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U.S. Department of State

Diplomacy in Action

III. Regional Programs


U.S. Government Assistance to and Cooperative Activities with Eurasia
Bureau of European and Eurasian Affairs
January 2007
Report
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FSA Regional Assistance Programs

U.S. STRATEGIC INTERESTS

FSA regional assistance aims to encourage the former Soviet states to work together on common concerns, restore economic linkages between states, and develop the common democratic practices that they need to make permanent their transition to market-based democracies. In the Caucasus and Central Asia, regional programs are helping to build confidence and provide humanitarian relief. Regional programs are becoming increasingly important as country budgets diminish because they help to increase efficiency by involving two or more countries in areas of common interest, for example cross border water management and anti-corruption standards, and in some cases provide services (e.g. sector analyses) that country budgets can no longer sustain. Through regional programs that bring together several FSA countries, the U.S. pursues its interests in economic growth, trade, democratic reform, and in reducing international criminal and terrorist threats to U.S. citizens. In FY 2006, FSA regional funds also supported programs including analytical efforts to track progress towards transition, feasibility studies to facilitate U.S. investment and exports to the region, and projects carried out by regional organizations, such as the Georgia-Ukraine-Azerbaijan-Moldova (GUAM) group. FSA funds also supported the U.S. contribution to the work of the Organization for Security and Cooperation on Europe (OSCE) in the former Soviet states.

DEMOCRACY PROGRAMS

U.S. ASSISTANCE PRIORITIES

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

OSCE: FSA COUNTRY ACTIVITIES

Twenty percent of the OSCE's budget in FY 2006 supported OSCE field missions and related costs in the countries of Eurasia. The U.S. share of this budget (14 percent) totaled approximately $4.75 million. Other funds were used to provide U.S. citizen staffing to policy and decision-making positions within the OSCE as well as to enable the participation of U.S. citizen monitors in OSCE election observation missions. During FY 2006, these OSCE observation missions monitored elections in Azerbaijan, Belarus, Georgia, and Ukraine. U.S. contributions to the OSCE promoted high priority U.S. foreign policy objectives in a multilateral context, leveraging financial and diplomatic resources from other participating states to support arms control, preventive diplomacy, confidence and security-building measures, democratization, tolerance, and economic and environmental security.

In 2006, OSCE programs helped to prevent conflicts and promote stability in Eurasian states, assist post-conflict rehabilitation and reconciliation, combat transnational threats to stability, implement counterterrorism measures, promote criminal justice and legislative reform, fight trafficking in persons, monitor and combat intolerance, monitor elections, and empower civil society. OSCE negotiators continued to work hard in 2006 to break deadlocks over long simmering separatist issues and achieve practical improvements to the security situations in Moldova and Georgia and between Azerbaijan and Armenia. The OSCE continued to press for the resumption of negotiations on a political settlement of the Transnistrian conflict and promote agreement between the parties on a package of confidence and security building measures. The OSCE Mission to Moldova, in addition to continuing to participate as an official mediator in Transnistrian settlement talks, assisted the Moldovan government to build accountable institutions, fight corruption and combat trafficking in persons. In Ukraine, projects implemented by the OSCE Project Coordinator helped to promote economic and social reform, protect media freedom, and strengthen internal and border security. The OSCE Mission in Armenia worked with government authorities to put into place the necessary rules and laws to hold free and fair parliamentary elections in 2007. The U.S. supported a new OSCE-led economic redevelopment plan, which is intended to build confidence between Georgia and South Ossetia.

The OSCE continues to play an important role in Central Asia. During the fall of 2006, the OSCE's High Commissioner on National Minorities assisted the Government of the Kyrgyz Republic and opposition parties in drafting a new constitution and, on the basis of his recommendations, problematic minority-related points were removed in the final text of the constitution. The OSCE also expanded its police training programs in the Kyrgyz Republic, which focus on promoting respect for basic human rights. This training helped contribute to the restraint shown by the police during the country's recent constitutional crisis. In spite of OSCE efforts to promote a free and fair presidential election in Tajikistan, OSCE monitoring of the November 6 contest determined that the election "did not fully test democratic electoral practices ... due to a lack of genuine choice and meaningful pluralism." The OSCE office in Tajikistan will continue to work to promote an electoral legal framework and political environment for future elections that complies with OSCE principles and commitments. OSCE efforts to destroy small arms and light weapons and eliminate the threat of landmines in Tajikistan continued in 2006. Although the Government of Uzbekistan is resistant to any outside influence, the OSCE has managed to maintain a presence there and is engaged in a number of small projects of interest to the U.S., including the protection of intellectual property rights.

Extra-Budgetary Activities: In FY 2006, the USG also funded several extra-budgetary projects ranging from the promotion of human rights, democracy, and the development of a vibrant civil society to improving good governance and rule of law, and strengthening the cooperation of OSCE countries to counter terrorism. A few notable projects funded include:

  • Strengthening Ukraine's Electoral System: Through voluntary contributions to the OSCE's Project Coordinator in Ukraine, the U.S. continued to support the creation of a single, centralized voter registration system in Ukraine, which will greatly reduce voter fraud and enhance the reliability of the electoral process. In advance of the March 2006 parliamentary elections, this project provided computer equipment to facilitate contact between registration officials and local observer groups and which greatly helped overcome suspicions of voter fraud. These innovations contributed to Ukraine's continuing improvement in electoral practices, which included the country's free and fair elections in March 2006. 

  • Strengthening the Rule of Law in Eurasia: U.S. extra-budgetary contributions in the rule of law sector supported a training course for 70 Armenian prosecutors, judges, and other staff on alternative and conditional sentencing, the production and dissemination of a publication on comparative judicial systems, and the expansion of efforts to work with prison administrators to develop regular and institutionalized monitoring of detention facilities by civil society. With U.S. support, the OSCE published in Russian a book entitled "Introduction to U.S. Law and Legal System," which was distributed to post-graduate researchers and academics in Central Asia, Ukraine, and Russia. The U.S. also supported training in the Kyrgyz Republic on the International Covenant on Civil and Political Rights. 

  • Promoting Tolerance: U.S. contributions supported a program to train Eurasian law enforcement officers to recognize, respond to, and prevent anti-Semitic and other hate crimes. Other U.S. contributions supported the work of the OSCE's Panel of Experts for Review of Legislation Pertaining to Freedom of Religion or Belief, which comments on draft laws and assists states in bringing their legislation into conformity with OSCE commitments.

REGIONAL DEMOCRACY AND GOVERNANCE

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

  • Nations in Transit (NIT) is an annual progress report on the status of democratic reforms in 27 countries in Europe and Eurasia. USG agencies regularly use NIT measures to monitor country progress. NIT was used as the principal benchmarking instrument for determining phase-out dates for democracy assistance in the region. The tenth edition of NIT was published in 2006. Interest and demand in NIT continues to grow, both in the U.S. and in the region. Both governmental and non-governmental leaders from the region have requested information about NIT's findings, as well as recommendations on changes needed to improve their scores. 

  • The NGO Sustainability Index (NGOSI) is a comprehensive and comparative research tool that tracks the strength and viability of NGOs in the Europe and Eurasia region. The Index measures seven different dimensions of NGO sustainability, including legal environment, organizational capacity, advocacy, financial viability, service provision, infrastructure, and public image. The Index provides a wide-ranging and in-depth analysis of the NGO sector in each European and Eurasian country, and it is used by USG agencies for strategic planning and performance monitoring purposes. Unlike Nations in Transit, the Index focuses on the sustainability of the sector and can thus be used for country-specific program design, to cover gaps in sustainability. Because it has provided analysis for nearly a decade (2006 will be its 10th year), it is an unparalleled source for information on NGO trends in the region. 

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

Regional Networking Program: Support for the Regional Networking Program (RNP) ended in September 2006. The purpose of the RNP was to strengthen the capacity of non-governmental organizations through cross border projects to inform public opinion and influence public policy to accelerate and secure the region's transition to open political and economic systems. During the past four years, 41 regional project grants were awarded to increase cross border cooperation and advocacy in Europe and Eurasia. During FY 2006, RNP worked with the Russian-based Youth Human Rights Movement, which brought seven Russian youth activists together with Russian and Eastern European researchers to improve their skills in research-based advocacy. Following a series of trainings, a specialized internship, and mentoring on policy brief write-ups, the project culminated in a compilation of policy briefs written by interns based on the lessons learned through the internship process, and specifically, how to apply these lessons in a Russian context.

Title VIII Program: USG assistance promoted the study of Eurasia through grants to support advanced academic research, junior scholar training seminars, graduate training, dissertation workshops, research labs, library resources, and public dissemination of research data and findings. This assistance also supported specialized training in Eurasian languages, both in the U.S. and in the region. Seven organizations received grants to carry out national, merit-based competitions to distribute funding to individual scholars and institutions. Awardees conducted policy relevant research overseas and in academic centers and think tanks in the U.S.. Examples of recent research includes "Nuclear Smuggling Links between Terrorist and Organized Crime Groups in Eurasia"; "Democracy and Civil Society in Ukraine"; "Religion in Post-Soviet Societies"; and "Corruption in Practice: Exploiting Russian Pharmaceutical Regulation for Private Gain"; "The Contemporary Silk Road" and "Black Gold after the Cold War and 9/11: Reshaping the Political Economy of Oil in the Caspian Basin." In 2006, language training programs included advanced Russian, Armenian, Tatar, Ukrainian, Azeri, Georgian, Kazakh, Tajik, Turkmen, Uyghur, and Uzbek. This assistance also brings scholarly expertise to the service of the USG through policy forums, embassy policy "specialists in residence," research summaries, policy briefs, and by facilitating connections among non-government scholars and USG officials.

FSA REGIONAL ECONOMIC GROWTH PROGRAMS

U.S. ASSISTANCE PRIORITIES

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

REGIONAL ECONOMIC GROWTH PROGRAMS

Energy Regulatory Network: The Energy Regulators Regional Association (ERRA) has 23 European and Eurasian national energy regulatory agencies as members, including Moldova, Ukraine, Russia, Georgia, Armenia, the Kyrgyz Republic, and Kazakhstan. ERRA aims to improve energy regulation in member countries and increase cooperation through training to enhance professional development and the exchange of experience and information. ERRA's program of training, technical meetings, exchanges, and Annual Investment Conference addressed increasingly complex regulatory issues and expanded linkages with the Council of European Energy Regulators (CEER). To expand the capacity of its members to address the increased demands created by the introduction of competition and privatization, ERRA developed in FY 2006 a classroom training program of six courses addressing key regulatory issues. The first pilot training in an e-learning platform has also been completed in a unique bilingual format - English and Russian. Tariff and Licensing/Competition technical committees and regulatory exchanges have provided regulators and technical staff the basis for continued reform aimed at harmonization of practices across countries in the region. The challenges facing the region's regulators are continued capacity building of their organizations and harmonization of regulatory practices across borders to facilitate regional market development and investment in the context of European and U.S. practices. This assistance is harmonized with European Commission (EC) electricity directives and reinforces the EC's efforts to expand accession and closer ties through the New Neighborhood Policy. ERRA is in discussion with the EC about obtaining financial support that, in coordination with USG assistance, will assure ERRA's long-term sustainability.

Black Sea Regional Electricity Transmission Planning: The USG is providing support through a cooperative agreement with the U.S. Energy Association for a collaborative project among electricity transmission companies in the Black Sea region. Utilities from Romania, Bulgaria, Ukraine, Moldova, Turkey, Russia, Georgia and Armenia have successfully developed during 2006 an integrated transmission system model to evaluate system flows and identify investment needs to overcome bottlenecks in the electricity grid and address voltage and emergency response situations. Possible new transmission lines and substations have been identified for the participating utilities. Some of these projects are of potential interest to international financial institutions (e.g. linkages between Moldova and Romania). A Steering Committee of donors and utility representatives will review progress in early 2007 and determine key steps to advance priority projects. This activity is significant in the context of both increasing energy security and integrating key energy importing Black Sea countries with the Energy Community in Southeast Europe.

Regional Urban Heating and Energy Affordability Network: The impact of higher energy prices on the economics and affordability of energy and heat remains a central economic and social priority in Eurasia countries. The USG 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. The focus is two-fold: improve urban heating services and bring increased financing and commercial management to these systems; and develop effective mechanisms for addressing energy affordability problems, including assistance to residential and low-income groups for energy efficiency. In FY 2006, country profiles and case studies were prepared for Russia, Ukraine, Armenia, and Moldova that identify needs for donor and international financial institution assistance. Two NGO energy efficiency centers and two energy consultants have examined lessons learned and best practices achieved in recent EU accession countries for their applicability throughout Eurasia. These results are being integrated with similar efforts in Eastern and Southeast Europe to produce a comprehensive assessment and strategy for donors, governments, companies and international financial institutions.

Infrastructure Reform and Finance Project (IRF): The IRF project provides analytical resources in evaluating and identifying key assistance opportunities in the infrastructure sector (water, energy, transport, and telecommunications) and has generated buy-ins from USG agencies, host governments, and the EU. Key examples of this activity in FY 2006 include:

  • Russia: An IRF supported workshop for USG implementers on designing revolving funds for municipal finance generated seed funding to further elaborate related projects, including a grant to a Russian think tank to develop a leveraged bond fund designed at the IRF workshop. Key approvals are nearly complete for the Russia Municipal Fund, and a Russian federal commitment of $200 million over five years has been made by the Ministry of Finance to capitalize the fund. 

  • Georgia: An IRF prepared review of the water, telecom, transport and heating sectors warned the Georgian government of the possibility of the serious public health implications of continued inaction on problems in the water sector. In 2006 the Prime Minister's office approached the USG and signaled a willingness to undertake major reform. As a result, the USG is developing a $2 million cooperative sector reform partnership with the EU, which will devote more than $5 million. The Georgia Millennium Challenge Corporation office supports the use of a large part of the remaining $55 million in the municipal portion of the compact to support reform-based investments.

Regional Transparency and Accountability: In FY 2006, as part of efforts to promote transparency, accountability, good governance and compliance with global financial reporting standards, the USG support the Certified International Professional Accountant (CIPA) program and its supporting regional institutions including the Eurasia Council of Certified Accountants and Auditors (ECCAA), a regional federation of 25 national associations of professional accountants and auditors in Eurasia, and the CIPA Examination Network (CIPA-EN). In 2006, the ECCAA was recognized by the International Federation of Accountants (IFAC) as an "Acknowledged Regional Grouping" that enhances regional financial transparency and accountability as well as advances the accountancy profession in Eurasia by supporting the IFAC mission. (IFAC is the worldwide organization for the accountancy profession and is dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies.) In 2006, CIPA-EN, using corruption prevention protocols that protect the integrity of the CIPA certification program, prepared, administered, and graded for the ECCAA several thousand uniform CIPA examinations founded on international standards of financial reporting, disclosure and auditing.

Trade and Investment: Regional funds supported a number of activities in FY 2006 that promote economic development while also opening opportunities for U.S. business. These activities included feasibility studies on specific investment projects, such as a high voltage electric power transmission line in Georgia and another transmission line in the south of the Kyrgyz Republic to support energy security in those countries. Funding was prioritized for projects to support a regional integration in Central Asia, including an initiative announced in October 2005 to promote the infrastructure integration. The USG provided a grant to the Government of Tajikistan to conduct a feasibility study on the development of the Central Asia power sector and potential for export to South Asia. In addition to these studies, the USG also funded orientation visits, which bring private and public sector officials to the U.S. to meet with U.S. companies and see technology demonstrated, such as a forestry sector orientation visit for Russian officials and a coal mine methane sector orientation visit for Ukrainian officials.

FSA-FUNDED ENTERPRISE FUNDS

Congress originally authorized the Enterprise Funds through the SEED Act of 1989. That Act established the Funds as unique "public-private partnerships", whose purpose was to invest 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 Funds in other Central and European countries, as well as in the New Independent States. There are ten Enterprise Funds, seven in Central Europe (Albania, the Baltic States, Bulgaria, Hungary, Poland, Romania, and Slovakia), and three in the former Soviet Union (Russia, the Western NIS countries, and the Central Asian Republics).

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

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

The Enterprise Funds provide capital and technical advice in situations where financial markets are still evolving, and the legal, regulatory, and institutional environment is not fully developed, such that foreign investors are reluctant to commit funds to emerging small- and medium-sized enterprises. Consequently, most of the Enterprise Funds have not begun to match the profit performance of the venture capital funds in the U.S. after which they are modeled, nor are they expected to do so. But in time it is expected that the business and financial models created by the Funds and the constituency for reform that is represented by Fund clients, will help bring about dramatic improvements in their economies. It is axiomatic that open economies can exist only within democratic systems, and a more peaceful and prosperous world.

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

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

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

As of September 30, 2006, the ten funds (both SEED and FSA) have received from the USG about $1.17 billion. The following table shows the funding status of the three FSA-funded Enterprise Funds as of the end of FY 2006.

Enterprise Funds in Eurasia:

Enterprise Funds

Funds Authorized

Funds Obligated

Funds Expended

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

$440M

$328.87M

$328.87M

Western NIS Enterprise Fund (WNISEF)

$150M

$147.44M

$147.44M

Central Asian-American Enterprise Fund (CAAEF)

$150M

$106.00M

$106.00M

Total

$740M

$582.31M

$582.31M


The U.S.-Russia Investment Fund (TUSRIF): TUSRIF was created in April 1995 as the result of the consolidation of the Russian American Enterprise Fund (RAEF) and the Fund for Large Enterprises in Russia (FLER). The planned capitalization for TUSRIF was $440.0 million. To date, the USG has provided $328.9 million and this is expected to be the full amount funding for this activity. TUSRIF has established a private investment management company, Delta Private Equity Partners, to manage TUSRIF funds, and to raise funding from private sources.

As of September 30, 2006, TUSRIF had invested $312 million in 46 small and medium sized companies and had provided over $55 million in loan capital through 60 branches of 33 private Russian bank partners in support of 6,000 small companies. In addition to the $328 million in funding provided by the USG, TUSRIF has mobilized an additional $470 million in financing from International Financial Institutions and private investors for their clients and the four financial services companies created by TUSRIF (consumer finance, home mortgages, equipment leasing, and auto leasing).

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

Liquidity in the equity market in Russia has improved and the Fund continues to have profitable exits from a number of its investments. In November 2004, the Fund completed the sale of DeltaBank (its consumer finance bank) to GE Consumer Finance for $100 million, which values the bank at 4.3 times book value. In August 2005, the Fund announced the sale of DeltaCredit Bank (its mortgage bank) to Society Generale of France for $106 million, or 2.5 times book value. In July 2005, the Fund sold its interest in National Cable Network for a valuation that netted TUSRIF an internal rate of return of 66 percent. In September 2005, the Fund sold Nevsky 49 (its hotel in St. Petersburg) to a European group for a net return of $10 million. Early in 2005, the Fund sold its interest in CTC Media to Fidelity Investments Europe for a price that yielded an internal rate of return of 30.1 percent. In June 2006, the Fund sold SPAR (a Moscow supermarket chain) for a net gain of $8.4 million. During 2006, the Fund negotiated partial recoveries from three investments, Fun Tech, EGAR, and Polygraph. The Fund expects to make profitable exits from the 6 remaining investments in its portfolio over the next 12 to 24 months. The Fund estimates that proceeds from the liquidation of the Funds investment portfolio will be at least as large as the original grant of $328 million.

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

Western NIS Enterprise FUND (WNISEF): Capitalized initially with $150 million by the USG, WNISEF was created in 1994 to support the development of small and medium-sized private enterprises in Ukraine, Moldova, and Belarus, through the infusion of capital and by providing technical assistance to small- and medium-sized enterprises (SMEs). Of the $150 million originally authorized, $147.4.million has been obligated. In the interest of conserving resources, WNISEF closed its representative office in Minsk in September 2003 but continues to monitor the country through its office in Ukraine.

After ten years of successful investing, WNISEF's management team has spun-off into Horizon Capital Advisors, a private equity management firm, and has raised $132 million to date for its Emerging Europe Growth Fund, LP (EEGF). WNISEF is a cornerstone investor in EEGF with a $25 million commitment and representation on the Board of Advisors. All told, Horizon Capital made 200 investment presentations to secure commitments from 74 investors to date, all of which are new investors to the region and are mainly from the Unites States.

In 2006, WNISEF experienced a great deal of acquisition interest from international investors, as the Ukrainian and Moldovan economies enjoyed a surge of "emerging market attention". A written offer was made to purchase 100 percent of the shares owned in AVK, a large confectionary firm that produces 125,000 tones of candy each year. The Fund will continue to pursue the sale of its shares, alongside the founders of AVK confectionary, in 2007. WNISEF has also been approached by potential acquirers of the Fund's shares in TROYANDA (ice cream), SHVYDKO (fast food), and ECOPROD (agricultural products). While no agreements have yet been reached at valuations at which the Fund would be willing to exit, it will continue to actively pursue exits for these portfolio investments.

The banking sector has experienced a great deal of (heated) merger and acquisition activity. The Fund has chosen not to pursue an exit for their stake in PROCREDIT Ukraine. However, the Fund plans to sell their stake in PROCREDIT Moldova, and EEGF is looking at other banking investments in the Moldova market.

The Fund continues to work closely with its portfolio companies to maximize shareholder value. In particular, the Fund committed an additional $10.2 million follow-on investment in Glass Container Company (GCC), a major Moldova glass bottle manufacturer and formerly State-owned. As of September 30, 2006, the Fund had outstanding commitments totaling $62.3 million to 12 companies as well as its $25 million commitment to EEGF. Since the first close of EEGF in February 2006, WNISEF has ceased making new investment commitments other than as a co-investor in transactions syndicated by EEGF or as follow-on investments in its existing portfolio companies. New investments in consumer credit and agricultural products are being channeled through EEGF. On a per capita basis, Moldova receives a larger percentage of WNISEF and EEGF investments than does Ukraine.

The Fund has realized five profitable exits of equity investments. Two were trade sales (SBK - a brick maker, and VITANTA - beverages); one was a sale to financial investors via the Moldovan Stock Exchange (Moldova AgroinBank); and two were buy-outs by co-investors (PKU and KTO - automotive products).

Central Asian-American Enterprise Fund (CAAEF): CAAEF was created in 1994 to promote the creation of small- and medium-sized businesses in Central Asia. The CAAEF has a total authorized capitalization of $150 million with $106 million obligated to date. Business conditions in most of Central Asia are extremely difficult, especially for equity investments, which make up the majority of the Fund's portfolio. The Fund has completed the process of winding down its operations and has liquidated its investments. Liquidation proceeds amount to approximately $16 million. The liquidation proceeds will be used to fund the Central Asian-American Education Foundation. The monies will be placed in a ten-year sinking fund to finance business and economic training in Central Asia, including undergraduate scholarships for study at selected universities in Central Asia, teacher training and curriculum development, and student internships.

INVESTING IN PEOPLE AND HUMANITARIAN ASSISTANCE

U.S. ASSISTANCE PRIORITIES

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

HEALTH PROGRAMS

Regional Health Analysis and Outreach Initiative: Each year, the USG selects a few critical, regional health issues for analysis and information sharing. In 2006, these included:

  • Sharing Best Practices for Health in Eurasia: Health managers and policy makers from USG agencies met in Ukraine to share experiences, make decisions on regional health priorities, and develop solutions to common challenges. Sessions covered USG policy updates, top health vulnerabilities, health systems, HIV/AIDS, tuberculosis, family planning, maternal and child health, avian influenza, and working with the Global Fund to Fight AIDS, Tuberculosis, and Malaria (GFATM). Participants shared field experiences, learned the latest international best practices, and made decisions about the use of scarce resources. 

  • National Health Accounts (NHA): The USG, working with bilateral and multilateral donors, assisted countries to inject realism into their national health budgets and planning by producing sound NHA data on health care expenditures, including out-of-pocket expenditures. This helps governments understand the need for more substantial and targeted health investments and determine what services can be provided with what resources. The Kyrgyz Republic's first NHA report is helping decision-makers obtain a comprehensive picture of total health care spending, and monitor the implementation of the country's $52 million, multi-donor-supported health reform program. Georgia's Ministry of Health used NHA data to negotiate with the Ministry of Finance a 20% increase in its national budget allocation to support a basic health benefits package. 

  • Strengthening Health Systems to Improve HIV/AIDS Programs and Leveraging Resources: While some of the fastest growing HIV/AIDS rates of infection occur in Eurasia, the current surveillance and health service delivery systems are inadequate to track and respond effectively to the epidemic, and to keep and use critical donor sources such as those available through GFATM. A study funded in FY 2006 examined the barriers within the region's health systems that prevent rapid scale-up of effective HIV/AIDS programs and suggested practical steps to overcome them. 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 help to leverage other USG resources which have to date totaled roughly $1 billion for activities in Europe and Eurasia, 73% of which was for HIV/AIDS programs, including 18 awards for HIV activities in Eurasian countries. 

  • Study and Seminar on Non-Communicable Diseases and Injuries (NCDI): This study analyzed in detail the dramatic impact of NCDIs in the region and recommended low-cost, effective interventions for consideration by USG agencies and donors. The study confirmed that NCDIs cause over 90% of all deaths in the region, often at ages one to two decades earlier than Western country norms. 

  • Improved Tuberculosis Treatment: Tuberculosis continues to be the most serious and deadly infectious disease in Eurasia, with the situation exacerbated 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. In FY 2006, the USG funded the development and launch of a web-based network that will facilitate the exchange of TB information in English and Russian. The target audience includes TB program managers, health care providers and patients. Additionally, the USG is helping to address TB/HIV co-infection through an innovative leadership approach that encourages more effective collaboration and coordination between TB and HIV programs. Finally, while implementation of WHO approved protocols has progressed well in the region, national leadership in some countries remains resistant to the strategy. The USG is supporting the WHO to organize a ministerial forum in 2007 that will promote political commitment to address these regional threats.

Strategic Health Interventions:

  • American International Health Alliance (AIHA) - Eurasia: Drawing upon its network of partners, health knowledge network, and learning resource centers, AIHA has contributed to improved HIV/AIDS prevention, care and treatment. In 2006, AIHA developed 22 HIV/AIDS clinical/didactic/curricula and materials; helped train 34 master trainers from Russia, Ukraine, and Kazakhstan; helped develop national Prevention of Mother-To-Child-Transmission (PMTCT) strategies in Russia, Ukraine, Kazakhstan, Georgia, and Azerbaijan; and helped establish national PMTCT training centers in Russia, Kazakhstan, and Ukraine. Eighty-six percent of the learning resource centers (138), which link professionals with global health networks through the internet, have become self-sufficient. 

  • Access to Family Planning Services: The highest recorded abortion rates in the world occur in Eastern Europe and Eurasia, with some women having as many as 18-20 abortions. As a result, Congress identifies each year five FSA countries as priorities for reprogrammed family planning funding: Azerbaijan, Georgia, Kazakhstan, Russia, and Ukraine. This has resulted in nearly $28 million in additional non-FSA funding to those countries since 2004. In FY 2006, a five-year regional family planning project was launched that will identify and assist bilateral assistance programs in scaling up successful family planning practices in the region and ensure that scarce resources are efficiently allotted and used. The project will partner with the private sector to improve the delivery of family planning services and products and make these efforts sustainable; create a policy environment more favorable to family planning; and replicate and scale-up proven best family planning practices in the region. In addition to the launch of the regional project, case studies were developed detailing two of the region's most successful family planning interventions. 

  • Prevention of Iodine Deficiency Disorder (IDD): IDD is the world's leading cause of preventable mental retardation. Congress and UNICEF have made Eurasia a priority for prevention of IDD because a lower proportion of households in the region have access to iodized salt. Since the USG initiated the regional grant to UNICEF in 2000, the number of households in the region consuming iodized salt has increased from 26 percent in 2000 to 52 percent currently. Eurasian countries experiencing the most encouraging progress during FY 2006 were Georgia, Kazakhstan, the Kyrgyz Republic, Tajikistan, Uzbekistan, Belarus, and Georgia. More than half of newborns in the region are now protected from brain damage resulting from iodine deficiency.

SOCIAL TRANSITION PROGRAMS

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

  • In FY 2006, the analytical agenda produced the following analyses and written products (including databases): a study of the prevalence of domestic violence (DV) in the region and an examination of the laws and services that are available to assist victims of DV; production of an extensive series of databases documenting aspects of the labor market in all the countries of the region; a document describing best practices in community-based social service delivery systems in five countries in the region; a cross-country analysis of gender disparities with special focus on gender roles in the family, workforce issues, and education; and the creation of a database of donors and projects focused on the area of child welfare reform throughout the region. These products and others have been and will continue to inform USG strategic thinking about social issues and project design. For example, several of the analytical products were recently used by the USG in Armenia to develop interventions in the social sector and have informed the design of new USG program in Georgia in support for education reform. 

  • Legacy activities are efforts designed to promote local capacity in the region 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 indigenous specialists. In 2006, the USG launched a project designed to develop an empirically based understanding of the degree to which social factors affect domestic stability, interregional stability, and national security (i.e., breeding grounds for terrorist recruits) and to bring into dialogue communities of experts concerned about the nexus of these issues, e.g., specialists from the realms of national security, development, independent think tanks and academia. Phase I of this project examined the case of the North Caucasus in the spring/summer of 2006. Phase II will be carried out during FY 2007.

International Network of Disabled Youth Activist Teams: This project is carried out by the World Institute on Disability (WID) in conjunction with the Russian NGO Perspectiva and five disability NGOs (two in Siberia and one each in Armenia, Azerbaijan, and Uzbekistan). The project focuses on building a network of disability advocates who will promote improved laws and policies for the disabled and integration of the disabled into normal schools and labor market. The results of this project include the rights-based training and peer support that 50 disabled activists have provided to 2,500 disabled youths and parents. These activists have also led disability awareness trainings for more than 15,000 students at mainstream schools as well as some 1,500 journalists, lawyers, government officials, and teachers to date. Local and national "Disability Film Festivals" were attended by almost 10,000 people. Disability activist teams have constructed ramps into schools, libraries, and other key public buildings in their communities, have had their activities covered by national and local media approximately 450 times, and have assisted small numbers of disabled children in these cities to attend regular schools for the first time. The most notable activities for FY 2006 include:

  • In Armenia, the law "On the Education of Persons Requiring Special Education" was drafted with the direct participation of a partner NGO. The law gives legal status to inclusive education schools. 

  • In Azerbaijan, a disability activist team improved access to voting and polling places for Azerbaijani citizens with disabilities for the November 2005 parliamentary elections by encouraging the participation of voters with disabilities, providing training for poll workers, and constructing ramps into key polling places. 

  • In Uzbekistan, a disability activist team convened an unprecedented international conference on inclusive education in collaboration with the Ministry of Education. Held in December 2005, the conference, entitled "Problems of Implementing Inclusive Education and Solutions: Social Partnership with Authorities, Role and Place of Civil Organizations of Persons with Disabilities," was co-sponsored by the Mekhr Nuri Foundation, which is led by the President of Uzbekistan's daughter.

HUMANITARIAN ASSISTANCE

In FY 2006, regional funds supported the administration of humanitarian programs throughout Eurasia. These limited regional funds supported a program that delivered and distributed nearly $163 million in humanitarian commodities throughout Eurasia in FY 2006. In addition, funding supported a hospital upgrade project in the Kyrgyz Republic.

FSA Regional Peace and Security Programs

U.S. ASSISTANCE PRIORITIES

Borders throughout the Eurasian region are porous and regional law enforcement cooperation is weak. U.S. regional assistance programs work to improve regional law enforcement capabilities and regional cooperation with U.S. law enforcement to combat trans-border threats like organized crime, terrorism, and illicit trafficking.

REGIONAL SECURITY AND LAW ENFORCEMENT PROGRAMS

Eurasia Regional Law Enforcement: In FY 2006, FSA funding was used to support a number of important regional projects aimed at promoting standardized approaches to drug- and crime-related threats as well as regional cooperation.

  • International Law Enforcement Academy (ILEA) Budapest: ILEA is the flagship of the USG's international network of law enforcement training centers. Through ILEA, U.S. skills and best practices are shared with partner nations. The academy not only serves as a valuable means of enhancing the USG's law enforcement relationships with other nations, it also promotes cooperation and understanding among other countries. Trainees are drawn from a variety of agencies, including border guards, counter-narcotics and counter-terrorism investigators, and customs agents. In FY 2006, FSA funding was used to sponsor approximately 100 law enforcement officers from Azerbaijan, Georgia, Kazakhstan, the Kyrgyz Republic, Moldova, Russia, Tajikistan and Ukraine for an eight-week core program that covers: legal systems, law enforcement in new democracies, crime prevention, management strategies, counter-terrorism, corruption, money laundering, narcotics, criminal investigations, forensics, firearms, customs investigations, counterfeit investigations, white collar crime, organized crime, human trafficking, and nuclear smuggling. In addition, shorter courses in other specialized subjects were provided to police, prosecutors, and judges from the region. Post-training evaluations confirmed that ILEA program participants applied the concepts they had learned and actively sought to transmit those concepts to their colleagues. 

  • Paris Pact: The Paris Pact is a multilateral consultative mechanism established in 2003 that aims to improve donor coordination and develop counter-narcotics strategies along heroin trafficking routes from Afghanistan. The USG is a key player in the Pact and participates in the various Paris Pact conferences each year. In 2006, Expert Round Tables were held in Tajikistan and Doha. The Russian Federation (as G8 President) hosted a Paris Pact Ministerial in June to review progress under the Paris Pact since its inception. FY 2006 FSA funding was used as the USG contribution to this valuable intergovernmental forum, including practical activities such as the development of the Automated Donor Assistance Database (ADAM), which now allows donor governments to prevent duplication in international assistance and to identify gaps. 

  • Central Asia Regional Information and Coordination Center (CARICC): FSA funding was critical in bringing into being this Central Asia-based operational coordination center designed by the United Nations Office of Drugs and Crime (UNODC). CARICC is intended to help to improve cooperation between Central Asian states and U.S. law enforcement in combating trans-border drug trafficking and organized crime. In 2006, project teams representing participating countries finalized the necessary legal instruments, intergovernmental agreements, and action plans to establish the center. Almaty, Kazakhstan was confirmed as the center's venue, and engineering studies and building renovation will begin in early 2007. In the meantime, participating government agencies have already begun training on the standardized intelligence software. 

  • UNODC Controlled Deliveries Project: Modern investigative techniques are essential to combating transnational organized crime. In combating drug trafficking, one core technique is "controlled deliveries." In the pilot phase of the FSA-funded UNODC Controlled Deliveries Project, an international expert conducted assessment missions to Uzbekistan, Turkmenistan, Azerbaijan, Russia, Kazakhstan, the Kyrgyz Republic, and Tajikistan. The expert's subsequent report analyzes the legislative and administrative provisions, operational experience, and coordination issues and makes recommendations on needed improvements. A meeting of regional law enforcement agencies outlined the next steps needed in the program, including requirements for training and equipment. A reference book was also produced with information on legal provisions regulating controlled delivery operations and contact information of the law enforcement agencies of the countries involved in the controlled delivery project. 

  • UNODC Computer-Based Training (CBT): This project has helped to strengthen drug law enforcement capacity in Central Asia through the introduction of self-sustaining, computer-based training programs to counter drug trafficking and cross-border organized criminal activity. CBT is a flexible, innovative, and cost-effective approach to the delivery of training to large numbers of law enforcement personnel. 

  • UNODC Central Asia Chemical Control Project: As transit countries for both Afghan heroin and the chemicals needed to produce it, regional cooperation to combat chemical diversion is critical. Through this UNODC project, the Central Asian states have adopted national laws on narcotic drugs, psychotropic substances, and precursors based on UN Conventions; established regulatory controls on precursor chemicals; received training and advice from the International Narcotics Control Board (INCB) and UNODC Laboratory and Scientific Section; installed National Database System equipment and software; received training in precursor control by the experts from France, Germany (BKA), Turkey (TADOC), the United Kingdom (HMCE) and the U.S. (DEA); and participated in successful multinational investigations, such as the DEA-organized Operation Topaz and Operation Transshipment (which involved 20 strategic border checkpoints in all five Central Asian countries). Operation Transshipment has resulted in seizures of 3 tons of chemicals, 1,677 kilograms of marijuana, 36.3 kilograms of heroin, and 81.5 kilograms of opium. 

  • Legal Advisor: FY 2006 funding was used to support an advisor to support the planning and execution of important and sensitive justice sector development programs in Russia, Ukraine, the Caucasus, and Central Asia. This advisor has provided invaluable guidance to the USG and U.S. Embassies in coordinating assistance to the region and promoting regional cooperation, legal harmonization, and justice sector modernization, particularly for smaller bilateral programs that cannot support an in-country legal advisor. 

  • Forensics Advisor: The development of forensic capabilities in the countries of the former Soviet Union has been an integral component of the law enforcement development programs in those countries - promoting the rule of law and assistance in preventing abuses of authority. This program provides an on-call forensics expert to provide technical support to countries in the region. The advisor's work has focused particularly on the Caucasus region.


Georgia-Ukraine-Azerbaijan-Moldova (GUAM) Framework Agreement Program: GUAM was established in 1996-1997 as a regional cooperation forum of Georgia, Ukraine, Azerbaijan, and Moldova. Although the GUAM member states signed a Charter in June 2001, in their 2005 Chisinau Declaration they set out a new vision of GUAM as a regional organization committed to fostering European norms and values, democracy, rule of law, and regional security based on territorial integrity. In May 2006, at the GUAM Kyiv Summit, the new vision was codified in a revised Charter for the Organization for Democracy and Economic Development - GUAM, which defined a Kyiv-based GUAM Secretariat as its primary instrument of coordination and operation. Meeting on the margins of the UNGA in September, the GUAM foreign ministers named the first Secretary General of the Secretariat, which is to open in 2007.

Under a U.S.-GUAM Framework Agreement signed in October 2002, the U.S. agreed to support two initiatives approved by the GUAM countries: the Virtual Law Enforcement Center (VLEC) and the Trade and Transport Facilitation (TTF) Project. The VLEC project addresses the threat trans-national organized crime poses to the GUAM countries, which are key routes for trafficking in persons, narcotics, and other illicit cargos. The TTF project aims to facilitate trade and travel through streamlining and harmonizing customs and border control procedures. The Framework Agreement also supports a Euro-Atlantic Advisory Team made up of senior Customs and Border Police officials seconded by other European governments to assist in developing and implementing these projects.

During FY 2006, VLEC national centers were established in all the member country capitals and began operation. U.S. assistance installed the workstations, servers, and software and trained local personnel to operate this system, which provided full-time secure voice, video and data communication among all four centers. The VLEC network is being used to exchange law enforcement information on patterns of trafficking in narcotics and persons and data on customs and border crossings. Two task forces made up of law enforcement section heads from multiple agencies operated through the VLEC centers. The Task Force on Trafficking in Persons conducted a six-month regional intelligence exercise and conducted a joint interdiction operation in September. The Task Force on Narcotics Trafficking prepared an analysis of regional trafficking routes and conducted a joint interdiction operation in July. Planning for the joint anti-narcotics operation was done in conjunction with an operation organized by the SECI Center in Bucharest, Romania. In addition, as part of preparations for a Task Force on Law Enforcement Corruption, delegations led by deputy ministers convened in Tbilisi in July to discuss anti-corruption and internal affairs strategies with U.S. and European counterparts.

Under the TTF project in 2006, Lithuanian customs officials conducted eight seminars and practical tutorials on converting the border services from Soviet to EU and WTO standards. The seminars also addressed changing countries' rules and regulations on customs clearance procedures so as to facilitate trade and reduce corruption.

FY 2006 Funds Budgeted for U.S. Government Regional Assistance Programs for Central Asia, the Caucasus, and Eurasia [PDF format]

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



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