As the United States pursues the global war on terrorism as a top priority, SEED programs have become an important tool in the U.S. Government's engagement with the countries of the region. Where SEED once was predominantly focused on supporting the creation of the building blocks for democratic, free market societies, it is now also involved in providing the technical and financial means to governments to make their borders more secure, target illegal activities that may be linked to terrorism, and improve law enforcement in accordance with democratic norms. As governments become stronger in these areas, the United States is more secure as well.

SEED programs, from their onset, were intended to be transitional in nature. There have been substantial changes and reductions in the program already, as most of the countries in the region have moved toward integration into Euro-Atlantic institutions, principally NATO and the European Union, and toward becoming members in good standing in the Western community of nations. Of the 15 countries covered by the SEED Act, three are NATO members already, with another seven scheduled for membership in spring 2004. Eight of the 15 are slated to join the EU at about the same time. As a result, the program's focus has shifted predominantly to Southeastern Europe, where most of the countries were involved in or deeply affected by the Balkan wars of the 1990s. All are still challenged, in varying degrees, by economic and social problems, high unemployment, interethnic tension, inadequate legal structures and practices, widespread corruption, and other problems.

Steps to begin the phase-out of SEED assistance for the most advanced countries have accompanied the program's redirection predominantly toward Southeastern Europe. Plans for Croatia and Bulgaria to phase out, with FY 2006 as the last year of new SEED funding, have been outlined already. The Romania program is expected to follow shortly thereafter. Under my direction, the Office of the Coordinator of Assistance to Europe and Eurasia is developing these plans and will look ahead to other possible candidates as well. Phase-out strategies can cover a whole country program or simply those parts that may no longer be required. They will be prepared on the basis of an assessment of progress, or lack thereof, against the broad range of economic and democratic reform indicators collected by the European Bank for Reconstruction and Development, Freedom House, and other such organizations. These assessments will inform our decisions on assistance priorities and keep funding focused on the areas of greatest need. In developing phase-out strategies for SEED assistance in a given country or sector within a country, the U.S. Government will make every effort to leave behind a legacy of sustainable institutions that can continue to promote democratic reform and the growth of market economies.

The past year was one of many important accomplishments, and some changing emphases, for the SEED program. Throughout the region, from the most advanced to the poorest countries, SEED stands as a symbol of continuing U.S. engagement and commitment. The greatest emphasis was on the still-volatile Balkans. The overarching goal of SEED assistance to such countries as Albania, Bosnia and Herzegovina, Macedonia, and Serbia and Montenegro is to help them stand completely on their own feet, politically, economically, and socially, and with reasonable prospects for eventual full integration into Euro-Atlantic structures. Assistance to Kosovo addresses both the underlying causes of ethnic tension and the implementation of the standards that will be the basis for Kosovo's future status.

To that end, SEED has supported a wide range of democracy building, economic reform, rule of law, and civil society programs. As a result, in Bosnia and Herzegovina over a million refugees and displaced persons have returned home. Albania, along with others in the region, is effectively attacking the scourge of trafficking in persons. In Macedonia, political stability is taking hold under the Framework Agreement for peace. Serbia and Montenegro has taken initial steps on political and economic transformation and needs to move the process forward. In Kosovo, microfinance programs have created tens of thousands of jobs, but more needs to be done to help Kosovars develop confidence in their economic future and integrate all Kosovars into economic and political life. While progress has not been achieved in a straight line, most of these areas are well ahead of where they were even three years ago. There is reason to expect that such progress will continue, if the United States maintains its involvement and commitment to getting the job done.

Bulgaria, Croatia, and Romania represent the next tier up in the reform process. Though all three have experienced difficulties and even turmoil in the transition from their communist past, all have made marked progress. Support from SEED, as well as from other donors and the international financial institutions, has played an important role in their positive evolution. Bulgaria and Romania already are about to enter NATO and have expectations of becoming EU members in 2007. Croatia, while lagging behind the other two on the NATO and EU fronts, is catching up quickly and in many respects is a regional leader economically. The challenge for their governments, and for SEED, is to do everything possible to keep them on their current track. Relatively modest SEED assistance has filled critical gaps in all three countries, especially in such areas as the rule of law, health care reform, support for civil society, and anti-corruption.

In the eight countries where bilateral SEED assistance has largely phased out already - the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia - the Embassy Democracy Commission small grants programs were the main vehicle for assistance and continued to provide material and moral support to local non-governmental organizations to help strengthen civil society. These grants of up to $25,000 each (most were much smaller) helped indigenous NGOs to pursue important agendas, in such varied areas as human rights, interethnic understanding, Holocaust awareness, women's issues, the mentally and physically challenged, get-out-the-vote activities, the environment, and youth volunteerism, to mention only a few. Other SEED funds, through Department of Justice programs, have given important support to promoting the rule of law and improving law enforcement in the recipient countries. Also, USAID's Partnership for Financial Stability has given valuable, short-term assistance to Central Banks and Ministries of Finance to help them bring their practices up to Western standards.

Ever since the terrorist attacks against the United States on September 11, 2001, SEED assistance has focused more sharply on terrorism-related areas in all of the countries where the program is active. This can mean, for example, providing help to host governments in drafting anti-terrorist legislation, training in tracking illegal movements of funds, advice and equipment to strengthen border controls against possible smuggling of weapons of mass destruction or their components, and specialized training for police.

Following this introduction, two charts are included that provide snapshots of country progress on economic and democratic reform, the first from 1998 and the second from 2002. The charts reflect the overall progress made by each SEED country in various economic and democratic reform areas relative to the other East European and Eurasian countries, as well as to European Union levels of performance.

In a new departure for this year's SEED report, we are providing a brief statement of U.S. interests, an overview of U.S. Government assistance, sections on assistance priorities and sectoral assessments, and a section on country performance measures for the countries for which there are bilateral SEED programs - Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Romania, and Serbia and Montenegro, as well as Kosovo. For the eight countries where bilateral SEED assistance has already phased out - the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Hungary, Poland, Slovakia, and Slovenia - no country performance measures are provided, since their small residual SEED programs all are ending.

While much important work remains to be done in Central and Eastern Europe, clearly an important corner has been turned. Today the whole area covered by the SEED Act is much closer than at any time since 1989 to being part of a Europe whole, free, and at peace. For that we have to thank not only the dedicated, hardworking people of those countries, but also the visionaries who conceived the SEED Act and the countless people from the Department of State, USAID, U.S. law enforcement, American consulting firms, universities, NGOs, and many others for their dedicated work. While the job is not finished yet, we are headed in the right direction.

Carlos E. Pascual
Coordinator of U.S. Assistance
for Europe and Eurasia

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

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.

Economic Policy Reforms and Democratic Freedoms in Central & Eastern Europe and Eurasia: 2002

Ratings of democratic freedoms are from Freedom House, Nations in Transit 2003 (2003) and cover events through December 2002. Economic policy reform ratings are from EBRD, Transition Report 2002 (November 2002), and cover events through September 2002. Economic policyreforms include price liberalization, trade and foreign exchange, privatization, legal, banking and capital markets, enterprise restructuring (credit and subsidy policy), and infrastructure reforms. Democratic freedoms include political rights (free and fair elections; openness of the political system to competing political parties and to minority group representation; governance and public administration) and civil liberties (free media and judiciary; freedom to develop NGOs and trade unions; equality of opportunity and freedom from corruption). Ratings are based on a 1 to 5 scale, with 5 representing most advanced.