?s companies produce goods and services that can command better prices in regional and global markets. Facilitating this shift in the private sector is essential to helping Kosovo generate jobs. In FY 2005, KCBS projects made impressive progress. Among milk producers, monthly yields increased by 66 percent, and more than 300 new jobs were created at the farm level. More importantly, USG assistance helped to form three industry associations that will enable entrepreneurs to work together to pursue their business interests in the coming years.

FY 2005 SEED funds provided technical assistance to the Ministry of Agriculture, Forestry, and Rural Development to address a key regulatory obstacle to exporting Kosovo-produced livestock to the European Union. USG assistance paved the way to reinvigorating the livestock sector, which now has an opportunity to service significant unmet demand in neighboring countries. The USG?s emphasis on adopting and implementing product standards has improved quality and helped Kosovo?s participating enterprises access new markets, command better prices and improve sales by 19 percent over the previous year. USG technical assistance efforts to enhance marketing skills, including support of trade fairs, publications and capacity-building efforts significantly increased Kosovo?s visibility in regional markets and resulted in numerous trade opportunities that will lead to further increases in sales, exports, and incomes. Significant high-impact trade opportunities for several key products, including wood flooring, decorative stone, and lamb are being nurtured.
Energy Sector Development: In FY 2005, SEED assistance concluded efforts to install and implement a software package, the Customer Care Package (CCP) at the Kosovo Energy Corporation (KEK). The CCP -- which helps KEK track customers, maintain accurate and timely payment records, and identify the source of losses and theft -- resulted in an overall increase in billing rates since 2002 from 55 percent to 70 percent. The CCP also provides essential data for ongoing PISG/donor revenue collections efforts. Targeted USG technical support to the Energy Regulatory Office resulted in swift passage of many key pieces of secondary legislation, including a Code on Ethics and Conduct, a Rule on Pricing, and Tariff Methodology.

USG economic assistance is closely coordinated with other development partners. The USG leads a private-sector donor working group, which meets monthly to organize work objectives behind our common development goals. Currently, the USG, the European Agency for Reconstruction (EAR), and the World Bank are collaborating in an effort to further bolster electricity payments. Visible donor coordination has given much legitimacy to this important effort.

MEASURES OF PROGRAM EFFECTIVENESS

In order to determine how U.S. Government assistance affects a country, U.S. missions set targets for improvement called "performance indicators." Data for these indicators are collected by research institutes, embassies and international organizations. By examining data over time, U.S. policymakers better understand whether specific assistance programs are making their intended impact and, if necessary, how to adjust these programs to improve the impact.

Please find below two important indicators in the area of Economic Reform. In the charts, the "Baseline" refers to a starting point from which to measure progress or regression over time. The U.S. Office and its partner organizations then agree on a "Target" figure that they hope to achieve as a result of U.S. assistance programs. The "Rank" figure is the resulting measurement. "FY" stands for "fiscal year," the period of the U.S. budget that runs from October 1 ? September 30 of the following year. "CY" stands for "calendar year," or January 1 ? December 31.

Performance Indicator: Value of Private Investment (Measured in millions of Euros, calendar year). Source: International Monetary Fund.

Performance Indicator: Export as a percentage of Imports. Source: Kosovo Ministry of Finance and Economy. Found online: www.mfe-ks.org.

Social Reform and Humanitarian Assistance

The cultural, economic and social reintegration of minorities and internally-displaced persons into Kosovo remains a significant challenge that will continue to require USG and international community leadership and oversight. The USG contributed $1 million from SEED funds for UNESCO?s cultural heritage preservation project for selected churches and mosques. Resolution of missing-persons cases and agricultural and commercial private-property disputes is a major impediment to solidifying a multi-ethnic society in Kosovo.

In addition to these challenges, serious deficiencies in human and institutional capacity affect all Kosovars, particularly in the health and medical sectors. The low levels of education and technical skill inhibit the proper functioning of new and existing Kosovo institutions as UNMIK transfers more governing competencies to the PISG. While donors and the international community have focused efforts on identifying and addressing these issues, it will take Kosovo many years to overcome the current adverse economic, educational, health/medical and social conditions.

U.S. ASSISTANCE PRIORITIES

In FY 2005 USG assistance encouraged an open, safe climate for minorities, facilitated the return of internally displaced persons (IDPs) and refugees, and focused on resolving outstanding human, institutional, and health capacity deficiencies that adversely impact all Kosovars and impede the development of a multi-ethnic society. SEED assistance facilitates the reintegration of minorities and IDPs by funding activities that promote cultural heritage preservation, inter-ethnic reconciliation, conflict mitigation and the resolution of missing-persons cases and agricultural and private-property disputes. Human and institutional capacity development (HICD) continues to be integrated into all USG programs. USG training, counseling, mentoring and technical assistance activities complement PISG efforts to improve systems for planning, monitoring and testing for HIV/AIDS, prenatal care, infectious disease services and integration of the disabled into Kosovo society.

PROGRAM PERFORMANCE

Roma Mahala Emergency Relocation Project: SEED funding helped UNMIK?s ongoing efforts to relocate ethnic Roma, Ashkali and Egyptian IDPs from three lead-contaminated camps in Northern Kosovo. SEED funds paid for a team of U.S. Army Engineers to conduct lead contamination testing in various sites in North Mitrovica, and are contributing to construction of temporary housing units and medical treatment for these IDPs. SEED assistance helped leverage funding from EAR, Germany and Sweden for these emergency relocation efforts and other needs.

Kosovo Cultural Heritage Preservation Assistance to UNESCO: To facilitate inter-ethnic reconciliation efforts after the March 2004 riots, the USG via SEED made a significant $1 million dollar contribution to UNESCO?s cultural heritage preservation project in Kosovo, contributing to the restoration of five Orthodox Christian churches and monasteries and three Muslim mosques.

Office of Missing Persons and Forensics (OMPF): Missing persons cases remain a major humanitarian issue in Kosovo as information concerning the whereabouts of an estimated 2,500 persons is still unknown. OMPF was created in 2002 and is the only organization in Kosovo with a mandate to exhume human remains. The USG contributed SEED money in 2005 to pay for further exhumations. OMPF conducted 61 field operations (exhumations and assessments) in 2005 yielding 118 sets of human remains, although the number of field operations (and recoveries of human remains) has decreased since 2002 due to the difficulty of locating burial sites.

International Committee for Missing Persons (ICMP): SEED funding continued to support the activities of the ICMP in identifying missing persons via-DNA identification, in accordance with the memorandum of understanding (MOU) signed between UNMIK and ICMP in November 2003. ICMP has worked to increase the role of the PISG in missing persons cases and facilitate dialogue on this issue between Belgrade and Pristina. ICMP provides technical assistance to both parties of the Belgrade-Pristina Working Group on the Missing under the Dialogue Group on Kosovo. By the end of FY 2005, ICMP had collected 12,000 tissue samples and resolved 2,000 cases. At the end of FY 2005 there were 1,257 cases from OMPF, which ICMP was still processing for a DNA result.

Housing and Property Directorate (HPD): In FY 2005 SEED continued its support to HPD in its mandate to resolve approximately 29,000 residential property claims. UNMIK is currently discussing a successor entity to HPD, which will address an estimated 11,000 agricultural and commercial property claims.

Human and Institutional Capacity Development (HICD): TheSEED-funded HICD program successfully funded several types of trainings and study tours for over 290 PISG employees from different ministries and government agencies. Programs ranged from improving the professional capacity of a local auditors? association to training for 60 staffers from the Ministry of Finance and Economy, the Banking and Payments Authority of Kosovo and the Kosovo Pension Savings Trust. These activities complement daily mentoring and advising by USG-funded experts placed within these institutions and provide these critical fiscal institutions with the training and incentives for trained personnel to remain in public service. In FY 2005, SEED supported the National Albanian American Council?s (NAAC) Hope Leadership program that enabled 40 persons to be trained in management studies, ten of whom went on to participate in internships in Washington, D.C. SEED funding supported the United Nations Children?s Fund (UNICEF) literacy and numeration skills project for 750 young rural women in 10 Kosovo municipalities.

USG assistance contributed towards improvements in the quality of antenatal care in targeted primary care Family Medicine Centers (FMC) in one municipality. Since the project began in February 2005, 107 personnel (29 physicians and 78 nurses) have completed hands-on training courses in antenatal care based on international standards. As a result, high-quality antenatal care in accordance with international standards was introduced in all nine centers with fully developed staff schedules and necessary equipment in place. USG-funded technical assistance provided support for the initiation of the STI/HIV/AIDS Surveillance Plan for Kosovo. SEED-funded technical assistance helped Kosovo obtain a five-year grant from the Global Fund for AIDS, Tuberculosis and Malaria (GAFTM) to establish a National Tuberculosis Program (NTP) to compensate for the loss of USG funding for the NTP at the end of FY 2005. SEED money also provided technical assistance to the PISG for projects that promote the inclusion of mentally and emotionally disabled members of Kosovar society through peer support groups and coordination and advocacy bodies throughout Kosovo to promote public awareness and advocate for systemic changes in health care and medical treatment.

MEASURES OF PROGRAM EFFECTIVENESS

In order to determine how U.S. Government assistance affects a country, U.S. missions set targets for improvement called "performance indicators." Data for these indicators are collected by research institutes, embassies and international organizations. By examining data over time, U.S. policymakers better understand whether specific assistance programs are making their intended impact and, if necessary, how to adjust these programs to improve the impact.

Please find below two important indicators in the area of Social Reform and Humanitarian Assistance. In the charts, the "Baseline" refers to a starting point from which to measure progress or regression over time. The U.S. Office and its partner organizations then agree on a "Target" figure that they hope to achieve as a result of U.S. assistance programs. The "Rank" figure is the resulting measurement. "FY" stands for "fiscal year," the period of the U.S. budget that runs from October 1 ? September 30 of the following year. "CY" stands for "calendar year, or January 1 ? December 31.

Performance Indicator: Number of sets of human remains identified by the International Committee for Missing Persons (ICMP) and returned to families by UNMIK Office of Missing Persons and Forensics (OMPF). Source: ICMP/OMPF

Performance Indicator: Number of municipalities open for return of minorities from all communities. Source: UNMIK Office of Communities, Returns and Minorities and Mercy Corps.

USG assistance and programs such as the Local Government Initiative (LGI) supported the returns of minorities to their communities and were instrumental in persuading the PISG to take more action to create an environment that encouraged Kosovo?s ethnic minorities to return to their homes. Our FY 2005 target was exceeded. The PISG demonstrated the political will and provided funding to support minority returns, but progress was constrained due to lack of employment opportunities throughout Kosovo, security concerns on the part of some potential returnees and delays in dispersing PISG funding for return programs. More work needs to be done by the PISG to demonstrate a serious, sustained commitment in supporting the return of minorities.

Security, Regional Stability and Law Enforcement

In 2005, the Kosovo Police Service (KPS) ? one of the most multi-ethnic of Kosovo?s institutions -- gradually took on new and more demanding tasks. Across Kosovo, the responsibility for all regional and local police stations, with the exception of Mitrovica, has been transferred fully to the KPS from CivPol. The international CivPol police force, while still taking the lead on sensitive cases such as organized crime and corruption, has taken on more of a monitoring/mentoring role. The work the KPS does in dealing with common offenses within individual ethnic communities is increasingly respected by the population and considered successful by the international community. Crimes of a more severe/sensitive nature or with ethnic or organized crime dimensions remain difficult for the KPS to address because of family or clan solidarity, intimidation of witnesses, and corruption. For serious inter-ethnic crime, the KPS law enforcement record is uneven and Kosovo institutions must do a better job of enforcing the rule of law throughout all of Kosovo.

Organized crime and corruption are two of the biggest threats to Kosovo?s stability and the sustainability of its law enforcement institutions. In FY 2005, there was limited success in a few high profile cases related to organized crime, including human and drug trafficking. These cases were properly investigated by the international community and the perpetrators have been brought to justice. These individual cases confirm that organized crime represents a serious threat in Kosovo. Corruption is also widespread. In some government agencies, such as the Kosovo Customs Service, serious efforts have been made to combat institutional corruption by putting effective systems of accountability in place. However, the PISG has not taken the necessary administrative and legislative actions to fight or prevent corruption in most areas of government. Clan solidarity, codes of silence, low wages, language barriers and inexperienced local law enforcement institutions have all contributed to this failure.

U.S. ASSISTANCE PRIORITIES

The U.S. contribution of police officers to CivPol remains vital to maintaining Kosovo?s security and stability. U.S. police officers have provided specific expertise and experience in training and particularly in monitoring. USG assistance focuses on developing local capacities and capabilities to deal with sensitive criminal investigations such as human trafficking, war crimes, and organized crimes. A joint effort by the international community and fully committed Kosovo authorities could bring progress in all of these areas. Such an effort could have a significant impact in Kosovo and demonstrate the KPS?s readiness to address such crimes. KPS officers must continue to be trained in a politically-neutral environment to win the confidence and support of all Kosovars. This is the only way to ensure the multi-ethnic composition of the KPS and enhance the level of acceptance by all communities.

PROGRAM PERFORMANCE

U.S. CivPol: In FY 2005 experienced U.S. CivPol officers continued to make valuable contributions to daily security in Kosovo. They helped Kosovar law enforcement institutions develop the capacity to fight organized crime, corruption, and terrorism. U.S. CivPol officers also contributed their skills and expertise to UNMIK police and KPS intelligence and investigative units. As responsibility for law enforcement and security in Kosovo continued to be transferred from international to Kosovar authority, the focus of U.S. CivPol in FY 2005 was to maintain a flexible, fully operational police force that provided mentoring and training to the KPS, but that could also quickly become operational in order to respond to breaking events such as the March 2004 riots. By the end of FY 2005, the American contribution to UNMIK CivPol was 270 officers, or 15 percent of the total UNMIK CivPol force.

Training and Equipment: SEED funding continued to provide trainers, legal and managerial staff, and equipment to support training for approximately 7,300 KPS members. SEED funds also contributed to important logistical and equipment needs for UNMIK police and KPS such as computers, printers, scanners and office furniture for the UNMIK Trafficking in Persons Investigations Section, communications equipment, and an unmarked light-armored vehicle for the UNMIK Witness Protection Section.

Kosovo Police Service School (KPSS): In FY 2005SEED assistance enabled the KPSS to expand its leadership and specialized training courses. These courses included criminal investigation skills, surveillance, forensics, and combating organized crime. KPS officers have also been trained in modern police techniques to deal with domestic violence, human trafficking detection, and community policing. The majority of police stations and regional command functions are now managed by KPS officers. Over 95 percent of all management and technical posts within the KPSS are now held by local staff. By the end of FY 2005, 637 new officers had been trained and over 7,600 police recruits had successfully completed KPSS training. KPS was also successful in recruiting minorities and women. Sixteen percent of the trainees come from minority communities and women make up 15 percent of the total police force.

SEED funds provided technical assistance to the KPSS to create forums for police-community communication and interaction through its Community Safety Action Teams (CSAT) Program. CSAT trains KPS officers on community policing, partnership building and problem-solving. At the end of FY 2005, CSAT programs were implemented in 16 municipalities and worked with municipal and community leaders to address reducing crime, improving safety, security and wellness and problem solving techniques within the communities.

MEASURES OF PROGRAM EFFECTIVENESS

In order to determine how U.S. Government assistance affects a country, U.S. missions set targets for improvement called "performance indicators." Data for these indicators are collected by research institutes, embassies and international organizations. By examining data over time, U.S. policymakers better understand whether specific assistance programs are making their intended impact and, if necessary, how to adjust these programs to improve the impact.

Please find below two important indicators in the area of Security, Regional Stability and Law Enforcement. In the charts, the "Baseline" refers to a starting point from which to measure progress or regression over time. The U.S. Office and its partner organizations then agree on a "Target" figure that they hope to achieve as a result of U.S. assistance programs. The "Rank" figure is the resulting measurement. "FY" stands for "fiscal year," the period of the U.S. budget that runs from October 1 ? September 30 of the following year. "CY" stands for "calendar year," or January 1 ? December 31.

Performance Indicator: Police Functions Transitioned to KPS Control, specifically local police stations and regional headquarters (HQs). Source: UN/CIVPOL and KPS.

Performance Indicator: Number of trained Kosovo Police Service Officers. Source: UN/CIVPOL and KPS.