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

When the U.S. Congress passed the Support for East European Democracy (SEED) Act in late 1989, Central and Eastern Europe presented both opportunities and risks. More than four decades of totalitarian rule left a damaged political, economic and social environment in which democracy, free markets and civil society could not take root without nurturing. Eighteen years later, the fruits of the U.S. investment via SEED are clear: much of what had been a zone of potential turmoil has been fully integrated into a Europe whole, free and at peace. Ten recipients of SEED assistance have gone on to join the North Atlantic Treaty Organization (NATO) and six others participate in NATO’s Partnership for Peace. The European Union (EU) has added ten SEED graduates as members and is in accession discussions with six current recipients of SEED assistance. By helping move these countries towards Euro-Atlantic integration, U.S. Government (USG) assistance has created lasting partnerships and promoted long-term stability in the region. Assistance recipients now contribute to broader stability as valuable partners in the fight against terrorism. Several former beneficiaries of SEED aid have since joined the ranks of assistance donors and now use their resources and experience to help other countries make the transition to free-market democracy.

Eight countries – the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia – have fully graduated from SEED assistance, while three others – Bulgaria, Croatia and Romania – are in the process of expending their final SEED Act funds. Despite this record of success, however, the work of SEED is not finished. Several nascent democracies and struggling market economies in the Balkans will require U.S. support for some time. Although it has made impressive strides since Communist rule collapsed in 1991, Albania continues to grapple with the legacy of Enver Hoxha’s autarkic regime, which left the country isolated, backward and impoverished. In Bosnia and Herzegovina, essential political reform has lagged behind the country’s physical reconstruction and has impeded progress and investment. Macedonia must improve the pace of its reform if it is to meet its NATO and EU aspirations. Montenegro is less than two years into its rebirth as an independent state and is still developing the institutions and capabilities necessary for its new status. In Serbia there are sharp divisions over whether and how the country should move toward Euro-Atlantic institutions and what the basis of those relations should be. Finally, Kosovo will continue to require the assistance of the United States and others in the international community both before and after the resolution of its final status. In all these areas, SEED will continue to play a role.

In FY 2007, USG-funded programs in Central and Eastern Europe continued to help improve governance and fight corruption, strengthen civil society and an independent media, enhance market reforms, create economic opportunity, mitigate conflict, fight disease, reduce the threat of weapons of mass destruction, prevent trafficking in persons and contraband, and promote the rule of law and human rights.

The fact that SEED Act assistance is coming to a conclusion for three countries in the region is a reflection of the progress they have made. Bulgaria and Romania, which became NATO members in 2004, were admitted to the EU in 2007. The U.S. Agency for International Development (USAID) will close its missions in both countries in summer 2008, a milestone event that host governments are marking with ceremony and appreciation. In 2008 the USAID mission will also close in Croatia, which aims to be the next new member of NATO and the EU and is actively pursuing that goal.

In Bulgaria, USG assistance has focused on strengthening that country’s capacity to contribute to international security, strengthening the rule of law, promoting an active Bulgarian role in NATO and the EU, and building on the opportunities that EU membership brings to expand trade and investment with the United States. With an aim toward minimizing minimize the adverse effect of Bulgarian organized crime both within the region and on the United States, the USG gave technical assistance to Bulgarian law enforcement officials on how to investigate and prosecute transnational organized crime more effectively. A business and trade development program provided training, volunteer and consultant-based business support services to business support organizations and small- and medium-sized enterprises. In its support of the financial sector, the USG used development credit authority guarantees to improve access to credit, particularly for competitive sectors of the economy. A USG-funded project pioneered aprofessional approach to local economic development that resulted in Bulgarian municipalities establishing 29 local economic development offices and 22 municipalities establishing economic development advisory boards.

In Croatia, USG assistance is aimed at helping that country secure the last mile in its journey into NATO and the EU. To do this, the United States has sought to promote private sector-led economic growth, strengthen broad-based democratic institutions, encourage Croatia to expand its bilateral relations and economic integration with other southeastern European countries, and strengthen Croatia’s engagement in battling transnational threats of terrorism, trafficking, organized crime, and corruption. A USG-funded program worked with the Government of Croatia to implement and enforce export controls. The U.S.-supported Croatian Association of Cities played a strong, active role in advocating for legislative reform, voicing local government interests and implementing a more transparent and accountable public procurement system supported by USG funding and training. USG assistance was able to mobilize more than $48 million in credit guarantees in Croatia for small and medium enterprises.

In Romania, USG assistance addressed the basic issues needed to support that country’s continued democratic and economic transition. Security assistance also focused on Romania’s law enforcement agencies in areas such as trafficking in persons and cyber crime. Further assistance was given to prepare Romania in the event of additional Avian Influenza outbreaks or the onset of pandemic influenza.

During FY 2007 improvements gained through assistance programming were consolidated so that reforms made to date are sustainable in key priority areas including reproductive health, child welfare, private sector growth, the rule of law, democratic participation, and the role of civil society. USG assistance programs led to a drastic decrease in the time needed to register a business, the creation of mortgage lending, the linking of rural communities through information technology, the improvement of competitiveness and ability to find new markets in agribusiness, improved environmental protection, reform in the energy sector; strengthened advocacy NGOs, strengthened independent media, strengthened and more transparent local government, and a more modern and transparent judicial system.

Six current recipients will continue to require SEED Act assistance beyond FY 2007. All are still challenged, to varying degrees, by inter-ethnic tensions, high unemployment, inadequate legal structures, significant corruption and limited government capacity. USG support will remain vital.

Albania is a committed partner of the United States in peacekeeping and the war on terror. The country plays a vital role in the Balkans promoting peace and security and ethnic reconciliation, especially important as Kosovo status moves toward conclusion. Albania will be a key player in the economic prospects of the region, both as a trade partner and facilitator for transporting others’ products. No other country works so closely with Albania, has such influence, or holds so special a place with Albanians as the United States. U.S. assistance supports Albania’s efforts to implement necessary reforms for integration with Euro-Atlantic institutions. USG-funded programs focus on Albania’s transition to a market economy and a democracy based on the rule of law, and on the Government of Albania’s (GOA) capacity to provide social stability. Energy sector reform, anti-corruption activities, religious harmonization and anti-trafficking in persons initiatives complement the overall assistance program in Albania. The success of the U.S. assistance program will have a substantial impact on the GOA’s capacity and ability to make crucial reforms that will determine Albania’s hoped-for accession into the NATO and the EU. Albania’s integration into the European community will serve as a significant step toward a peaceful and stable Balkan region, a key U.S. foreign policy priority.

The overriding U.S. interest in Bosnia and Herzegovina (BiH) remains its conversion from a source of regional instability to a peaceful, democratic, multiethnic state on the road to Euro-Atlantic integration. The USG works to promote a BiH that is secure within its own borders, at peace with its neighbors, capable of combating crime, trafficking and corruption, democratically governed, pluralistic and tolerant and growing economically. Security is a major long-term objective in BiH, which suffers from porous borders and persistent corruption, making it vulnerable to terrorists, traffickers and other criminals. U.S. assistance programs in BiH focus on transformational diplomacy goals that will help BiH progress toward Euro-Atlantic institutions and long-term stability. The USG works to strengthen BiH’s rule of law by helping consolidate judicial reforms, increasing prosecutorial capacity and strengthening its law enforcement abilities and newly formed institutions. The USG promotes good governance and assists media and civil society to take proactive roles in holding the government accountable and instilling democratic norms. The USG also works to create a single economic space in BiH by helping the government in streamlining the complex system of regulatory procedures for businesses, reforming tax legislation, and by promoting private sector productivity to enable BiH to build a self-sustaining, market-oriented economy. USG assistance helps BiH move toward NATO and develop the capacity to contribute to coalition operations and contribute to greater security in the region. A year of stalled reform and political deadlock that culminated in late 2007 in the most significant challenge to the integrity of BiH since the war demonstrates that much work remains on reform. USG assistance programs continue to be essential to achieve the USG’s policy objectives in BiH.

Its strategic location, political and economic stability, and strong desire to join NATO and the EU make Macedonia an important force for regional stability. USG foreign assistance priorities include helping the Government of Macedonia and its citizens continue the democratic, economic, and military reforms needed to strengthen public and civic institutions and increase economic and educational opportunities. The USG is supporting Government of Macedonia efforts, in coordination with its neighbors, to reduce its attractiveness as a transit route for smugglers, traffickers, and money-launderers. The USG is also helping to strengthen Macedonian democracy by supporting moves toward a more equal balance of power between the executive, legislative and judicial branches of government, and by encouraging the GOM to become more accountable to its citizens. To achieve this, the USG supported improvements in transparency and accountability of government, strengthening democratic institutions, including local governments and parliament; increasing the responsiveness of political parties to voters' interests; and, empowering civil society to increase democratic participation and monitor the actions of government.

Montenegro is a new country in a historically unstable neighborhood, with nascent institutions that need strengthening and support. The overall goal of USG assistance is to help Montenegro become a stable, democratic, prosperous country, firmly anchored in Euro-Atlantic institutions. To help further these foreign policy objectives, USG assistance is focusing on helping the country close the north-south development gap, supporting the establishment of the rule of law with the emphasis on fighting organized crime and corruption; diminishing the relative isolation of the world’s newest country; and consolidating democratic gains made to date so that all Montenegrin citizens, regardless of their ethnicity, are able to have their voices heard and represented in Montenegrin institutions. Additional priorities in Montenegro are to combat terrorism and extremism, and prevent trafficking in persons, weapons, and drugs. Combating corruption remains one of the biggest challenges for donor governments as well as the Government of Montenegro.

A social, political, and geographic crossroad between Eastern and Western Europe, Serbia is a key strategic juncture in the Balkans. USG assistance to Serbia creates opportunities for economic growth, strengthens institutional capacity of key government counterparts, improves important aspects of civil society development, assists in election preparation and improves transparency through an improved adherence to the rule of law. As a direct result of USG interventions, banking supervision has improved, business development policies have reformed, the rule of law has strengthened, and significant advancements have occurred in media support, local economic development and democratic governance. Moreover, targeted U.S. assistance has increased the participation of women, youth and ethnic minorities in the political process and increased overall voter turnout in the last parliamentary elections.

Long-term capacity building assistance resulted in improved regional cooperation and prosecution in war crimes cases, including establishment of the joint investigative team of Serbian and Bosnian judges and creation of harmonized case inventory systems. Key challenges in FY 2007 included ongoing negotiations and debates on the final status of Kosovo, an October 2006 referendum resulting in public endorsement of a new Constitution hastily drawn up and approved by parliament in a process lacking transparency; delayed parliamentary elections in January 2007 giving the largest plurality to the anti-reformist, anti-western Serbian Radical Party, and a subsequent protracted delay in government formation.

The overall goal for U.S. assistance in Kosovo for FY 2007 was to prepare Kosovo for eventual independence, initially under the supervision of the international community and in accordance with the UN-commissioned “Ahtisaari Plan.” Assistance priorities include establishing a new international civilian presence (ICO) and a European Security and Defense Policy (ESDP) rule of law mission designed to build capacity within Kosovo’s law enforcement and justice sectors. Priorities also included supporting ongoing efforts to transfer competencies from United Nations Mission in Kosovo (UNMIK) to the Kosovo Provisional Institutions of Self-Government (PISG) and focusing on the primary objectives of maintaining peace and stability, governing justly and democratically, achieving economic growth, conducting public diplomacy and humanitarian assistance. With a view toward creating enduring economic and political stability, the USG has continued to work with its international partners to ensure that Kosovo evolves into a stable democratic society, at peace with its neighbors and on an irreversible path to Euro-Atlantic integration. To promote the development of a robust private sector and reduce poverty, USG programs supported Kosovo’s regional and international integration by working to incorporate international standards into the public and private sectors. To build confidence in central and local authorities and promote the rule of law, USG-funded programs built more effective local government through decentralization, strengthening and solidifying an independent judiciary, supporting the continued development of political parties, and assisting civil society. Other USG programs aimed at higher education helped Kosovars develop the skills, attitudes, and behaviors needed to create robust governance institutions, and to support increased economic activity.

USG regional assistance works to help stabilize Southeast Europe by encouraging countries in the region to work together on common concerns, restore the economic and democratic links needed to make the transition to democracy governments and market-based economies sustainable, and to address cross-border problems such as organized crime. The USG also provides voluntary contributions and related expenses to the Organization for Security and Cooperation in Europe (OSCE).

Enterprise Funds were created in the early 1990s with USG funds as public-private partnerships to support the private sector and nascent economies of Albania, Poland, the Baltics, Bulgaria, Hungary, Romania, and Slovakia. As each Fund reaches maturity, repatriation of the original grant funds, together with surplus reflows, will be directed to legacy programs in these countries such as scholarships.

This report includes two charts that provide snapshots of country progress on economic and democratic reforms, the first from 1998 and the second from 2006/2007. The charts reflect the overall progress made by each SEED recipient country in economic and democratic reforms relative to other East European and Eurasian countries, as well as to the European Union. The following sections provide statements of U.S. interests in each country, an overview of USG-funded assistance programs, sections on assistance priorities and sector assessments, and illustrative examples of program performance.

Transition in Central and Eastern Europe: Economic and Democratic Reforms in 1998 and 2006

USAID: Economic Policy Reforms and Democractic Freedoms in Central & Eastern Europe and Eurasia: 1998

Date: 01/01/2008 Description: Chart shows economic policy reforms and democractic freedoms in Central and Eastern Europe and Eurasia: 1998 State Dept Photo

Ratings of democratic freedoms are from Freedom House, Nations in Transit 1998 (October 1998) and Freedom House, Freedom in the World 1998-1999 (June 1999), and assess reforms through December 1998. With 1 exception, economic policy reform ratings are from EBRD, Transition Report 1998 (November 1998), and cover events through early September 1998; economic policy reform rating for Yugoslavia is from Freedom House (October 1998). Ratings are based on a 1 to 5 scale, with 5 representing most advanced.

USAID: Economic and Democratic Reforms in 2006-2007

Date: 01/01/2008 Description: Chart shows economic and democratic reforms in 2006-2007 State Dept Photo

Rating are based on a 1 to 5 scale, with 5 representing most advanced. Freedom House, Nations in Transit 2007 (2007) and EBRD, Transition Report 2007 (November 2007).