FY 2007 U.S. Assistance to Eurasia

Bureau of European and Eurasian Affairs
FY 2007 U.S. Government Assistance to and Cooperative Activities with Eurasia

Reform Progress

Events in 2007 underscored that in order to implement and sustain reform effectively, governments must keep strong public buy-in and be able to improve living standards. Of the three countries with democratic breakthroughs in 2003-2005, Georgia was the only country whose president was elected with enough political support to push through far-reaching anti-corruption, economic, and social sector reforms. Although initial reforms were popular and lifted Georgia’s GDP by 9.5% in FY 2007, the speed with which the government fast-tracked subsequent social and political reforms didn’t allow it to secure strong public support. The government’s weak dialogue with the public and the fragility of Georgia’s democratic institutions were dramatically demonstrated in November 2007 when the Georgian Government broke up opposition-generated demonstrations and subsequently declared a state of emergency. The outcome of the January 2008 presidential election will determine Georgia’s future reform trajectory; despite flaws, the election comported with most OSCE standards and was the first genuinely competitive presidential election in Georgia’s history. Reform was stymied in some countries like Ukraine and the Kyrgyz Republic by political tussling and infighting between opposition politicians and presidents with slim parliamentary majorities. Ukraine’s September 2007 parliamentary election met Organization for Security and Cooperation in Europe (OSCE) democratic standards; the parliament’s December 2007 election of Yuliya Tymoshenko as Prime Minister with a razor-thin majority is hoped to put new life into stalled Ukrainian reforms. However, the December 2007 parliamentary elections in the Kyrgyz Republic failed to meet a number of OSCE commitments, represented a missed opportunity, and fell short of expectations for further consolidation of the reform process. The trajectory of reforms in the Kyrgyz Republic will depend on the composition of, and public support for, the new government.

Four Eurasian countries advanced in economic reforms in FY 2007. Belarus advanced in banking; Georgia advanced in large-scale privatization; Moldova in competition policy and banking; and Ukraine in infrastructure and non-bank financial reforms. The eight other Eurasian countries did not have measurable change in economic reforms in FY 2007.

Eurasia’s twelve countries fell into two groups on democratization progress from 2004 to the end of 2006: those that made progress or maintained levels and those that regressed. Ukraine, Georgia, and Moldova made measurable gains in overall democratization. Georgia's advance was the broadest, with gains in local governance, rule of law, anti-corruption, electoral process, and media. Gains in Ukraine in electoral process, civil society, media, and national governance coincided with some regression in rule of law and governance. Moldova advanced in electoral process, rule of law, and anti-corruption, civil society and governance, while regressing in media. Georgia and Moldova made reform progress, even as they faced the continuing challenge of separatist regions and political and economic pressure from Russia. Armenia, the Kyrgyz Republic, and Turkmenistan saw virtually no change in the level of democratization from 2004 to the end of 2006. Armenia was an early reform leader, but it has not been able to reduce the pervasive corruption that is stalling further progress. It could be poised to put new energy into reform after its February 2008 presidential election. Turkmenistan took slow, but steady steps away from authoritarianism in FY 2007, which will hopefully soon translate into measurable democratic gains.

Russia, Tajikistan, Azerbaijan, Kazakhstan, Uzbekistan and Belarus have experienced democratic backsliding since 2004. Russia’s December 2007 parliamentary election failed to meet many of the OSCE’s democratic standards and took place in an atmosphere that seriously limited political competition. Tajikistan has made some steps to improve governance since the November 2006 presidential election, which was less than free and fair. Azerbaijan has had difficulty translating the benefits of its extraordinary GDP growth into higher living standards; it continued its crackdown on media. Although Kazakhstan expanded the role of parliament, it also granted an unlimited term to the President and raised eligibility requirements to run for parliament. Kazakhstan’s commitment to implement reforms before it assumes the OSCE chairmanship in 2010 was positive. The Uzbek Government kept a tight lid on dissent prior to its December 2007 presidential election, which the OSCE characterized as having deprived the Uzbek people of a genuine choice. It remained isolated from the West. Belarus’s government maintained a stranglehold on opposition voices, continued to hold political prisoners, and increased repression of youth activists.

U.S. Government Assistance

U.S. Government assistance, and FREEDOM Support Act (FSA) assistance in particular, has played a critical role in supporting countries that try to move forward on the path toward becoming stable, prospering, free-market, pluralistic democracies. In areas where governments did not reform, FSA assistance sustained constituencies for reform, both within governments and the public. The region continues to confront many serious challenges. Weak democratic institutions and a lack of economic opportunity in Central Asia foster conditions where corruption is endemic and Islamic extremism can thrive, threatening Operation Enduring Freedom. Record-high levels of cheap heroin from Afghanistan still transit Central Asia, the Caucasus, and Russia, fueling police corruption, drug addiction, and the spread of HIV/AIDS. In too many Eurasian states, an all-powerful executive restricts civil and political rights and rule of law is either weak or nonexistent. Health- and education-related indicators (e.g., life expectancy, child mortality, and secondary school enrollment) continue to be low throughout the region, jeopardizing countries’ ability to sustain economic growth.

FSA funding has had a tremendous impact in countries that are serious about primary health care reform, confronting public health threats, combating tuberculosis, and addressing trafficking in persons. Funding from the FSA and Child Survival and Health accounts addressed the growing HIV/AIDS epidemic through programs focused on prevention, care, and treatment efforts. Although much work remains to broaden the benefits of petroleum-driven economic growth in Russia and Kazakhstan, the need for further U.S. Government (USG)-funded economic reform assistance is limited. Funding for certain areas of economic reform in Kazakhstan is likely to phase out in FY 2009 and in Ukraine in FY 2010. Millennium Challenge Account (MCA) Compacts back efforts to promote economic growth and reform in Georgia and Armenia. Ukraine and Moldova began implementing MCA Threshold Programs to combat corruption in FY 2007; MCC approved a Country Threshold Program for the Kyrgyz Republic in FY 2007; Ukraine and Moldova remained Compact-eligible. FSA assistance complements MCA funds to sustain reform efforts in these countries.

Democracy, economic, and social service reforms remain the core focus of FSA assistance. But FSA funds, along with funding from other accounts – Foreign Military Financing (FMF), International Military Education and Training (IMET), Nonproliferation, Anti-terrorism, Demining and Related Programs (NADR) – and from other agencies, such as the Departments of Defense and Energy, are used to engage Eurasian governments and societies to respond effectively to transnational threats, including terrorism and extremism, the proliferation of weapons of mass destruction (WMD), and narcotics trafficking. The Eurasian countries have given key support to the United States in the War on Terror. Almost all of the Eurasian countries have actively supported Operation Iraqi Freedom and/or Operation Enduring Freedom. Many have provided overflight rights and, in a few cases, bases for the use of U.S. and Coalition forces. U.S. assistance funds were an important instrument for cementing these strategic partnerships.

Country Synopses

Armenia - Armenia’s economic growth and standard of living surpass those in most other developing category countries. But the sustainability of this performance is placed in doubt by its reliance on remittances from the diaspora and by the government’s inconsistent approach to implementing democratic reforms. The conduct of the 2007 parliamentary elections showed some progress toward meeting international standards. Depending on the conduct and outcome of the 2008 presidential election, the new government may have enhanced opportunities to further the reform agenda. Repercussions from the long-running conflict with Azerbaijan over Nagorno-Karabakh and closed borders with Azerbaijan and Turkey further constrain Armenia’s progress by hampering economic development, draining government resources, and hindering regional integration. By supporting reforms and promoting regional stability, U.S. assistance works to transform Armenia into a stable partner, at peace with its neighbors, where democracy, human rights, and the rule of law are respected and the benefits of sustained economic growth are widely shared.

Azerbaijan - While Azerbaijan is taking important steps to harness its energy resource revenues, much remains to be done to promote the fundamental political and economic reforms required to improve the quality of life and meet the democratic aspirations of the Azerbaijani people. U.S. assistance focuses on furthering reforms that will allow Azerbaijan to remain a consistent, stable partner able to contribute to regional stability and energy security. As energy pipelines are completed and the major offshore fields increase production, Azerbaijan will see an even more dramatic increase in its energy revenues. U.S. assistance is essential to encourage Azerbaijan to use this major spike in budgetary revenues and investment resources to foster a sustainable expansion in jobs, incomes, and living standards. The United States will look to Azerbaijan to co-finance some assistance programs, particularly in the areas of economic growth and social services. Depending on the conduct and outcome of the 2008 presidential election, there may be enhanced opportunities to further the reform agenda with the new government. An enduring impediment to Azerbaijan’s political, economic, and social development is the unresolved conflict with Armenia over Nagorno-Karabakh. The current cease-fire is frequently violated, inhibiting the ability of the United States to provide robust security assistance to strengthen the U.S.-Azerbaijan security relationship.

Belarus - The United States seeks Belarus’s transformation from one of the world’s “outposts of tyranny” to a democratic, peaceful, and prosperous state. Obstacles to this goal are many. Belarus has an authoritarian regime that claims its legitimacy through a non-democratic referendum and fraudulent elections. The regime violates human rights and fundamental freedoms, suppresses alternative political voices, and seeks to extinguish sources of independent information. It has enacted retrograde economic policies and maintains close relations with other authoritarian regimes. Despite constant harassment and threats of closure, the democratic opposition demonstrated resilience and began preparations for 2008 parliamentary elections. They set aside longstanding disagreements over leadership, and strengthened their communication with the electorate. The vulnerability of Belarus to Russia’s introduction of market gas prices also highlights the destabilizing effect of the regime’s dependence on Russia and the growing opportunity for those advocating democratic and market economy alternatives.

Georgia - The Georgian Government has achieved impressive progress on democratic and economic reform since the 2003 Rose Revolution, turning the country from a nearly failed state towards a democratic, market-oriented state able to respond to the needs of its population and to be a responsible, stable international partner. However, challenges to consolidating these gains remain, as demonstrated by the events of November 2007. The United States seeks to help Georgia strengthen the separation of powers, develop a more vibrant civil society and political plurality, bolster independent media and access to information, improve respect for human rights, and ensure equitable treatment for ethnic and religious minorities. As Georgia has deepened its Euro-Atlantic relationships, it has faced increasing pressure from Russia in the form of trade embargoes, energy price hikes, political pressure, and support for separatist enclaves. Russian support for separatists in South Ossetia and Abkhazia undermines Georgia’s territorial integrity and the ability of the international community to facilitate the peaceful resolution of these conflicts within a unified Georgia. While U.S. assistance to Georgia’s energy sector has lessened Georgia’s energy dependence on Russia, Russian control over energy resources and infrastructure that cross Georgia continues to threaten Georgia’s energy security. U.S. assistance continues to help Georgia seek out new markets and improve marketing, pricing, and production standards of agricultural products to counter the effects of Russian embargos on Georgian products. Despite Georgia’s economic growth, rural poverty rates remain near 40%, with most development occurring in and around the capital.

Kazakhstan - Kazakhstan is the economic engine of Central Asia and the country that most promotes economic integration and stability in the region. Kazakhstan is also a key U.S. partner in Central Asia. The major obstacles to Kazakhstan's further advancement are an economy that must still diversify beyond oil exports, a restrictive political environment, and border security concerns. Despite recent years of rapid oil-driven growth and impressive macroeconomic reform, a steep drop in the poverty level has not prevented a rising gap between rural and urban incomes. The Government of Kazakhstan is looking for ways to diversify the relatively underdeveloped non-extractive sectors of the economy. While Kazakhstan has demonstrated some progress in democratization, elections consistently have not met international standards, opposition political parties no longer are represented in parliament, and the media has shown limited ability to offer objective information. Kazakhstan's vast land and sea borders are not sufficiently guarded against trafficking in narcotics, persons, conventional weapons, and weapons of mass destruction. Kazakhstan seeks a reformed defense establishment with NATO-interoperable units to allow it to better participate in international operations. Internally, Kazakhstan is threatened by the spread of communicable diseases, particularly HIV/AIDS and tuberculosis.

Kyrgyz Republic - The Kyrgyz Government, host to a Coalition airbase supporting Operation Enduring Freedom, has made the most progress overall on implementing reform in Central Asia. Progress since its 2005 Tulip Revolution has been unpredictable and non-linear. Overall, it has made substantial strides in improving security, promoting economic development, and addressing social issues. Corruption, weak governmental institutions, limited natural resources, and an underdeveloped energy sector remain central obstacles; its progress on strengthening democratic institutions and fighting corruption has been uneven. Corruption and unresponsive governance undercut the legitimacy of the government and feed public cynicism about the political process. Lack of employment opportunities and an unclear path toward economic growth impede the Kyrgyz Republic's development and could potentially jeopardize its future stability. Cross-border threats, especially drug trafficking and the movement of terrorist groups through the country, endanger regional stability.

Moldova - The United States promotes a democratic and prosperous Moldova, secure within its recognized borders and free to become a full partner in the Euro-Atlantic community. Moldova is the poorest country in Europe. Its economic dependence on Russia for energy and as an export market made Moldova vulnerable to Russian pressure, although Russian bans on Moldovan wine and agricultural products were partially lifted in 2007. The unresolved conflict involving the authoritarian separatist regime in Moldova's Transnistria region remains a major impediment to Moldova’s development. Other obstacles to Moldova’s progress include corruption and over-centralization of government authority; limited capacity and independence of the justice system; political interference in the media and energy regulation; and limited foreign direct investment. Lack of economic opportunity drives many Moldovans to seek work abroad; Moldova has a major trafficking-in-persons problem and an economy dependent on remittances put largely toward consumption. Over the past four years, the Moldovan Government has made progress on reforms setting Moldova on a path to European integration, renewed IMF and World Bank funding, and an environment more conducive to investment.

Russia - Russia has the capacity to act as a strong and effective partner in areas of common interest with the United States, from nonproliferation and counterterrorism to working with the United States to advance Middle East peace and address the challenges in Iran and North Korea. Despite Russia’s growing wealth, however, it is still in many ways a developing country with uneven distribution of wealth, large-scale corruption, and growing demographic and health crises. Other worrisome trends include: further centralization of power in the hands of the Kremlin and its allies; continued pressure on non-governmental organizations, independent media, democracy advocates, and political opposition; and a growing state role in the economy. These developments represent major obstacles to achieving a fully free-market, democratic system built on checks and balances. In addition, in the North Caucasus, the Russian Government’s unwillingness to meet the humanitarian needs of internally displaced persons exacerbates regional instability and creates an environment ripe for extremism. Externally, Russia has shown a willingness to use energy and other means as political tools to coerce its most Western-oriented neighbors.

Tajikistan - The major obstacle to Tajikistan's advancement is the government's inability to move beyond the post-civil war mentality of maintaining stability and focus on improving its record on democratic and economic reform and providing healthcare and basic education to its people. Tajikistan’s government is intent on improving its infrastructure, especially hydro-power, so it can expand its export and trade options to growing markets in South Asia. Tajikistan, a strong supporter in the War on Terror, is improving border control to address counter-narcotics and counterterrorism concerns while promoting regional trade across its newly completed bridge to Afghanistan. Tajikistan's democracy and human rights record remain poor and there has been recent backsliding as illustrated by increased pressure on civil society, religious groups, and independent media. Years of gross underinvestment in the health and education systems threaten the advancement of other objectives. Support to strengthen border security, counter-narcotics efforts, democratic reform, health, education, and economic growth is key to helping Tajikistan play a positive role as a bulwark against, rather than fertile territory for, regional threats such as terrorism and drugs.

Turkmenistan - In recent months, the Government of Turkmenistan has implemented a number of reforms that seem to signal a change of course from the repressive policies of its past, including in internal security, education, foreign policy, and economic policy. Although it is not yet clear how far and to what end the reforms will go, the GOT is seeking to change the nature of its relationship with the United States and with the rest of the world. U.S. assistance programs focus on empowering the government and citizens of Turkmenistan to improve governance, health, security, and productivity, spreading its benefits to all citizens. In addition, the United States continues to support Turkmen efforts to expand its oil and gas export options.

Ukraine - Ukraine is well on the path to becoming a democratic, prosperous, and secure country fully integrated into the Euro-Atlantic community. A reformed justice system, a healthy economy, and energy security are necessary elements to ensure realization of the benefits of democracy. The 2004 Orange Revolution provided a key opportunity to advance toward this goal; an important objective of USG assistance is to ensure that Ukraine’s democratic gains are institutionalized by future, democratically elected Ukrainian governments. The United States continues to promote a legacy of legislation and sustainable institutions that advance democratic reform, human rights, and economic growth. Endemic corruption and criminal activity are serious obstacles to progress, and a factionalized political environment has also slowed the legislative, judicial, and market reforms that will facilitate closer integration with the European Union, accession to the World Trade Organization, and greater integration into the world economy. The new Ukrainian government will have to work to ensure transparency, security, and diversification of the energy sector and to curb one of Europe’s fastest growing HIV/AIDS epidemics. Ukraine faces a serious challenge in terms of its economic and energy dependence on Russia.

Uzbekistan - In FY 2007, the Government of Uzbekistan unfortunately continued to view U.S. assistance as a threat to its rule. Civil society organizations and community-based groups face severe repression in carrying out activities geared toward addressing social and political needs. Democratic and economic reforms are stalled and the government is moving backward on its prior commitments. Corruption is endemic and has permeated virtually every facet of public life. Despite these difficulties, the United States pursues opportunities to advance democratic reform and respect for human rights, promote regional stability, support counterterrorism efforts, strengthen economic growth, and address health concerns.

Transition in Central and Eastern Europe: Economic and Democratic Reforms in 1998 and 2006

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

Date: 01/01/2008 Description: Chart shows economic policy reforms and democractic freedoms in Central and Eastern Europe and Eurasia: 1998 State Dept Photo

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.

USAID: Economic and Democratic Reforms in 2006-2007

Date: 01/01/2008 Description: Chart shows economic and democratic reforms in 2006-2007 State Dept Photo

Rating are based on a 1 to 5 scale, with 5 representing most advanced. Freedom House, Nations in Transit 2007 (2007) and EBRD, Transition Report 2007 (November 2007).