The overarching focus of Support for East European Democracy (SEED) Act assistance is to help prepare the countries of Central and Eastern Europe - politically, economically, and socially - for eventual full integration into Euro-Atlantic structures. In the sixteen years since the fall of the Berlin Wall, the fifteen countries have made significant progress. Programs and activities financed under the SEED Act played an important role in making this progress possible.

In FY 2005, SEED-funded programs continued to help advance good governance and fight corruption, strengthen civil society and an independent media, enhance market reforms, create economic opportunity, mitigate conflict, fight disease, reduce threats of weapons of mass destruction, prevent trafficking in persons and contraband, and promote the rule of law and human rights throughout the region.

By helping move these countries in the direction of Euro-Atlantic integration, SEED programs cement lasting partnerships, promote long-term stability in the region, and realize the U.S. goal of a Europe whole, free, and at peace. SEED countries also have become valuable partners in the Global War on Terrorism.

• Of the ten SEED countries that have already become NATO members, eight are also members of the European Union (EU) and no longer receive SEED assistance.

• Bulgaria and Romania, already NATO members, are expected to join the EU in 2007 or 2008. Croatia lags behind these two countries on accession to NATO and the EU, but is catching up quickly. The EU opened accession negotiations with Croatia in 2005. SEED assistance to all three of these countries will be phased out within the next two years.

• The remaining SEED countries made significant progress toward EU membership in 2005: Bosnia and Herzegovina and Serbia and Montenegro began negotiations for Stabilization and Association Agreements (SAA); Macedonia received candidate status, but negotiations for membership will begin only when Macedonia has made further reform progress. Albania is likely to conclude an SAA in 2006. Each of these nascent democracies and struggling market economies will continue to require U.S. support for some time.

In FY 2005, SEED assistance addressed critical needs in Bulgaria, Romania, and Croatia, especially in such areas as strengthening the rule of law and healthcare reform, supporting civil society, and anti-corruption. In Bulgaria, there was continued progress in increasing the capabilities of the National Institute of Justice: SEED programs trained new magistrates; introduced mentor judges; and built partnerships with over twenty Bulgarian courts. SEED programs addressed accountability and transparency issues through amending the Judicial Systems Act and adopting a new Attorney Code of Ethics. The first-ever money laundering indictments were brought through the Financial Crimes Task Force.

In 2005, Romania suffered its worst flooding in 100 years. SEED funds helped provide immediate emergency supplies, water purification systems, and loans to rebuild and rehabilitate community-based projects. SEED funds also supported programs to improve economic performance, primarily by providing advisors to draft reforms to the Romanian pension system, strengthen the energy sector's regulatory bodies, and promote laws to increase non-bank lending to micro and small enterprises. Democracy programs involved assistance to the Romanian Office of the President, media education, political party strengthening, decentralization, and civil advocacy and participation through a sustainable NGO network. SEED funds continued to support training and equipment for cyber-crime investigations, human trafficking, and counter narcotics investigations.

In Croatia, the goal of assistance in the economic sector was to generate employment and higher incomes by spurring the growth of a dynamic and competitive private sector through training and technical assistance. The small- and micro-enterprise program created nearly 3,000 new jobs in its first year of operation and provided assistance to over 750 enterprises. SEED assistance continued to support a broad range of democratic institutions focused on improving good governance and civil society, with the aim of moving Croatia closer to Western levels of democratic freedoms. The local government program has now helped over 250 local government entities institute modern public administration practices and the NGO capacity program strengthened public advocacy organizations, specifically in anti-corruption and judicial reform.

Governments in the western Balkans - Albania, Bosnia and Herzegovina, Macedonia, and Serbia and Montenegro and Kosovo (under United Nations administration) - are all committed to Euro-Atlantic integration, but some are farther along in that process than others. All are still challenged, to varying degrees, by interethnic tension, high unemployment, inadequate legal structures, widespread corruption, and low government capacity. Assistance to Kosovo also addresses both the underlying causes of ethnic tension and the implementation of the standards that will be the basis for Kosovo's future status.

FY 2005 saw breakthroughs in Albania's democratization, but limited improvement in governance and the rule of law. Much improved elections in July were judged to be in "partial compliance" with international standards, and resulted in a peaceful transfer of power - a milestone in Albania's democratization process and its prospects for EU accession. The main priorities of USG democratic reform assistance centered around the election process including strengthening civil society through citizens involvement in decision making; increasing the flow of information and citizen confidence in the government and media; and advocating for more transparency and accountability from the government. Although there has been progress on the economic front, Albania continues to be one of the poorest countries in Europe. USG programs advanced economic reform by providing technical assistance and finance to: promote sustained growth of micro-, small- and medium-sized enterprises; increase competitiveness of the Albanian private sector; and improve financial services. SEED assistance also strengthened Albania's law enforcement and criminal justice capabilities and accountability through training, equipment, and technical assistance provided to the Ministry of Public Order (now Interior).

With state and entity level parliamentary and presidential elections scheduled for 2006, USG democracy programs in FY 2005 in Bosnia and Herzegovina (BiH) focused on strengthening and improving the accountability of political parties and parliaments and strengthening citizen participation in political, social, and economic decision making. On the economic side, U.S. assistance: improved the business environment for small and medium-sized enterprises; increased the competitiveness of firms in key industries; developed and strengthened banking sector institutions; led efforts to restructure BiH's heavy domestic debt burden; helped modernize direct tax administration; and improved the commercial legal and regulatory environment dealing with transactions, bankruptcies, and dispute adjudications. A research grant to the Economics Institute of Banja Luka helped to rationalize the health sector in the Republika Srpska. The USG also assisted the Ministry of Foreign Trade and External Relations in its efforts to attain membership in the World Trade Organization (WTO). Our anti-terrorism programs included assisting state and entity-level law enforcement bodies with mentoring, equipment, technical assistance, and training. In FY 2005, the State Court's Special Chamber for War Crimes, the State Prosecutor's Office, and the War Crimes Registry became fully functional. The USG was the major donor of financial resources to these institutions. USG assistance also played a key role in adoption of a comprehensive defense reform package, one of the most significant reform efforts since the signing of the Dayton Accords. Sustained U.S. assistance is crucial to guaranteeing its successful implementation and the development of a NATO-compatible military structure.

In Macedonia, the legislative elements of decentralization are now in place, completing the legislative implementation of the 2001 Ohrid Framework Agreement. In FY 2005, the USG continued to assist Macedonia in implementing the Agreement and in achieving the standards necessary for NATO and EU membership. Assistance in the area of democratic reform and governance focused on increasing citizen participation in political and social decision-making, making democratic institutions more effective and transparent, strengthening an independent and responsible media, and improving the effectiveness and accountability of local governments. Assistance to accelerate private-sector development focused on improving economic policy and the business environment, enhancing private sector competitiveness, increasing agricultural sector productivity, strengthening the financial services sector, and increasing access to capital. Most of the institutions required of a modern financial sector are now in place. U.S. assistance at all levels of education helped provide equitable access to quality education for minority communities, including the Roma. Several U.S. programs addressed corruption, the rule of law, and organized crime. Assistance strengthened the independence of the judiciary, enhanced the efficacy of public prosecutors, promoted the reform of the substantive and procedural criminal codes of law, and encouraged cooperation between prosecutors and the police.

Fundamental disagreements between Serbia and Montenegro's two constituent republics about the future of the state union, complicated relations between the two slowing the process of Euro-Atlantic integration and rendering state-union institutions dysfunctional. The Montenegrin Government announced it will hold a referendum on independence in the first half of 2006. The USG has encouraged both republics to improve ties with each other regardless of the outcome of that referendum and USG assistance efforts to both republics has been targeted at supporting inter-republic cooperation and at facilitating their integration into Euro-Atlantic institutions.

In June, 2005, the Secretary of State certified that Serbia's steps earlier in the year, including turning over more than a dozen persons indicted for war crimes to the International Criminal Tribunal for the Former Yugoslavia (ICTY), met the requirements of U.S. law for continued assistance in FY 2005. This decision freed up close to ten million dollars of U.S. assistance to the Serbian central government that previously had been frozen. Nevertheless, Serbia's continuing inability to transfer all remaining indicted war crimes suspects continues to hamper relations with the U.S. Given that Serbia's economic development continues to lag, the USG continued to direct its assistance towards economic development and job creation in order to strengthen the country's democratic institutions and accelerate its integration into Euro-Atlantic structures. U.S. assistance also strengthened Serbia's anti-money laundering/counterterrorist financing regulatory and enforcement program, provided training, networking opportunities, and technical assistance to a broad range of civil-society organizations, promoted NGO advocacy capacity, supported efforts to reform the media framework and improve capacity, and improved the ability of political parties to communicate with the public. The USG has also funded several initiatives to promote Serbia's cooperation with the ICTY. USG-funded assistance for Serbian domestic criminal and organized crimes courts enabled Serbia to undertake high-profile cases, including the assassination case of former President Djindjic. Programs also helped civic organizations contribute to public debate on political reform.

SEED assistance helped Montenegro revise its economic reform agenda, with the goal of passing and implementing legislation and policies designed to establish a market-based economy and advance its membership in the WTO and EU. With USG assistance, Montenegro passed key laws in the area of democratic reforms, including a freedom of information law, a notary law, and a mediation law. NGOs continued to expand their participation and perform greater watchdog duties. Overall, USG assistance in Montenegro has increasingly focused on economic development, seen as the essential foundation for building enhanced social and political stability.

In October, the United Nations Security Council formally announced the commencement of final status negotiations for Kosovo. U.S. assistance was critical in helping reach this stage and will be critical as well in preparing Kosovo to implement the final status outcome whenever it is determined. USG assistance in FY2005 supported economic reforms enabling governmental and financial institutions to carry out their responsibilities in the areas of fiscal and monetary policy, tax collection, financial markets, pensions, and privatization. USG assistance also stimulated private sector growth, improved electricity bill collection, and helped draft laws and regulations pertaining to the energy sector. The agricultural sector continued to receive special emphasis through programs that helped Kosovo farmers standardize product quality, lift production towards its pre-war level, and increase production of farm and dairy products. These efforts resulted in the limited creation of new jobs, new markets, import substitution, and exports. USG assistance also encouraged an open, safe climate for minorities, facilitated the return of internally displaced persons, and focused on resolving outstanding human, institutional, and health capacity deficiencies that have an adverse impact on all Kosovars and impede the development of a multi-ethnic society. SEED funds provided U.S. police officers to the UNMIK civilian police force (CIVPOL), which is responsible for public security and law enforcement in Kosovo, and supported the KPS and Kosovo Police Service School (KPSS).

The purpose of SEED regional assistance is to help stabilize Southeast Europe by encouraging these countries to work together on common concerns, restore the economic and democratic links that the region needs to make permanent its transition to democratic governments and market-based economies, address cross-border problems such as organized crime, and increase efficiency by involving two or more countries in assistance programs. FY 2005 was the first year that the SEED regional budget covered U.S. voluntary contributions to the Organization for Security and Cooperation in Europe (OSCE) and related expenses - new expenses which accounted for over half of the regional SEED spending in FY 2005.

None of the eight SEED "graduate" countries - the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia - received any SEED assistance funds in FY 2005, but some programs were continued with remaining prior-year funding.

Enterprise Funds were created in the early 1990s with SEED funds as public-private partnerships for the purpose of investing USG funds to support the private sector and nascent economies of Albania, Poland, the Baltics, Bulgaria, Hungary, Romania, and Slovakia. As each of the Funds reaches maturity, repatriation of the original grant funds, together with surplus reflows, will be directed to legacy programs, such as scholarship funds in these countries.

Following this introduction, two charts are included that provide snapshots of country progress on economic and democratic reforms, the first from 1998 and the second from 2004. 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. The following sections provide statements of U.S. interests in each country receiving bilateral assistance, an overview of USG-funded assistance programs, sections on assistance priorities and sectoral assessments, and a section on program performance and country measures.

There is no question that as a result of the SEED Act, all of Central and Eastern Europe is much closer today to being part of a Europe that is whole, free, and at peace. While the job is not yet finished, the countries involved, the authors of the SEED Act, and all who have participated in SEED programs can be proud of their accomplishments.

Economic and Democratic Reforms in 1998

Ratings are based on a 1 to 5 scale, with 5 representing most advanced. USAID, drawing from Freedom House, Nations in Transit 1998, Freedom in the World 1998-1999 and EBRD, Transition Report 1998 (November 2004).

Economic and Democratic Reforms in 2005

Ratings are based on a 1 to 5 scale, with 5 representing most advanced. USAID, Monitoring Country Progress in CEE & Eurasia #10 (2006 forthcoming) drawing from Freedom House, Nations in Transit 2005 (2005), Freedom in the World 2006 (2005) and EBRD, Transition Report 2005 (November 2005).