Russia
The Development Challenge
While Russia's economic recovery continued to gather momentum this past year, its overall performance in areas like consolidating a democratic, open, and participatory civil society, and fighting global epidemics like AIDS and tuberculosis, was mixed. New restrictions on media coverage of elections, a new law redefining local governance, and pressure on oligarchs, including budding private philanthropists, had a chilling effect on Russia's emerging democratic institutions.
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Buoyed by high oil prices, the Russian Federation's economic performance in 2003 exceeded the most optimistic expectations. Since the economic collapse of 1998, output has increased by a cumulative 28% and is expected by many analysts to grow by 6.5% to 7% in 2003, compared to 4.3% in 2002. Performance of the hydrocarbon sector also helped spur government revenues and was a key factor in producing a significant overall government budget surplus for the fourth year in a row. In 2003, the percentage of the population living below the subsistence level was 24.6%, compared to 31.5% in early 2002. Nonetheless, while the benefits of rapid growth are visible, unemployment was a full percentage point higher than a year earlier. Other indicators of economic well-being such as health indicators and life expectancy failed to improve. Progress continued on key economic reforms, but implementation remains a serious problem. Administrative barriers and a weak banking system continue to retard the growth of small and medium-sized firms. The contribution of small and medium enterprises to GDP remains low by international standards.
Progress on democratic reforms is incomplete, and democratic institutions remain fragile. Progress in judicial reform was mixed. Judicial administration continues to improve and the range of issues that is considered by courts is broadening, but charges of corruption and threats to judicial independence persist. Efforts to control the media and concerns about human rights abuses and religious intolerance are evidence of Russia's continued struggle between proponents of broad participation and the GOR's pursuit of "managed democracy." The arrest of an oil magnate sent a chill through the corporate community and dampened hopes that corporate philanthropy might substitute for foreign assistance in support to civil society.
In the health sector, results were also varied. Issues concerning intergovernmental fiscal relations and delivery of communal services remain. Russian government adoption of international protocols for treating tuberculosis, including multi-drug-resistant strains, is a major step forward. But, the HIV/AIDS pandemic in Russia, one of the fastest increases in the rate of infection in the world, poses a serious threat to the country's future, and the need to adopt healthier lifestyles is vital to reversing a decades-long slide in Russia's life expectancy rates.
Critical issues such as anti-terrorism, energy, non-proliferation, trade and investment, trafficking in persons, regional stability and conflict prevention, and trans-boundary health and environmental threats, are key to U.S. national interests, and USAID's program activity supports U.S. objectives in Russia as outlined in the Embassy's Mission Program Plan (MPP).
The USAID Program: USAID's programs in Russia focus on democracy, economic growth, and health. They concentrate on supporting development and implementation of market-oriented reforms, including support to the small and medium-size business sector; strengthening civil society, including those that promote improvements in environmental resource management; improving legal systems; strengthening local governance; and improving health care and child welfare practices. The USAID program addresses Congressional interests in combating infectious diseases, promoting reproductive health/family planning and child survival/maternal health, addressing the needs of vulnerable children and orphans, combating trafficking in persons and domestic violence, and providing financial support for the Russian Far East and the U.S.-Russia Investment Fund.
The budget for FY 2004 reflects a 16% cut in resources to USAID's Russia program from FY 2003. As the first step in phasing out FSA support, there is a significant reduction in funding for economic growth programs, including reductions in the financial sector reform area and as well as in environment activities. Funding in the democracy areas will be generally sustained. USAID will reduce funding for some cross-cutting programs. Following this transition year, an increase in funding for the democracy area is planned for FY 2005. The budget for the health area is being increased in FY 2004, reflecting increased efforts in the HIV/AIDS area.
USAID is preparing for phasing out FREEDOM Support Act (FSA) programs in Russia. In 2004, the Mission will prepare a strategy for FSA and other assistance to Russia. Periodic assessments will be undertaken to ensure that resources are being targeted to the highest priority sectors from the standpoint of U.S. national interests.
Virtually all of USAID's assistance is managed by non-governmental and private sector organizations, and only a small portion directly benefits the Russian Government. USAID's Russian partners, including a number of think tanks, while highly effective in their respective fields, are not yet fully sustainable. The need to ensure the sustainability of these key institutions and the irreversibility of Russia's transition must be taken into account throughout the phase down period.
Other Program Elements: Non-bilateral resources include U.S.-Russian health and environmental partnerships; donated medical equipment; regional programs to combat tuberculosis and HIV/AIDS and to promote international accounting standards; the efforts of the Eurasia Foundation; the U.S.- Russia Investment Fund; farmer-to-farmer advisors; and small business loan guarantees.
USAID also works closely with other USG agencies working in Russia, especially in supporting Department of Energy programs in "nuclear cities" and in ensuring maximum coordination with public affairs activities.
Other Donors: The United States is the largest bilateral donor to Russia. Other major donors include the European Union (legal, civil service, fiscal, banking, and social reform); Italy (agriculture, urban development, market economy); Germany (education, health, environment, and economic infrastructure); the United Kingdom (economic policy reform, participatory government, civil society, the rule of law, health, and enterprise development); Sweden (common security; integration in Europe; civil society, including legal system, independent mass media, and equality between the sexes; socially sustainable economic transition, including health and public administration; environment; trade and investment into Baltic Sea region); Norway (environment, including nuclear safety and energy issues; economic development); France (economic and social infrastructure); Finland (economic transition, environment, health, culture); and Canada (transition to a market-based economy, democratic development, environment, indigenous people, trade and investment links). Private foundations also play an important role, particularly in the areas of civil society and health. However, over the last year, with the Soros Foundation's near-complete withdrawal and with events that have discouraged local philanthropy, that role may be diminishing.
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