As the United States pursues the global war on terrorism, assistance programs have become a vital tool in the U.S. Government's strategic engagement with the Eurasian states. Almost all of the Eurasian countries have actively supported Operation Enduring Freedom and other aspects of the war on terrorism. Many have provided overflight and even basing rights for U.S. forces. U.S. assistance funds were an important instrument for cementing these closer relations and for dealing with key challenges in the "frontline" states of Central Asia. FREEDOM Support Act (FSA) funds, State Department funds and other agencies' assistance funds enabled the U.S. Government to improve border security in the Central Asian states, as well as intensify efforts to mitigate the conditions that make the region a potential breeding ground for conflict, terrorism and extremism. These difficult conditions include isolation from the outside world, poverty, unemployment, lack of representative government, and poor community services.

The past ten years have made clear that the transition to democracy and free-market economies in the Eurasian region is an uneven, long-term, generational process. Accordingly, U.S. Government assistance to Eurasia is based on two principles: (1) balance between programs that address immediate threats and programs that promote lasting, generational change; and (2) selective engagement based on willingness to reform. U.S. Government assistance to Eurasia has evolved over time, in response to changing circumstances. Initially, U.S. assistance was overwhelmingly humanitarian. In the mid-1990s, technical assistance to governments was increased to help lay the institutional foundations for reform. However, later on, as many governments in the region continued to resist reform, the U.S. Government redirected its assistance resources away from central governments towards the grassroots level, with an emphasis on programs such as exchanges and Internet access, as well as support for non-governmental organizations (NGOs), independent media, small business, and reform-minded regions and cities. In FY 2002, some 10,350 citizens of the Eurasian countries traveled to the United States on U.S. Government-funded exchange programs, bringing the cumulative total since 1993 to just over 100,000. Also in FY 2002, dozens of new public-access Internet facilities were opened throughout the Eurasian region, and literally thousands of NGOs, media outlets and entrepreneurs received grants, loans and various kinds of training.

As in previous years, FY 2002 was marked by uneven progress toward stability, democracy, and market-based economies in the Eurasian states. Most of the twelve Eurasian countries registered increases in gross domestic product (GDP) during calendar year 2002, and FSA-funded economic reform programs contributed to this growth in a variety of ways. One area in which U.S. assistance had a particularly positive impact was the agricultural sector, which is still a major employer in most of the region. In Ukraine, U.S. Government assistance was key to significant progress in agricultural policy reform and privatization of agricultural land. This assistance contributed to a nine-percent increase in agricultural production, legislative approval for establishment of a national agricultural extension service, and adoption of regulations that created a commercial crop insurance program. Similarly, a U.S. Government-funded marketing assistance program has helped Armenian farmers and food processors develop new markets and products, thereby increasing exports and incomes. U.S. Government-funded programs providing credit to entrepreneurs also scored significant successes in FY 2002. For example, FSA assistance increased access to credit for micro-entrepreneurs in Georgia, where 60,000 entrepreneurs, approximately 75 percent of whom were women, gained access to micro-credit and maintained a nearly 98-percent repayment rate. In Russia, the U.S.-Russia Investment Fund (TUSRIF), its partner banks, and Delta financial subsidiaries have funded $76 million in loans to 3,600 small businesses. Direct financing of $237 million has been provided to 37 firms that employ a total of approximately 17,500 people in the areas of agribusiness, financial services, broadcasting/publication, consumer products, manufacturing, natural resources, retailing, telecommunications, leisure, health care and pharmaceuticals. TUSRIF has also attracted about $290 million in joint-venture investments for 30 projects.

Unfortunately, positive developments on the economic front were not matched by progress in democratic reform. In FY 2002, many governments in Eurasia continued to suppress the development of civil society and stifle independent or critical voices in the media. In these difficult conditions, U.S. Government-funded programs continued to offer support to indigenous organizations that were actively working to build civil society in these countries. U.S. Government programs contributed to significant successes in FY 2002, such as facilitating the introduction of jury trials in Russia, which were discontinued during the Soviet period. U.S. assistance also funded training for Russian judges, justices of the peace, and defense lawyers on aspects of the new Criminal Procedure Code, which now includes plea bargaining provisions and defense attorney rights. In Ukraine, U.S. Government support for civil society groups and regional media helped these organizations make a strong showing during the period leading up to the March parliamentary elections, mitigating the impact of irregularities in the electoral process.

Even in those Eurasian countries where there is relatively little political pluralism and the government often stifles independent voices, U.S. Government assistance to NGOs has made it possible for fledgling independent media and civil society groups to assert themselves. With the help of U.S. Government assistance, Asia Plus, the first independent radio station in the Tajik capital, was finally licensed after a three-and-a-half-year battle with the Tajik Government. Tajikistan has also seen growth in its NGO sector, due in part to U.S. Government assistance and a more positive relationship between local government officials and NGOs after a U.S. Government-sponsored NGO conference on social partnerships, in which President Rahmonov participated. While the overall picture for democratic reform and human rights in Uzbekistan remains problematic, some gains were made this year, including the abolition of a state monopoly on access to the Internet and dissolution of the State Press Committee, which censored the print media. In addition, pilot programs were started in FY 2002 to support Uzbek human rights and clinical legal education and services. In Kazakhstan, FY 2002 saw increasing pressure on independent media and opposition political groups; however, a new political party was able to gain temporary registration, thanks in part to the successful launch of an independent newspaper that provided the party with a means of publicizing its signature-collection campaign. Also in Kazakhstan, housing reform was put on the parliament's agenda due to the public support garnered by a local NGO. In the Kyrgyz Republic, NGOs that have benefited from U.S. Government assistance launched a successful nationwide advocacy campaign to repeal a decree that limited freedom of speech and press. The repeal removed an obstacle in the path of a U.S. Government-funded independent printing press, which will create an alternative to the state-run press.

In FY 2002, the social costs of transition continued to be high throughout the Eurasian region, where a very large segment of the population lives in poverty. U.S. Government assistance programs continued to help ease the burden on the region's most vulnerable citizens. In Georgia, FSA-funded winter heat assistance enabled many of Tbilisi's poor, as well as institutions such as hospitals and orphanages, to stay warm. U.S. Government-funded health assistance also registered successes. In the Kyrgyz Republic, the first academic department of family medicine and nursing in the entire Eurasian region was founded. In Russia, U.S. Government assistance facilitated the Ministry of Health's approval of a protocol for treatment of multi-drug-resistant tuberculosis—a breakthrough that paves the way for a pilot course of complex treatment approaches in Orel Oblast (Region). In Central Asia, the U.S. Government initiated the Community Action Investment Program (CAIP) to increase community participation in addressing small infrastructure-related needs. For example, in Uzbekistan, citizens of the village of Pahtaboston in the Ferghana Valley worked together with CAIP implementers to build a natural gas pipeline to bring heat to their homes. In Namangan, which is also in the Ferghana Valley, local citizens contributed 45 percent of the cost of rehabilitating three schools, benefiting a total of 1,900 students.

In the aftermath of the terrorist attacks of September 11, 2001, the U.S. Government expanded its security-related assistance programs to help meet the challenges of combating terrorism, weapons proliferation, and narcotics and other illicit trafficking. The Administration launched a G-8 Global Partnership Initiative to intensify international efforts to, in the President's words, "keep the world's most dangerous technologies out of the hands of the world's most dangerous people." The United States pledged to provide $10 billion in threat reduction, security and nonproliferation assistance to Russia and the other Eurasian states over ten years, to be matched by $10 billion from our G-8 partners and other nations. The U.S. Government continued to work closely with Central Asian governments to enhance the border security and law enforcement capabilities of these frontline states. Export Control and Related Border Security (EXBS) assistance was increased significantly across Central Asia and broadened to address essential border patrol aviation and interdiction capabilities in the Kyrgyz Republic and Uzbekistan, and maritime security enhancement in Azerbaijan and Kazakhstan. In Georgia, a combination of U.S. security assistance programs and drawdown authorities supported the U.S. Train and Equip Program to enhance Georgia's capabilities to control its borders and prevent terrorists from using Georgian territory as a safe haven. The State Department's Science Centers and Biological Weapons Redirection nonproliferation programs continued to help redirect the efforts of former Soviet weapons scientists and institutes toward civilian purposes and increasingly move them to commercial activities and long-term self-sustainability. U.S. Government-funded security assistance such as the U.S. Defense Department's Cooperative Threat Reduction (CTR) and the U.S. Energy Department's Material Protection, Control and Accounting (MPC&A) programs remain at the core of U.S. assistance priorities in Russia and the other former Soviet states. However, serious concerns about potential Russian modernization beyond legitimate defense needs, as well as implementation issues including access to facilities, delayed or prevented some security assistance programs from making as much progress as expected during FY 2002.

The U.S. Government continues to modify its assistance programs in response to lessons learned over the last decade. In FY 2002, the Office of the Coordinator of U.S. Assistance to Europe and Eurasia headed an interagency review of non-security-related assistance to Ukraine. The review concluded that in a time of reduced budgetary resources, it is crucial to focus strategically on a few areas where our resources can have the greatest impact, including support for the agricultural economy and entrepreneurship, civil society development, and regional stability, nonproliferation and border security. In addition, the Coordinator's Office held annual program reviews with agencies and organizations implementing FSA-funded programs across Eurasia. These reviews helped sharpen program foci and ensure that programs achieve measurable results. These conclusions will shape future U.S. Government assistance to Ukraine and the other Eurasian states.

As described above, in the wake of September 11, the U.S. Government has also begun to devote an increasing amount of FSA and other assistance resources to programs for Central Asia and Azerbaijan—countries on the frontline of the war against terrorism. Since Congress granted the President authority to waive the restrictions on assistance to the Government of Azerbaijan contained in Section 907 of the FSA, the Coordinator's Office has made resources available to support the U.S. Government's anti-terrorism goals in Azerbaijan, including improving that country's border security and addressing the root causes of potential public dissatisfaction. Waiving Section 907 restrictions has enhanced the U.S. Government's security engagement with Armenia as well. Despite the U.S. Government's policy of evenhandedness with respect to Armenia and Azerbaijan, Azerbaijan's ineligibility to receive Foreign Military Financing (FMF) and International Military Education and Training (IMET) assistance had hampered the U.S. Government's ability to engage with Armenia through these programs. With Section 907 waived, Armenia is now receiving FMF and IMET assistance.

Although the context of U.S. Government assistance to Eurasia was radically redefined by the events of September 11 and its aftermath, the central goals of our Eurasian assistance programs remain as vital to U.S. national security as they were ten years ago. Promoting democratic and economic reform in the Eurasian countries, combating transnational threats to stability, and preventing the proliferation of weapons of mass destruction and related technology and expertise remain our best means for achieving peace and stability in the Eurasian region.

Thomas C. Adams
Acting Coordinator of U.S. Assistance to
Europe and Eurasia

FINANCIAL SUMMARY

After peaking at $2.5 billion in FY 1994, funding for U.S. Government assistance to Eurasia under FREEDOM Support Act (FSA) authorities reached its lowest level in FY 1997 ($625 million), but subsequently increased. Year-by-year FSA appropriation levels are as follows:

As of the end of FY 2002, cumulative appropriations for FREEDOM Support Act, Cooperative Threat Reduction and other major Eurasian assistance and cooperative programs totaled an estimated $21.79 billion, including $2.317 billion appropriated in FY 2002. Total U.S. Government obligations increased by $2.248 billion in FY 2002 and expenditures increased by $2.247 billion. FREEDOM Support Act obligations and expenditures increased by $918.68 million and $1.109 billion, respectively, while obligations and expenditures of other U.S. Government-funded assistance programs for Eurasia increased by an estimated $1.33 billion and $1.14 billion, respectively. (For details, please see the charts in the Appendix of this report.)

STRUCTURE OF THE FY 2002 ANNUAL REPORT

With the goal of making it easier for the reader to get the full picture of assistance to each of the 12 Eurasian countries, information on country-specific assistance programs has been consolidated into the country assessments in Part II of this report. Each country assessment begins with a brief overview of the political and economic developments in FY 2002, and is followed by an assessment of U.S. Government assistance by category, based on input from the U.S. embassy in that country, as well as from Washington, D.C.-based implementing agencies. In addition, each country assessment is followed by an FY 2002 country budget summary.

Part III of the report contains agency-by-agency overviews of the major U.S. Government-funded Eurasian assistance programs, trade and investment programs, and cooperative activities, as well as information on regional programs that involved more than one Eurasian country. Part IV presents an evaluation of the performance of each of the Eurasian countries according to the criteria in section 498A of the Foreign Assistance Act of 1961. Part V describes the use of the "notwithstanding" authority provided to enable U.S. Government assistance programs to move forward without delay. Part VI provides an evaluation of progress in resolving trade and investment disputes and negotiating bilateral investment treaties with the countries of the Southern Caucasus and Central Asia, as required by the Silk Road Strategy Act of 1999. The appendix of this report provides summary charts of assistance funds budgeted, obligated and expended during FY 2002, as well as a list of frequently used abbreviations.