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DEVELOPMENT CHALLENGE
The Foreign Policy Context
The United States seeks cooperative relations with Europe and Eurasia (E&E)
countries1 in fighting international terrorism, opening markets, and tackling
cross-border issues such as the spread of HIV/AIDS and trafficking in persons.
Regional stability in Southeast Europe and the Eurasia sub-regions remain one
of the underlying principles of USAID engagement in this part of the world.
The Central Asian Republics and the Caucasus countries are U.S. allies in
the global war on terrorism and, as such, will continue to receive significant
resources in FY 2004 to promote domestic stability, economic growth, and democracy.
Bolstering the independence and transition of all Eurasian countries is also
based on the premise that a prosperous and stable neighborhood will reinforce
Russia’s growing relationship to the Euro-Atlantic community and improve
U.S. economic opportunity in that part of the world, including commercial access
to oil and gas reserves.
The European transition countries are preparing for membership in regional
institutions such as the North Atlantic Treaty Organization (NATO). Three countries
(Hungary, Poland, and the Czech Republic) gained entry to NATO in 1999. Seven
more (Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia, Slovenia) are
poised to enter by the end of 2004. The European countries are also working
toward meeting the requisite criteria for accession to the European Union,
in part with USAID assistance.
Foreign policy priorities are influencing USAID’s funding levels and
role in the region. Continued progress in reforms in some of the Southeast
Europe countries will permit significant cuts over the next several years.
As the U.S. Government leaves this sub-region, it will look increasingly to
the Europeans to support the integration of Southeast Europe into regional
institutions. In Eurasia, funding has increased for the Central Asian Republics,
partially as a result of their support for the war on terror. Levels for Russia
will decline as the U.S.-Russian partnership in global matters continues to
mature and economic assistance becomes less central to Russian and U.S. objectives.
The high levels allocated to Ukraine during the 1990s will continue to decrease
as a result of disappointing political developments in that country and in
preparation for eventual closeout.
Transition Status and Obstacles
Extraordinary changes have occurred since the post-communist transition to market democracy began in 1989. Region-wide, the private sector now accounts for 62% of Gross Domestic Product (GDP) and Freedom House ranks 12 of the 27 former authoritarian states as free and 9 as partly free. Since 2000, the region has recorded positive economic growth, despite a downturn in the global economy.
Nevertheless, progress across the region has been uneven. The following graph compares the advancement of E&E countries in democratic and economic reforms. The northern tier countries are the transition leaders. They are integrating into international markets and organizations and no longer require USAID bilateral assistance, although they still face challenges related to EU accession.
In Southeast Europe, reconstruction of war torn areas is near completion following a decade of ethnic violence. With some exceptions, these countries now appear to be following the transition path charted by the northern tier, although they are well behind the reform targets achieved by the northern tier countries when they graduated from USAID assistance. Weak labor markets in general, combined with large youth populations and poor human capital in select countries, pose special challenges. Corruption remains an issue across the sub-region. Frozen, but unresolved ethnic clashes could easily re-emerge without mechanisms for inter-ethnic understanding and cooperation, particularly given the scheduled decline in donor assistance to these countries.
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Ratings of democratic freedoms are from Freedom House,
Nations in Transit 2002 (2002) which cover events through
December 2001 and are updated through 2002 by Freedom House,
Freedom in the World 2002 (December 2002). Economic policy
reform ratings are from EBRD, Transition Report 2002 (November 2002),
and cover events through September 2002. Ratings are based on a
1 to 5 scale, with 5 representing most advanced.
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In Eurasia, the picture is more complex. While economic growth for the sub-region has been positive, social conditions are dismal and trends in democratic freedoms are unfavorable. Despite policy reform progress in some of the largest economies (such as Russia, Azerbaijan, Kazakhstan) income inequality is increasing and long-term growth does not yet appear sustainable. Eurasian economies are highly dependent on primary commodities and Russia dominates the economic links within the sub-region. Depletion in human capital is a major concern given the decades-long deterioration of health and education systems. Lackluster reform in several countries has increased their economic and political isolation. With widespread corruption and an incomplete reform process, public trust in government and private institutions continues to deteriorate.
E&E Strategy and Linkages to USAID's Four Pillars
The E&E strategy, both regional and bilateral, focuses on three core areas:
economic restructuring and growth, democracy and governance, and the social
dimensions of transition. In addition, USAID develops cross-sector approaches
to address critical obstacles and changing circumstances in the region. During
FY 2003 – FY 2004, these include: raising the profile of values inherent
in transition programs; systematically addressing conflict and corruption in
program analysis and design; and further developing social sector initiatives
to broaden the benefits of reform and thereby sustain public support for it.
To be successful, reform efforts must be grounded in essential values. Such
values require citizens to exercise civic and moral responsibility and to demand
protection of inalienable human rights. When embraced, these values insist
on an equitable and fair market economy, and help overcome the irrational passions,
hatred, and bitterness which ignite and fuel conflict. With eight Muslim-dominated
countries in the region and strong Muslim minorities in several other countries,
USAID will promote opportunities to positively engage Islam and bridge the
growing divide between Islamic and Western society. Successful economic and
political reforms will help eliminate fertile soil for Islamic radicalism,
as will dialogue which makes clear that the Islamic traditions in Central Asia
and the Balkans are not consistent with political and radical Islam. The E&E
strategy also provides an integrated approach to combating corruption, looking
at the key elements of transparency, accountability, awareness, prevention,
and enforcement across the program portfolio.
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| Europe and Eurasia Program Obligations |
Economic Growth, Agriculture and Trade: About 53% of USAID E&E resources
were targeted to economic and related reforms during FY 2002.
The program’s focus is on the development of market systems,
and performance in this area is strong. Fifteen of the 27
countries have achieved full membership in the World Trade
Organization. In addition, per capita foreign investment flows
have improved overall, although they have been 10 times higher
in the European northern tier than in Eurasia. Land reform
continues to make a significant contribution to agricultural
development in the E&E region and agribusiness development
is becoming more prominent in countries possessing a comparative
advantage in agriculture. Economic Growth, Agriculture and
Trade 53% Democracy, Conflict and Humanitarian Assistance
38% Global Health 9% Europe and Eurasia Program Obligations
FY -2002 (Democracy 30%) (Humanitarian Assistance 8%) An emerging
theme in the economic growth area is increased competitiveness,
in which macroeconomic reforms and microeconomic foundations
for business growth are pragmatically developed and linked
to local markets. The economic rubric also includes activities
related to anti-corruption and business ethics as well as
programs aimed at mitigating the adverse impacts of transition.
These programs include, for example, social insurance reform,
employment generation, and education reform.
Democracy, Conflict Prevention and Humanitarian Assistance: About 38%
of USAID resources to the region were allocated to this pillar during FY 2002.
The E&E strategy focuses on the development of full democracies rooted
in the rule of law and based on elections, constitutionalism, a vibrant civic
culture, guaranteed human rights, religious freedom, independent and responsible
press, and limited government responding to the will of the people. USAID integrates
conflict prevention modules into strategies for at-risk countries, such as
Macedonia, Georgia, and the republics of Central Asia.
Global Health: In FY 2002, about 9% of USAID resources were allocated
to health priorities in the region, including HIV/AIDS, infectious disease
control, and maternal-child health. According to UN statistics, the steepest
rise in new HIV infections worldwide took place in the former Soviet Union,
most of it linked to intravenous drug use. The introduction of community-based,
primary health care practices has upgraded the clinical skills of family physicians,
achieved cost-efficiencies, saved lives, and reduced the number of abortions.
Public-private Alliances: Currently, public-private alliances operating
in the region include Enterprise Funds, the American International Health Alliance,
the Baltic American Partnership Fund, the Balkan Children and Youth Foundation,
and a new initiative with the German Marshall Fund to support democracy and
governance in Southeast Europe. Building on these experiences, USAID will continue
to develop new ways to engage present and potential partners.
External Debt
Trends in external debt have varied widely in the transition region. Overall
levels, while increasing, remain below those found in most developing countries.
Total debt was roughly 142% of exports in the transition region in 2001; in
the developing countries in 2000, it was 173%. Some transition countries have
successfully reduced debt burdens, including Yugoslavia, Russia, and Ukraine
in 2001. Nevertheless, external debt remains an issue even for some of the
more advanced transition countries. Four of the ten European countries exceeded
the Maastricht debt ceiling of 60% of GDP in 2001: Bulgaria (76%); Latvia (71%);
Hungary (69%); and Estonia (61%). Of greatest concern, however, are high debt
burdens of five relatively poor Eurasian countries: Kyrgyzstan; Georgia; Tajikistan;
Armenia; and Moldova. Kyrgyzstan's debt burden is highest (2001 external debt
is 288% of exports; debt service is 29% of exports). Debt service is also high
in Tajikistan (22%) and Moldova (20%). Total external debt as a percent of
exports in Georgia and Armenia is close to levels in Kyrgyzstan.
PROGRAM AND MANAGEMENT CHALLENGES.
In light of shifting foreign policy goals and funding trends, USAID must find
ways to maximize the impact of the E&E program while systematically planning
for graduation and closeout of targeted bilateral programs. In Southeast Europe,
Croatia and Bulgaria are on a glide path for graduation and, in Eurasia, strategies
for the graduation in several years of Russia and Ukraine will be developed
and implemented. Of greatest concern is the slow pace of democratization in
Eurasia. In fully functioning democracies, citizens will demand and work on
the changes needed to expand economic opportunity and well-being. Where democratic
processes and institutions remain fragile, reversals in the transition process
are possible.
Lower resource levels in FY 2004 and beyond require considerable adjustments
to USAID’s regional and bilateral transition programs. Given the need
to accelerate reform progress in Eurasia, especially on the democracy front,
USAID will develop strategies to preserve reform gains as well as promote continuing
progress toward broad-based economic growth, democratic culture, and good governance.
The need for innovative post-presence initiatives will be explored for countries
targeted for graduation or closeout, in order to safeguard the U.S. assistance
investment already made. These initiatives may include wrap-up activities that
complete work already underway, legacy mechanisms (such as endowments, local
institutions, etc.) that can carry assistance into the future without relying
on a local USAID mission, and instruments for humanitarian relief in event
of emergencies.
Funding increases in Central Asia pose a different challenge. There USAID
is managing a greater magnitude of assistance resources with limited staff
who manage activities in five countries. The program challenge is to continue
pressing for progress in democracy and human rights within the context of high
budget levels resulting from their cooperation in the war on terror.
OTHER DONORS.
Principal partners include the European Union’s programs for technical assistance to transition countries in Europe (PHARE) and Eurasia (TACIS), the World Bank, European Bank for Reconstruction and Development (EBRD), European bilateral donors, and Japan. Based on the latest available information for official development assistance, the United States stands out as the largest bilateral donor in Eurasia, followed by Japan and Germany. USAID also collaborates with the Asian Development Bank on activities in the Central Asian Republics. In Europe, the European Union is the largest donor, with a contribution about three times that of the United States. The U.S. has been the single largest bilateral donor to Europe countries, followed by Germany, France, Austria, and the Netherlands. In 2003, policy dialogue with European donors and the European Union regarding assistance to Southeast Europe will be a foreign policy priority for the U.S. Government.
FY 2004 PROGRAM.
The FREEDOM Support Act (FSA) request level for Eurasia totals $576 million
to fund programs of USAID and other agencies supporting economic and democratic
transition and the war on terrorism. This represents a reduction of nearly
10% from FY 2003, after accounting for the separate FY 2004 appropriation for
Economic and Cultural Affairs under the U.S. Department of State.
The Assistance for Eastern Europe and the Baltic States Act (AEEB) request
level totals $435 million, a reduction of 12% from FY 2003.
Under the Agency’s Economic Growth, Agriculture and Trade area, USAID
proposes $157.3 million under AEEB and $311.4 million under FSA to foster the
emergence of competitive, market-oriented economies in which the majority of
economic resources is privately owned and managed. USAID programs will emphasize
competitiveness, assistance to small and medium enterprises, agribusiness development,
anti-corruption initiatives, and social reform. Energy and environment programs
are also included under this rubric. In addition, $200 million in Economic
Support Funds (ESF) is proposed to Turkey for debt servicing in support of
its economic recovery.
Under the Agency’s Democracy, Conflict and Humanitarian Assistance area,
USAID proposes $262.9 million in AEEB funds and $197.7 million under FSA to
support transparent and accountable governance, the rule of law, and the empowerment
of citizens through democratic political processes, civil society, freedom
of information, and human rights. Funds will also promote inter-ethnic dialogue
and cooperation, and, as needed, facilitate the transition from emergency relief
to more traditional development programs in times of crisis. USAID proposes
$12.5 million in ESF for Ireland and $7.5 million in ESF for Cyprus to promote
reconciliation and conflict resolution.
Under the Agency’s Global Health area, USAID proposes $14.9 million
in AEEB funds and $66.9 million under FSA to fight the spread of infectious
diseases, including HIV/AIDS and tuberculosis, and improve primary health care
practice, with a special focus on mothers and children.
Proposed AEEB and FSA funding under the economic growth and democracy and
conflict prevention areas include other USG agencies participating in technical
cooperation programs through inter-agency transfers from USAID, such as the
Environmental Protection Agency and the Departments of State, Justice, Energy,
Treasury, Agriculture, and Commerce.
The E&E bureau is requesting $10.4 million in non-emergency P.L. 480 funds
in the FY 2004 request year for Tajikistan.
1 The transition countries of Europe are in two geographical zones.
The northern tier includes Czech Republic, Estonia, Hungary, Latvia, Lithuania,
Poland, Slovenia, and Slovakia. Southeast Europe includes Albania, Bosnia and
Herzegovina, Bulgaria, Croatia, Macedonia, Romania, Serbia and Montenegro, and
the Province of Kosovo. The transition countries of Eurasia include the Russian
Federation; Ukraine, Belarus, and Moldova; the Caucasus countries of Armenia,
Azerbaijan, and Georgia; and the Central Asian Republics of Kazakhstan, Kyrgyzstan,
Tajikistan, Turkmenistan, and Uzbekistan. USAID also provides economic support
assistance to Ireland, Cyprus, and Turkey.
For a printable version of this section, from the Congressional Budget Justification FY 2004, please click here. (Note: This file is in pdf format.)
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