Mr. Chairman, Members of the Committee: I am pleased to have the opportunity to testify today in support of the Administration's request for $900 million under the FREEDOM Support Act for USAID's activities in the Newly Independent States (NIS). I believe, and this testimony will demonstrate, that overall progress in dismantling communism and in building democratic governments and free market economies in its place merits your strong support. I also wish to restate the Administration's support for an appropriation of $492 million under the Support for East European Democracy (SEED) Act for our activities in Central Europe, $15 million in economic support funds (ESF) for Cyprus to support bicommunal activities and scholarships, and $50 million in ESF for Turkey plus $4 million for family planning. The Administration requests as well $19.6 million in ESF for the International Fund for Ireland which, like our Cyprus request, is designed specifically to promote peace between two communities sharing an island. I also wish to state that the Administration strongly opposes Section 907 of the Freedom Support Act because its restrictions impede the United States government's ability to implement more effectively our development assistance program in Azerbaijan and thereby slows the advancement of U.S. interests in a strategically significant region.

The President's request for $900 million for the NIS, an increase from $625 million this year, follows three years of falling appropriations levels. After the large FY94 appropriation of $2.5 billion, assistance levels fell to $850 million in FY95, $641 million in FY96, and $625 million in FY97. Resources for most of the New Independent States have dropped below the levels needed to spur and cement fundamental reform. The United States' relationship with Ukraine, Russia, and other key states in the NIS remain vital to our national security, and we need a framework for a new phase of U.S engagement, focused on trade and investment and building enduring ties between their citizens and ours. The proposed Partnership for Freedom would be established for those purposes.

First a word on Ukraine. As reported extensively in the media, there are real problems in Ukraine. The perceived level of official and unofficial corruption is pervasive and deep. Internal reform appears stagnant and the economy is beginning to show signs of contraction. The Deputy Prime Minister, the country's leading reformer, recently resigned. Major and small US companies, faced with harassment, intimidation, and bribery are leaving the country. Business disputes are on the increase and because of continued state control over the agricultural sector, delays in privatization, and failure to collect payments in the electricity sector, the World Bank is seriously considering the suspension of three critical loans.

Corruption, of course, is nothing new in the areas of the former Soviet Union. Ukraine, no less than anywhere else in the former Soviet Union, lived under a regime that was conceived in corruption and governed corruptly until its fall from power. That is, in fact, why we are in the former Soviet Union -- to help Ukraine, Russia and the others establish economic and governmental systems that are honest, transparent and fair. We cannot expect American investors to do business in Ukraine or any of the NIS countries if they are not going to be treated fairly. That is why the state of economic reform and the transparency of economic decision-making have been high on our agenda in discussions with the Ukrainian government and will be at the top of the agenda at the Gore-Kuchma Commission meetings next week.

It is the intention of the Administration to let the Ukrainian government know, in no uncertain terms, that we will not support the continued stalling of reform and transparency initiatives and certainly not the mistreatment of our citizens. We will be looking not only for a verbal response; we will also hold the GOU to a series of actions which it has, in various international loan and assistance agreements, agreed to undertake during the coming weeks and months if we are to continue our support. We are examining our program in Ukraine to gauge which activities are dependent on progress in reform. This committee has seen fit to earmark over one-third of total FREEDOM Support resources to Ukraine in 1997 and 1996. You have every right to know that these resources are being utilized to provide the maximum protection to US interests including US investors. You may wish to provide the Administration with sufficient flexibility on earmarked funds to ensure that your concerns, and ours, are being met. But, rest assured, in this case as in others, no one is more determined than USAID to ensure that corruption does not taint our efforts and that our assistance is buttressing actions to root out corruption at all levels.

It has now been five years since this Committee took the historic step of funding assistance to the NIS. This action reflected the decision by Congress, and President George Bush, that the United States would seize the opportunity provided by the break-up of Soviet Communism to help the states formerly incorporated into the Soviet Union make the transition to democratic market economies. It was based on the premise that the people of these nations wanted to transform their entire way of existence and that reformers welcomed US technical assistance. It was based on the hope that our involvement would forestall the return of totalitarianism and state socialism and help ensure democratic futures for the people of the former Soviet Union. Today the American people have every right to hear if the programs they are funding have produced tangible results.

I am pleased to report that, at this juncture, we are witnessing broad and unmistakable signs that reform is achieving demonstrable results. Communism is being dismantled, and a viable middle class based upon the empowerment of the individual is being created -- not evenly, not everywhere in the NIS, and often in fits and starts -- but across enough of the region, and in enough sectors, that we can say that its roots have taken strong hold of people's outlooks and expectations. Reform has given oxygen to the life blood of civil society and private enterprise. And it has produced some remarkable results.

That is especially remarkable when we consider the context. We are speaking here of the former Soviet Union, for seventy years under the fists of Brezhnev, Stalin, and Lenin.

Under Communism, there were no market institutions, no legal foundations for a market economy, no democracy, and no basic institutions for citizen participation. All real power rested with the Communist party and the thoroughly corrupt central government. The individual was powerless, with no control over his or her personal destiny -- much less over the destiny of his community or nation. Today, just six years after the hammer and sickle flag was lowered at the Kremlin, I am able to report to you about a region in transformation, about people suddenly empowered both economically and politically.

A quick snapshot. In Russia, the private sector now accounts for 60% of GDP and employs about half of the labor force. In Ukraine, some 400 formerly state-owned companies a month are being auctioned off. The Central Asian Republic of Kazakstan opened its first private stock exchange in Almaty in April 1995. In Kyrgyzstan, economic stabilization has helped make the local currency, the som, the most stable currency in the region, at times appreciating against the dollar. Eleven individual television stations operate in Georgia, independent and free of government control.

I am pleased to say that the United States, led by USAID, has had a part in each of those changes and the others I will attempt to describe for you today.

These results testify to a U.S. assistance program that has had a strong positive impact. Would I claim that change would not have occurred without the United States? No. The collapse of the Soviet system, and its history of eight decades of failure, ensured that much of the old system would be swept away as soon as the people of the region had the opportunity to rid themselves of it.

But, at the same time, I can state with confidence that without our assistance program, a program not of cash giveaways but of hard technical and practical assistance, change could have taken any number of paths -- including authoritarian, nationalist approaches which would not safeguard personal freedoms and would have been inimicable to U.S. national interests. The wrong kind of change might even have reignited the cold war and all the costs the renewed threat of confrontation would entail.

Modern free enterprise does not just happen. You cannot expect a modern banking system or stock market to just evolve from the ruins of state socialism. Someone has to show the way, offer the models and the counsel. That is what we are doing. Similarly, democracy is an idea, a worthy political goal. But nations with little or no democratic tradition need someone to show the way to create a system that will support democracy. That means election laws and codes and constitutions. Again, the U.S. shows the way. And, although other nations and multilateral institutions are playing an important role in the building of the NIS, it is appropriate that the United States play a central role. The former Soviet bloc was governed by the principle that the state counts and that individuals do not. The United States, the world's oldest democracy, is built on just the opposite idea; the rights, privileges, and opportunities for the individual is the bedrock of our nation's greatness. Our goal is similarly to help empower individual citizens who, under the previous system, were considered insignificant or not considered at all.

The USAID program pursues three strategic goals in the region: economic restructuring, democratic transition, and social stabilization. It is under these rubrics that USAID has achieved our results.

Economic Restructuring: Since 1992, USAID programs have contributed to sweeping economic changes, including mass privatization, land privatization, fiscal reform, development of modern financial systems, and energy sector restructuring. Establishment of private property rights and the growth of entrepreneurship have given ordinary citizens a stake in the new economic system. With USAID assistance, most countries have made systemic changes such as creation of laws and institutions to permit private business, as well as specific changes in practices such as adopting Western accounting principles and banking practices. The severe output declines experienced by most NIS countries since the collapse of the Soviet Union appear to have bottomed out. Economic restructuring is pursued through privatization, fiscal reform, enterprise development, financial sector development, and energy/environment reform.

Privatization: Almost 50% of GDP in the NIS is now generated by the private sector, as compared with less than 10% when the Soviet Union collapsed in 1991.

USAID has been instrumental in this process. In Russia, for example, a recent agricultural land privatization law gives citizens the right to buy and sell land for the first time since the 1917 revolution. Titles to nearly a thousand parcels of land had been transferred to privatized industrial enterprises throughout Russia by October 1996.

Fiscal Reform: Throughout the region USAID has helped governments adopt more effective budgeting and expenditure procedures, reform tax regimes to make them more conducive to business growth, and improve tax administration to raise the revenues essential for good governance. For example, with USAID assistance, Kazakstan's new tax code was approved in April 1995 and introduced in June 1995. Regarded as the most efficient and equitable code to be adopted in any former Soviet republic, it is serving as a model for draft codes elsewhere. A new tax code has been completed in Uzbekistan and awaits enactment by Congress. A budget law and a treasury law are near completion.

Enterprise Development: In nearly every country in the region, USAID is assisting enterprises to operate more competitively, and helping reduce government interference in the marketplace. For example, in Russia, passage of the Civil Code, guaranteeing freedom of contract and protection of private property, is a major advance in creating a legal and regulatory environment to support a market economy.

Financial Sector Development: USAID is helping establish stock markets and improve commercial banks so that businesses get access to investment and operating capital and buy and sell assets. For example, Moldova is the first NIS country to establish an independent securities market agency with ministry status. The Moldova stock exchange opened in June 1995 and, by the end of the year, 300,000 shares had been traded.

Energy and Environment: Throughout the region, USAID is helping to reduce waste in the production and use of energy and improve the reliability of power supplies. It is also working to prevent further environmental damage and to reverse the effects of decades of indifference to the environment under the Communist regimes. For example,since 1995, with USAID assistance, 13 short-term water sharing agreements have been signed between countries in Central Asia. Three of seven agreements approved this past year have included provision for hydroelectricity generation in the Aral Sea.

Economic restructuring is starting to show results in terms of economic performance. The output decline which followed the collapse of the Soviet state has slowed considerably with preliminary estimates indicating that eight NIS countries experienced positive economic growth in 1996. Even more encouraging, impressive gains in inflation reduction bode well for future growth.

It is clear that foreign investment follows economic reform. All the countries of the NIS , with the exception of oil/gas-rich Kazakstan, Azerbaijan, and Turkmenistan, fall neatly along a trend line associating economic policy reforms and per capita foreign investment. This tells us that our efforts to assist reform will result in growth.

Democratic Transition: Democratic governance is critical to these formerly authoritarian states. Under communist rule, there was widespread abuse of civil and human rights and little access to information or citizen participation in political decision-making. Now free and fair elections are being held across the region, governments are being decentralized, independent media access is making information available and increasing government accountability, and NGOs are attracting support and influencing policy as they help articulate citizens' needs. USAID's democracy and governance programs help make recipient governments transparent and responsive to the public by creating checks and balances against the arbitrary power of political leadership and the state bureaucracy. They also create the legal and informational environments which facilitate community initiative outside government and protect individual rights. Increasingly, USAID's support for the development of commercial laws provides the environment necessary for individuals to enjoy economic freedom on a par with newly acquired personal freedom. Progress in building democratic institutions has been just as dramatic, and USAID has been just as central to this progress.

Civil society: In promoting citizen participation in civil society, USAID has helped install the machinery of free and fair elections, strengthened competitive political parties, assisted the development of NGOs, and aided the growth and independence of public broadcast and print media. In 1996, for example, Azerbaijan, Kyrgyzstan, Kazakstan and Russia all received election-related training and technical assistance which complemented ongoing long-term political process programs. In 1996, Russia held a free and fair presidential election after which the defeated parties accepted the results, pledging to continue their activities through the democratic process rather than seek to overturn the results.

We have helped build and strengthen the all-important non-government sector. In 1991, only a handful of NGOs operated in Russia; now there are more than 40,000. USAID has assisted numerous activities intended to support citizen and NGO participation in community and national life.

We have helped establish free and independent media. Internews, an American NGO supported by USAID which trains print and electronic media professionals, has helped transform Russia from a nation which, in 1991, received all its news from one source to one in which there are more than 500 broadcasting companies. The new independent media coverage of the war in Chechnya is widely credited with having fostered public awareness of the situation there.

Rule of Law: USAID is also assisting countries throughout the region to strengthen the rule of law. We have helped draft constitutions, train judges, prosecutors, and trial attorneys, and establish jury trial systems. For example, in June 1996, after considerable input from USAID grantees, the Ukrainian parliament ratified its first post-Soviet constitution. Georgia is drafting a new civil code.

Local Government: USAID is helping to bring good government closer to the people by assisting with decentralization of power from the national to local level and working with mayors and municipal authorities to improve governance and delivery of essential public services. For example, in Kazakstan, USAID grantees have established housing associations, new institutional mechanisms by which citizens can get maintenance work performed.

Social Stabilization: When social dislocation is ignored or inadequately addressed, citizens suffer. Citizens associate their plight with reforms, and in some cases have used newly acquired voting rights to elect politicians who exploit these concerns. Neither USAID nor other donors can finance social "safety nets," but the agency can provide targeted technical assistance to strengthen the countries' own social protection systems. For example, helping Russia and Ukraine to move away from virtually free housing for all to market-based rents and maintenance fees has improved the quality of housing while freeing municipalities' resources for targeted subsidies for the most vulnerable groups. In areas affected by civil strife, USAID has played a major role in alleviating suffering, particularly in the Caucasus and Tajikistan. Reproductive health programs are being funded in Central Asia, Moldova, Russia, and Ukraine. Preliminary data indicate that service improvements have resulted in reduced abortion rates and increased contraceptive use. In Central Asia, the USAID-supported Aral Sea initiative has fostered regional cooperation in protecting the Sea from further degradation and will ultimately provide potable water to over a million people.

Noting these successes, it is reasonable to ask why, if things are going so well, do we need an increase in funding? The simple answer is that it is in the national interest of the United States to sustain these changes, lock them in, make them irreversible. Economic stabilization and structural change do not automatically translate into investment and growth, nor do new political systems automatically develop into full participatory democracies. As the political and economic transitions in the region proceed, we will move from guiding and advising on the mechanisms of structural change to maintaining connections to these countries in ways that sustain these transitions. Our engagement will evolve towards more normal, mutually beneficial bilateral relations.

The New Independent States still have far to go. This region is too critical to U.S. strategic interests for us to abandon. The stakes for the United States are still high in terms of promoting regional stability independence from disruptive regimes in the region, and growing markets for American businesses.

We need a longer time frame and more resources than we had anticipated a year ago. Much remains to be done, including further work in improving the policy/legal/regulatory environment that has been discouraging trade and investment, reform of the tax regimes to facilitate business investment and provide the revenues necessary for legitimate public functions, developing capital markets and commercial banking so that private enterprise can flourish, restructuring wasteful energy systems, like those in Central Asia, continuing support to grass-roots NGOs and to the development of political parties and independent media that spur popular participation in civil affairs, strengthening of judicial systems to fight crime and corruption and facilitate the settlement of commercial disputes, and continuing the decentralization of power and authority from central governments to local governments in which local citizens have more say.

Accordingly, the Administration is proposing the Partnership for Freedom that would change the emphasis of our engagement with the countries that are ready for such a change -- from assistance to partnership. It builds on successes in our assistance program while focusing on trade and investment, exchanges, and cooperative activities. This initiative will support opportunities for U.S. business and help support partnership activities by private U.S. organizations. A key aspect of Partnership for Freedom activities will be their mutuality. U.S. assistance is not charity, and the Partnership for Freedom stresses areas in which both sides will benefit.

The results and successes I have just cited do not come out of the air. They are not the product of guesswork. Through a collaborative process with USAID development partners, field missions defined sets of results, performance indicators, and targets for measuring progress against the achievement of strategic objectives. With these tools in place, USAID is systematically incorporating performance information into program reviews, planning, and decision-making.

Country progress monitoring examines macroeconomic performance, democracy and governance, and social sector data to help determine whether continued assistance is necessary or justified. In combination with other factors, this information helps form the basis for country-level resource requests as well as decisions on country graduation from U.S. assistance.

By managing for results, USAID has confirmed that many of the countries in the region are implementing the policy and institutional changes needed to make reform real. Not all the indicators are good. While we applaud the successful completion of the first democratic Presidential election in Russia's history, we also must take into account that some 40% of Russian voters chose the anti-reform candidate. In several countries, economic reform has advanced far faster than democratic reform. The undermining of parliamentary independence by the government in Belarus, a repressive regime in Turkmenistan, and the disputed fall 1996 elections in Armenia remind us that progress toward democracy in the NIS is far from uniform.

Some social trends are also troubling, indicating that economic reform has not always led to economic growth and equitable distribution of wealth. Some of the NIS countries -- most notably Russia -- are now experiencing income inequalities comparable to Latin American levels. Although this may be attributable, in part, to wealth creation among a few, poverty has also increased significantly. There is also the growth in crime which is a serious threat to democracy and to the willingness of US business to operate in parts of the NIS environment.

While five countries in the NIS witnessed an increase in life expectancy since 1991, on balance, the region experienced a decrease. Life expectancy among Russian males has plummeted -- from 64 years in 1989 to 59 in 1993 and possibly as low as 57 today. In addition, six countries in the region have experienced an increase in infant mortality since 1991.

Just as the overall improvement in conditions in the NIS argues for our continued involvement to help sustain and deepen reform, so too do the less successful transitions argue for redoubled effort. The building of free enterprise democracy in nations that have primarily known despotism is not an exact science. There are no books that tell USAID how to confront the withering of both a nation's industrial capacity and its spirit after decades and decades of centralized repression. No books, no manuals, except the ones we are writing. We learn from our successes and we learn from our mistakes. That is why the program I am describing today bears so little resemblance to the program that the United States envisioned at the time the Soviet Union dissolved. At that time we thought that our immediate mission was to be the eradication of hunger; we discussed massive food relief. We envisioned humanitarian assistance. But almost immediately we realized that pure humanitarian assistance was not the answer. As the old adage goes, it is better to teach the hungry how to fish for themselves rather than to provide a one-time supply. Thus we have developed our program of cooperation and partnership.

This year, in contrast to past years, I decided that our Congressional testimony would not be arranged by country. I decided instead that our testimony would reflect the way we actually do business -- by strategic objective. USAID's program in the NIS is not a potpourri designed to produce a variety of salutary effects on life in this or that country. It is rather a tightly focused program of targeted assistance to promote U.S. economic and security interests by supporting economic reform, democratic transition, and social stability in each respective country and across the region as a whole.

We have every right to be proud of our accomplishments in the NIS. And when I say "we," I mean two succeeding administrations, and the three Congresses. Back in 1992, it was President Bush who saw the fall of the Soviet state not merely as cause for celebration (which it was and is) but as an opportunity to build peace and trade relations with nations which, for decades, we essentially had neither. The FREEDOM Support Act, which funds our assistance program, was the vehicle this Committee sponsored and Congress enacted to facilitate this transition. Upon his inauguration, President Clinton continued and advanced his predecessor's vision.

I wish we could say that we have finished the job and are ready to pack our bags and come home. I cannot say that. But we have made progress throughout the entire region. As you will see in the appendix to this testimony, we have had successes in every country and in every area of reform. Reform is happening. But not overnight. As we have learned over and over, the revolutions that accomplish things overnight are those that tear down. Building takes time but we are doing it. I am bullish about the future of this region.

Mr. Chairman: Again, thank you for inviting me to appear today. I look forward to working with you over the coming years.

Appendix

Results in the Newly Independent States

Building Market Economies

Russia:

As a direct result of USAID assistance, Russia's mass privatization program (completed in mid-1994) transferred ownership of approximately 120,000 businesses from the state to over 40 million private shareholders. The Russian people now have a stake in the economy and in reform, and have the opportunity as entrepreneurs and investors to make their own economic choices.

-- The private sector now accounts for 55 percent of GDP and employs about half of the labor force. New businesses are springing up, creating thousands of jobs. More than 200 institutions and organizations which support entrepreneurship and innovation, such as business incubators and business support centers, are flourishing.

-- A recent agricultural land privatization law gives citizens the right to buy and sell land for the first time since the 1917 revolution. Titles to nearly a thousand parcels of land had been transferred to privatized industrial enterprises throughout Russia by October 1996.

-- A nascent residential mortgage market has been formed on the heels of privatization of over half of Russia's housing stock. Some 25 banks are now making housing mortgage loans on market terms -- so Russians can buy and sell. Where public housing remains, 80% of municipalities have means tests for housing allowances, permitting them to move to cost recovery.

The legal and regulatory framework to make the marketplace transparent and businesses subject to the public interest is beginning to be put in place. More needs to be done to make the tax system fair and non-confiscatory, to prevent money laundering and other forms of corruption, and to improve corporate governance, but a good beginning has been made:

-- Passage of the Civil Code, which guarantees both freedom of contract and protection of private property, is a major advance in creating a legal and regulatory environment to support a flourishing market economy. The passage of scores of other laws and regulations has begun to establish the basis for trade and investment.

-- Capital markets are up and running, and regulatory mechanisms are in place. Stock exchanges, clearing and settlement organizations, share registries and depositories, and a securities commission are operating. Several legal reform programs specifically address capital markets issues, including corporate governance and shareholder rights.

Ukraine:

Just two years into its serious economic reform program, Ukraine has made considerable progress in monetary stabilization, trade liberalization, and a substantial reduction in inflation, meriting support of the World Bank and IMF.

-- USAID-assisted enterprise privatization is now well under way. Bolstered by World Bank loan conditionality, some 400 companies a month are entering the auction process. Approximately 30,000 of Ukraine's estimated 40,000-45,000 small-scale state enterprises and over 3,500 medium and large enterprises have been privatized.

-- The National Bank of Ukraine (NBU) has taken significant steps toward establishing a sound banking sector. NBU's Interbank Payment System is fully functional, with technical execution of payments now taking minutes rather than weeks. Prudent banking regulations have been enacted and approximately 1,750 employees from over 100 banks have attended training at the National Center for Training Bank Personnel, which was created with substantial investment from NBU.

-- Parliament approved a broad strategy that establishes an open and competitive structure for the long term evolution of capital markets in Ukraine. An Association of Investment Businesses has been established, uniting 140 investment funds and trust companies under a common code of conduct. An Over-the-Counter trading system and a self-regulatory organization to govern it have been established. Live trading began in June 1996.

-- With USAID support, Ukrainian Government introduced targeted, means-tested subsidies for housing and utilities in conjunction with IMF-mandated price increases. More than 3.2 million families were reached through the subsidies program, enabling price increases for housing and communal services. As a result, net savings of $600 million was estimated for the 1995 national budget.

Moldova:

-- Moldova is a reform leader, with a stable currency, low inflation, liberalized prices and open trade, and substantial privatization of state assets.

-- The mass privatization program has nearly been completed, with the participation of 90% of the eligible population and resulting in the privatization of an estimated two-thirds of the Republic's agro-industrial assets.

-- It is the first NIS country to establish an independent securities market regulating entity (SEC) with Ministry status. The Moldova Stock exchange opened June 1995 and by the end of the year, over 300,000 shares had been traded.

The Caucasus:

-- Despite a necessary preoccupation with meeting humanitarian needs resulting from the region's conflict, Armenia has made progress in developing a market economy. It has moved into real economic growth, first in the former Soviet Union to do so; taken initial steps in privatizing agriculture and industry; and begun the legal, regulatory, and policy framework needed for competition and growth.

-- Armenia was the first of the former Soviet republics to adopt a real property law which defines basic private property interests and rights. Housing stock is being privatized and a real estate market is developing.

-- The Central Bank of Armenia has greatly strengthened its primary functions, with U.S. technical assistance; bank examiners are enforcing bank laws and regulations, and installing an electronic accounting and payments system.

-- Efforts are well under way in Armenia to de-monopolize the electricity sector, rationalize energy pricing, and improve tariff collection. Armenergo, the power utility previously responsible for all electricity generation, transmission, and distribution, has been effectively "unbundled" into three generation companies, one transmission and dispatching company, and approximately 52 distribution companies.

-- Georgia has made progress in macro-economic stabilization, reducing inflation, liberalizing prices and stabilizing its currency.

-- Restructuring in Georgia's energy sector has resulted in the sale of a number of hydro power plants to private investors, and creation of a national regulatory body for the power sector. Georgia is participating in an agreement with the Azerbaijan International Operating Company and the Government of Azerbaijan on oil transit issues.

In Central Asia:

-- Accession to GATT/WTO. Both Kazakstan and Kyrgyzstan are well along the way regarding the steps in the submission process for accession to the World Trade Organization. The memorandum on the Foreign Trade Regime of Kazakstan was prepared with assistance of advisors from USAID. Negotiations, which will take at least one year, are expected to begin in mid-1997. Accession would provide a certain level of comfort for foreign and domestic investors that a legal framework is in place. It would also provide for dispute resolution mechanisms, again, adding to the comfort level of foreign and domestic investors.

-- New tax codes in Kazakstan and Kyrgyzstan. With USAID assistance, both countries have signed into law the most comprehensive and systemic bodies of law dealing with taxes that have been introduced within the NIS. As such, they will serve as models for other Central Asian and NIS countries that seek to improve fiscal systems and strengthen government revenues. When fully implemented, both codes will have a tremendous impact on the establishment of a sound fiscal policy which is fair, transparent, enforceable, and non-confiscatory. Businessmen have long told us that lack of such codes has been a major constraint to investment and is a factor in business corruption.

-- Commercial Law. A commercial law training program for judges, attorneys, and prosecutors is being implemented in Kazakstan and Kyrgyzstan. This training is designed to address problems of white-collar commercial crimes which are a growing problem as these two societies undertake market reforms.

-- Capital Markets. In both Kazakstan and Kyrgyzstan, a Securities Commission has been established as a fully independent body apart from the Ministry of Finance with full regulatory authority over the capital market. The Central Asian Stock Exchange in Almaty has been operating for two years; the Kyrgyz Stock Exchange has approximately 25 companies listed on its exchange although trading volume is as yet very light.

-- Microenterprise Support. The FINCA Program (Foundation for International Community Assistance) in Kyrgystan is only a little over a year old, but has already started to show amazing success in mobilizing resources for the growth of microenterprises. Focused primarily on women entrepreneurs (98%), FINCA has created 264 village banks with trained staff and an active membership of over 3,000 depositors. These community institutions have lent $500,000 to over 8,000 microentrepreneurs in the past year. While only a small amount of money in traditional USAID project terms, this credit is not only attaining its objective of accelerating growth of microenterprises, but in many cases these enterprises are now stimulating development of new agricultural production and distribution systems in the rural sector.

-- Internet Homepage, a first for Kazakstan. You may be interested to know, Mr. Chairman, that Kazakstan's Stock Exchange is reaching out to investors worldwide, and with USAID assistance, has established an internet homepage. Available in both English and Russian, it provides company specific information on privatization and the Kazakstani securities market. The Homepage includes databases on joint stock companies, upcoming company sales, and legal information related to business activities. It is also the only location on the Internet that carries news from the Kazakstani press. USAID's objectives of "more sustainable private business operations" are being launched to new heights with the Homepage.

Address: http://www.matrix.ru/stockinfo

-- Eurobonds. In December 1996, Kazakstan offered $200 million dollars of three-year maturity Eurobonds to international investors; interest was so high that the offering was oversubscribed. This offering came after USAID-funded U.S. Treasury advisors provided assistance to the Ministry of Finance. This bond offering is of critical importance because proceeds from this issue will be used to reduce government wage arrears, purchase electrical power and fuel, as well as fund the acquisition of medicines and other supplies for the health sector.

-- Energy Sector Reforms. As a result of USAID technical assistance and partnerships between Cincinnati Gas and Electric and Kazaki utilities, 70% of electrical generation in Kazakstan is being sold to the private sector, including American investors such as AES of Alexandria, Virginia. This reform represents billions of dollars of private capital. Soon to follow will be distribution companies. In the Caspian Sea context, the largest new petroleum potential in the world, USAID is currently helping to develop an oil and gas legal, regulatory, and environmental framework based on international standards to further private investment.

Establishing Democratic Institutions

Russia:

In 1996, Russia held presidential, parliamentary, and local elections all in the space of one year. And the process had real credibility among the citizenry and international election observers. The fact that 40 percent voted against reform in the Presidential election tells us there is still much to be done to win support for further change, but it also attests to the legitimacy of the elections.

-- Judicial reform has resulted from workshops, training and exchanges, including a pilot program to reintroduce jury trials for serious criminal offenses in selected regions. USAID has provided copies of the Civil Code, Part I, to all judges and trained over 40 percent of them in commercial law.

-- There are now 40,000 registered NGOs in Russia, up from just a handful in 1991, representing citizens' interests and advocating policy change at the national and local levels.

-- One of the most striking differences between the Russia of 1991 and today is the variety of media outlets bringing information to people. In 1991, all Russia received its televised news from only one source, the government controlled service. Today there are at least 500 broadcasting companies producing original programming in Russia. The Russian government can no longer keep a war in Chechnya or the health of its leader a secret from its citizens. Internews, an American NGO, has played a key role in Russia with USAID funding by training and networking both broadcast and print media in the private sector.

Ukraine:

-- A fundamental first step in the establishment of the rule of law was accomplished with the June 28, 1996 adoption of a new constitution. The U.S. Government's programs in Ukraine contributed significantly by sponsoring town meetings to encourage wide public debate; providing lawmakers with information on comparative constitutional systems; assisting Ukraine's independent media, which provided extensive coverage; and supporting a public education campaign.

-- With USAID assistance, local governments are becoming more responsive to their constituents. They have introduced a variety of democratic reforms such as more open budgeting, town meetings, citizen task forces, constituency outreach and local government watchdog groups, many of which have never before existed. Municipal services are more efficient and better financed.

-- USAID developed a network of 25 Press Clubs throughout Ukraine where journalists can meet on a weekly/biweekly basis with GNU officials to discuss different issues of privatization and economic reform. Weekly meetings at the Kiev Press club meetings are shown nationally during the main news program on UT-1, providing a very effective means for GNU officials to reach a large audience.

Caucasus:

-- Armenia has made strides and had setbacks in its democratic transition in the past year. It held parliamentary elections and approved a new constitution in 1995. In late 1996, presidential and local elections were held but international observers described them as flawed.

-- An objective, professional and independent journalistic cadre is a necessary component of democracy, and its development is a major USAID focus. USAID helped to organize Armenia's independent television stations into a network with a capacity for objective, professional journalism.

-- Progress in democratic political processes is further along in Georgia than elsewhere in the Caucasus. The parliament is one of the most progressive in the former Soviet Union. There is a perceptible strong will in the political leadership, in the media, and among civic groups to advance and protect the new democracy, to establish a transparent system of public administration and the rule of law.

-- Georgia is drafting a new Civil Code.

-- USAID support has led to the creation of 50 new Georgian NGOs participating in democratic and market reform.

-- An independent television network was created in Georgia with 11 individual stations.

-- In Azerbaijan, USAID and its NGO partners have made headway in strengthening the NGO sector, independent media. These nascent entities are critical to support a transition toward democratic governance.

Central Asia:

-- NGO Development. Turkmenistan is not a democracy, yet USAID provides critical support for the growth and development of country-wide citizen initiatives. We are providing this support through the ASSAYER (formerly the Institute for Soviet-American Relations) grant program for assistance to environmental non-governmental organizations. While government policy prohibits the import of foreign magazines and newspapers, the Turkmen NGO, Catena, working with its U.S. partner, the Sacred Earth Network, provides free NGO access to information from all over the world through Catena's Internet link-up. Catena pays for its work with local NGOs by offering reasonable and reliable paid Internet service to Turkmen businesses and government officials.

-- Turkmen NGO Promotes Civic Education. Another Turkmen NGO, Dialog Center for Civic Education, can be counted along with Catena, as one of the few indigenous groups actively working in the rather restrictive environment of Turkmenistan. With USAID funding through the National Endowment for Democracy and a grant from the USAID funded NGO, Counterpart, Dialog recently took a significant step towards wide dissemination of the concepts of civic education by publishing a book entitled "The ABCs of Civic Education." This book has been well received as a vehicle for disseminating and promoting democratic principles and the concepts of civic education.

-- Media Support. Internews, an organization funded by USAID through the Soros Foundation, promotes independence and diversity of the broadcasting media in Kazakstan, Kyrgyzstan, and Uzbekistan. Internews has been a prominent voice in promoting democracy through the establishment of independent television stations. It is helping to establish independent television stations by providing equipment, technical, and business training. Numerous independent stations have benefited from workshops and instructional materials. The impact of the work of Internews is greater access by the public to an increasingly strengthened and diversified broadcast media.

-- National Elections. USAID provided funding to the American Bar Association and the American Legal Consortium to prepare analyses of the Kazakstani Constitution which was passed by national referendum in September 1995. According to the Kazakstani government, 90 percent of the population turned out to vote.

-- Responsive and Accountable Local Government. With USAID funding through International City Managers Association (ICMA) technical assistance, the Semipalatinsk region of Kazakstan is benefitting from a determination to reform local government. The region has privatized housing, established open and competitive contracting for providing goods and services, and established a short-term safety net for those who are most affected by the transition process to a market economy. When housing was originally privatized, the government discovered it could no longer provide maintenance services. ICMA provided assistance in the formation of housing associations, the new institutional mechanisms through which homeowners may channel requests for maintenance services. Fledgling results are that homeowners now get maintenance work done much sooner and the government gets out of the recurrent cost business of apartment and home repairs and maintenance.

-- Eurasia Foundation. In the last couple of years, the Eurasia Foundation has blazed the trail in responding effectively to on-the-ground reform needs as seen by NIS citizens and institutions themselves. In the Central Asian Republics, the Foundation has invested roughly $6 million to support reform minded grassroots initiatives such as the liberalization of laws governing media and the free press, the development of new modes of citizen-government relationships through linkages between university and training programs on public administration reform, and the strengthening and expansion of the nonprofit sector through newly established NGO resource centers. Finally, to better address the growing demand such new and innovative programs in this area of the world, the Foundation has opened a smaller satellite office in Almaty that broadens its outreach ability.

Strengthening the Social Sectors

Russia:

Social impacts of societal change are also critical. Reform efforts could be jeopardized if, for example, citizens cannot access basic health services or other services essential to their welfare. Likewise, failure of Russia to address its serious problems of environmental pollution and unsustainable management of natural resources will both undermine long-term economic growth and produce substantial negative global environmental impacts.

-- Health reform has produced new policies, laws, and models that are helping Russia improve the quality, organization, and financing of its health care system. Health care is no longer always controlled from the center, and is becoming more efficient and responsive to patient needs.

-- U.S.-Russian hospital partnerships have taught Russian health professionals state-of-the-art practices in several specializations, including women's clinical services, and contributed to improved hospital management. Modern contraceptive use is increasing and abortions are decreasing.

-- Modern economic tools are being incorporated in to environmental policy-making, e.g., introduction of user fees and regional forestry codes. Environmental NGOs are vigorously pursuing public education, clean-up projects, and legal and legislative efforts.

Ukraine:

-- Ukraine is making progress in protecting the most vulnerable members of society during the economic transition and making serves more efficient and financially sustainable. Universal price subsidies are giving way to assistance based on need. The income-based benefits program on housing and utilities, developed with USAID support, is a model for a broader program of means-tested benefits for the needy. It has resulted in a savings of $600 million in 1995 and a projected $1 billion in 1996.

-- The number of NGOs has grown markedly, from roughly 40 in 1990 to an estimated 5,000 in 1995, with almost half working to provide social services that the government may no longer be able to afford. USAID programs have trained over 1,200 NGO leaders, partnered U.S. private and voluntary organizations with Ukrainian NGOs, and provided critical support to social service, public policy, human rights, and women's NGOs and civic organizations. Recently, USAID launched a new program to strengthen social service and advocacy NGOs and to improve the legal and regulatory environment for NGOs.

-- Health care efforts are combating a diphtheria epidemic, reforming delivery and financing at local levels, for better responsiveness to citizen needs, improving water quality, and making modern family planning methods available instead of abortion.

Caucasus:

-- U.S. assistance to the Caucasus has been predominantly humanitarian, given the severe hardships engendered by regional conflict for all the peoples of this area. Food shipments have fed needy citizens, refugees, and displaced persons; fuel shipments have increased electric power; winter warmth programs have provided heat for houses and schools. School attendance in Armenia rose significantly as a direct result of this heating program. Pharmaceuticals have met medical needs and large segments of the vulnerable populations have received vaccines against infectious disease.

Central Asia:

-- Privatization in the Health Sector. In Kazakstan, the state-owned pharmaceutical distribution and retail system known as "Farmatsiya" has been almost completely privatized, helped along by USAID-funded technical assistance. Of 1,378 pharmacies, 691 have been auctioned and 562 were privatized by the end of 1996.

-- Health Reform in Kyrgyzstan. A critical element of USAID's health sector reform in the NIS is empowering consumers by promoting choice and responsibility. For the first time ever, Kyrgyz consumers have an opportunity to choose their health care provider. In June 1996, the health reform program launched a family medicine enrollment campaign in which 86% of residents in Karokol city and 96% of residents in Tyup in eastern Kyrgyzstan selected from a newly refurbished group of family practices.

-- Women's Health in Central Asia. USAID has allocated $22 million since 1993 to reduce high maternal mortality in the Central Asian Republics related to high fertility and the use of abortion for fertility control. As you may know, in the former Soviet Union abortion was the main method of birth control and many women had multiple abortions in their lifetimes. The American International Health Alliance (AIHA) received funds in 1996 to establish two women's health clinics in partnership hospitals in Kazakstan and one in Uzbekistan.

-- USAID reproductive health programs support modern, effective, and well- financed family planning services by providing assistance in strategic planning for nation-wide approaches, clinical training, expanding contraceptive marketing, and informing men and women about modern contraceptives as an alternative to abortion. In 1997, USAID will support family planning training for Kyrgyz general family practitioners in group practice to expand services beyond women's clinics, and continue to expand and strengthen contraceptive marketing programs in Kazakstan and Uzbekistan. Project sites reported a 58% increase in modern contraceptive use and a 30% reduction in abortions in 1994.

-- In 1996, a single center, Marriage and Family Center in Bishkek, Krygyz Republic reported an almost 50 percent decrease in the numbers of abortions since 1994 and a 200 percent increase in the use of oral contraceptives (1994 1,333 clients to 1996 4,140 clients) during that period. Clearly there is a hunger for modern methods which can lead to nation-wide impacts.

-- Aral Sea: In Kazakstan, Turkmenistan, and Uzbekistan, the US through USAID provided technical assistance for upgrading and improving water systems to supply potable water to populations at risk. By focusing on providing safe drinking water supply, which is an environmental problem of the highest priority to each national government, U.S. credibility and access was greatly enhanced. USAID's tangible investments in potable water improvements have helped in turn to create strong working relationships with the region's new governments on issues of water management. Beginning in 1995, this credibility was used to establish a new USAID-supported regional program on water resources management to introduce concepts of water economics and conservation prevalent in the United States and Europe to the broader Aral Basin.