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U.S. Department of State

Diplomacy in Action

FY 2007 SEED Act Implementation Report


Bureau of European and Eurasian Affairs
FY 2007 U.S. Government Assistance to and Cooperative Activities with Central and Eastern Europe
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Regional Overview

U.S. FOREIGN POLICY AND FOREIGN ASSISTANCE OBJECTIVES & PRIORITIES

The United States continues to have 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.

OPERATING ENVIRONMENT

The countries of Southeast Europe made significant progress over FY 2007. Several countries in the region “graduated” from large-scale transitional development assistance over the past year, including Croatia, Romania and Bulgaria. The commitment of these and other countries of Southeast Europe to cooperation and multi-country solutions to regional problems remained strong in FY 2007 as countries began to take both a leadership and financial support role in such regional organizations as the Stability Pact. Key regional issues such as organized crime and coordinated responses to natural disasters will test the resolve and ability of the region’s countries to work together effectively.

FY 2007 Regional Program Performance

PEACE AND SECURITY

USG assistance in the area of peace and security 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. The regional programs are an important complement to the bilateral security and justice programs, facilitating regional cooperation and establishing regional standards and common approaches.

Southeast Europe Cooperative Initiative (SECI) - The USG continues to provide technical and financial support to the Regional Center for Combating Trans-border Crime (SECI Center) located in Bucharest, Romania. The SECI Center pursues a cooperative approach to rule of law and border reform in Southeastern Europe. The SECI Center was developed under the umbrella of the Southeast European Cooperative Initiative, which was launched with U.S. support in December 1996 to facilitate regional peace and stability through cooperative activities among the countries of Southeastern Europe and to lay the foundation for their integration into the rest of Europe.

The SECI 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 liaison officers (police and customs officers) from 12 states in Southeastern Europe, working closely with law enforcement experts from the United States, EU member states and other Western European countries. Neighboring Georgia, Ukraine, and Azerbaijan also maintain active observer status. Liaison officers exchange law enforcement information related to trans-border crime in the region, and lead and coordinate operational task forces in the field. 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.

The USG assists the SECI Center through a technical legal advisor, substantive training and operational support. The USG-supported Legal Advisor has provided guidance to the Center in composing legal protocols and concluding mutual legal assistance treaties, implementing a witness/victim protection program, and implementing the Southeast European Prosecutors’ Advisory Group (SEEPAG). The advisor has coordinated with the European Union (EU) on integrating the SECI Center into EU law enforcement operations, including working on issues involving data exchange. In addition, the USG advisor helped establish a legal department within the SECI Center.

In 2007 USG support helped integrated police and prosecutors into organized crime training courses identifying key prosecutors to include via SEEPAG. The USG has also helped the SECI Center build on its video-teleconferencing capability, and in FY 2007 successfully linked prosecutors and investigators together in this way to enhance the investigation and prosecution of organized crime.

Through USG assistance the SECI Center, with the growing engagement by SEEPAG, has made substantial progress in combating international crime. More cases are being prosecuted involving several countries and more sophisticated crime groups. Task force operations resulted in over 4,500 exchanges of information concerning Balkans-based organized crime, and in the facilitation of five major region-wide trans-border operations in trafficking in persons, illegal migration, narcotics trafficking, vehicle theft and container security with 160 subsequent arrests. For the first time ever, SECI coordinated and facilitated two complex and successful “controlled delivery” operations in narcotics cases. Both controlled deliveries occurred between an EU member nation and a non-EU SECI member nation. The USG-supported advisor was able to use SEEPAG to enhance the chances of proper prosecutorial coordination and follow-up of many SECI taskforce operations.

Additionally, SECI coordinated an investigation that uncovered a human smuggling network with a nexus to the United States and worked closely with both the FBI and DHS in the investigation. SECI is sharing its “lessons learned” with its new Central Asian counterpart, the Central Asian Regional Information Coordination Center (CARICC) in Almaty, Kazakhstan. SECI, likewise, cooperates with the Ukraine-based Virtual Law Enforcement Center (VLEC) that links Georgian, Ukrainian, Azeri and Moldovan authorities.

International Law Enforcement Academy (ILEA) - In 1995 the U.S. and Government of Hungary opened the International Law Enforcement Academy (ILEA) in Budapest, Hungary for law enforcement officers from Europe and Eurasia. In FY 2007 $850,000 in USG assistance funds were provided to support ILEA in Budapest. The Academy offered three different types of programs during the year including the core eight-week program, specialized training courses, and regional seminars. The core program, offered five times during the year, included an average 50 participants per session and focused on: developing skills in leadership, personnel and financial management, and management of the investigative process; instilling respect for human rights and the rule of law; and raising standards of ethics. In FY 2007 approximately 110 law enforcement officials from Albania, Bosnia and Herzegovina, Bulgaria, Macedonia, Croatia, Romania, and Serbia participated in ILEA’s core program. In addition ILEA hosted one-to-two week-long specialized courses and regional seminars on: counter-terrorism, corruption, organized crime, financial crimes, human trafficking and narcotics trafficking.

In post-training follow-up, ILEA training alumni from Albania and Bosnia and Herzegovina reported that they have been promoted to new levels of responsibilities within their home units, shared ILEA materials with colleagues and conducted train-the-trainer instruction for narcotics training and in organized crime investigations. ILEA graduates reported increasing cross-border cooperation with transnational investigations. For example, alumni from Serbia and Montenegro reported that, as a result of ILEA training and networking, they coordinated information with USG law enforcement trainers instructing at ILEA, resulting in dismantling of an Albanian heroin organization based in Budapest with ties to Kosovo and Serbia.

Stability Pact Organized Crime Initiative (SPOC) - In November 2002 the Stability Pact, a regional cooperation organization bringing together countries of Southeast Europe and supported by the EU and the U.S., launched the Initiative to fight Organized Crime (SPOC). During FY 2007, SPOC received support from the countries of Southeast Europe, Germany, and the United States. USG assistance continued to fund technical and administrative support to improve SPOC operations and management in FY 2007. SPOC has 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 develop the capability at main border posts in Southeast Europe to be connected with the I-24/7 database system. In conjunction with other support from Germany, Norway, and Sweden, the USG provided $150,000 in assistance in FY 2006 funds for the establishment of this system throughout Southeast Europe’s land, air, and seaports. 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 has helped 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. In FY 2007 the I-24/7 program has received further funding support from Germany, Norway, and Sweden. This funding, in conjunction with the original allotment of FY 2006 funding, continues to build the I-24/7 infrastructure in Southeast Europe.


Stability Pact Anti-corruption Initiative, Regional Secretariat Liaison Office (SPAI RSLO) - The RSLO in Sarajevo was launched in March 2004 as a focal point for regional ownership of anti-corruption efforts. Devoted solely to anti-corruption activities, the RSLO has served the nine SPAI member states, including Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Moldova, Montenegro, Romania and Serbia. The RSLO’s anti-corruption efforts are based on five pillars: adoption and implementation of international anti-corruption instruments; promotion of good governance and reliable public administration; strengthening of national legislation and the rule of law; promotion of integrity in business operations; and, promotion of an active civil society. All member states have appointed senior representatives that participate actively. In addition, all member states have signed anti-corruption compacts committing themselves to specific actions to combat corruption, for which the RSLO acts as a 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. In FY 2007 the SPAI successfully transferred ownership and leadership to the region and will now be referred to as the Regional Anti-corruption Initiative (RAI). Consistent with the Stability Pact and the USG’s goal of streamlining initiatives to be regionally run, the RAI will be based in Sarajevo and will be funded primarily by the regional members.

GOVERNING JUSTLY AND DEMOCRATICALLY

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.

Organization for Security and Cooperation in Europe (OSCE) - In 2007 the USG continued to support the OSCE’s important ongoing work in the region. 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. OSCE programs helped to prevent conflicts and promote stability in South Eastern European 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, promote media freedom and empower civil society.

Of the OSCE’s 2007 Unified Budget, 67% went to its 18 field missions. The remainder went to the OSCE Secretariat and Related 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. Forty-seven 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 2007 totaled approximately $14 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 2007, the OSCE’s Office of Democratic Institutions and Human Rights (ODIHR) conducted election observation missions in Macedonia, Bosnia and Herzegovina, Albania, Serbia and Croatia.

The OSCE Mission in Kosovo (OMiK) remains the OSCE’s largest. Among the highlights of OMiK’s work in 2007 was in helping to organize and oversee the November 17 elections. With three separate ballots – parliamentary, municipal, and mayoral – these elections had an unusual number of moving parts and were more complicated than in the past. Despite the very short time lines given to prepare for these elections, they went off smoothly, thanks in many respects to the work done by the OSCE. OMiK’s network of 33 municipal teams is generally considered to be essential for the monitoring and capacity-building at the municipal level before and after a status settlement. In FY 2007 these teams played an important role in building transparency and capacity at the local level, and ensuring non-discriminatory access to municipal services, which is essential for the protection of minority communities. The OSCE Mission also transitioned the Police Education and Development Program into the new Security and Public Safety Program. During the course of the year OMiK handed over responsibility for basic police training to the Kosovo Police Service and is now concentrating on providing advanced and specialized training, and leadership and management development. OMiK was also active in political party capacity development and facilitated the institutionalization of human-rights units in each of Kosovo’s sixteen ministries.

The OSCE Mission in Serbia serves as a model in the region for 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. Among its most important achievements, the OSCE Mission did vital work to promote overall police reform, accountability, and transparency, and to further the capacity of the Serbian police to fight organized crime. It promoted community policing principles and cooperative relationships between the police and the local communities in multi-ethnic areas such as southern Serbia and Vojvodina. The Mission helped to build greater legislative oversight and transparency in both the National Assembly and at the municipal level, and promoted greater involvement of the public in the legislative process at both levels. It also facilitated the decentralization process and contributed to building more effective local government. The OSCE Mission continued to play an important role in helping Serbia to meet international human rights standards, in fighting discrimination and intolerance, and in combating. Finally, the OSCE helped stimulate dialogue between Belgrade and the various ethnic communities in southern Serbia, and made progress in helping to integrate ethnic Albanians into state institutions.

The OSCE Mission in Montenegro, the organization’s youngest field mission, quickly established a strong and cooperative relationship with its host government, and had a meaningful and positive impact on the country’s democratic and economic development during the course of 2007. Over the course of the year it helped Montenegro to develop and adopt legislation, provided institutional and expert support to Montenegrin judges and prosecutors, assisted in monitoring the courts, and helped raise judicial standards and strengthen judicial independence. The Police Affairs Program supported the development of a more professional, democratic, and capable Montenegrin police service. The OSCE helped parliament modernize and improve its capacity to review legislation and to exert effective oversight over the government and other state institutions, and assisted local governments in becoming more responsive and accountable to constituents. The OSCE Mission also helped to more fully involve civil society actors in the decision-making processes at the central and local levels.

The OSCE presence in Albania continued to focus on fighting corruption and promoting good governance. It also promoted electoral, judicial and property reform, helped to build capacity of the Albanian Assembly, and supported the development of the border police. The OSCE helped to improve voter lists and registration procedures and assisted with the establishment of an effective address system country-wide. It also assisted Albania in promoting the rights of the Roma community and in combating trafficking in human beings.

The Mission in Croatia is an OSCE success story; the U.S. expects this mission to be substantially scaled back by the end of 2007.  Some work remains to be done in the areas of refugee returns and war crimes trial monitoring but this can either be accomplished by OSCE staff located in Vienna or through a small stay-behind element in Zagreb.

In the last year the OSCE Mission in Bosnia helped strengthen the institutions of government at all levels.  The OSCE facilitated the development and strengthening of the State Parliamentary Assembly, including increasing the involvement of citizens in the legislative process.  The OSCE helped consolidate democratic and civilian control of the military and contributed to eliminating and controlling small arms and light weapons.  Much of the OSCE Mission’s staff and resources were devoted to promoting the rule-of-law, a key piece of which is monitoring and reporting on domestic war crimes trials in BiH, particularly those transferred by the ICTY.  The OSCE Mission also focused on the return of refugees and displaced persons to their homes as a crucial part of its human-rights program.

The OSCE in Macedonia has been gradually reducing its size and its budget over the last several years and the USG supports the OSCE’s reallocation of its resources. In FY 2007 the OSCE Mission continued to work with the government to implement key elements of the 2001 Ohrid Framework Agreement, which included assistance in decentralization and police reform. In 2007 the program completed its first phase of decentralization, which helped strengthen local administrative structures. OSCE programs in police reform and rule of law improved police performance—especially in ethnically-mixed neighborhoods—and bolstered Macedonia’s judicial capacity. The OSCE’s long-standing media development programming has helped consolidate a free media in Macedonia, which jumped ten steps ahead for press freedom in the 2007 Reporters Without Borders report.

Analytical Tools - In FY 2007 regional programs continued to support key metrics that permit the USG to identify progress in promoting democratic societies. In FY 2007 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 the 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. The NIT 2007 report is available online.

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. The Index is an unparalleled source for information on NGO trends in the region.

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.

History and Reconciliation - In FY 2007, 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, the Balkan Wars, World War II 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 promotes 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 and in cooperation with the Stability Pact, the workbooks were also translated into Greek and Japanese, Macedonian and Albanian. In FY 2007 the Center for Reconstruction and Democratization in Southeast Europe (CRDSEE) held trainings in Serbia for the future trainers and teachers - 107 teachers participated in the trainings. The official launch of the Croatian language edition took place in Zagreb in October 2007. A wide range of guests were invited to read the books, attend the roundtable and provide comments and critiques. Teachers, historians, journalists and civil society figures participated in the lively and constructive debate. A similar book launch, scheduled to take place at the end of October in Sarajevo, was postponed due to the tense political situation at the time.

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 2007 the Stability Pact continued 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. Individual activities are outlined by substantive issue area below. In FY 2007 USG assistance contributed to the funding of several individual regional initiatives, and supported the Stability Pact Secretariat in Brussels, including salaries and administrative costs for personnel working at Stability Pact headquarters.

Exchange Program Alumni Outreach - In order to maximize the long-term benefits of USG training and exchanges, the USG provided small grant funding for alumni from these programs. The USG supported efforts to maintain contact with and encourage networking among alumni. The Alumni Outreach Program supports grants to organizations that have alumni of USG programs as members and to individual alumni for activities that support democratic advancement and economic reform. Funding is also provided to sponsor alumni events through U.S. embassies. Grants to both individual alumni and regional alumni associations supported a broad array of activities focused on democratic advancement and economic reform in FY 2007.

For example, a grant was provided to a Bosnian NGO to organize a regional committee of experts to develop a regional approach to the introduction and implementation of standardized civics education. As a result, representatives from ten Balkan nations collaborated on an important topic for the region and developed a joint approach for the creation of standardized civics education courses. Another grant was awarded to an Albanian alumni association to support a one-day regional conference that focused on key public health issues for the region. The conference allowed USG alumni and key stakeholders from Albania and the region to develop a cooperative approach to addressing public health concerns, particularly HIV/AIDS and Avian Flu. In Kosovo funding was provided to establish alumni association whose participants now include over 400 active and committed USG alumni from all of Kosovo’s various ethnic communities. Like its multi-lingual charter, events and publications sponsored by the association reflect the ethnic diversity of the individuals involved in its activities.

Democracy Promotion through Grants - USG assistance supported 28 grants to Southeastern European NGOs and independent media outlets working, often across borders, to strengthen the capacity and quality of independent media, to further develop civic education, to increase the transparency of national and local government, to promote civic activism, to assess progress toward democratic reforms and to promote human rights, respect for the rule of law and conflict resolution. This funding promoted democracy in Albania, Bosnia and Herzegovina, Kosovo, Macedonia, Montenegro and Serbia, and focused on supporting minority and youth voices in the democratic process. Awards promoted 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. USG-funded grants allowed NGOs to monitor the performance of parliaments and local government and implement awareness campaigns concerning corruption. This funding also promoted legal reform in Bosnia and Herzegovina, funded an assessment of constitutional, judicial and economic reform in Montenegro and produced daily news and analysis on war crimes trials and past human rights abuses.

One grantee sponsored skills based training workshops for 24 journalists from southern Serbia, Montenegro and Kosovo, including professionals from minority-language outlets. The journalists trained on designing story concepts, sourcing information, interviewing and complying with international publication standards. Following the workshops, the participants researched and produced a feature article on a current socio-political topic, such as the new Montenegrin constitutional framework. The workshops created opportunities for the journalists to discuss sensitive political issues and improve their reporting. Such cooperation and reporting will be crucial to maintaining stability ahead of important political decisions in the region. The program has also allowed minority outlets a greater voice by producing special publications that were sent to more than 15,000 regular subscribers of Balkan Insight.

Program for Research and Training on Eastern Europe and Eurasia (Title VIII) - Through support under the Title VIII program, the USG continued to focus on advanced policy-relevant research and critical language training in FY 2007. Seven organizations received grants to carry out national, merit-based competitions to distribute these funds to individual scholars and institutions. Cross-border research was key this year, and forum presentations to government officials and analysts looked at critical and current issues. Important historical research was also presented in order to provide context for today’s international problems.

In FY 2007 Title VIII saw an increase in post-doctoral applications, with numbers up across the entire grantee pool. A sample of products (research, conference grants, language study and library services) under SEED funding included: “Radical Islamic Space? Islamic Extremism in the Sandzak Region of Serbia”; “Harnessing Tradition: Customary Law and State-formation in Albania”; “Albanian-Yugoslav Unification, 1944-1948”; “Narrating the Past: Constructing a National History of the Romanian Csangos”; “East European Labor, Varieties of Capitalism, and the Future of the European Social Model”; “Christianizing Southeastern Europe”; “Research on Heritage Speakers of Macedonian in the United States”; “Sociological Surveys of Public Opinion in Southeast Europe”; “On Debt and Disorder: Market Exchange, Intimacy and Health in the New Bosnian State.” In addition library housing grants were issued by the University of Illinois to scholars focusing on policy-relevant research; embassy-scholar linkages continued as scholars were placed in East European posts in order to focus on relevant local issues; one new alumni tracking system was developed in FY 2007 with USG funds.

This research and subsequent forums, workshops, and paper dissemination assist government staff in formulating better assessments and enhancing programmatic activity throughout the government by adding external expertise on critical issues.

ECONOMIC GROWTH

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

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 2007, a USG regional competitiveness initiative continued its upgrading of regional market activity in agriculture/agribusiness, information technology, and trade capacity building. USG assistance supported the further expansion of Capability Maturity Model Integrated (CMMI) quality standards for software development for 152 firms from Southeast Europe and Armenia. The USG expanded its initiative to demonstrate how individuals can participate in worldwide online markets for technical services – thereby creating potential opportunities to bring millions of dollars of additional income into communities throughout the region.

In FY 2007 the USG promoted the competitiveness of small and medium-sized enterprises (SMEs) through the launching of a pilot program targeting high growth entrepreneurs in direct peer-to-peer mentoring in Slovenia and Romania. Over 900 SME entrepreneurs received training and over 3,000 received services at 20 networking events with entrepreneurs, lenders, local government officials and non-governmental organizations.

The competitiveness initiative also 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. Additionally, USG resources in FY 2007 facilitated two trainings for participating customs agents responsible for removing trade barriers in their respective countries. Cross-border relationships were formed, improving the ability of customs agencies to identify and remove barriers, and resulting in increased trade. In FY 2008 workshops are expected to be held for export-oriented businesses on the removal of tariffs and the classification system specified under the trade agreement.

Partners for Financial Stability - In FY 2007 USG resources continued to support the harmonizing of financial markets, policies and practices across Europe and Eurasia through a regional approach to the adoption of international standards and formation of cross-border relationships. A wide range of assistance was provided in collaboration and cost-sharing with private and public financial sector institutions. In Southeast Europe, 629 financial sector participants attended 22 regional technical workshops on international standards in information technology audit and internal audit of banks; research on financial crime in banking; prevention of money laundering; improving bank outreach and credit to small and medium-sized enterprises; reporting on environmental, social and governance issues; investor relations; insurance supervision; and insider trading.

Further, 43 individuals from seven countries were certified in international standards related to accounting, internal audit of central banks, and business plan analysis. Additionally, students and faculty at universities in the Southeast Europe region were trained on case study writing and corporate governance and members of the Kosovo Bankers Association completed a work-study visit to the Warsaw Institute of Banking. As a result, best international practices were identified and, through demand-driven workshops and study tours, disseminated to financial sector practitioners, promoting increased regional financial sector stability and integration.

Regional Transparency and Accountability - In FY 2007 the USG supported development, implementation and widespread use of tools to promote regional financial transparency and accountability, harmonization of standards, and economic integration through compliance with global financial reporting standards. Working with international standard setters, regional associations, and member associations on a pilot project basis, 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. Two pilot projects developed and tested new quantitative and qualitative compliance tools and leveraged USG resources through twinning alliances partnering more advanced European professional associations and multi-national audit firms, as development mentors, with less developed beneficiary associations challenged by significant compliance gaps with international standards of financial transparency and accountability.

Regional Energy Regulatory Network - The Energy Regulators Regional Association, a non-profit organization located in Hungary, continued its growth and development in 2007.TheUSG’s support allowed technical advisors from entities such as the U.S. National Association of Regulatory Utility Commissioners and a wide range of U.S. state public utility commissions to develop new classroom and E-learning training courses. USG support trained 198 regional regulators during the year, promoting best practices throughout the region and peer-to-peer collaboration among commissions in Europe and Eurasia.

Energy Efficiency and Clean Energy - Despite a mild winter, higher energy prices and heating issues meant that energy issues continued to be of critical concern in the region. During 2007, USG-supported experts completed work with the Alliance to Save Energy on a Regional Urban Heating Policy Assessment. Opportunities for energy efficiency and alternative energy investment in the heating sector were discussed with municipal and government officials as well as financial institutions and energy services companies. USG efforts promoted an energy efficiency task force in the Energy Community, established in December of 2007, and worked with the European Agency for Reconstruction, the World Bank and the European Bank for Reconstruction and Development on addressing critical needs, such as affordability and the role of energy efficiency in mitigating costs to low income groups. A regional assessment of urban housing utility affordability developed over 20 case studies of successful application of energy efficiency approaches to reduce energy costs to the poor and contribute to a more effective social safety net approach. A Development Credit Authority (DCA) facility was approved with two Macedonia lenders, providing up to $10 million in available project financing as capital for energy efficiency improvements. The projects should help improve municipalities’ financial position and enhance delivery of health, education and public safety.

Stability Pact and Energy Community - The Athens Energy Community Process begun within the Stability Pact framework has now taken the form of a multi-donor collaborative process to support the implementation of the Athens Energy Community Treaty. The Treaty was ratified by the regional participants and went into affect in June 2006. Treaty signatories committed to adopting EU energy, environmental and competition directives and working to establish regional electricity and gas markets. USG programs at both the regional and national level played a role 2007 in furthering these reforms and regional collaboration. USG advisors worked with energy regulators in the region to establish the Energy Community Regulatory Board, with an elected chairman from Macedonia, and address tariff reform issues through a joint benchmarking process. An important proposal for enhancing electricity trade and improving transparency was tabled to create an Energy Community Coordinated Auction Office for managing transmission capacity utilization. USG experts helped review and conduct due diligence on this proposal, working with regulators, utilities and energy traders. Investments in strengthening the transmission system are critically needed and the USG continued its support to the utility working group that is examining potential investment projects. This regional planning group identified and prioritized 10 investment projects (involving over $350 million in financing) needed by 2010 to develop a competitive electricity market. Electricity growth of over 5% is leading to tight supplies and concern over how to meet future demands. USG support to a regional demand planning project completed the first comprehensive energy demand assessment and forecast on national and regional needs. Special attention is now being given to the potential for energy efficiency improvements and the substitution of alternative, clean energy sources.

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 Facilitation / Non-Tariff Barrier (NTB) Reduction - One of the primary NTBs to efficient trade in the region is the existence of a myriad of customs regulations and policies, including many applied ad hoc, and the lack of a well-coordinated infrastructure in customs administration, inhibiting the flow of trade across borders. To address these issues, the USG convened the seventh in a series of regional Customs Coordination and Facilitation Workshops for a working group of customs officials since 2003. The USG-supported working group seeks to achieve the implementation of the International Convention on the Simplification and Harmonization of Customs procedures (Revised Kyoto Convention or RKC) and other international and WCO provisions. The workshop sought to facilitate the advancement of trade liberalization through enhanced communication, cooperation, and coordination amongst the region’s customs agencies, resulting in the reduction of incidences of arbitrary negative trade impacting policies being implemented.

Sanitary and Phytosanitary(SPS) measures, arbitrarily applied, also constitute disguised impediments to efficient trade and investment in Southeast Europe. In this context, USG experts assisted the SPS authorities in the region to establish SPS working groups, as a multi-national coordinating mechanism, facilitating the effective interaction of professionals in the region with national authorities and international organizations.

Officials from Southeast Europe responsible for SPS procedures created the only standing working groups in Southeast Europe dedicated to the coordination of SPS measures in an international accepted non-trade restrictive manner. The working groups have established procedures to increase visibility of Animal Health, Plant Health, and Food Safety Working Groups with national and international organizations. Officials have also created a barometer of progress made of bringing national SPS procedures into conformity with international standards set by OIE, IPPC, and Codex Alimentarius. During the workshops delegates learned mechanisms for effective coordination of emergency procedures for pest and disease outbreaks and shared updated information on procedures implemented to control these outbreaks, resulting in increased trade and investment in the region.

Organization for Economic Cooperation and Development (OECD) Investment Compact - In FY 2007 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 to improve the design and implementation of reform through regional cooperation includes monitoring and peer reviews, identification of priorities for reform, and improved dialogue between public and private sectors. Following the publication of the 2006 Investment Reform Index (IRI) evaluation which defined priorities for reform, SEE countries and the Investment Compact set up a South East Europe Investment Committee (SEEIC) to support implementation. Led by SEE Ministers of Economy, the SEEIC has ensured follow up and implementation of reform priorities through four expert working groups that were launched in 2007: investment policy and promotion, anti-corruption, regulatory reform and human capital development. Each working group has a mandate to develop specific guidelines for reform in a targeted area of policy and is supported by the Investment Compact.

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, support from NATO’s Science for Peace program, and in-kind contributions from participating regional governments, in FY 2007 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 Sarajevo, Bosnia and Herzegovina from Brussels. DPPI organized training during FY 2007 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.

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).

The purpose of the Enterprise Funds is to help create functioning market economies by investing in small and medium enterprises. This activity provides goods and services to meet consumers’ needs; jobs for the employees; private capital to finance productive investment; and an enlarged 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 these efforts 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.

Since their founding, the Enterprise Funds provided capital, loans and technical advice in situations where financial markets were evolving, and the legal/regulatory/institutional environment was not fully developed, such that foreign investors had been reluctant to commit funds to emerging small and medium-sized enterprises. This scenario is rapidly changing, and new capital is flowing into the SEED countries together with strategic investors seeking to expand their markets and private investment funds and individuals seeking high growth returns in these new, expanding markets. The final chapter of the Enterprise Fund program is now being written as the Polish, Hungarian, Central Asian, Slovak, Bulgarian and Romanian funds establish non-profit foundations. These “legacies” are being designed to further support growth of the private sector in each respective country. The Funds make available the profits that they have earned, plus 50% of the original grant. The remaining 50% of each grant goes back to the U.S. Treasury.

Each 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. The SEED Act provides 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.

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 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 small and medium-sized businesses, the Funds have introduced home mortgage lending, mortgage securitization, credit cards, pension funds, mezzanine financing, leasing, and investment banking. These initiatives are testament to the initiative and positive reputation that the Funds' management teams have earned. Moreover, each Fund has become a resource to which other investors have turned for information on the business climate in the countries of operation. A brief summary of each Fund follows. As of September 30, 2007 the ten enterprise funds have received about $1.17 billion from the USG. The following table shows the funding status of the seven, SEED Act-funded enterprise funds as of the end of FY 2007:

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)
$72.50m
$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
$30.00m
Total
$599.25m
589.65m
$588.54m

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 is growing but unemployment and lack of viable, productive enterprises continues to provide a challenge. The need for capital and technical assistance will continue for the next 5-10 years. The AAEF has made a total of 63 investments worth $83.5 million which cover a wide variety of sectors including: banking, insurance, airport and real estate development, plastic pipe manufacturing, telecommunications, garment manufacturing, and quarrying.

The Fund’s investment highlights include AlbGranite, a granite-quarrying company operating in the northeast of Albania. AlbGranite is providing jobs and opportunities in an undeveloped region suffering high unemployment. The quarry and its new processing facility under construction in Durres represents a major investment for the region. When in full production, the quarry and processing plant are expected to provide more than 75 jobs and contribute to the region’s economy through wages, taxation and annual quarrying use fees.

The American Bank of Albania (ABA), a highly successful investment in the process of being sold to Intesa-SanPaolo, Europe’s 5th largest bank, will expand Albania’s first international financial institution to neighboring countries. The ABA, valued at $156.9 million, was sold at 31 times the original investment of $4.8 million. ABA has branches in every major city throughout Albania and four branches in Greece to provide services to Albanian guest workers. ABA has been at the forefront of providing clients with modern banking services and products, such as ATMs, direct deposit, children’s savings accounts, mortgage loans, and has syndicated a number of loans with other financial institutions for public-private ventures.

Tirana Airport Partners, a partnership developed by AAEF with German Company Hochtief to develop, finance and build a new international airport and terminal, opened on time and under budget in March 2007. Passenger traffic is growing every quarter with new airlines serving the route. Plans are now in process to begin Stage 2 expansion of the terminal.

Sigal, which AAEF has built up to be the country’s leading insurance company, offers multiple life and non-life products and is now operating subsidiaries in Kosovo and Macedonia. The company’s audit by KPMG according to international accounting standards is a “first” for Albania. In 2007 Sigal signed a co-operation and participation agreement with UNIQA, the largest insurance company in Central and Eastern Europe, headquartered in Vienna Austria

The Fund 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) - In November, 2006 SAEF completed its investment of $3.4 million into New Diesel which focuses on bio-fuel production using rape seed as its raw material resource. The investment rationale is that this is a proven technology, and is combined with a strong local agricultural group, which should guarantee a sufficient supply of raw materials, and that biodiesel fuel is poised to play an increasing role in meeting transportation energy needs. SAEF has increased their investment to Ardaco, an existing portfolio company.

Other significant developments include the sale of the Fund’s stake in Slovlepex, through a sale of the company to management, resulting in a positive annual investment rate of return of 7.3% on combined equity and debt invested by SAEF.

The SAEF is now focusing on its future legacy activity, in which it intends to target support for entrepreneurship and business training. SAEF has terminated its efforts to establish a new Private Equity Fund. SAEF still has $1.1 million available to draw down and it expects to do so and to make additional investments prior to its termination commencement date of March 6, 2008.

Baltic-American Enterprise Fund (BalAEF) - The Baltic-American Enterprise Fund has for some years focused its investment strategy in two areas: home mortgage lending and mezzanine financing for SMEs. In order to pave the way for exiting these two investments, BalAEF received USG approval to enlarge its operational “footprint” by establishing subsidiaries in Finland, Poland and Russia. In June 2007, Baltic-American Mortgage Holdings (BAMH) was acquired by Allied Irish Banks for approximately $50 million, and in October 2007 an offer was made for Hanseatic Capital, the Fund’s mezzanine financing unit. When both units are sold, BalAEF expects an eventual return of approximately $70 million on its $50 million grant.

BAMH was a pioneer in mortgage lending in the Baltics and provided technical assistance to many local banks. BAMH generated approximately 13,000 home-owners mortgages, introduced a variety of mortgage loan products, and raised millions in loan capital from US banks, IFC and others.

Hanseatic Capital developed as the region’s only dedicated provider of mezzanine financing for SMEs in the region. During the year, Hanseatic developed a growing pipeline for deals and continued to execute its strategy based upon building attractive business units, catalyzing investment, and strengthening the financial services sector of Baltic countries through innovation. The mezzanine program is particularly interesting to SMEs which no longer have ample bank credit, or are structuring a management buyout or merger. These modern banking methods were not present in the Baltic region, and together with technical assistance provided by Hanseatic, have become an integral part of the private sector. BalAEF provided training programs and foreign assignments on a regular basis for employees of both BAMH and Hanseatic companies.

The BalAEF Board of Directors is now focusing its attention on developing a strategy and proposal for launching a “legacy” foundation with the proceeds of the program, as funds become available. Full details will become available in early 2008.

Bulgarian-American Enterprise Fund (BAEF) - The Fund’s Termination Commencement Date was in September, 2006, and management is now focused on realizing maximum return on the remaining investments. The Bulgarian-American Credit Bank (BACB) is recognized as Bulgaria’s largest long-term lender. In June, 2007, according to the Bulgarian National Bank, the BACB was ranked number one in return on equity and number one in return on assets.

BACB’s Initial Public Offering (IPO) on April 4, 2006, exceeded market expectations with the Fund realizing approximately $67 million USD for a 30% share of the BACB shares, with 85% being acquired by international investors and 15% from Bulgarian institutional and retail investors. As a result of subsequent sales, as of June 30, 2007, the BAEF holds 54% of BACB. BAEF has announced a plan to conduct an orderly disposition of its remaining ownership interest in BACB and will consider offers from potential purchasers to determine if there is an appropriate investor interested in acquiring BAEF’s remaining shares at a price acceptable to BAEF.

Hungarian-American Enterprise Fund (HAEF) - The Hungarian-American Enterprise Fund is now focused on maximizing its return on remaining investments consisting of two remaining parcels of land. HAEF’s legacy activity is comprised of the “Hungarian-American Enterprise Scholarship Fund” (HAESF), whose primary aim is to finance work and education experiences through internships and scholarships/fellowships in the U.S. for undergraduate and graduate students.

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. HAESF is attracting high caliber Hungarian students to its programs, but has noted increased competition from U.K and Western European programs, owing in part to difficult visa issues for individuals coming to the U.S. During 2007, HAESF established a U.S. Study Center at Indiana University (IU) and the first four undergraduate scholarship recipients commenced a one year educational experience at IU’s campus in Bloomington, Indiana.

HAEF has closed its Budapest and U.S offices but will retain 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) - Polish American Enterprise Fund (PAEF) originally received $256.5 million as a USG grant. The Fund officially began liquidation in 1999 and in keeping with the 50/50 agreement with the Congress, and based on a determination that the official Enterprise Fund grant amount was $240 million; the PAEF has returned $120 million to the U.S. Treasury and retained $120 million to launch the new Polish-American Freedom Foundation (PAFF). Subsequent reflows from the PAEF will be directed to the PAFF. Cumulative grants made to the Foundation from PAEF as of March 31, 2007, were $216.5 million; it is expected that this amount will ultimately be increased to $257 million when the remaining assets are liquidated.

Remaining PAEF assets as of March 31, 2007 were $20,386,000. PAEF is gradually liquidating these assets as opportunities occur. There is currently a proposal to sell the major remaining asset, Fundusz Mikro, a successful micro-lending bank. The remaining PAEF assets are represented by small loans to local NGOs and a small direct investment. The PAEF expects to liquidate all investments by the end of 2008.

The PAFF now has an endowment of $10-12 million each year. The endowment is held mainly in U.S. investments which return 5% interest. In 2007 changes were planned for a new direction for NGO development in Poland, and some new activities for the PAFF. Program strategies for the PAFF will be as follows: programs that target European Union money linkages for local NGOs; an NGO academy to provide training for smaller NGOs especially in the area of cultivating EU money linkages; a new PAFF Bureau to develop evaluation techniques to be made available to both non-profits and for-profit organizations; programs offering private sector information and support for efforts that will bring migrants back to Poland and reverse the current “brain-drain”; and discussions with interested parties for a cooperative digital library program similar to that established in Chile and Mexico. Activity would target small towns and villages.

The PAEF was privatized in 1990 as Polish Enterprise Investors (EI). In September 2006 this entity closed its sixth private fund, which was oversubscribed. This brings the total of private funds raised by all six EI funds to over $2 billion (most of which remains in Poland), making EI one of the largest private equity funds in Central and Eastern Europe. EI has brought 24 initial public offerings to market and is now planning a seventh private equity fund which will attract investors mainly from Europe, although several American investors such as MetLife and Calpers will continue as investment partners. Opening Poland’s capital market up to new investments has contributed greatly to Poland becoming a stronger private sector economy.

Romanian-American Enterprise Fun (RAEF) - The Romanian American Enterprise Fund was established in September 1994. The USG initially capitalized the RAEF with a $50.0 million grant and later added $11.0 million to bring total obligations to $61.0 million.

During the first half of 2007, RAEF invested around $5 million in their existing portfolio companies. There were no other new direct investments made, with the exception of the Fund’s interest in the Balkan Accession Fund (BAF). Now that the BAF, a regional private equity fund created by the RAEF and the Bulgarian-American Enterprise Fund, has been established and is actively making investments, the arrangement between the two funds is that RAEF will no longer make new investments except in specific areas, such as real estate. Since 1996, RAEF’s self-sustaining, micro-loan program has supported small and micro-enterprises with loans based upon flexible collateral requirements. The program has helped create around 12,000 jobs, and to sustain another 37,000 jobs.

RAEF continues to influence the growing private sector in Romania by attracting new capital and strategic investors, providing technical assistance to portfolio companies, and pioneering investment banking services. RAEF’s investment banking team is the first in Romania to partner with the world’s leading investment banks on large scale transactions in energy and banking privatization involving billions of dollars in assets. After the sale of three major portfolio assets in 2006 to GE Money (subsidiary of General Electric Company) for $178 million, the Fund is actively researching exit opportunities for remaining investment assets.

The BAF, a parallel private equity Fund, has focused investments in the financial services, retail, distribution, consumer products, IT, healthcare, selected industrial, media, and other consumer-related services. BAF has now called up 27% of their authorized capital, an indication of strong demand for capital in a growing private sector. The Fund is targeting SME investments in South-East European countries such as Romania, Bulgaria and Serbia, also selected transactions in Ukraine and Moldova. Any Romania or Bulgaria bilateral funds will be invested in their respective countries.

The approval process is proceeding to establish the Romanian-American Foundation, a legacy of the RAEF. The RAF will be established as a perpetual foundation with capital in excess of $100 million to promote private sector development and/or policies and practices conducive to private sector development. A focus of the RAF will be on education through activities such as: guarantees for student loans, scholarships, counseling and internships, to facilitate access by college and university students to higher education and training in areas such as business, economics, and entrepreneurship, and in similar or related areas; education in economics, business basics entrepreneurship and workforce readiness in primary and secondary schools, particularly in smaller cities and rural areas; and other support for private sector development, including partnerships and exchanges with U.S. institutions and organizations.

INVESTING IN PEOPLE

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.

In FY 2007 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 - During 2007 the USG completed and disseminated the first study on non-communicable disease and injuries (NCDIs) which recommended low-cost and effective interventions. 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.

Tuberculosis (TB) 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. 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 and strengthened national leadership capacity to address organizational challenges impeding the coordination of TB and HIV/AIDS programs.

While TB protocols approved by the World Health Organization (WHO) have largely been implemented effectively in the region, leadership in some countries has remained resistant to the strategy. The USG supported the WHO in organizing a ministerial forum that occurred in the first part of FY 2008. Ministers of health, justice, finance, and education, as well as TB experts met to focus on the social and economic impact of TB in an effort to strengthen political will to help address these regional threats and ensure sustained financing. USG funds also enabled WHO to provide DOTS-Plus training to national TB program managers, and to print and distribute WHO guidelines on management of drug resistant TB.

The USG funded the fifth annual exercise to provide USG policy makers an overview of health status and vulnerability in the region. The 2007 Europe and Eurasia Health Vulnerability Analysis identified those E&E countries whose health status is the poorest and whose transition to Democracy and free market economies may be most vulnerable due to health factors. The analysis also highlighted health issues that may warrant special or increased attention by USG policy makers.

Strategic Health Interventions - 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. In FY 2007, the three-year USG Regional Family Planning Initiative began implementing a number of successful activities focused around increasing private sector partnerships for improved and sustainable delivery of family planning services and products, creating a more favorable family planning policy environment, and replicating proven best practices in the region for greater impact. This regional activity brought USG agencies and implementers together, encouraging collaboration on improving the family planning / reproductive health through specific service delivery improvement methods, contraceptive technology updates, and policy improvement and development activities.

The U.S. Center for Disease Control and Prevention (CDC) is a leading resource for TB technical assistance and has extensive experience with conducting research on drug resistant TB. Extensively drug resistant TB (XDR-TB), a potentially untreatable form of multi-drug resistant TB (MDR-TB), has been documented in all regions of the world. The CDC undertook preparatory activities in FY 2007 to ensure the effective launch of surveys that seek to measure the level of anti-TB drug resistance in the region. Currently, the level of XDR-TB in the region is unknown. Prevalence surveys will identify the type and level of resistance to anti-TB drugs. This needed information will enable policy-makers, program managers, and USG to develop program and policy initiatives to address issues related to resistance thus increasing patient treatment results.

Most HIV transmission in Eastern Europe and Eurasia is either directly or indirectly related to non-sterile injection use. Substitution therapy (ST) is an effective tool for prevention of HIV transmission as it eliminates the need to inject drugs and is critical for adherence to antiretroviral therapy, thereby reducing the risk of development of drug resistance. However, most countries in the region have policy barriers that limit the implementation and scale-up of substitution therapy programs. The HIV Substitution Therapy Policy Project began design in FY 2007 and will roll out in FY 2008. The policy project will assist advocates and policy makers in the region in making incremental policy changes to support the effective implementation of substitution therapy.

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, with USG support, UNICEF has helped double the use of iodized salt in the broader region from 28% in 2000 to almost 50% in 2007, resulting in seven countries eliminating iodine deficiency. 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 a USG entity used to access expertise, analysis, and logistical support in the social sector for the Europe and Eurasia region. Its purpose is to discern where East European and Eurasian countries are advancing towards phase-out goals in the social sector, or where a lack of progress could undermine related USG transition goals. In FY 2007, the ATF produced the following analyses and products: a study of major vulnerabilities in the education systems of all the countries in the region; a regional study investigating the strength of linkages between trafficking in persons and domestic violence; a three-tiered index of child welfare across countries in the region; an evaluation of programs for Roma minorities in the Balkans; and the first stage of a program to improve skills training, curriculum development, and on the job training in the agriculture sector (Kosovo) and the tourism sector (Montenegro). These products were used to improve programs promoting the social sector transition necessary to sustain political and economic transition in the region and to build the awareness and capacity of local experts to better address needs of vulnerable groups including youth at risk, victims of trafficking and domestic violence, children, and the unemployed. 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. Activities in the area of workforce development provided analyses aimed at promoting economic competitiveness in Southeast Europe.

Protection of Victims of Trafficking in Persons (TIP) - The USG supported the Transnational Referral Mechanism (TRM) program for South Eastern Europe, as well as a new study examining the relationships between prior domestic violence experience and vulnerability to TIP. The results of the TRM regional victim protection program to date include: the establishment of national implementation teams in all the SEE countries; the first regional TRM seminar with 130 participants; and the path-breaking “Listening to Victims” study, bringing the victims' perspective into the design of the TRM. The findings of this study as well as fact finding missions conducted in all the SEE countries guided the development of the “Guidelines for the Transnational Referral Mechanism for Victims of Trafficking” which outline step-by-step operating procedures for cross-border referral. UNICEF contributed by developing special TRM guidelines for children. This project has furthered Euro-Atlantic cooperation by working with a European inter-governmental organization and engaging eleven key European destination countries on TIP-related issues. The "Examining the Intersection between Trafficking in Persons and Domestic Violence" study analyzed the relationships between domestic violence and vulnerability to TIP, and also explores appropriate victim-centered responses from TIP and DV shelters and service providers for purposes of more cost-effective programming.

Coal Sector/Employment Study - The USG funded a study that mapped the viability of coal mines and coal fired power plants in the region in order to inform employment-related decisions. The results of the mapping exercise and best practices study are being used by community leaders, governments, regional energy experts and assistance donors to plan ways to mitigate hardship and support the transition of workers to new employment and enterprises. During FY 2007 the USG completed the regional summary report and best practices study, as well as six in-depth country level studies. These studies looked at macro-level coal production, plant viability and employment and included a select number of micro studies which examined the potential impact of mine restructuring at the community level. Although the activity ended in mid-FY 2007, these materials have since been used by the Energy Community of Southeast Europe in the development of the Energy Community Social Program under the sponsorship of the European Commission

FY 2007 Measures of Regional Performance

The following data are based on the Monitoring Country Progress in Europe and Eurasia system developed by the United States Agency for International Development (USAID) to measure and track progress in the region. The system uses four different indices to monitor progress, drawing on readily available standardized country-level data on economic reform, economic structure and performance, democratic reform, and human capital. The primary data sources are the European Bank for Reconstruction and Development (EBRD), the World Bank, the United Nations Children’s Fund (UNICEF), and Freedom House. The data for each of the four indices are converted and standardized to a 1-to-5 scale, with a “5” representing the best performance of the Eastern Europe and Eurasia region, and a “1 the least advancement of the region.

More detailed information on the progress of each country in Eastern Europe can be found in the country reports that follow.

Democratic Reform in Eastern Europe

Date: 01/01/2008 Description: Democratic Reform in Eastern Europe. Chart shows Democratic Reform--Countries currently implementing SEED funds. State Dept Photo


Economic Performance in Eastern Europe

Date: 01/01/2008 Description: Economic Performance in Eastern Europe. Charts shows Economic Performance Index--Countries currently implementing SEED funds. State Dept Photo


Economic Reform in Eastern Europe

 

Date: 01/01/2008 Description: Economic Reform in Eastern Europe. Chart shows Economic Reform--Countries currently implementing SEED funds. State Dept Photo


Human Capital Progress in Eastern Europe


Date: 01/01/2008 Description: Human Capital Progress in Eastern Europe. Chart shows Human Capital Index--Countries currently implementing SEED funds. State Dept Photo






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