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FY 1995 Annual Report, published April 1996. Prepared by the Office of the Coordinator of U.S. Assistance to the NIS Submitted Pursuant to Section 104 of the FREEDOM Support Act (Public Law 102-511).
This Annual Report describes U.S. Government activities that supported reform in the twelve New Independent States of the former Soviet Union during Fiscal Year 1995. This report describes bilateral assistance programs in full implementation, now that funding from previous years is being fully deployed. The range and breadth of the programs described here are greater than in previous years and are likely to be greater than in subsequent years, as new funding continues to decline.
The report describes the contributions to democratic and economic reform in each of the twelve NIS countries and describes the nature of our assistance by country and by sector. Described herein are the efforts of seventeen U.S. Government agencies, twelve U.S. embassies and thousands of U.S. and NIS citizens. This document affirms our appreciation of their work, and I hope you will find it to be a useful resource.
Richard L. Morningstar
Special Advisor to the President and Secretary of State on
Assistance to the NIS
Core Objectives 1
Evolution of the NIS Assistance Program 1
Progress in Meeting Core Objectives 2
Significant Developments in FY 1995 3
NIS Assistance Strategy 4
Structure of the FY 1995 Annual Report 6
Coordinator's Mandate [not available in electronic version] 7
Armenia 9
Azerbaijan 11
Belarus 13
Georgia 15
Kazakstan 18
Kyrgyzstan 20
Moldova 22
Russia 24
Tajikistan 29
Turkmenistan 31
Ukraine 33
Uzbekistan 35
III. ASSESSMENTS OF MAJOR PROGRAMS
TRADE AND INVESTMENT PROGRAMS 38
U.S. Export-Import Bank (Eximbank) 38
Overseas Private Investment Corporation (OPIC) 38
U.S. Trade and Development Agency (TDA) 39
Enterprise Funds 39
BUSINESS AND ECONOMIC DEVELOPMENT PROGRAMS 43
U.S. Department of Commerce - BISNIS/BISTA 43
U.S. Department of Commerce - American Business Centers 45
U.S. Department of Commerce - CABNIS 46
U.S. Department of Commerce - Commercial Law Development Program 49
USAID New Business Development Program for Russia 49
USAID Economic Restructuring / Financial-Sector Reform Programs 52
USAID Private-Sector Initiatives 54
U.S. Securities and Exchange Commission (SEC) 57
U.S. Department of the Treasury - Support Implementation Group (SIG) 57
U.S. Department of the Treasury - Technical Advisors 58
U.S. Department of Agriculture - Emerging Democracies Program 58
USAID Farmer-to-Farmer Program 59
USAID Food-Systems Restructuring Programs
TRAINING AND EXCHANGE PROGRAMS 62
USIA FREEDOM Support Act Exchanges 62
USAID NIS Exchanges and Training (NET) Project 71
U.S. Department of Commerce - SABIT Program 72
U.S. Department of Agriculture - Cochran Fellowship Program
U.S. Department of Agriculture - Faculty Exchange Program 74
DEMOCRACY PROGRAMS 75
USAID Democratic Pluralism Initiatives 75
Congressional Research Service (CRS) 79
Anti-Crime Training and Technical Assistance (ACTTA) Program 80
ENERGY AND ENVIRONMENTAL PROGRAMS 81
USAID Energy-Sector Programs 81
U.S. Department of Energy - Nuclear Safety Programs 85
U.S. Department of Energy - Energy Efficiency Programs 86
U.S. Nuclear Regulatory Commission (NRC) 87
USAID Environmental Programs 88
USAID Energy and Environmental Commodity Import Program for Russia
90
SOCIAL-SECTOR AND HUMANITARIAN PROGRAMS 91
USAID Health-Care Reform Programs 91
USAID Housing-Sector Reform Programs 94
U.S. Department of Agriculture - Food Assistance Programs 96
USAID Humanitarian Assistance Programs 97
Coordinator's Office Humanitarian Assistance Programs 100
SECURITY PROGRAMS 113
U.S. Department of Defense - Cooperative Threat Reduction (Nunn-Lugar) Program 113
U.S. Department of Energy - Materials Protection, Control & Accounting Program 119
U.S. Department of Energy - NIS Industrial Partnering Program
(IPP) 121
OTHER PROGRAMS 122
Eurasia Foundation 122
Peace Corps 122
U.S. Support for International Financial Institutions 124
Program for Research and Training on Eastern Europe and the NIS (Title VIII) 127
IV. ASSESSMENTS OF PROGRESS IN MEETING THE STANDARDS OF
SECTION 498A OF THE FOREIGN ASSISTANCE ACT OF 1961
Armenia 130
Azerbaijan 135
Belarus 139
Georgia 144
Kazakstan 148
Kyrgyzstan 153
Moldova 157
Russia 161
Tajikistan 175
Turkmenistan 180
Ukraine 185
Uzbekistan 191
V. EVALUATION OF THE USE OF "NOTWITHSTANDING" AUTHORITY 196
APPENDIX: CUMULATIVE BUDGET CHARTS [not available in electronic format]
Funds Budgeted
Obligations
Expenditures
Commercial Financing And Insurance
Graph: Cumulative Obligations and Expenditures
Since the collapse of the Soviet Union in late 1991, the U.S. Government has been helping the New Independent States (NIS) of the former Soviet Union make the transition from a centralized, authoritarian nuclear power to twelve sovereign countries governed on the basis of democratic, free-market principles. The political, economic and security benefits of this transition are as enormous to the people of the United States as they are to the people of the NIS countries. The overall goal of U.S. policy towards the NIS is to establish normal, enduring and productive bilateral relations with each of the New Independent States, and to encourage such relations among them, as well as between the NIS countries and the other members of the international community--these relations must be based on the mutual recognition of reasonable security interests, the maintenance of normal economic relations, and the free movement of people, goods and ideas. The U.S. assistance effort in the NIS is intended to be a temporary effort, and is designed to facilitate the establishment of normal bilateral relations by emphasizing cooperation, rather than donor-recipient relationships.
In FY 1995, U.S. Government assistance to and cooperative activities with the NIS countries continued to support three core objectives:
to promote democratic institution-building, the rule of law, and the establishment of a civil society;
to help establish open and competitive market economies and expand opportunities for trade and investment; and
to enhance U.S., NIS and international security through cooperative threat reduction and non-proliferation efforts.
Our activities in the NIS also supported a number of other objectives, such as humanitarian assistance and social-sector reform. However, as assistance funding continues to decline, we will need to devote an increasing proportion of our diminishing resources to the three core objectives. Moreover, we will need to assess investments in particular sectors on the basis of their contributions to the core objectives.
Now four years old, our NIS assistance and cooperative programs have been effective catalysts for economic and political reform in the region. Of course, the success of reform efforts in each particular NIS country is ultimately dependent on the political will of that country's government. As a result, the pace of reform has not been uniform across the NIS, and we have had to tailor our programs accordingly. As long as progress towards democratic governance and a market economy remains uneven from country to country, it is important that our programs continue to be flexible and responsive.
In several NIS countries, reforms have progressed far enough that we are now in a position to move beyond the donor-recipient relationship to a more normal relationship involving the full range of economic, commercial and other forms of cooperation. In such cases, we are concentrating our efforts on phasing out technical assistance, and are focusing instead on programs that will promote economic growth, trade and investment. Meanwhile, in several other NIS countries, humanitarian aid continues to be a primary component of our assistance effort as we seek to help these countries attain a sufficient level of stability so that they can proceed with reforms. In such cases, our goal is to move as quickly as possible towards providing the technical assistance needed to help reformers lay the groundwork for a market economy and democratic political system. In other cases, the issue is not so much one of stability, but one of encouraging governments to be less tentative and more vigorous in implementing political and economic reforms.
A brief assessment of the activities designed to meet each of the core objectives is provided below.
Objective 1: Promote democratic institution-building, the rule of law, and the development of a civil society
While democratic reformers made significant headway in many of the NIS countries in FY 1995, the future of democratic reform in these countries remains highly uncertain. Trends towards increased recentralization of power were evident in several NIS countries. While every NIS country held one or more major elections in 1995, these elections were in many cases judged to be "less than free and fair" by international observers.
U.S. Government assistance to the NIS in the area of democratic reform was focused on achieving long-term results. While we provided a substantial amount of assistance in conjunction with various local and national elections, the bulk of our assistance was designed to promote long-term democratic institution-building. By promoting the development of democratic parliamentary and judicial systems, independent media and nongovernmental organizations (NGOs), we helped democratic reformers overcome temporary setbacks in their countries' reform processes. A useful new mechanism for promoting democratic institution-building in the NIS was introduced by the Coordinator's Office in late FY 1995: the embassy-based Democracy Funds Small-Grants Program, which is modeled after the highly successful Democracy Commissions program for Eastern and Central Europe. FY 1995 also saw a continuation of our effort to move assistance increasingly out into the regions, instead of focusing mainly on the capital cities.
Objective 2: Help establish open and competitive market economies and expand opportunities for trade and investment
In FY 1995, most of the NIS countries were entering the toughest phase of economic reform. To a greater or lesser degree, virtually all of them had recognized the importance of establishing market economies in order to improve the allocation of resources in their countries by enabling consumers--rather than the state--to decide what is produced and sold. The NIS countries must now move beyond their initial policy decisions to liberalize prices and abandon the state-order system, and must create the legal and regulatory framework needed in a fully functioning market economy. Assistance in this area, moreover, is also critical to U.S. commercial interests, as it contributes to creating transparent and competitive markets open to U.S. trade and investment.
U.S. economic assistance to the NIS in FY 1995 continued to focus on facilitating the systemic transformation of the NIS economies. Particularly in those NIS countries whose governments are committed to economic reform, our programs had a strong and positive impact on the reform process. We continued to devote considerable resources to promoting the privatization of formerly state-run enterprises. Our privatization programs have helped achieve remarkable progress in Moldova, Kazakstan, Kyrgyzstan and Russia, while in Ukraine, considerable bottom-up small-scale privatization has taken place, and momentum behind the mass-privatization program is building. Even in countries as slow to reform as Belarus, we have been able to facilitate small-scale privatization and have thus helped build a broader constituency for reform. In addition to supporting privatization, we continued to support the development of the legal and institutional framework needed for a fully functioning market economy--including tax codes, stock exchanges, share registries and regulatory bodies--which will in turn expand trade and investment opportunities. Regional enterprise funds capitalized with U.S. assistance funds have committed over $130 million in investment capital to privatized enterprises in the NIS, helping integrate the NIS economies into the world economy and promoting trade with the United States.
Objective 3: Enhance U.S., NIS and international security through cooperative threat reduction and non-proliferation efforts
Political and economic conditions following the collapse of the Soviet Union in 1991 led to increased U.S. concerns about the ability of the NIS nuclear successor states to meet arms-control treaty commitments on time and to maintain effective control over nuclear and other weapons of mass destruction, and related materials and expertise. These concerns are addressed by the Defense Department's Cooperative Threat Reduction (CTR or Nunn-Lugar) Program--including, through FY 1995, materials protection, control and accounting and export-control assistance, as well as assistance through the Science Centers--and the Energy Department's direct support for materials protection, control and accounting (MPC&A), and the Industrial Partnering Program (IPP). These programs have required relatively small investments, but have yielded immense returns to U.S. national security.
The CTR Program has become one of the most successful of our security-related assistance efforts. In FY 1995, the primary focus of CTR assistance remained on reducing the threat to the United States by assisting in the destruction and dismantlement of weapons of mass destruction; prevention of proliferation of nuclear materials through chain-of-custody assistance, and demilitarization and nonproliferation activities. Implementation of CTR continued to accelerate, as obligations doubled from $434 million at the end of FY 1994 to over $866 million at the end of FY 1995. The prospect of receiving CTR assistance, as well as the success of CTR programs, contributed to the withdrawal of over 2,800 strategic warheads from Belarus, Kazakstan and Ukraine to Russia; Ukraine's decision to denuclearize and accede to the Nuclear Non-Proliferation Treaty (NPT) as a nuclear-weapons-free state; and the complete removal of all nuclear weapons from Kazakstan as of April 1995. Support through the International Science and Technology Center (ISTC) in Russia and the Science and Technology Center in Ukraine (STCU) has provided peaceful civilian employment opportunities to more than 11,500 former Soviet weapons scientists and engineers. Demilitarization assistance has supported the conversion of over 88,560 square meters of factory floor space in the CTR recipient states from the production of weapons of mass destruction to the production of civilian goods. The Department of Energy also made significant progress in executing its materials protection, control and accounting activities, providing assistance at over 30 nuclear institutes and facilities in the NIS.
These activities enhance U.S., NIS and international security. During the Cold War, the U.S. Government spent hundreds of billions of dollars defending U.S. citizens against Soviet weapons of mass destruction. With the help of these programs, substantial progress has been made in reducing the continuing threat from these weapons and in preventing the emergence of new threats in the post-Cold War world.
On April 4, 1995, President Clinton signed a new mandate for the Coordinator of U.S. Assistance to the NIS, Mr. Richard L. Morningstar. This new mandate expanded the Coordinator's purview and gave him additional responsibilities for resource allocation and for the oversight of all U.S. Government bilateral assistance and trade and investment programs. A copy of the new mandate has been included at the end of this section [not available in electronic format].
After reaching a high-water mark of $2.5 billion in FY 1994 FREEDOM Support Act funding, in FY 1995, the U.S. assistance program for the NIS came face-to-face with the challenge of meeting continuing needs with declining resources--not only in the FREEDOM Support Act account but also in the accounts of other agencies funding programs in the region.
The FY 1995 FREEDOM Support Act appropriation of $850 million represented a two-thirds reduction in assistance funding for the NIS. Similarly, the FY 1996 FREEDOM Support Act appropriation of $641 million represents a 25 percent reduction from the FY 1995 level. In FY 1996, a combination of Congressional budget reductions and earmarks, as well as developments in the NIS, will require a change in our assistance strategy: a more rapid shifting of resources away from Russia and toward Ukraine and Armenia. In FY 1994, two thirds of NIS assistance went to Russia; in FY 1996, the proportion devoted to Russia will be about one fourth.
As of the end of FY 1995, cumulative appropriations for the FREEDOM Support Act, Cooperative Threat Reduction (Nunn-Lugar) and selected other assistance and cooperative programs totaled $8.05 billion, of which $7.3 billion had been obligated and $5.1 billion had been expended (see Appendix). Obligations increased by approximately $2.2 billion in FY 1995, while expenditures increased by approximately $1.8 billion.
Diminishing resources, as well as changed circumstances in the NIS, have necessitated a reshaping of the overall NIS assistance program to make it focus more sharply on the core objectives. Unfortunately, many worthwhile programs will inevitably go unfunded, while new, high-priority projects will require new resources. A sharper programmatic focus will be achieved not by cutting everything equally, but by eliminating some activities altogether and by concentrating resources on those key areas that will reinforce the economic and political changes most critical to U.S. interests, in accordance with an overall phase-out strategy. In addition, assistance provided in the various sectors must be integrated into a balanced overall assistance strategy.
While our core objectives have remained constant, the situation in each of the NIS countries and the size of the U.S. assistance budget have changed dramatically over the past three years. Our challenge is to refashion our NIS assistance and cooperative programs to meet these changed conditions. An ongoing program review by the Coordinator's Office has identified four specific areas in which our approach needs to be changed, and has led to the formulation of four corresponding sets of new guidelines for our future assistance and cooperative efforts in the NIS:
Cost-Effectiveness, Timing Issues
The process of providing U.S. Government assistance to the NIS has been directly affected by the highly variable pattern of funding made available over the past four years through the appropriations process. Since a large amount of funding was appropriated early in the process, the rate at which a program was able to expend its funds became an important criterion in the initial rush to move money out the door, in some cases sacrificing cost-effectiveness. In the current budgetary climate, we must look more closely than ever at each program's cost-effectiveness, as well as its overall effectiveness. We must also carefully analyze the "pipeline" of unexpended funding, reduce obligation lead times where possible, and stage funding so that it is obligated and expended at a rate most appropriate to the given activity.
Cost-Sharing
Given the need to spend funds cost-effectively, cost-sharing must be incorporated as a critical component of our programs in cases where it is feasible. For example, we are already working with a number of private or privatized NIS entities which are beginning to develop the capability to pay for a portion of the services we are providing. By requiring these entities to share in the cost of consultants, volunteers, and other program components, we accomplish two objectives: we reduce the costs of our programs, and we ensure that the recipient has a greater stake in the given activity and is more likely to feel like a full partner in the endeavor. For these same reasons, the governments of the recipient countries should also share in certain costs.
Program Implementation Mechanisms
During the first several years of providing assistance to the NIS, the desire to start up programs as quickly as possible, in combination with the need to ensure strict control over program implementation, resulted in a heavy reliance on large contracts for program implementation. Similarly, the difficult and rapidly changing environment in the NIS, as well as the region's need for outside expertise, led to the predominant use of U.S., rather than indigenous contractors in the early years of the program. In the new climate of reduced resources and increased progress toward reform in the NIS, however, we need to move away from primary reliance on the large-contract mechanism and make much greater use of alternative mechanisms--even if this results in less direct control over program implementation. For example, volunteer organizations and small-grants mechanisms could be more heavily utilized. In this regard, we must continue and expand past efforts to broaden the diversity of assistance providers. Further, as we move to phase out our assistance programs, we must seek to hand over the programs to indigenous organizations and experts more rapidly.
Increased Role for Multilateral Assistance
Over the past several years, the relatively slow response of the international community to what we perceived to be a critical short-term need in the NIS led us to rely primarily on our own U.S. resources to support NIS activities. Now that the international community is becoming more involved in the NIS, we are developing a comprehensive, focused effort to secure more support from multilateral development banks, as well as from other bilateral sources (such as the European Union and Japan). Part of this effort involves carefully examining U.S. Government-funded activities which the multilateral development banks (MDBs) are willing and able to fund, and then planning a transition from U.S. bilateral assistance to MDB assistance in those areas. We also plan to ask the NIS governments to reassess their reluctance to using loans instead of grants for technical assistance activities.
Funding Criteria
In addition to the above guidelines, the Coordinator's program review has yielded the following criteria for making funding decisions.
Receptivity: Is the recipient country ready for and open to the type of change that the assistance activity is designed to facilitate, and are there willing and appropriate interlocutors who can be full partners in the endeavor?
Clarity: Does the assistance activity have a clear objective that is consistent with our core assistance objectives, as well as with U.S. foreign policy?
Effectiveness: Is the assistance activity able to demonstrate results, measure progress toward its intended objective, and, ideally, produce systemic change?
Efficiency: Does the activity take advantage of cost-sharing (if feasible) and/or other mechanisms to improve cost-effectiveness?
Comparative Advantage: Is U.S. assistance focused on areas where we have special expertise? Can U.S. participation help leverage funding from other donors? We should encourage a division of labor among other donors, including multilateral development banks.
Sustainability: Given the transitional nature of U.S. assistance, are activities easily replicable or self-sustaining, so that the impact extends beyond the life of the NIS assistance program?
We continue to intend our assistance programs to be of relatively short duration. While arbitrary deadlines make no sense, requests for new funds for most technical assistance projects in Russia should end within three years; requests for new appropriations for technical assistance to other NIS countries should end within six years. Exchanges, enterprise funds, small-grant-making initiatives, support for indigenous civic organizations, nuclear-reactor safety programs, nonproliferation, and nuclear weapons dismantlement and related assistance may continue as necessary, funded (in most cases) within the budgets of the agencies implementing the programs.
Rigorous application of the above criteria will help further focus the overall NIS assistance program and will help ensure the success of the historic transition currently underway in the Newly Independent States.
Section II of this report presents assessments of our assistance programs by country, placed in the context of political and economic developments for each country. Section III describes each of the major assistance and trade and investment programs and cooperative activities. Section IV presents our evaluation of the performance of each of the NIS countries according to the criteria set forth in Section 498A of the Foreign Assistance Act of 1961. Section V describes the use of the "notwithstanding" authority provided by the U.S. Congress to enable U.S. Government assistance programs to move forward without delay. Finally, the appendix provides the cumulative summary charts of the assistance funds budgeted, obligated and expended as of the end of FY 1995, as well as of U.S. Government commercial financing and insurance. [Note: These charts are not available in electronic format.]
This annual report covers Fiscal Year 1995. Previous NIS annual reports have covered the calendar year. This year's new format will enable the financial and programmatic report to coincide with the fiscal year and annual appropriations cycle. We will continue to provide quarterly updates to our Annual Report. The first such quarterly report covering the period through March 1996 will be issued in early May 1996.
This report has been produced by the Office of the Coordinator of U.S. Assistance to the NIS; it was assembled and edited by Ivars G. Kuskevics. Please direct comments and questions to him at (202) 647-0832 or by e-mail to the following address: ikuskevics@usaid.gov
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