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| >> Regional Overview >> Russia Overview | |||||||||||||||||||||
IntroductionSupporting Russia’s transition to a democratic, market economy promotes important U.S. national interests. The U.S. Government’s overall program in Russia focuses on maintaining regional and international peace, reducing environmental threats, and transforming Russia into a viable trading partner. The USAID program remains an integral part of this effort. Specifically, USAID assists Russia in its transition by providing Russians with opportunities to participate in developing a more open democratic society and dynamic market economy at the local, regional, and national levels. Many of the challenges confronting the USAID program stem from the aftershocks of the August 1998 devaluation of the Russian ruble, which have fundamentally altered the economic, political, and social conditions in the Russian Federation. After having modified its program approach in response to this crisis, USAID now emphasizes partnerships with civil society and interventions at the regional level. These modifications enable USAID to better position itself to address the evolving needs of the Russian people. The USAID country program directly supports the following U.S. national interests, as defined in the U.S. Embassy’s Mission Performance Plan for 1999: national security, economic prosperity, global environmental protection, and the development of participatory democracy. The activities under the economic development programs promote broad-based economic growth and recovery as well as strengthen U.S.-Russian commercial relations. Activities under the environmental program help protect Russia’s environment, which safeguards global stocks of strategic natural resources. The activities under the democracy and governance programs foster genuine democratic transition in Russia. Finally, activities in the social sector program help improve the effectiveness of health and other social safety netservices, reducing the spread of disease within Russia and across international borders. The Development ChallengeThe Government of Russia’s failure to implement effective reform and the resulting distortion of partial reforms undertaken represent the development challenge. As a result of its preoccupation with the December 1999 parliamentary elections, and anticipation of the 2000 presidential elections, the Government of Russia made little reform progress in FY 1999. The failure to create a sound legal and regulatory framework stunted GDP growth and delayed restructuring and modernization of Russian industry. Tax revenues are inadequate to cover government spending and domestic and foreign debt obligations. Complicating this situation, the Central Bank frequently employed scarce foreign currency reserves to intervene in the currency market to support the ruble. Despite these measures, the ruble has fallen from 6 to over 26 to the dollar since August 1998. This lack of sound monetary and fiscal policies depleted Russia’s scarce foreign exchange reserves, stunted GDP growth, and discouraged private sector development. Nevertheless, other economic indicators have shown some signs of stabilization and growth over the past year. Industrial output grew by an estimated 7% this year compared to a 5.2% drop in 1998. In 1999, real GDP growth increased by an estimated 1.5%, a sharp improvement from 1998’s precipitous drop. Annual inflation was not as high as expected at the start of the year. Russia’s tax revenues significantly exceeded 1998 levels as higher world oil prices increased government revenues, which may reduce theirreliance on International Monetary Fund (IMF) loans to meet foreign debt obligations. The Government of Russia reduced personal income tax rates from 45% to 30%, increasing the likelihood that citizens would pay taxes and that the Government would meet revenue targets. Still, developments in other sectors appeared to be troubling. The continuing dearth of effective systems to implement the rule of law reinforced lack of public confidence in the legal system. Independent media outlets -- particularly TV stations -- continued to struggle financially. Although the non-governmental organizations (NGOs) developed and increased their reach across the country, government-required registration processes remained problematic. Health risks, including the spread of drug-resistant tuberculosis and a possible explosion in the number of HIV/AIDS cases over the next decade, have begun to seriously affect Russia’s human resource base. Limited financial support to address domestic violence and the plight of Russian orphans continued to be major challenges. Finally, environmental concerns, including environmentally harmful production processes, received greater attention by industry but lack of local government funding to address this issue remained a problem. In the environment described above, USAID-supported initiatives provided a solid foundation for the adoption and use of democratic principles and free-market mechanisms in targeted regions. For example, USAID programs targeting private enterprise development improved small- and medium-sized entrepreneurs’ ability to access external financing. Entrepreneurs receiving support from USAID’s business support centers obtained $36.9 million in credit through 1999. In addition, USAID technical assistance had a direct impact on key improvements in Russia’s public finance policy. Amendments to the General Part of Russia’s tax code signed into law in July 1999 brought this code into compliance with the civil code. USAID activities have made important progress towards rationalizing economic development and the environment. Eighty percent of Russian oblasts have begun to implement environmental management activities, with 35% of oblasts implementing pollution reduction activities; 34% of oblasts supporting natural resource management activities; and 18% of oblasts developing eco-businesses or environment-related business plans. With respect to increasing citizens’ participation in governance, USAID’s programming focus has become increasingly regional although impacts are notable at the community, regional and national levels. Specifically, USAID assistance strengthened major reform parties, helping them to establish strong regional organizations and local party chapters. Independent media grew impressively. USAID training and production support to over 300 regional non-state television stations, which operate in 81 of the 89 regions in the Russian Federation, has been instrumental in this development. USAID assistance strengthened the rule of law to protect basic human rights and support commercial activities. Support to human rights organizations in 30 regions resulted in the generation of human rights reports in all 30 regions and a report about the national human rights situation. Finally, USAID programs helped Russian legal professionals learn about newly enacted commercial laws and about issues affecting women’s rights. Social sector activities increased the provision of better health and selected social services. USAID’s health program activities produced an 11% reduction in the abortion rate in the USAID intervention zone; a result credited to USAID’s comprehensive reproductive health strategy. The project provided over 4 million women in Russia with access to modern maternal and infant health services. In addition, the Mission, in collaboration with international and local partners, identified sites for pilot tuberculosis projects in Ivanovo, Orel, and Vladimir where they will implement tuberculosis therapy, including treatment of multi-drug resistant tuberculosis in Ivanovo. Finally, USAID interventions helped ensure that over 90% of Russian communities have adopted housing allowance programs to ensure that deserving families receive needed subsidies. External DebtRussia’s debt burden has been significant. Total debt of the government totaled approximately $150 billion, roughly $100 billion of which was Soviet era debt, by the end of 1999. The remaining $50 billion represented debt issued to the post-Soviet Russian Federation. To date, Russia has paid its post-Soviet Russian Federation foreign debt, but has effectively defaulted on everything else until investors accepted a restructuring, with the hardest line on domestic obligations. For example, the Paris Club of official creditors agreed to reschedule some $8 billion in debt repayments that had been due in 1999-2000 but ruled out debt forgiveness and postponed any discussion of the longer-term situation until after the 2000 presidential election. Negotiations have been underway with the London Club to write off between 35% to 40% of the nominal value of some $30 billion of Soviet-era debt, establish below- market interest rates, and offer a grace period for principal repayments. These negotiations have yet to reach an agreement, something that is unlikely to occur until after the presidential election in March 2000. Other DonorsThe United States has been the single, largest, bilateral donor in Russia, followed by Germany, the United Kingdom and Norway. Financing provided by international financial institutions such as the European Bank for Reconstruction, the World Bank, and IMF has been substantially larger than development assistance. USAID works collaboratively with the European Union’s technical assistance program for the Commonwealth of Independent States (EU-TACIS) in Russia. For instance, USAID-funded, private enterprise development programs complement technical assistance provided by EU/TACIS. The Eurasia Foundation, EU-TACIS, the World Bank, British Know How Fund, Ford Foundation, and several European embassies coordinate their support to private Russian media. The Canadian International Development Agency (CIDA), EU-TACIS, United Nations Development Program, the Mott Foundation, the MacArthur Foundation, the Ford Foundation, and the Open Society Institute coordinate on NGO development issues. Quarterly donor discussions on rule-of-law in Russia involve USAID, CIDA, Eurasia Foundation, EU-TACIS, Ford Foundation, MacArthur Foundation, Open Society Institute, British Know How Fund, Russian Foundation for Legal Reform, and the World Bank. USAID funds activities of the U.S. Centers for Disease Control and Prevention and the World Health Organization to control tuberculosis. The United Nation’s AIDS Program is implementing activities to combat HIV/AIDS and other sexually transmitted diseases. Russia’s health authorities look to USAID for technical leadership.
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