I. Introduction

U.S. Government Assistance to and Cooperative Activities with Eurasia
Bureau of European and Eurasian Affairs
January 2004

In the twelve years since the collapse of the Soviet Union, U.S. Government (USG)-funded assistance programs have been a key element of the U.S. policy to support the political and economic transformation of the former Soviet states. By helping move the Eurasian countries in the direction of democracy and market-based economies, these programs promote long-term stability in the region and contribute to U.S. national security. Though the progress of this generational transition has varied tremendously among the countries of the region, in fiscal year (FY) 2003, USG assistance programs continued to help promote good governance, strengthen civil society, independent media, the rule of law and human rights, advance market reforms, create economic opportunity, mitigate conflict, fight disease, reduce the threat from weapons of mass destruction (WMD), and prevent weapons proliferation and other illicit trafficking throughout the region.

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 Iraqi Freedom and Operation Enduring Freedom. Many have provided overflight rights and, in a few cases, basing rights for U.S. forces. USG assistance funds were an important instrument for cementing these strategic partnerships.

Yet assistance has been used not only to build the security and law enforcement cooperation necessary for the struggle against global terror. It has also been deployed to address the internal conditions that may lead, over time, to conflict and extremism and the emergence of new "failed states," which can become breeding grounds for terrorism. In Central Asia, for example, USG-funded programs that combat terrorism and a variety of other threats, such as WMD proliferation and illicit drug trafficking, have clearly assumed greater prominence and received more resources since the September 11 attacks. At the same time, we have increased our investment in programs to promote democratic development, market reform, and the improvement of social conditions. These investments are motivated by the knowledge that only by creating economic hope, opening political space, repairing the degraded social infrastructure, and overcoming isolation will the Central Asian states avoid the fate of pre-9/11 Afghanistan.

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. After independence, all countries in the region suffered massive economic contractions, in many cases up to 50-60 percent of GDP. Life expectancy rates declined. As we enter the 21st century, most of the Eurasian countries have started to achieve economic growth. The private sector's share of GDP exceeds 50 percent in nine of 12 countries. However, democratic reforms throughout the region have often stalled as political leaders have balked at surrendering power or allowing broad-based competition. Nevertheless, civil society has begun to grow stronger. In Georgia, these clashing trends resulted in a "Revolution of Roses" that brought about a peaceful political transition.

In the economic sector, the most striking development in the region has been the growth of small and medium-sized enterprises and an emerging middle class. In Ukraine, 20 "one-stop shops" for business registration reduced registration time from 30 to 14 days. Over 300 community roundtables and public hearings were held, during which citizens spoke out in favor of reducing excessive administrative burdens on business; this led directly to the adoption of progressive national law on business regulation. In Kazakhstan, technical assistance and training for mortgage lending have facilitated $200 million in mortgages and another $67 million in secondary market transactions. Throughout the region, the United States has partnered with the European Bank for Reconstruction and Development (EBRD) to support micro- and small-business lending. A USG investment of $71.3 million has leveraged nearly $600 million in capital from other donors for small and micro lending in 13 different countries. Under this program, EBRD-supported banks have made over 300,000 loans worth more than $2 billion, with repayment rates averaging over 99%.

Less progress has been achieved in terms of democratic reform and establishment of representative government. Turkmenistan, Belarus and Uzbekistan continue to stifle dissent and popular aspirations for greater openness and opportunity. Russia's democratic system has not yet found the essential balance among the executive, legislative, and judicial branches of government. Key aspects of civil society - free media and political party development, for example - have not yet sustained an independent presence. In Ukraine, the media environment continued to deteriorate in 2003 and will most likely face elevated censorship pressure from the government in the run-up to the 2004 presidential election, threatening short- and long-term democratic processes in Ukraine.

Georgia's "Revolution of Roses" in November 2003 demonstrated the pent-up pressures for political change when governments fail to keep their promises to their citizens. Before they became national leaders, Georgia's new president, the chairperson of the parliament, and the prime minister all participated in FREEDOM Support Act (FSA)-funded exchange programs that brought them to the United States to learn about the American people and our values. Even in those Eurasian countries where there is relatively little political pluralism, USG-funded assistance to NGOs has made it possible for fledgling independent media and civil society groups to inform the public and promote dialogue. U.S.-funded think tanks provided essential inputs to tax policy reforms in Russia. A network of NGOs in Ukraine, with support from the U.S. and other donors, has mobilized to monitor the political environment for presidential elections in October 2004. In the Kyrgyz Republic, graduates of USG-funded exchange programs sparked a national initiative to fight corruption in the university system, which has already resulted in corrupt professors being fired.

Most Eurasian states took important steps to fight trafficking in humans in FY 2003. The Russian Government passed amendments to the Criminal Code criminalizing human trafficking and use of forced labor and expanding criminal liability for pimping, recruitment into prostitution, the organization and management of prostitution businesses, and the distribution of child pornography. Armenia ratified a national action plan to combat trafficking, and launched criminal investigations into seven trafficking cases after the government criminalized trafficking in persons. Ukraine has convicted over 50 people for trafficking. In Moldova, the number of repatriated trafficking victims has fallen from 365 in 2001 (the year USG-funded anti-trafficking assistance began), to 292 in 2002, and even further to 189 in the first eleven months of 2003.

In FY 2003, the social costs of transition continued to be high throughout the Eurasian region, where most of the population lives in poverty. USG-funded 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. USG-funded health assistance also registered successes. In Ukraine, USG and other donor assistance in the area of maternal and infant health services contributed to the decrease in maternal mortality from 24.1 cases per 100,000 in 2001 to 22 cases in 2002. Infant mortality fell from 11.3 cases per 1,000 live born in 2001 to 10.3 cases in 2002. Joint efforts by the U.S. and Kazakhstan resulted in the decrease of tuberculosis mortality by 37% since 1998. However, challenges remain, including inadequate and improper drug use, leading to resistance that contributes toa high percentage of treatment failures in Kazakhstan. The Kyrgyz Republic has made tremendous strides in health-care reform, with citizens increasingly seeking outpatient care from primary health care practices, rather than costly specialty clinics. In 2003, USG-funded assistance facilitated the passing of legislation that put the Kyrgyz health care system on a more stable financial basis, thereby helping ensure the sustainability of reforms.

In the aftermath of the September 11 attacks, the USG expanded its security and law enforcement programs to combat terrorism, weapons proliferation, and narcotics and other illicit trafficking. The USG 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 State and Defense Department funding 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 programs to redirect the efforts of former Soviet weapons scientists and institutes toward civilian purposes focused increasingly on moving scientists into sustainable commercial or public-sector research. The newly established Bio-Industries Initiative, with its goal of reconstructing former biological weapons institutes into pharmaceutical or biotechnology companies, is a clear example of this trend. The Defense Department's Cooperative Threat Reduction (CTR) Program also reflects a post-9/11 emphasis on reducing bio/chemical, as well as nuclear proliferation threats. While nuclear dismantlement programs continued in Russia and Ukraine, CTR expanded programs to dismantle WMD infrastructure, consolidate and destroy chemical and biological agents both in Russia and throughout Central Asia and the Caucasus. While some U.S. Energy Department programs were delayed in FY 2003 due to liability concerns in Russia, efforts to secure and consolidate nuclear material continued and, in some countries (notably Georgia and Uzbekistan) expanded.

The USG continues to modify its assistance programs in response to changing circumstances and lessons learned over the last decade. In FY 2003, the Office of the Coordinator of U.S. Assistance to Europe and Eurasia headed interagency reviews of non-security-related assistance to Georgia, Armenia and Kazakhstan. These reviews concluded that in a time of reduced budgetary resources, it is crucial to focus strategically on a few areas where USG resources can have the greatest impact, including support for the agricultural economy and entrepreneurship, democracy and civil society development, and regional stability and border security. Also during FY 2003, a strategy for phasing-down assistance to Russia was put into place that will reduce funding for market reform programs over the next several years, while maintaining support to strengthen democratic institutions, the rule of law, civil society and the independent media, and to help Russia combat an impending crisis of HIV/AIDS infection. In addition, the Coordinator's Office held annual program reviews with agencies and organizations implementing FSA-funded programs across Eurasia. These reviews helped sharpen programs so that they are more likely to achieve measurable results.

FSA programs were, from their outset, intended to be transitional in nature. It was anticipated that as the countries of the region advanced and joined the community of democracies, foreign assistance would eventually not be needed. While the transition process has been far more uneven and protracted than predicted in 1992, the USG remains focused on the ultimate objective of phasing-out FSA assistance throughout the region. Over the coming year, the Coordinator's Office will review each of the Eurasian countries to assess progress, or lack thereof, against a broad range of economic and democratic reform indicators collected by the EBRD, Freedom House, and other organizations. (For a comparative perspective on assessing country progress on reform, please see the charts immediately following this introduction). The Coordinator's Office will also assess progress toward structural changes in the Eurasian economies and the impact of these changes on human development. These assessments will inform decisions on assistance priorities and will help keep funding focused on areas of greatest need. As countries approach agreed-upon performance targets, the Coordinator's Office will develop country phase-out plans, or in some cases, phase-out plans for specific sectors where we believe the transition process to have reached an irreversible stage. In developing phase-down strategies for FSA assistance in a given country or sector within a country, the USG will seek to leave behind a legacy of sustainable institutions that can continue to promote democratic reform and economic growth.

We have reprinted below two charts that provide snapshots of country progress on economic and democratic reform, one from 1998 and one from 2002. These charts show the lack of progress by the Eurasian countries relative to their Central and East European neighbors during the time period in question - particularly with respect to democratic freedoms. Some progress on economic reform is noticeable, but it is overshadowed by poor performance on democracy indicators, backward movement in some cases. Clearly, much work remains to be done.

The global security environment was redefined by the events of September 11 and their aftermath. Yet this has only enhanced the relevance of USG assistance to the transitional states of Eurasia. It is clear that USG assistance to Eurasia remains in the U.S. self-interest - it is key to promoting peace and stability in the region.

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

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

Chart shows 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

Chart shows 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.