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U.S. Department of State

Diplomacy in Action

III. Regional Assistance Programs


U.S. Government Assistance to and Cooperative Activities with Central and Eastern Europe
Bureau of European and Eurasian Affairs
January 2007
Report
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U.S. STRATEGIC INTERESTS

The United States has a national interest in stabilizing Southeast Europe to overcome the legacy of the conflicts of the 1990s and build a Europe that is whole, free and at peace. The purpose of U.S. Government (USG) regional assistance is to advance this goal by helping countries to work together on common concerns, restore the economic and democratic links needed to make permanent the transition to democracy and a market-based economy, address cross-border problems such as organized crime, and increase efficiency and build trust by involving multiple countries in assistance programs. These regional programs promote U.S. interests in economic growth, trade, democratic reform, and reducing international criminal and terrorist threats to U.S. citizens.

KEY ISSUES

Regional assistance to the Western Balkans continues to be an important factor keeping the development of democracy and market economies on course. USG programs focus on helping countries in the region accelerate their integration into Euro-Atlantic institutions. For most regional assistance programs, funding provided by the United States encourages commitments of support from European and other donors, building broad support for common goals and advancing U.S. policy objectives.

Governing Justly and Democratically

U.S. ASSISTANCE PRIORITIES

The fundamental goal of regional democracy programs is to make reforms and transition progress sustainable by fostering cooperation across borders. This is done, for example, by helping non-governmental organizations (NGOs) to function on a regional basis, and by encouraging civil society, media and other democratic institutions to work together across borders to rebuild ties that were disrupted by war.

DEMOCRATIC REFORM PROGRAMS

Organization for Security and Cooperation in Europe (OSCE):

In FY 2006 USG regional assistance again covered voluntary U.S. contributions to the OSCE and related expenses. Of the OSCE's 2006 Unified Budget, 71% went to its 18 field missions, the remainder to the OSCE Secretariat and institutions, including the Office for Democratic Institutions and Human Rights (ODIHR), the High Commissioner for National Minorities and the Special Representative for Freedom of the Media. Fifty-one percent of the OSCE's budget went for field mission activities in Albania, Bosnia and Herzegovina, Croatia, Kosovo, Macedonia, Montenegro and Serbia. The U.S. contribution to these budgets (14%) in 2006 totaled approximately $12 million. (Following Montenegro's referendum on independence, the OSCE Mission to Montenegro became the 18th OSCE field mission on June 29, 2006; Montenegro subsequently became the OSCE's 56th participating State.)

The OSCE Mission in Kosovo (OMIK) is the OSCE's largest. OSCE activities in Kosovo in 2006 remained focused on support for the United Nations Mission in Kosovo (UNMIK) in building civil society structures. OMIK worked with the Provisional Institutions of Self Government (PISG) to meet standards for functioning democratic institutions, property rights, media law, minority protection and decentralization. In anticipation of a status settlement for Kosovo in 2007, OMIK expanded its field presence by establishing municipal monitoring teams of human rights and democratization officers in each of Kosovo's 33 municipalities. The expansion will improve OMIK's ability to monitor and report on developments in the municipalities. As UNMIK draws down, the OSCE field presence will be the most extensive such operation of any international organization in Kosovo.

In many respects, the OSCE Mission in Serbia has been a model of how a post-conflict state can collaborate with the OSCE to help heal ethnic divides and implement democratic and economic reforms necessary for integration into Euro-Atlantic institutions. The fight against organized crime, deepening of democratic institutions and implementation of international standards remained Mission's focus in 2006. The Mission played important roles promoting the return of refugees and internally displaced persons and stimulating dialogue between the Serbian Government and the various ethnic communities in south Serbia. The Mission helped to build a more professional and accountable police force and further develop independent media.

The OSCE continued its election assistance programs in Albania to improve the legal structures under which the last national elections were held in 2005. The current system, which is to be used for 2007 local elections, is much improved as a result of intensive work by OSCE legal advisors and consultants. In 2006, the OSCE worked closely with the newly elected parliament to introduce further reforms that will bring Albania into closer compliance with international norms. In addition, the OSCE Presence in Albania provided police training and border management programs which helped increase the country's capacity to combat organized crime. Albanian law enforcement officials arrested several major organized crime figures, for example, thus contributing both to consolidation of the rule of law and to regional stability.

The OSCE Mission in Croatia has draw-down plans in place, and discussions on closing the Mission will begin in April 2007. The Croatian Government has demonstrated a commitment to the rule of law and media freedom. In FY 2006, it achieved significant success in bringing war criminals to justice, while the growth of civil society has been robust. The OSCE provided input for much of the legislation on property rights and minority returns which the Croatian Government is implementing.

The 1995 Dayton Peace Accords assigned the OSCE Mission to Bosnia and Herzegovina responsibility for elections, human rights and regional military stabilization, with democracy-building added subsequently; these responsibilities remain at the heart of its work today. The long-term goal of the OSCE is to support the establishment of institutions and processes that will ensure the consolidation of Bosnia and Herzegovina's governing institutions and effectiveness at all levels, guaranteeing the protection of human rights and the rule of law. To this end, the Mission conducted activities in the areas of good governance, judicial reform, public administration reform, respect for human rights and education reform.

The OSCE in Macedonia assisted the government in implementing decentralization measures called for in the Ohrid Framework Agreement, in developing anti-corruption programs, and in training a professional, multi-ethnic police force.

In FY 2006, the USG also funded several extra-budgetary projects in areas including promotion of human rights, democracy, and civil society, improving good governance and the rule of law, and enhancing OSCE countries' counter-terrorism collaboration. This included USG assistance to ODIHR which made possible the deployment of long-term and short-term observers for 2006 elections in countries including Serbia, Montenegro, Macedonia, Bosnia and Herzegovina, and Latvia. U.S. contributions to ODIHR's Tolerance Program also supported a program developed jointly by ODIHR and the American Jewish Committee using police experts from the United States and other countries, to train law enforcement officers to recognize, respond to, and prevent anti-Semitic and other hate crimes.

Analytical Tools:

In FY 2006, regional programs continued to support key metrics that permit the USG to identify progress in promoting democratic societies. This year, the USG funded three key analytical tools: Nations in Transit, which provides an overall evaluation of democratic progress in Europe and Eurasia; the NGO Sustainability Index, which looks in depth at the progress of civil society sustainability; and the Media Sustainability Index, which assesses the development of a free press and citizens' access to information. These tools provide the basic data for USG's Monitoring Country Progress reporting that informs key country programmatic and strategic decisions, such as where to focus resources in a particular country to fill development gaps.

Nations in Transit (NIT) is an annual progress report on the status of democratic reforms in 27 European and Eurasian countries. The USG regularly uses NIT measures as indicators to monitor country progress and to inform bilateral assistance resource levels. Additionally, governmental and non-governmental leaders from the region have requested information about NIT's findings, as well as recommendations on measures to take to improve their countries' scores. NIT 2006, the 10th edition of the report, can be found online at: http://www.freedomhouse.hu/index.php?nit=2006.

The NGO Sustainability Index is a comprehensive and comparative research tool that tracks the strength and viability of NGOs in Europe and Eurasia. The Index measures seven different dimensions of NGO sustainability, including legal environment, organizational capacity, advocacy, financial viability, service provision, infrastructure, and public image. The Index provides a wide-ranging and in-depth analysis of the NGO sector in each country, and it is used by the USG for strategic planning and performance monitoring. Unlike NIT, the Index focuses on the sustainability of the sector and can thus be used to design country-specific programs to improve sustainability. In its tenth year, the Index is an unparalleled source for information on NGO trends in the region. The 2005 Index (published in 2006) contained three analytical papers, including a report ("Civil Society Under Threat: Common Legal Barriers and Potential Responses") which addressed the latest methods that governments use to suppress NGOs through their legal framework. The Index can be found online at: http://www.usaid.gov/locations/europe_eurasia/dem_gov/ngoindex/index.htm.

The USG regional media program provides an integrated management system to support country-specific and cross-regional media sector development throughout Europe and Eurasia. A key component is the Media Sustainability Index (MSI), which provides baseline data and annual analyses to illustrate how and why media environments have changed over time. In the MSI, local and international media experts assess and rated five areas: free speech, professional journalism, plurality of news sources, media business management and sustainability, and supporting institutions - including in the regulatory sphere. The MSI has achieved widespread recognition as one of the most comprehensive sources of information on media in the region. The USG uses the MSI as the basis for media program design. Media development professionals regularly cite the index as a source document, and the MSI has helped European donors craft media development strategies that complement USG assistance programs. The MSI can be found online at: http://www.irex.org/programs/MSI_EUR/index.asp.

History and Reconciliation:

In FY 2006, the USG supported a joint history and reconciliation project to promote and strengthen reconciliation by improving the quality of history teaching. Through a collaborative, multicultural process involving input from and the consensus of experts throughout Southeast Europe, the project developed four history workbooks in English -- covering the Ottoman Empire, World War II, the Balkan Wars, and the creation of new Balkan states -- to improve the teaching of history at the primary and secondary levels. By adopting a unified and multifaceted approach to the portrayal of contentious historical developments, the project continued to promote respect for ethnic and religious diversity, which in turn contributes to regional stability and economic development. Having completed history workbooks in English, the program is translating the workbooks into languages of the region and distributing them to history teachers through introductory workshops. The USG supported the preparation and publication of Serbian, Croatian and Bosnian editions. With funding from other donors, the workbooks were also translated into Greek and Japanese and an Albanian edition is being planned. In September 2006 a training workshop was held in which 20 Serbian history teachers were introduced to the Serbian edition and to the special teaching methodology the workbooks require. The training will be expanded to reach a broader audience in the future.

Stability Pact for Southeast Europe:

Since 1999 the Stability Pact has been an important component of U.S. cooperation with the European Union (EU) and other international donors to promote peace and stability in Southeast Europe and further integrate the region into European and Euro-Atlantic institutions. In FY 2006, the Stability Pact began to work toward transferring the coordination of regional cooperation programs to the governments of Southeast Europe with the aim of reducing reliance on donors for initiatives. As part of this process, the Stability Pact streamlined its activities and focused on those initiatives which Southeast European countries view as a priority and are willing to co-finance. Stability Pact initiatives continued to foster Kosovo's regional integration in compliance with United Nations Security Council Resolution 1244. In FY 2006, USG assistance supported the Stability Pact Secretariat in Brussels and funded salaries and administrative costs for Southeast European nationals working at Stability Pact headquarters.

Alumni Outreach:

The USG provided small grant funding for alumni of training and exchanges in order to maximize their long-term benefit. In FY 2006, the USG provided grants to organizations that have alumni of USG programs as members and to individual alumni for activities that support democratic advancement and economic reform. For example, one recipient conducted a seminar to describe U.S. practices to farmers and farm organization leaders of the Medimurje region on Croatia's northern border. Another grant recipient, in Bulgaria, shared its experience in building library outreach capacity and support with library associations and alumni from other Southeast European countries with the aim of helping them to design similar programs.

Democracy Promotion:

USG assistance supported 53 grants to NGOs working in Southeastern Europe. The majority of this funding promoted democracy in former Yugoslavia, with a focus on Serbia, Kosovo and Bosnia and Herzegovina. Awards were focused on promoting freedom of information through support for activities such as independent media production, investigative TV programs, and live television debates, as well as strengthening local independent media through journalism training and direct assistance. Most freedom of information activities included a multiethnic component, and almost a quarter targeted youth in the region. Examples included promoting political participation through parliamentary internship and debate programs, fostering activism by strengthening youth NGOs, and encouraging ethnic reconciliation through conflict resolution and cross-border cooperation programs. USG-funded grants increasingly promoted interethnic understanding and historical reconciliation. Projects such as human rights film festivals and documentary television programs encouraged cross-border media cooperation and better understanding of events of the recent past. The remaining projects encouraged local government accountability, strengthened civil society, monitored human rights, and promoted the rule of law and freedom of association.

Advanced Research and Specialized Training:

In FY 2006, the USG supported advanced research, junior scholar training seminars, graduate training, dissertation workshops, research labs, library resources, and public dissemination of research data and findings on Southeast Europe, as well as specialized training in the languages of the region. Seven organizations received grants to carry out national, merit-based competitions to distribute these funds to individual scholars and institutions. Grant awardees conducted policy-relevant research overseas and in academic centers or think tanks in the U.S. Recent research and projects in progress include: "Moderate Muslim Women Resisting Islamic Fundamentalism in Post-communist Bulgaria," "Europeanizing Labor, Rethinking Belonging: Romanian-German Relations in Post-socialist Romania," "Democratization and the Prospect of EU Membership in the Balkans," "Evaluating Intervention: Knowledge Production and Democracy Promotion in the Western Balkans," and "Public Sector Pay and Bribery: Measuring Corruption in Post-Soviet Republics and Southeastern Europe." In FY 2006, language training programs included Albanian, Bosnian/Croatian/Serbian, Bulgarian, Romanian, and Macedonian. The program brought outside expertise to the service of the U.S. Government through policy fora, research summaries and policy briefs, and by facilitating connections among non-government scholars and USG officials.

Economic Growth

U.S. ASSISTANCE PRIORITIES

USG assistance in support of regional economic growth in Southeastern Europe works to make market reforms irreversible by building trade, financial and infrastructure links required for sustainability of economic reform.

GENERAL ECONOMIC REFORM PROGRAMS

Regional Competitiveness:

USG regional activities promote re-integration of markets in Southeast Europe by reaching across international boundaries and enhancing the competitiveness of local producers and industries. In FY 2006, a USG regional competitiveness initiative expanded and upgraded regional market activity in agriculture/agribusiness, information technology, and rural tourism. USG assistance supported the expansion of Capability Maturity Model Integrated (CMMI) quality standards for software development into Bulgaria, Macedonia, Serbia, Romania, and Bosnia and Herzegovina, and entered into collaboration with Microsoft to replicate its successful Croatian technology center in Albania, Macedonia and Bosnia. The USG launched an initiative to demonstrate how individuals can participate in worldwide online markets for technical services - potentially creating opportunities to bring millions of dollars of additional income into communities throughout the region.

The competitiveness initiative continued to develop a regional supply chain model that assisted agricultural producers to supply larger volumes to the multi-national supermarket chains that increasingly dominate the region. USG assistance also supported visits to Southeastern Europe by journalists from other parts of the continent which led to the publishing of articles about countries such as Albania, Montenegro, Serbia, and Macedonia, improving understanding of the region. In FY 2006, the USG created centers for entrepreneurship and enterprise development in Slovenia and Romania - and expanded support to existing centers in Montenegro - to ensure that support for economic reform continues after U.S. assistance ends. These centers improved business practices and created a network of growth-oriented enterprises throughout the region.

Partners for Financial Stability:

In FY 2006, the USG continued to accelerate the development of sound, well-functioning financial sectors. The countries in Europe face similar challenges that can be addressed in a cost-effective manner by sharing knowledge and collaborating on implementing international standards and best practices. The USG offered multi-country workshops and training on technical financial sector issues and undertook activities to strengthen economic/business institutions, associations, working groups and networks that function across borders. Through these activities, the USG promoted more dynamic, effective and integrated financial markets in Central and Southeast Europe, further linking these countries with EU member states. Insurance regulators from several regional financial sector regulatory authorities studied the practices of the Polish Insurance and Pension Regulator. Training programs on internal audit and insurance supervision for regional Central Banks were held with the Slovenian Center for Financial Excellence, bringing together participants from the EU, and Eastern Europe. With USG support, economics research institutes met to discuss key cross-border issues and potential collaboration to build first-class economic research capabilities in the region. The USG-funded program continued its groundbreaking series of anti-money laundering seminars with the first regional workshop in Belgrade, Serbia, for judges, prosecutors and financial intelligence units from the EU and the region to discuss practical ways to cooperate to enforce new anti-money laundering laws. The program published its sixth "Survey of Reporting on Corporate Social Responsibility" of the largest listed companies in eleven regional countries. This survey, the first of its kind in the region, receives wide coverage in business publications in the region and more broadly, raising investor interest in Southeast Europe. The USG-funded program also entered into arrangements with numerous regional financial sector partners to provide training and advisory services to their counterparts and helped capital market professionals get access to high-level EU conferences on investor relations and corporate social responsibility.

Regional Transparency and Accountability:

In FY 2006, the USG supported development and implementation of tools to promote regional financial transparency and accountability, harmonization of standards, and economic integration through compliance with global financial reporting standards. Working with a regional association and member associations, the USG addressed the enormous regional challenge of developing credible, self-regulating professional associations with the human and institutional capacity to serve the public interest through implementation of international financial reporting, education, and auditing standards, European Union Directives, and international best practices. A pilot project in nine countries field tested an innovative compliance assessment tool for monitoring and reporting institutional capacity development.

Energy Regulatory Network:

The USG also provided assistance to the Energy Regulators Regional Association (ERRA), which worked to build regulatory capacity and professional development through training and the exchange of experience and information. Training, technical meetings, exchanges and an annual investment conference addressed increasingly complex regulatory issues and expanded linkages with the Council of European Energy Regulators. ERRA developed a classroom training program of six courses addressing key regulatory issues in order to expand the capacity of its members to address demands created by competition and privatization. Tariff and licensing/competition technical committees and regulatory exchanges provided regulators and technical staff the basis for continued reform aimed at harmonization of practices across countries in the region. The ERRA worked to support capacity building in face of political interference and harmonization of regulatory practices across borders. USG assistance is consistent with European Commission (EC) electricity directives and reinforces their efforts to promote closer ties through its New Neighborhood Policy. The EC is in dialogue with the ERRA to leverage USG support and ensure sustainability.

Regional Urban Heating and Affordability Network:

Providing affordable and reliable heating to populations in Southeast Europe remained a challenge. The limited availability of natural gas to households and the impact of higher energy prices created difficulty for some countries in the region. USAID is cooperating with the Alliance to Save Energy and a network of local institutions and energy efficiency NGOs to tackle this problem from a regional perspective. In FY 2006, the USG worked to improve urban heating services and bring increased financing and commercial management to these systems. Additionally, the USG provided assistance to develop effective mechanisms for addressing energy affordability problems, including through support to residential customers and low-income groups. This process supported collaboration among five NGO energy efficiency centers and three energy consultants as they examined lessons learned and best practices from recent EU accession countries. The USG supported the preparation of case studies, strategic assessments and recommendations for Bosnia-Herzegovina, Bulgaria, Croatia, Romania, Serbia, Montenegro, Latvia and Poland.

Intrastructure Reform and Finance:

An additional assistance program identified opportunities for USG intervention. In Montenegro, for example, USG supported a workshop to design revolving funds for municipal finance. The USG provided a grant to design a water sector revolving fund pursued by the Government of Montenegro. USG assistance implementers prepared a legislative and regulatory reform plan for water utilities, and the German development bank, KfW, proposed a grant and loan to capitalize the revolving water fund. The Government of Montenegro may choose to capitalize the fund itself using proceeds from its privatization fund.

ECONOMIC PROGRAMS IN SUPPORT OF THE STABILITY PACT

Regional Energy Markets / Energy Community for Southeast Europe:

Within the framework of the Stability Pact, the USG continued to play an instrumental role in supporting the development of a Southeastern European energy market integrated into the EU Internal Energy Market. The USG helped regional countries put in place the legal and regulatory frameworks consistent with the EU's Energy, Competition and Environmental Directives. The USG promoted reforms which strengthened market integration in electricity and natural gas, created more cross-border interconnection capacity, adopted cost reflective tariffs, increased trade, and attracted investors through fair and transparent procedures. USG assistance also supported the newly signed Energy Community Treaty, which calls for governments to implement social protection programs through energy efficiency. The USG also helped prepare the procedures and work program for the new Energy Community Regulatory Board, which will involve both EU and pre-accession energy regulators.

During FY 2006, the USG worked with national energy regulators in Southeast Europe to review transmission and distribution tariffs and identify key issues related to regional tariff harmonization. A pilot market monitoring program was designed and initiated which will increase transparency and competition, analyze market power problems and reduce corruption. A USG-supported regional transmission system planning group studied new investments in transmission capacity. The USG continued to work with a regional expert team on energy demand planning, energy efficiency and supply options to meet expanding needs.

Energy Efficiency and Clean Energy Financing:

The USG supported energy efficiency, clean energy, and improved heating in the region's municipal and residential sectors. Specific activities in FY 2006 included energy efficiency pilot projects in municipalities and households as well as efforts to incorporate energy efficiency in social safety net systems for vulnerable households. For example, in Macedonia, the USG worked with three municipalities to help control energy costs through energy efficiency in five schools and a senior citizens' housing project. The program responded to a policy reform that gave municipalities new authority for municipal services and responsibility to pay the costs, including for energy. In Albania, the USG provided technical assistance to identify cost-effective energy efficiency measures, implementing demonstration projects in representative low-income housing in Tirana and Elbasan. The results will be used to guide policy decisions by the Albania Ministry of Social Affairs, encouraging use of low-income energy bill payment funds to make energy efficiency improvements for low-income households.

Sava River Commission:

In an important example of cooperation among countries with a recent history of conflict, the International Sava River Commission was created to manage navigation, trade, flooding and water quality in the region. The USG co-funded a feasibility study for restoring navigation and trade on the river. Interest in financing dredging and port reconstruction identified in the study has already been expressed by the European Bank for Reconstruction and Development, the European Investment Bank, and the European Union.

Trade Working Group:

The USG supported the Stability Pact by helping to reduce barriers to trade while building mechanisms for increased international and regional commerce. The USG contributed to the development of a regional network of 32 Free Trade Agreements (FTA) linking Southeast European. In FY 2006, Southeast European countries, plus UNMIK/Kosovo and Moldova, conducted negotiations aimed at transforming the network of bilateral FTA's into a single accord on the basis of an enlarged and modernized Central European Free Trade Agreement (CEFTA). The USG promoted adherence to World Trade Organization (WTO) principles and provided training in WTO-consistent practices. The USG supported regional working groups on animal health, plant health and food safety to deal with trade implications by conforming to international sanitary and phytosanitary standards. USG assistance also encouraged partners in the region to work together to simplify and harmonize customs procedures.

Organization for Economic Cooperation and Development (OECD) Investment Compact:

In FY 2006, USG assistance supported OECD activities to implement the Stability Pact's Investment Compact for Reform, Investment, Integrity, and Growth. The Investment Compact's objective is to lay the policy foundations for sustained growth and development in Southeast Europe through technical assistance and promotional activities. The Compact strategy for improving reform implementation and investment promotion through regional cooperation included monitoring and peer reviews, improved dialogue between public and private sectors, and work with parliaments. At the Compact's annual Ministerial Conference, states adopted regional investment framework and reviewed progress in investment policy and promotion, tax, competition, anti-corruption, public administration, human capital and trade. The Investment Reform Index provided an overview of performance by governments in the region on investment policy reform and direction on scope for policy improvements through the adaptation of OECD good practices.

Disaster Preparedness and Prevention Initiative:

The Stability Pact Disaster Preparedness and Prevention Initiative (DPPI) provides a framework for developing regional cooperation in cases of fire, flood, earthquakes, and other major natural disasters. In concert with contributions from the Governments of Switzerland and Norway and in-kind contributions from participating regional governments, in FY 2006 the USG provided assistance to support a two-person expert Secretariat and DPPI projects. USG donations supported assumption of ownership by the countries of Southeast Europe through the transfer of the DPPI Secretariat to Bosnia and Herzegovina from Brussels. DPPI organized training during FY 2006 in areas including disaster management, regional disaster response, and seismological hazard monitoring. Its flood management course served as the first phase of a project to establish emergency response units in the case of flood in countries of the Sava-Danube basin.

Investing in People and Humanitarian Assistance

U.S. ASSISTANCE PRIORITIES

The inability of governments to deliver essential health, education, and other social services undermines long-term security, stability, and economic and democratic development. USG regional health and social reform programs address transnational threats and concerns, maximizing the impact of U.S. bilateral assistance. The sharing of regional expertise and best practices has been effective in securing policy change, spurring host country action and leveraging outside resources.

SOCIAL REFORM AND HUMANITARIAN ASSISTANCE PROGRAMS

In FY 2006, the USG assistance in the areas of health, education and social services worked to ameliorate the social impact of transition, support sustainable social services and address regional health issues.

Regional Health Analysis and Outreach Initiatives:

USG assistance funded an independent evaluation of the impact of USG health partnerships in Central and Eastern Europe. The evaluation concluded that the majority of these partnerships have been sustained and many have been replicated, producing a cascading impact in the years since the partnerships ended. It recommended that future partnerships have strong monitoring and evaluation components.

Another study examined the barriers within the region's health systems that prevent rapid ramping up of effective HIV/AIDS assistance programs and suggested practical steps to overcome them, with special emphasis on resources of the Global Fund to Fights AIDS, Tuberculosis and Malaria (GFATM). Recommendations covered facets such as governance, financing, pharmaceutical and commodity management, human resources management, service delivery, and surveillance. Investment in technical assistance and evaluation projects such as this help to leverage Global Fund awards which have to date totaled roughly $1 billion for activities in Europe and Eurasia. 73% of these awards have gone to HIV/AIDS programs, including 12 awards for HIV activities in Eastern European countries. In FY 2006, USG regional funding assisted GFATM HIV activities in Macedonia.

The USG also funded a study and seminar on non-communicable diseases and injuries which recommended low-cost, effective interventions. The study confirmed that NCDIs cause over 90% of all deaths in the region, often at ages one to two and decades earlier than Western country norms.

In order to improve tuberculosis treatment, the USG helped address TB/HIV co-infection through an innovative leadership approach that encouraged more effective collaboration and coordination between tuberculosis and HIV programs in the region. Tuberculosis continues to be the most serious and deadly infectious disease in Europe and Eurasia, a situation made even worse by increasing threats from multi drug-resistant and extreme drug-resistant forms of the disease and TB/HIV co-infection. Successful control depends partly on the ability of technical experts and managers to share expertise, information and best practices about common obstacles across the region. Finally, while the protocols approved by the World Health Organization (WHO) have largely been implemented effectively in the region, leadership in some countries have remained resistant to the strategy. The USG supported the WHO in organizing a ministerial forum in 2007 that will promote political commitment to address these regional threats.

Strategic Health Interventions:

Building upon common needs and working with governments and non-governmental organizations (NGOs), a USG-funded regional program developed the first HIV/AIDS prevention programs in Bosnia, Croatia, Bulgaria, Macedonia and Romania. The program worked to increase the coverage of HIV prevention programs among at-risk populations in targeted areas to 60%. The program collaborated with NGOs and governments to build a legacy and ensure sustainability.

The highest recorded abortion rates in the world and some of the lowest contraception rates occur in Eastern Europe and Eurasia. Some women have as many as 18-20 abortions. As a result, in FY 2006 the USG launched a five-year regional family planning activity to increase proven family planning successes and ensure that scarce resources are efficiently allotted and used. The program partners with the private sector for improved and sustainable delivery of family planning services and products, creates a policy environment more favorable to family planning, and replicates and increases proven best family planning practices in the region for greater impact. In addition to the regional project launch, case studies were developed detailing the region's most successful family planning interventions, including one in Romania.

Iodine Deficiency Disorder (IDD) is the leading cause of preventable mental retardation worldwide, and a low proportion of households in Europe and Eurasia have access to iodized salt. Since 2000, the USG has provided a regional grant to UNICEF. In that time, the number of households in the region consuming iodized salt has increased from 26% to 52%. Among the countries showing the greatest progress during FY 2006 were Bosnia and Herzegovina, Montenegro, Romania and Serbia. More than half of newborns in the region are now protected from brain damage due to iodine deficiency.

Analytic Task Force (ATF) - Social Transition:

The Analytic Task Force is the principal vehicle used by the USG to access expertise, analysis, and logistical support in the social sector. In FY 2006, the ATF produced the following analyses and products: (a) a study of the prevalence of domestic violence in Europe and Eurasia and an examination of the laws and services that are available to assist victims; (b) the production of databases documenting aspects of the labor market in all countries in the region; (c) a compendium of best practices in community-based social service delivery systems in five countries in the region; (d) a comparative regional analysis of gender disparities with special focus on gender roles in the family, workforce issues and education; and (e) creation of a database of projects on child welfare reform throughout the region, including donor information. These products informed strategic thinking about social issues and USG assistance project design. ATF legacy activities promoted the development of local capacity in Europe and Eurasia to carry out social sector research and advocacy as well as to disseminate best practices in social sector activities, with a special focus on establishing and strengthening networks of local specialists. For example, the USG produced a document that highlighted the history of and lessons learned from its long-standing child welfare program in Romania in order to inform ongoing child welfare programming in other countries in the region as well as to support USG efforts on child welfare more generally.

Protection of Victims of Trafficking in Persons (TIP):

A USG regional program supported the development of a transnational referral mechanism in Southeast Europe. In its first three months, the program put in place its project team and work plan, established a network of local liaison officers, and formed an advisory board and steering group. It secured the political commitment of 10 participating Southeastern European governments, and launched a research phase. This project furthered Euro-Atlantic cooperation by working with a European inter-governmental organization and engaging European governments on TIP-related issues.

Coal Sector/Employment Study:

The USG funded a study which examined best practices regarding coal mine employment in order to inform policy decisions connected with the reduction or elimination in employment at coal mines in several countries in the region. The results of the study have been used by community leaders, governments, and assistance donors to plan ways to mitigate hardship and support the transition of workers to new employment and enterprises to other activities. During FY 2006, the USG produced a document on global best practices in coal sector restructuring, drawing from cases in the United Kingdom, Russia, Poland and Hungary. Additionally, the USG mapped the current status of coal mines and coal fired power plants in Bosnia and Herzegovina, Bulgaria, Kosovo, Macedonia, Serbia, and Romania. This included a macro-level picture of coal production, plant viability and employment as well as a select number of micro studies which examined the potential impact of mine restructuring at the community level. The best practices study and the coal sector mapping exercise laid the foundation for a regional meeting between policy makers, donors, labor representatives, and energy sector experts which will take place in FY 2007 to discuss common approaches and build commitment toward mitigating adverse consequences of restructuring.

Peace and Security

U.S. ASSISTANCE PRIORITIES

USG assistance in the areas of security and law enforcement encourages Southeast European countries to work together to combat the common threat of organized crime, trafficking, terrorism and other transnational security threats. Moreover, USG support promotes cooperation between security and law enforcement officials in the region with U.S. counterparts to counter threats to the U.S. and to U.S. interests.

SECURITY, REGIONAL STABILITY, AND LAW ENFORCEMENT PROGRAMS

Southeast Europe Cooperative Initiative (SECI):

In FY 2006, the USG continued to support a regional, cooperative approach to rule of law and border reform in Southeast Europe through the Regional Center for Combating Trans-border Crime (SECI Center) located in Bucharest, Romania, and the Trade and Transport Facilitation in Southeast Europe (TTFSE) program. Both were developed under the umbrella of the Southeast European Cooperative Initiative (SECI), which was launched in December 1996 to facilitate regional peace and stability through cooperative activities among the countries of Southeast Europe and to lay the foundation for their integration into the rest of Europe. These programs have provided a mechanism for SECI participating states -- Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Greece, Hungary, Macedonia, Moldova, Montenegro, Romania, Serbia, Slovenia and Turkey -- to cooperate on a regional basis to solve transnational problems. The United States is one of 15 countries with the status of permanent observer at SECI. The United Nations Mission to Kosovo (UNMIK) is one of four international organizations with this status.

Regional Center for Combating Trans-border Crime (SECI Center):

USG assistance supports activities fighting cross-border crime through the SECI Center. The Center functions as a regional focal point for communication and transmission of "real time" law enforcement information on cross-border crime. It is staffed by 20 police and customs liaison officers from 12 states in Southeast Europe, who coordinate operational tasks in the field and work closely with law enforcement experts from the United States, EU member states and other Western European countries, the Caucasus and elsewhere. The Center's seven primary task forces target narcotics, trafficking in persons and human smuggling, financial and cyber crimes, fraud and smuggling, stolen vehicles, terrorism, and container security. These task forces include experts from international organizations, supporting states, and the region.

In FY 2006, the SECI Center, with the support of the Southeast European Prosecutors' Advisory Group (SEEPAG), made substantial progress in its efforts to become a more effective mechanism for coordinating international investigations and prosecutions. More cases were prosecuted involving multiple countries and more sophisticated crime groups. The SECI Center continued to build its video-teleconferencing capability, successfully linking prosecutors and investigators together to enhance the investigation and prosecution of organized crime. The SECI Center's operational success in combating organized crime was illustrated by the interdiction of an international heroin trafficking operation and for multiple seizures of smuggled petroleum products.

The SECI Center also established a Container Security Task Force which will provide specialized support in identifying threats and help to raise security standards, with the aim of facilitating trade in the region. Its methods will focus on risk analysis management through multi-agency cooperation.

The USG funded the work of a resident legal advisor who provided guidance to help the SECI Center compose legal protocols and conclude Mutual Legal Assistance Treaties, implement a witness/victim protection program, and implement the SEEPAG.

Trade and Transport Facilitation in Southeast Europe (TTFSE):

The USG provided assistance to implement the TTFSE program in order to better support governmental efforts to fight smuggling and organized crime. In FY 2006, five border crossing points and two inland terminals were selected as pilot sites in Serbia and Montenegro (Batrovci, Gradina, Horgos, Presevo and Debeli-Brijeg) to monitor the effectiveness and mutual cooperation of border agencies. An approximate 50% decrease in cargo processing time was noted between 2003 and 2006, contributing to the creation of an environment favorable to trade and investment. The team's cooperation with the SECI-TTFSE Regional Steering Committee also helped enhance implementation of bilateral and multilateral trade agreements.

TTFSE also improved communication and cooperation between customs, the trade community and other border inspection agencies, which resulted in expanded hours of service. Increased reliance on risk analysis and selectivity programs resulted in examination rates approximating World Bank targets. The implementation of an open telephone line available to the public resulted in improved transparency and public perception as measured by the World Bank's Customs Surveys. TTFSE contributed to the Serbian customs service's introduction of a fact finder program and in-house integrity course, the Montenegrin customs service's implementation of an integrity action plan. TTFSE also led to a heightened awareness in these organizations of the need to conduct thorough pre-employment background investigations and require periodic financial disclosure reports from current employees. The Serbian and Montenegrin customs services also reached agreement to reform procedures at recently established border between their countries. Equipment donated by the USG supported increasing traffic volume and counter-terrorism efforts.

Montenegro Border Security:

USG assistance provided the Montenegro Border Police with equipment to establish a basic border interdiction and surveillance capability to counter organized crime. With this support, Montenegro's forces seized of over 500 pounds of drugs and other contraband, including a quantity of explosives. The program helped create a more secure environment for foreign investment and international trade while deterring criminal activity. Improvement in examination selectivity resulted in a decrease in clearance time by 35%, and the establishment of an Internal Control Section undermined corruption.

International Law Enforcement Academy (ILEA):

FY 2006 USG assistance supported the International Law Enforcement Academy (ILEA) in Budapest, Hungary for law enforcement officers from Europe and Eurasia, opened by the USG and Government of Hungary in 1995. The Academy offers three types of programs: the eight-week core program, specialized training courses, and regional seminars. The core program typically includes 50 participants per session and offers five sessions per year. It aims to develop skills in leadership, personnel and financial management, and management of the investigative process; instill respect for human rights and the rule of law; raise standards of ethics; and deal with other law enforcement issues. In FY 2006, approximately 100 law enforcement officials from Albania, Bosnia and Herzegovina, Bulgaria, Macedonia, Montenegro, Romania, and Serbia participated in ILEA's core program. The specialized courses and regional seminars, each attended by about 30 participants, are normally one or two weeks long and often run simultaneously with the core course. Course topics include counter-terrorism, corruption, organized crime, financial crimes, human trafficking and narcotics trafficking.

Stability Pact Organized Crime Initiative (SPOC):

The USG provided assistance to the Stability Pact's Initiative to fight Organized Crime (SPOC) to fund technical and administrative support to improve SPOC operations and management. SPOC supported the development of the Southeast European Prosecutors Advisory Group (SEEPAG) which enhances efforts to combat organized crime by promoting better communication among prosecutors' offices in the region and utilizing the resources of the SECI Center. SPOC is providing the SECI Center with policy and legal support, and is assisting the Center in the development of its new charter and in addressing data protection issues in conjunction with increased EU involvement.

Interpol I-24/7 Initiative:

In February 2006, the Stability Pact sponsored an initiative with Interpol to connect key border posts in Southeast Europe to the I-24/7 database system. In conjunction with other support from Germany, Norway, and Sweden, the USG provided assistance for the establishment of this system throughout Southeast Europe's land, air, and sea ports. Connection with the I-24/7 system allows users to query data about stolen vehicles, stolen documents and missing or wanted persons. The I-24/7 system has built-in safeguards and anti-fraud mechanisms to ensure accountability, is widely used throughout the world, and is recognized in EU member states. The system will improve the integrity and capacity of border operations within Southeast Europe, and is compatible with existing database structures in a number of Southeast European countries.

Stability Pact Anti-corruption Initiative: Regional Secretariat Liaison Office (SPAI RSLO):

The RSLO in Sarajevo, Bosnia, was launched in March 2004 as a focal point for regional ownership of anti-corruption efforts. Devoted solely to anti-corruption activities, the RSLO serves the nine SPAI member states, including Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Moldova, Montenegro, Romania and Serbia. FY 2006 USG assistance supported the RSLO's anti-corruption efforts, which are based on five pillars: (i) adoption and implementation of international anti-corruption instruments; (ii) promotion of good governance and reliable public administration; (iii) strengthening of national legislation and the rule of law; (iv) promotion of integrity in business operations; and (v) promotion of an active civil society. All member states have appointed senior representatives that participate actively, and have signed anti-corruption compacts committing themselves to specific actions to combat corruption, for which the RSLO acts as a soft monitoring mechanism. The RSLO focuses on regional cooperation among anti-corruption agencies and institutions; promoting relevant international anti-corruption standards; coordinating expert networking involving governments, NGOs, business, and mass media; providing a platform for sharing best practices through workshops and its internet-based resource library; and promoting thematic agendas on fighting high-level corruption in sensitive areas such as the judiciary, public administration, public procurement, privatization, and financing political parties. The RSLO is moving towards full transfer of ownership and leadership to the region.

Enterprise Funds

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

The purpose of the Enterprise Funds is to help create functioning market economies by investing in small- and medium-sized enterprises (SMEs). This activity produces goods and services to meet consumers' needs; creates jobs for employees; attracts private capital to finance productive investment; and generates a tax base to pay for public services. Commercial banks, home mortgage banks, and small- and micro-loan programs constitute a special class of enterprises supported by the Funds that provide capital to small enterprises and individuals so they can become property owners. This process creates a class of stakeholders able to promote systemic changes in laws, institutions and regulations that will allow commerce to thrive. One of the most attractive aspects of this ground-up approach to reform is that the "change agents", i.e. the enterprises, are sustainable, growth-oriented entities whose influence increases geometrically over time.

Enterprise Funds provide capital and technical advice in situations where financial markets are still evolving and the legal, regulatory, and institutional environment is not fully developed, such that foreign investors are reluctant to commit funds to emerging SMEs. Consequently, most Enterprise Funds have not begun to match the profit of the venture capital funds in the United States on which they are modeled, nor are they expected to do so. But in time the business and financial models created by the Funds and the constituency for reform that is represented by Fund clients is expected to help bring about dramatic improvements in the economies of the region.

Each Fund operates as an independent organization and is directed by a board of directors with the appropriate legal structure and authority to manage its resources. The SEED Act provided considerable autonomy for these boards, with the USG having oversight responsibility for the Funds' operations. This model was designed so that the Funds could deliver assistance as rapidly as possible with enough flexibility to develop programs and use a variety of investment approaches to address the conditions found in each country.

Since their formation in the early 1990s, the Enterprise Funds have created thousands of jobs, transformed industry sectors, increased the levels of business experience and corporate governance, and supported U.S. foreign policy goals.

The majority of the Enterprise Funds have privatized their management companies and launched private investment funds in order to attract new private investment capital and provide future incentives for their employees. In addition to their efforts in making equity investments and long-term loans to SMEs, the Funds have introduced home mortgage lending, mortgage securitization, credit cards, pension funds, mezzanine financing, leasing, and investment banking. These initiatives are a testament to the initiative of the Funds' management teams and the good reputation that they have earned. Moreover, each Fund has become a resource to which other investors have turned for information on the business climate in the country of operation. A brief summary of the activities of each Fund follows.

Through FY 2006, the ten Enterprise Funds had received about $1.17 billion in USG assistance resources. The following table shows the funding status of the seven, SEED Act-funded Enterprise Funds as of the end of FY 2006.

ENTERPRISE FUNDS IN CENTRAL AND EASTERN EUROPE


Fund

Funds Authorized

Funds Obligated

Funds Expended

 

 

 

 

Polish-American Enterprise Fund (PAEF)

$262.50m

$254.50m

$254.50m

Hungarian-American Enterprise Fund (HAEF)

$72.5m

$72.50m

$72.50m

Czech-Slovak-American Enterprise Fund (CSAEF)

$65.00m

$63.90m

$62.79m

Bulgarian-American Enterprise Fund (BAEF)

$58.25m

$57.75m

$57.75m

Baltic-American Enterprise Fund (BalAEF)

$50.00 m

$50.00m

$50.00m

Romania-American Enterprise Fund (RAEF)

$61.00m

$61.00m

$61.00m

Albanian-American Enterprise Fund (AAEF)

$30.00m

$30.00m

$25.52m

Total

$599.25m

589.65m

$584.06m


ALBANIAN-AMERICAN ENTERPRISE FUND (AAEF):

The Albanian-American Enterprise Fund (AAEF), which was established in 1995 with capital of $30 million, continues to seek sound investment opportunities while working to enhance existing portfolio holdings. Future growth of the fund will involve larger investments and continued regional expansion in the Balkans for Albanian companies. The Albanian economy has not yet graduated from the Fund's mission, and the need for capital and technical assistance will continue for the next five to ten years.

The most significant investment is the Fund's ownership of the American Bank of Albania (ABA). The ABA has total assets of $653 million and reported net income of $7.1 million after taxes for the first three quarters of 2006. The ABA's two branches in Greece are expected to prove to be a sound long-term investment. In order to assure ABA's financial strength and future growth, the Board sought and received offers from potential equity participants. In October 2006 it reached an agreement with SanPauloIMI, an Italian bank which after its merger with Banca Intesa, will be one of the largest banks in Europe. Negotiations are underway and the merger has the support of the Government of Albania.

Tirana Airport Partners is a partnership developed by AAEF with the German company Hochtief to develop, finance and build a new international airport and terminal. The project is on budget and scheduled for completion in March 2007. Five new airlines are to operate flights to Albania, and passenger traffic is already up 15%.

Other investment highlights include a granite quarrying company operating in the northeast of Albania, an under-developed region suffering high unemployment. The quarry is the largest new investment in the northeast. When in full production, it is expected to provide more than 75 jobs and contribute to the region's economy through wages, tax payments and annual quarrying use fees.

Sigal, the country's leading insurance company, is now operating subsidiaries in Kosovo and Macedonia. The company's audit by KPMG according to international accounting standards is a "first" for Albania.

The Fund also continues to work with the Government of Albania on issues such as anti-money laundering policies and the development of a sound private pension system.

THE SLOVAK-AMERICAN ENTERPRISE FUND (SAEF):

SAEF received an extension of its Termination Commencement Date until March 6, 2008. SAEF is in negotiation to invest $3.4 million in New Diesel, which focuses on bio-fuel production using rape seed as its input. This is a proven technology which, combined with a strong local agricultural group, should guarantee a sufficient supply of raw materials. SAEF is also increasing its investment in Ardaco, an existing portfolio company.

Other significant developments include exit of the Fund's investment in the wood processing company Novomanip with cash proceeds of $600,000, and the Fund's reception of a Letter of Intent to acquire its interest in the firm Sloviplex for $3 million.

SAEF's board, with approximately one year of active investment remaining, is now beginning to focus on the future legacy activity, which it intends to focus on support for entrepreneurship and business training. Additionally, SAEF is taking steps to establish a Private Equity Fund to become, in effect, the successor to SAEF providing venture funding for SMEs in Slovakia.

BALTIC-AMERICAN ENTERPRISE FUND (BalAEF):

The Baltic-American Enterprise Fund (BalAEF) continued to support the growth of its Mezzanine Finance and Mortgage Loan companies during a successful year of growth and innovation in 2006. As of the end of March, the Fund had $366 million in investments approved and $354 million investments disbursed. The portfolio has thus far returned EUR 24 million of investment income and EUR 135 million in principal payments that have been re-invested. During 2006, efforts were made to sell these two major assets, but potential buyers recommended that the companies expand their programs before again offering them for sale. The Fund subsequently requested that the Mezzanine Finance company be allowed to expand operations to Finland, Poland and Russia, and that the mortgage loan company be allowed to expand operations to Poland and western Russia. It is expected that the expanded scope of activity of the two companies will enhance opportunities for the sale of both BalAEF assets within three years.

Baltic-American Mortgage Holdings (BAMH) -- a Fund subsidiary with centers in Tallinn, Riga and Vilnius -- reported monthly loan production approval volume averaging $13.4 million and 323 loan units. The residential mortgage business has provided over 12,700 loans to homeowners, introduced hybrid fixed-variable rate products, and raised over $100 million in external funding for operations. It is now leading the development of the secondary mortgage market by packaging and selling loan pools to banks in the region. BAMH issued $63 million in residential mortgage-backed securities, underwritten by Wachovia Securities. Moody's Investor Services rated the senior bond AA and the subordinate bonds BBB+, and reported that this was the first transaction of its type in Eastern Europe.

Hanseatic Capital, a Fund subsidiary, is the only dedicated provider of mezzanine financing in the region. In FY 2006, Hanseatic exited three investments and now manages eleven loans and investments with a fair value of around EUR 11 million. Its pipeline for transactions has strengthened and the company expects significant portfolio growth. Company strategy is based on building attractive business units, catalyzing investment, and strengthening the financial services sector of Baltic countries through innovation.

BULGARIAN-AMERICAN ENTERPRISE FUND (BAEF):

BAEF's Termination Commencement Date was September 2006, and management is now focused on realizing maximum return on its remaining investments.

The Bulgarian-American Credit Bank (BACB) remains the leading bank in Bulgaria measured by return on assets and equity. BACB's cost to income ratio further improved to 22.9%. BACB's Initial Public Offering (IPO) on April 4, 2006 exceeded market expectations as the Fund realized approximately $67 million for 30% of BACB shares, with 85% acquired by international investors and 15% by Bulgarian institutional and retail investors. The total market capitalization of BACB is in excess of $220 million, making it the third largest company on the Bulgarian Stock Exchange.

BAEF completed a successful public offering for its second real estate special purpose vehicle, ERG Capital-2. BAEF had successful exits for its investments in Devin Water, Sanita Trading and Asparuhovo Pharmacy. Negotiations are underway for the sale of two properties in the Fund's real estate portfolio. The Fund's investments in BM Leasing and Ameta are performing successfully and expanding.

HUNGARIAN-AMERICAN ENTERPRISE FUND (HAEF):

The Hungarian-American Enterprise Fund (HAEF) completed 16 full years of investment operations in 2006 and is now focused on maximizing the return on its remaining investments. HAEF's legacy activity is comprised of the "Hungarian-American Enterprise Scholarship Fund" (HAESF), whose primary aim is to finance internships in the United States for Hungarians. HAEF previously distributed $10 million, providing initial funding of $5 million for the HAESF scholarship fund and an equal amount to the U.S. Treasury.

The Fund's has some investments, including parcels of land near the Budapest airport, which may have to be held for many years to realize optimum value. Other remaining investments are in negotiation for sale, with expected proceeds of up to $2.8 million.

HAEF closed its Budapest office on December 31, 2006, but retains a former employee as a consultant in Hungary to assist in exiting its remaining investments and achieving maximum value for the Fund. HAEF will continue as a legal entity for the foreseeable future but operating expenses will be kept to a minimum.

POLISH-AMERICAN ENTERPRISE FUND (PAEF):

The Polish American Enterprise Fund (PAEF) officially began liquidation in 1999. In keeping with an agreement with the U.S. Congress, PAEF returned $120 million to the U.S. Treasury and provided $120 million to launch the Polish-American Freedom Foundation (PAFF) to support further democratic and market reforms in Poland and the region. Subsequent reflows from the PAEF were to be distributed to the PAFF. Cumulative grants made to the Foundation from PAEF as of March 31, 2006, were $213 million; it is expected that this amount will reach $235 million when remaining assets are liquidated.

Remaining PAEF assets as of March 31, 2006 are over $23 million. PAEF is liquidating these assets as opportunities occur. In October 2006, the USG approved a proposal for Fundusz Mikro (FM), the Fund's largest remaining asset, to invest its assets in a new commercial bank offering services to medium-sized businesses and entrepreneurs. PAEF expects that a smaller FM will remain in business to offer loan services to micro-enterprises. The board of the PAEF has indicated that this new investment strategy will speed the sale of FM assets including the new bank, and that all remaining investments will be sold within three years. However, this will depend on ability to make transactions that realize the true market value of these assets.

The PAEF was privatized as Polish Enterprise Investors. This entity manages the assets of the former PAEF, and is one of the largest private equity funds in the region. It has raised about $1 billion in new capital, most of which will remain in Poland to benefit the economy of that country.

ROMANIAN-AMERICAN ENTERPRISE FUND:

The Romanian American Enterprise Fund (RAEF) was established in September 1994, and has received $61 million in USG grants. RAEF's self-sustaining micro-loan program, in operation since 1996, provides loans with flexible collateral requirements to SMEs to purchase fixed assets or working capital. The maximum loan amount is $50,000 and the maximum term is 60 months. The total funds disbursed since inception amount to $46.8 million, with approximately 30,000 loans to individuals and small businesses. The program has helped create 11,908 jobs (5,716 for women) and sustain an additional 36,422 jobs (18,203 for women). Demand continues to grow.

RAEF's investment banking team is the first in Romania to partner with the world's leading investment banks on large-scale transactions. It has participated in energy and banking privatization transactions involving billions of dollars in assets.

The Fund's three major portfolio assets -- consumer loans, mortgage loans and leasing -- were acquired in 2006 by GE Money (subsidiary of General Electric Company) for $178 million, generating a considerable profit for RAEF.

The Romanian Industrial Energy Efficiency Company (RIEEC), a EUR 15 million project, was launched in 2003 in partnership with the European Bank for Reconstruction and Development (EBRD) to target a portion of the estimated $4-5 billion investment needed in the Romanian electrical power generation system. The first cogeneration plant financed under the RIEEC program was installed in 2005 at the SICOMED project; the second project was with SAB-Miller breweries. High gas prices are making the cogeneration projects less attractive for RIEEC and its clients. The pipeline has been reviewed to include different types of energy efficiency projects based on biomass, bio-diesel and waste incineration. Despite all efforts, origination and implementation occur at a "one per year" pace as compared to the two per year pace, originally planned.

The Balkan Accession Fund (BAF) is a private equity Fund started with RAEF and the Bulgarian-American Enterprise Fund. On October 5, 2006, the BAF announced the successful completion of its two-year long fund-raising efforts which resulted in a second closing of EUR 110 million. BAF investors included the EBRD and Black Sea Trade and Development Bank as well as local private investors. The Fund is targeting SME investments in Southeastern European countries such as Romania, Bulgaria and Serbia, in addition to selected transactions Ukraine and Moldova. Romania and Bulgaria bilateral funds will be invested in their respective countries. BAF, which was spun off from the Romanian and Bulgarian Enterprise Funds, is focusing its investments in the financial services, retail, distribution, consumer products, information technology, healthcare, selected industrial, media, and other consumer-related services.

FY 2006 U.S. Government Funds Budgeted for Regional Programs for Central and Eastern Europe [PDF format]

FY 2006 U.S. Government Funds Budgeted for Contributions to the Organization for Security and Coooperation in Europe (OSCE) [PDF format] 



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