Area
: 102,350 sq km, slightly smaller than KentuckyPopulation: 10,825,900 (July 2004 est.)
Annual Inflation: 11.2% (2004 est.)
Population Growth Rate: 0.03% (2004 est.)
Gross Domestic Product (GDP): $23.89 billion (purchasing power parity, 2004 est.)
Life Expectancy: Male: 71.9 years; Female: 77.12 years; (2004 est.)
GDP Per Capita: $2,200 (2004 est.)
Infant Mortality: 13.43 deaths/1,000 live births (2004 est.)
Real Annual GDP Growth: 1.5% (2004 est.)
U.S. STRATEGIC INTERESTS
The primary U.S. interest in Serbia and Montenegro (SaM), as throughout Southeast Europe, is promoting the political and economic development that is central to maintaining regional peace and stability and ensuring its membership in a Europe whole, free, and at peace. Throughout the region, the U.S. supports ethnic reconciliation, good neighborly relations, development of civil society and market-based economies, and integration into Euro-Atlantic institutions. Through regional and bilateral efforts, the U.S. also endeavors to fight terrorism and extremism; trafficking in persons, weapons, and drugs; and organized crime and corruption. In pursuing these goals, the U.S. promotes its highest national objective, the security of the United States and its citizens.
OVERVIEW OF U.S. GOVERNMENT ASSISTANCE
In FY 2004, the U.S. Government (USG) provided an estimated $4.94 million in assistance that was not disaggregated between Serbia and Montenegro:
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$4.19 million in State Department Public Diplomacy exchange programs; and
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$750,000 in Export Control and Related Border Security (EXBS) Assistance.
SERBIA & MONTENEGRO
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OVERVIEW OF U.S. GOVERNMENT ASSISTANCE
In addition to the $4.94 million in assistance to Serbia and Montenegro listed above, the USG provided an estimated $83.90 million in assistance to Serbia in FY 2004:
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$57.65 million in democratic reform programs;
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$21.01 million in economic reform programs;
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$1.10 million in security, regional stability and law enforcement programs;
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$1.15 million in humanitarian programs; and
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$3.00 million in cross-sectoral and other programs.
In FY 2004, a total of 119 Serbian citizens traveled to the United States on USG-funded exchange programs.
U.S. ASSISTANCE PRIORITIES
Democratic Reform Programs: USG democracy programming in Serbia emphasizes support for civil society and more effective governance at all levels. USG democracy and governance assistance for Serbia totaled $66.64 million in 2004. USAID's community development and local government reform programs have focused on increasing citizen participation at the grassroots level and increasing the transparency and management capacity of local governments. Community development programs have increasingly emphasized the importance of job creation and economic development. This emphasis will remain the program's primary focus as it enters its fourth year. Through its democracy and governance Strategic Objective, USAID also supports civil society, independent media, trade unions, anti-trafficking initiatives, a more democratically oriented political process, and rule-of-law programs. SEED-funded Public Diplomacy programming in Serbia promotes democratic reforms through support for projects by indigenous NGOs, media training, educational and other exchange programs, translation and publishing of American titles, and bringing U.S. experts to speak on a variety of topics. A total of $6 million budgeted in this area for FY 2004 was restricted, based upon the failure to obtain certification for assistance to the Government of Serbia (GOS) under the FY 2004 Foreign Operations Appropriations Act (FOAA).
Economic and Social-Sector Reform Programs: In FY 2004, the USG provided $24.15 million in transition-related economic assistance to Serbia. This assistance supported U.S. policy objectives by addressing aspects of reform necessary for the economic recovery and growth that are a key for Serbia to become a stable component of a region moving toward EU integration. SEED funds also supported efforts to improve Serbia's business environment and create a more transparent, rules-based trading regime to expand market access and protections for U.S. companies. USG technical assistance focused on strengthening institutions necessary to sustain economic reform and support the development of a market economy. USG programs continued or initiated assistance in a number of areas, including macroeconomic policy reform, fiscal reform, bank supervision, non-bank financial sector regulation, strengthening the central bank, financial intermediation and credit mobilization for small and medium-sized enterprises (SMEs), combating financial crime, preparation for WTO accession, customs reform, agriculture, building the competitiveness of Serbian enterprises, commercial law reform, and strengthening the capacity of commercial courts to enforce the law fairly and efficiently. USG assistance activities are conducted in close coordination with those of other multilateral and bilateral donors. The USG's highest social-sector priority is poverty reduction, through reducing barriers to private sector development, helping communities to help themselves through infrastructure and income generation projects, and pension reform. For the economic and social sector, a total of $8.58 million budgeted in this area for FY 2004 was restricted, based upon Serbia's failure to meet certification standards of the FY 2004 FOAA.
Security, Regional Stability, and Law Enforcement Programs: USG assistance on judicial reform and rule- of-law activities continued to intensify in FY 2004, through USAID and a U.S. law enforcement team coordinated by the Resident Legal Adviser (RLA). The primary focus remained on bolstering Serbia's domestic capacity to prosecute war crimes cases and combat organized criminal activities. USAID completed its effort to help the GOS build and equip a Special Court for War Crimes and Organized Crime, with the RLA providing follow-on assistance to facilitate effective prosecution and develop the court's capacity to absorb additional cases, as the International Criminal Tribunal for the former Yugoslavia (ICTY) moves toward the 2010 expiration of its mandate. In FY 2004, the USG began to implement a fuller range of criminal justice/rule of law programs, through an ICITAP program focusing on the police who investigate organized and war crimes, an FBI Southeast European Cooperative Initiative (SECI) advisor on trafficking in persons (TIP), and an Export Control and Related Border Security (EXBS) advisor. The Special Court began to try the high-profile cases of the assassination of Prime Minister Djindjic and murder of former President Stambolic, and continued to try the Vukovar/Ovcara war crimes case transferred to it by the ICTY. The RLA and U.S. Marshals developed a witness protection program. The RLA and U.S. Treasury Department continued to provide successful assistance in building the capacity to combat money laundering, terrorist financing, and other financial crimes.Both the RLA program and the new FBI/SECI advisor have provided needed equipment, advice, and training to the anti-trafficking police, prosecutors, and judges. These programs, as well as ABA/CEELI's focus on the victims, represent a comprehensive approach to combating trafficking in persons. ABA/CEELI has also been working with the prosecutors' association on ethics and training, supporting the magistrates association, providing anti-TIP training, and assisting the Humanitarian Law Center in its efforts to locate and aid witnesses and victims in domestic war crimes cases and to transform itself into a war crimes documenting center. A total of $2.4 million budgeted in this area for FY 2004 was restricted, based upon Serbia's failure to meet the certification standards of the FY 2004 FOAA.
SECTORAL ASSESSMENTS
Democratic Reform
After several months of negotiations, agreement on forming a Serbian government was finally reached in March. Since then, Prime Minister Vojislav Kostunica and his Democratic Party of Serbia (DSS) have headed a fragile coalition of several small democratic parties in a minority government that depends on support from Milosevic's nationalist, and barely reformed, Socialist Party of Serbia (SPS). Serbia's first democratically oriented president, Boris Tadic, was elected in July 2004, following three failed presidential contests the previous year. The elections pitted a well-organized group of nationalists with 30 percent popular support, led by the Radical Party (SRS), against a block of democratically oriented parties, together representing most of the rest of the population. Tadic won in the second round of elections as a result of a concentrated effort by progressive political parties and reform-minded groups, advised by USAID's political process partners. Serbia, however, continues to struggle with weak, ineffective leadership due to continued internal divisions within the governing coalition over policy and philosophy. Political debate remains focused on cooperation with the ICTY, the status of Kosovo, and the union with Montenegro. March 2004 saw the outbreak of the most intense inter-ethnic violence in Kosovo since 1999, causing significant material damage and loss of life, and further harming relations between Serbs and Albanians in Kosovo. The violence largely did not spill over into ethnically mixed Southern Serbia. The U.S. program of political and economic support to the Southern Serbian region has contributed to creating an environment capable of managing ethnic tensions and resisting significant outbreaks of violence, even under the pressures seen in March.
In the civil society sphere, NGOs continue to operate in an environment where there still is no NGO legislation. In addition, the media have not been privatized or regulated, and proper frequency regulation does not exist. While other reform agenda laws have been enacted - addressing freedom of information, lustration, and alternative military service - their provisions fall short of features advocated by the USG and its civil society partners. The judicial system, often attacked by the media and politicians as corrupt and inefficient, still requires extensive technical reform to operate efficiently. Against this backdrop, the USG continued to provide substantial support for democratic development at all levels of government and society. USAID takes the primary role in this area, with $64.41 million in related programming in FY 2004. State Department Public Diplomacy activities augmented other USG democracy and civil society efforts, with $2.23 million in FY 2004 SEED-funded programming.
USAID's program includes the Community Revitalization through Democratic Action Program (CRDA) and the related Serbian Local Government Reform Program (SLGRP), which together account for the majority of assistance in this sector. Other USAID democratic development programs include a civil society program designed to support NGOs, independent media, trade unions, and anti-trafficking efforts; political process and elections support activities; and initiatives to strengthen the rule of law.
CRDA is the most visible USG program in Serbia. By providing citizens with a means to voice their concerns and priorities, CRDA has motivated them to work together to achieve community goals and contributed to strengthening grass-roots democracy. The response of the communities has been extraordinary. Counterpart contributions now have risen to 47 percent of the total project costs and, in FY 2004, actually surpassed the funding from USAID. Although the communities highly appreciate and desperately need the CRDA-funded schools, clinics, roads, bridges, water supply systems, and income-generating activities, the citizens consistently report that the most important aspect of the program is that for the first time they are being heard.
By the end of FY 2004, the five American private voluntary organizations (PVOs) implementing the CRDA Program had been active in 505 communities countrywide, covering about 4 million people. Of the more than 3,500 community projects initiated during the first three years, over 2,500 have been completed. During FY 2004 alone, the program began 1,284 projects, of which 281 have been completed. In the health sector, the CRDA Program expended $2.9 million in FY 2004 to equip and rehabilitate health facilities and to initiate programs in 40 communities focused on such topics as reproductive health and breast cancer prevention. The reproductive health activities included education on STDs, including HIV/AIDS. As a result, over 1,395,000 people have increased access to modern reproductive health diagnostic tests and treatment.
The Serbia Local Government Reform Program (SLGRP) is active in 84 municipalities throughout Serbia, where over 80 percent of the population lives. Over 20,000 local government staff (more than half of them women) received management training, which includes financial management, public services management, information technology applications, and citizen participation. As a result, transparent, accountable budgeting and financing systems have been or are being established in 70 municipalities, and 65 participating towns have held public budget hearings for the first time. Citizen assistance centers and/or one-stop permitting centers have been set up in 13 municipalities, with more to follow. The centers have cut the average time for issuing building permits from 30 days to 1-7 days, and from 7 days to 1-3 days for business permits. Such reduced bureaucracy helps resolve a key constraint to business, as identified by entrepreneurs. In the first of four SLGRP-established Business Improvement Districts (BIDs), business volume has increased by 10 to 17 percent and employment within the BIDs has grown by 10 percent.
During the first phase of the 2005 budget hearings, over 4,200 citizens attended the 119 public hearings. Last year, citizen input at budget hearings led to a 17 percent reallocation of budgeted funds. SLGRP has also helped Serbia's local government association, the Standing Conference of Towns and Municipalities (SCTM), to become financially sustainable. Over 95 percent of Serbian municipalities participate in the SCTM's quarterly and annual meetings. The GOS has officially recognized the SCTM as the representative of local government interests and, in collaboration with SLGRP, has prepared a number of model ordinances for local governments to adopt. By the end of FY 2004, the SLGRP had leveraged $3.7 million from other donor agencies, $0.2 million from international NGOs, and, $1.7 million from participating municipalities.
The successful presidential elections, in July 2004, also represented a success for USG-supported civil society efforts. CeSID, NDI, IRI, Freedom House, and IREX worked with other civil society organizations and democratic political parties on the first major, targeted get-out-the-vote effort conducted through direct mail and door-to-door canvassing, which helped mobilize democratically oriented voters. Further assistance provided through USAID supported Serbian media outlets in bolstering election coverage and encouraging critical questioning on relevant issues, and enabled the first-ever televised presidential debate.
USAID assisted Serbian media to cover war crimes trials from the International Criminal Tribunal in The Hague and to produce domestic programming on human and minority rights. As a result of a long period of anti-trafficking advocacy by IOM with USAID support, foreign trafficking victims now have temporary legal status while awaiting trial, health care, or repatriation, rather than being detained and deported without any assistance. USAID support for magistrate training added another line of protection for trafficking victims, who would otherwise face deportation or criminal charges.
March 2004 saw the outbreak of the most intense inter-ethnic violence in Kosovo since 1999; however, notably, despite the potential, this strife did not spill over into Southern Serbia. While violent demonstrations occurred in Belgrade and Nis, ethnically mixed Southern Serbia, where armed ethnic conflict raged only a few years ago, remained calm. Local officials acted with restraint, and in an unprecedented act of inter-communal solidarity, the ethnically split municipal assembly of Bujanovac condemned the destruction of Serb churches and property in Kosovo and donated funds for reconstruction. U.S. political and economic support to Southern Serbia has contributed to building a strong foundation of ethnic tolerance. Although inter-ethnic tensions persist and much remains to be done, the overall strategy of political reform, civil society development, and investments in much neglected infrastructure appears to be working.
SEED-funded Public Diplomacy programming in Serbia assists democratic reforms through support for projects by indigenous NGOs, media training, educational and other exchange programs, translation and publishing of American titles, and the U.S. Speaker program. The Democracy Commission small grants program supported grass-roots projects from indigenous NGOs, primarily outside of the capital. Projects supported in FY 2004 aimed to promote tolerance and reconciliation among different ethnic and religious groups; explain to the general public Serbia's international obligations, such as cooperation with ICTY; and empower citizens, particularly youth, to participate actively in transition processes at the local levels. Media training programs included sending groups of Serbian journalists to the U.S. to follow the American presidential campaign and for hands-on training at American media outlets through internship programs, as well as bringing U.S. media experts to Serbia to provide training in media management, election reporting, defense and security issues, and reporting on trafficking in persons.
At the university level, programs such as the Ron Brown and Hubert Humphrey fellowships, the Junior Faculty Development program, and English language training helped reform higher education through training students and professors from all universities in Serbia. Freedom Grants enabled 22 Serbs to travel to the U.S., who subsequently helped implement democratic standards in such fields as minority political participation, combating financial crime, public administration and intellectual property rights. Nineteen titles by American authors were published in Serbian through the Book Translation program. SEED funded U.S. speakers who gave presentations throughout the country on a broad range of topics.
Economic and Social-Sector Reform
The pace of Serbia's economy recovery picked up in FY 2004, with much of the progress attributable to reform activities supported by USG assistance. After low growth of two percent in 2003, due to drought and industrial sector weakness, the projected GDP growth in Serbia is six percent or more for 2004. This would be the highest since 1997. The main drivers are agriculture, manufacturing, retail trade, construction, and financial services. Industrial production growth of 10 percent in 2004 was directly linked to successful privatized companies, particularly those with foreign investment. The economic reforms promoted by USG programs have created an improved business environment that is gaining increased interest and capital from foreign investors.
Inflation increased slightly after a three-year decline, but is expected to remain at 11-12 percent for 2004. This rise was driven by a combination of external pressures resulting from higher world oil and commodity prices and continued strong growth of aggregate demand in the economy due to higher growth of real wages and consumption. Imports continued their strong growth of about 42 percent. Serbia's key macroeconomic challenge remains the sustainability of external accounts in an environment of reduced but still significant foreign currency debt and a growing trade deficit expected to reach $7 billion in 2004. The International Monetary Fund's (IMF) key concern is an associated and persistent official current account deficit of 13 percent of GDP. Nonetheless, total foreign exchange reserves remain stable at a value equal to nearly five months of imports, bolstered by large unrecorded remittances from abroad. There were positive signs in FY 2004 that privatization and FDI were improving the structure of imports. A 52 percent increase in imports of capital during 2004 bodes well for improving industrial efficiency and export capacity.
Under strong IMF pressure, the GOS continued to reduce the fiscal deficit to 2.3 percent of GDP in 2004. However, public spending remains high, at about 44 percent of GDP, reducing resources available for more productive use by the private sector. Serbia faces increased challenges in managing its fiscal burden, with debt servicing due to increase in 2005 and ever increasing deficits of social benefits funds.
USAID tax collection assistance targeted government deficits. Revenues have risen but are still well below target. The introduction of the value-added tax (VAT) on January 1, 2005, is a key initiative to address the gap and may do more to improve revenues and to shrink gray market activity than any other single step. USAID and U.S. Treasury advisors are directly involved in all key aspects of VAT implementation. An estimated 41 percent of the employable population has their primary or secondary job in the gray economy. Close to 40 percent of the economy in urban areas and over 60 percent of rural economic activities are estimated to be in the informal sector. VAT will push more economic activity into the formal sector, where it can be taxed.
The USG continued to provide assistance on improving Serbia's tax policy environment through the U.S. Treasury Department's Office of Technical Assistance (OTA), in the form of a resident and intermittent advisors. In FY 2004, the tax advisor provided comparative analysis on regional and European tax laws for corporate, personal, and VAT draft tax laws or amendments, and worked with a local think tank to presented a blueprint for tax policy reform in Serbia. The advisor provided detailed comments on the Serbian gaming law. OTA also provided assistance to the Ministry of Finance (MOF) Macroeconomic Sector in revenue forecasting and VAT models. The successful cooperation between OTA and the USAID contractor providing assistance to the Tax Administration continued.
An OTA resident budget advisor continued to assist the Serbian MOF in reforming and modernizing its budgetary and financial management processes. The advisor supported the MOF in preparing the temporary financing for the January-March 2004 period during the formation of the new government following the December 2003 parliamentary election, and with the subsequent 2004 budget law.
Serbia currently spends about 14 percent of GDP on pension liabilities. Budget transfers of 6 percent of GDP to cover the outstanding pension fund deficit represent the single largest budget line item. Serbia's expensive and imperiled pension regime threatens to undermine its ability to reach fiscal sustainability in the future absence of donor inflows, and thus to meet external obligations. Although the GOS has taken positive steps to contain public sector spending, difficult decisions on deeper structural reforms are needed. In 2004, USAID took the first steps on pension reform by providing policy advice related to the design of a reformed pension system.
Serbia's external debt picture improved substantially with the July 2004 conclusion of an agreement with London Club creditors to write off 62 percent of $2.7 billion and reschedule the remainder over 20 years. USG assistance through the resident OTA debt advisor was crucial to this deal. The debt burden, totaling $14 billion, remains heavy but not unmanageable. OTA and USAID supported the preparation of a provisional country risk rating by Standard & Poors that was critical to the London Club negotiation. As a result, Serbia received its first-ever international credit rating of B+. Publication of the rating has increased interest in Serbia among investment banks and opened doors to new capital for the quickly developing commercial banking system. Serbia's full reintegration into international capital markets resulting from the London Club deal and S&P rating will also provide enhanced financing options to foreign and local investors, and eventually for public finance.
Low investment persists due to continuing perceptions of high risk, fostered by unresolved political issues (strained relations among democratic political parties, a strong anti-reform opposition, insufficient ICTY cooperation, State-Union status, Kosovo), macroeconomic risks (fiscal and trade deficits, high debt), and a still underdeveloped business environment. GOS bureaucracy inhibits setting up a business in Serbia. According to the World Bank's "Doing Business in 2005," the cost relative to GDP per capita to create and register a collateral agreement in Serbia is among the highest worldwide. Closing a business is also excessively difficult.
To improve the foundations for the private sector in Serbia, USAID provided key support to the development of legislation identified by the donor community, the GOS, and business as essential for reform. Reforms were sufficient to meet World Bank conditionality for a $40 million loan. In July 2004, the Serbian National Assembly ratified 10 key laws for improving the environment for business development, investment, and economic growth. The USG, through USAID, was directly involved in drafting eight of these laws, including important laws on bankruptcy, business registration, and execution of court judgments. The new bankruptcy law will increase the speed and transparency of the liquidation of insolvent businesses, thus helping to break a key constraint to economic recovery through facilitating large enterprise restructuring and privatization by easing the closure of unproductive portions of state or socially owned enterprises prior to sale. USAID technical assistance and funding for the new Business Registry Agency is helping to simplify the process for registering businesses.
Throughout 2004, enterprise restructuring in Serbia remained stagnant, primarily due to a lack of political leadership. With the appointment of a new Minister and new GOS commitments to the IMF and World Bank, privatization is expected to accelerate again in 2005, without further U.S. assistance. USAID's privatization assistance program ended in May 2004, having laid the groundwork for the privatization of several problematic Serbian conglomerates. USAID ended its privatization assistance with recommendations on how to accelerate the restructuring of over 70 large socially and state-owned companies that must be financially restructured prior to privatization. A Restructuring Department has been established to deal solely with these complex firms, which could not be privatized under traditional privatization procedures due to excessive levels of debt.
In FY 2004, $100,000 in SEED funding was provided to the U.S. Commerce Department's Central and East European Business Information Center (CEEBIC) to support enhanced Commercial Service assistance to U.S. companies interested in doing business in Serbia. SEED support to CEEBIC helped to leverage other USG programs supporting trade and investment, such as the U.S. Export-Import Bank (Exim), Overseas Private Investment Corporation (OPIC), and U.S. Trade and Development Agency (USTDA). In line with the USG's policy goal of promoting stability in Southeast Europe, CEEBIC's goal in FY 2004 was to attract U.S. business to SaM to spur mutually beneficial economic development. The U.S. was the leading investor in SaM during FY 2004. CEEBIC facilitated $4.5 million in U.S. exports and $23 million in U.S. investment in 2004. For FY 2004, $2 million was budgeted for USTDA to continue a successful record of high return on investment in the form of economic development and business opportunities for U.S. companies. However, these funds were not disbursed to USTDA due to lack of certification. During FY 2004, TDA projects funded in FY 2003 in the energy, civil aviation (airport, air traffic management), and IT/telecom sectors came to fruition. Assistance provided on improving the legal/regulatory framework in the telecom sector, for instance, is both moving Serbia along the development curve and positioning U.S. companies to take advantage of export sale, consulting, and investment opportunities of upcoming telecom privatization. In January 2004, the Serbian Ministry of Energy and Mining was granted $757,000 for funding a feasibility study on modernization of the Belgrade District Heating Plant. U.S. company Parsons was selected to complete the study. In March 2004, the Belgrade Airport was granted $414,000 for partial financing of the Phase II of a feasibility study on the proposed Belgrade Airport Expansion project. U.S. companies are already competing in tenders for business opportunities stemming from this project. Serbia and Montenegro Air Traffic Services Agency, Ltd has been awarded $643,000 to partially fund technical assistance in conducting a tender procurement of a $100 million air traffic management modernization.
Banking system reform is key to spurring private sector growth and job creation in Serbia. USAID is providing assistance to strengthen the National Bank of Serbia's (NBS) ability effectively to regulate the entire financial sector by assisting with implementation of consolidated NBS supervision of the non-bank financial sector as well as banks. Improved regulation will increase financial sector stability and raise consumer confidence, thus expanding access to lower-cost credit, providing new financial tools to individuals and businesses, and increasing monetary policy instruments. The USG is supporting the development of a sound, stable, and well-regulated insurance industry as part of strengthening the broader financial sector in Serbia. USAID advisors assisted in drafting a new EU-compliant insurance law and are conducting financial examinations of insurance companies to identify weaknesses and establish a baseline for effective regulation.
The USG provided important assistance on bank restructuring and privatization though an OTA resident banking advisor at the Agency for Deposit Insurance, Rehabilitation, Bankruptcy and Liquidation of Banks (BRA). The BRA is responsible for managing the bankrupt estates of failed banks and selling the GOS ownership in other open banks. It currently is handling 13 bankrupt banks with assets in excess of $11 billion. In FY 2004, the BRA, utilizing advice from the U.S. Treasury Department, created a Bank Consolidation Unit (BCU). Teams were established to handle not only workout of the $11 billion in assets, but selling the former premises, resolving claims against the failed banks, archiving of records, and preparing and preserving final accounting statements. In addition, the BCU now gives the BRA a vehicle in which to place the problem assets from the banks being privatized, which is crucial not only to the sale of the banks but also to the restructuring and privatization of the large state and socially owned companies that are the debtors for the majority of the banks' problem loans. The BRA is also responsible for selling the GOS interest in the 13 open banks, nine of which are majority stakes. It adopted a privatization strategy in 2004 and has begun privatizing the first six banks on the list.
The inefficient functioning and lack of transparency of commercial courts is a serious obstacle to increasing investor confidence and economic growth. Recognizing that improving the functioning of the commercial courts was central to making reform legislation effective, protecting U.S. business interests, and unlocking the potential of Serbia's economy, USAID initiated a program in FY 2004 to strengthen those courts. A comprehensive baseline analysis identified points where assistance will be most effective to reduce the risks and delays that the current system allows. In 2004, USAID supported training for Serbian Commercial Court judges, as well as the new Law on Enforcement of Commercial Judgments. These initial steps are being augmented by pilot projects at the commercial courts in Serbia's two largest cities, Belgrade and Nis, which are also those most likely to hear cases involving U.S. investors.
USG programs also support the microeconomic foundations for accelerated growth of the private sector in Serbia. USAID identified six business sectors as critical for private sector growth: fruit, furniture, apparel, information and communication technology, pharmaceutical research, and tourism. Assistance was provided in marketing techniques and intelligence, export development, legal and regulatory analysis, investment and finance information, quality control, and product innovation. USAID worked with business associations to raise their capacity to understand and advocate for appropriate government policies. Notable results have already been achieved in particular firms and sectors through assistance on quality standards and marketing.
Agriculture represents about a quarter of the Serbian economy. USG assistance throughout the agricultural supply chain, from small farmers to helping food/beverage processors improve their export competitiveness, has strengthened the capacity for sustainable growth in this sector.
A majority of the activities under USAID's Community Revitalization through Democratic Action (CRDA) program focused on economic policy, finance, or growth. Of the 1,284 CRDA projects, over half were for income- generating activities or economic infrastructure. Such activities respond to the clear linkage between economic dissatisfaction, particularly outside Belgrade, and support for non-reformist political forces. A third of income-generating projects were in the agricultural sector. In addition, the CRDA program partners awarded over 300 micro-enterprise grants and almost 80 small business grants. As of the end of FY 2004, 14,780 full-time equivalent jobs were created by the CRDA program's economic development activities. CRDA activities also generated $13 million in additional income and $5.3 million in increased agricultural sales.
In addition to the agriculture-related income generation activities of the CRDA project, in FY 2004, $2 million of SEED funds supported USDA technical assistance in areas critical to the development of SaM's agriculture sector. USDA assistance included activities designed to achieve three primary objectives: 1) economic growth and job creation in the agriculture sector; 2) improved consumer health, food safety, and animal and plant health regulations; and 3) expanded U.S.-Serbia trade, including increased integration into the world market. The success of USDA programs is visible though the increase in production and exports in 2004 and social welfare gains through improved consumer health. For example, USDA, with USAID assistance, helped Serbian institutions create a Market Information System (MIS) program to provide farmers, policy makers, and agribusiness, via 18 agricultural stations, with the pricing information they need to make rational production and marketing decisions. The USDA animal health program focuses on building capacity in diagnosis and prevention of endemic diseases, as well as animal health from the food safety and international trade standpoint.
In FY 2004, the USDA Faculty Exchange Program (FEP) expanded its curriculum development and teaching methods from agricultural economics to providing new university courses in veterinary medicine and biotechnology. So far, 25 Serbian university professors have successfully participated in the FEP. USDA also continued to support the development of Serbia's agricultural and food sector through its Young Scientist Program (YSP) by providing research grants and agricultural extension projects on a competitive basis, all of which are linked to U.S. land-grant universities. In 2004, USDA brought 24 Serbia-Montenegro YSP fellows to the U.S. for training in the areas of food safety, animal health, and biotechnology.
The GOS has lagged behind in some areas where the USG has provided assistance. Steps necessary to gain membership in the World Trade Organization (WTO) were slowed by the distraction of a lengthy, and ultimately unsuccessful, EU-directed effort for Serbia and Montenegro to harmonize their economies, particularly tariffs. While progress on actual WTO accession was largely stalled during FY 2004, the USAID WTO Accession project made valuable contributions to creating a more rules-based trading environment by assisting both republics to prepare modernized legislation, particularly on intellectual property rights protection.
The U.S. Department of Homeland Security, Customs & Border Protection (CBP), through its SECI/Trade and Transport Facilitation in Southeast Europe (TTFSE) Advisory Team (STAT) in Belgrade, continued to assist with the modernization and reform of control and clearance procedures at border crossing points and inland clearance terminals in Serbia, with particular reference to identifying the need for increased inter-agency cooperation, improved customs broker performance, and faster and more open cross-border communications. The STAT also assisted Serbian Customs to develop a comprehensive anti-corruption program, organize its public relations function, and compose an information technology system development strategy.
Security, Regional Stability, and Law Enforcement
The assassination of PM Djindjic in March 2003 spurred the GOS to conduct a major offensive against the organized criminal gangs believed responsible for the murder. As a result of the assassination, new powers were granted to police under emergency decrees. Serbian law enforcement then launched "Operation Saber," which resulted in the arrest of 10,000 people, many of whom were later released. In July 2003, new legislation was passed to combat both organized and war crimes. To date, there have been about 12 organized crime indictments naming over 150 individuals. The prosecution of war crimes has also become inextricably intertwined with Serbia's future as a democratic state. The Serbian War Crimes Judiciary is proceeding with the case against 17 defendants in the infamous Vukovar/Ovcara farm massacre of 200 civilians.
In FY 2004, USAID completed its support for setting up and equipping the Special Courts on domestic war crimes and organized crime, to, which the GOS also contributed significantly. Through the RLA program, the USG provided additional equipment and support to the Special Court and prosecutors to facilitate effective prosecution of organized and war crimes. With the full establishment of the DOJ/OPDAT RLA program, the USG has begun to implement a full range of Criminal Justice/Rule of Law programs. These include an ICITAP program focusing on the organized crime and war crimes police, an FBI/SECI TIP advisor, and an EXBS advisor. The Special Courts have already begun to try organized crime cases, including the Djindjic and Stambolic assassination trials. The court is also trying the Vukovar/Ovcara war crimes case, transferred to it by the ICTY.
U.S. federal judges, court administrators, and U.S. Marshals have continued to visit Belgrade to provide advice on the interior layout, security modifications, equipment, and personnel staffing of the Special Courts. The U.S. Marshals have provided highly effective technical assistance on the development of a witness protection program, including promoting a regional dimension to the program. In conjunction with the U.S. Marshals, the RLA program has participated in the drafting of the Witness Protection Statute that will eventually govern the use of the procedure in Serbia. In anticipation of the passage of that law, the RLA coordinated $350,000 of assistance from the U.S. Marshals and began plans to build the new witness security unit. The RLA, in consultation with the U.S. Marshals, has come up with an action plan to implement the new law.
The RLA program also maintains its focus on enhancing Serbia's war crimes prosecution capacity by continuing to offer training programs for the Special Prosecutor for War Crimes and his 10-member team, as well as for the war crimes investigation unit within the Ministry of Interior. This training on such topics as proper case management in large trials, the use of informants and plea-bargaining, the relevance of international law within the domestic Serbian system, etc. has proven very helpful. Such assistance will become increasingly critical as the ICTY mandate expires in 2010, and the burden of war crimes prosecution shifts to domestic courts in the region. The RLA is also providing technical assistance and training to the Special Prosecutor for Organized Crime in such relevant subjects as investigative techniques in combating organized crime and drug trafficking.
One legacy of the previous regime that the GOS has sought to address is the vast web of financial crimes and money laundering that underpinned Milosevic's 13 years in power. The U.S. has helped the nascent Serbian Administration for the Prevention of Money Laundering (SAPML) make major progress in developing Serbia's anti-money laundering regime, despite major institutional and financial obstacles. In June 2003, the SAPML became a member of the Egmont Group, an international organization of 94 financial intelligence units (FIUs). Membership will provide Serbia the opportunity to exchange information on financial crimes and money laundering with other jurisdictions around the globe and to receive assistance in FIU operations and development. Serbia has emerged as a regional leader and model for the implementation of its anti-money laundering law, the establishment of its FIU, rapid membership in the Egmont Group, and signing cooperation agreements with neighboring countries.
The Treasury Department also provided technical assistance to the SAPML in such areas as information technology (IT) development and anti-money laundering/combating-financing-of-terrorism (AML/CFT) training. An information technology system development plan will guide modernization and provide a more robust processing and analytical capacity. The Treasury enforcement advisor, in conjunction with the RLA, administered a workshop on anti-money laundering techniques, which was an important opportunity to train Serbian investigative magistrates, prosecutors, and judges in the new tools and resources that are now available to them. AML/CFT training was also provided to commercial banking institutions through the Serbian Banking Association and to attorneys through bar associations in conjunction with ABA/CEELI.
Technical assistance was provided in amending Serbia's money laundering statute to bring it fully into compliance with international standards of the Financial Action Task Force and EU Directives. Assistance was also provided for the MoneyVal evaluation, conducted in October 2003, in the Republics of Serbia and Montenegro to assess progress and identify next steps to strengthening the AML/CFT regimes. However, even with the laudable accomplishments of SAPML, the limited cooperation between the FIU and its counterparts - the Ministry of Interior, Tax Administration, Office of the Prosecutor, and the Customs Administration - remains an impediment to more effective results. This problem, coupled with a legal environment that prohibits the conviction for money laundering without the conviction of the underlying predicate crime, still needs to be addressed. Serbia also needs to enact terrorist financing legislation and make the Serbia FIU the central point for receiving and analyzing information related to such activities. The lack of adequate GOS financial support for the FIU since its inception is also a concern.
Both the RLA program and the new FBI/SECI advisor have provided needed equipment, advice, and training to the anti-trafficking police, prosecutors, and judges. These programs, as well as ABA/CEELI's focus on victims, represent a comprehensive approach to combating human trafficking.
COUNTRY PERFORMANCE MEASURES
ECONOMIC & DEMOCRATIC REFORMS, 1991-2004
Data are drawn from EBRD, Transition Report (November 2004) & Freedom House, Nations in Transit 2004 & Freedom in the World 2004. Ratings are based on a 1 to 5 scale with 5 representing the most advanced.
Latest year observation refers to 2004 economic reform data and 2003 democratic reform data; i.e., 2004 data for democratic reforms are not yet available.
ECONOMIC STRUCTURE AND HUMAN DEVELOPMENT, 1990-2004
World Bank, World Development Indicators 2004; UNICEF, Social Monitor 2004; EBRD, Transition Report (November 2004); and UNDP, Human Development Report (2004).
MEASURES OF PROGRAM EFFECTIVENESS IN FY 2004
DEMOCRATIC REFORM
Performance Indicator: NGO Sustainability Index (Source: USAID 1 = highest; 7 = lowest)
|
FY 1997 Baseline |
FY 2003 Actual |
FY 2004 Target |
FY 2004 Actual |
|
5.4 (early transition) |
4.0 |
4.0 (mid-transition) |
4.8 (preliminary data) |
FY 2004 Results: Serbia's average ranking on the USAID NGO Sustainability Index for 2004 fell by 0.8 points (draft rating) compared to 2003. This unfortunate step backward is largely a consequence of changes in the macro-political environment in the wake of the 2003 assassination of Prime Minister Djindjic, whose government partnered actively with NGOs on many reform issues. Following the dismissal of Parliament in late 2003, and continuing since the formation of the new government March 2004, NGOs have not had a reliable partner (or individual counterparts) in the GOS. At best, government is seen as indifferent toward NGO activism on behalf of democratic reforms; at worst, it seems to engage actively against the NGO issues and interests. This has negatively affected NGO effectiveness in advocating on sensitive social and political issues, and resulted in occasional criticism and harassment. Not only do NGOs remain without an adequate legal basis on which to operate, but also a new government draft NGO law has surfaced, which is more restrictive than that under discussion with the previous government. NGO financial viability has deteriorated, partly due to the lack of legal provisions allowing NGOs to generate income, but also due to virtually non-existent local funding sources and further reduced donor funds. USAID activities contributed to NGO operations by increasing their technical capacity to adapt to the more demanding circumstances and less favorable environment.
Performance Indicator: Media Sustainability Index (Source: USAID 1 = highest; 7 = lowest)
|
FY 2001 Baseline |
FY 2003 Actual |
FY 2004 Target |
FY 2004 Actual |
|
1.86 (unsustainable) |
2.42 |
2.6 (near sustainability) |
2.52 |
FY 2004 Results: Media index figures for 2004 are not yet final. Serbia's average index rating in 2003 was 2.5, indicating a media sector "near sustainability," up from an "unsustainable" 1.86 in 2001. Areas assessed include free speech, professional journalism, and plurality of news sources, business management, and supporting institutions. The climate for independent media suffered considerable setbacks this year amid extralegal government maneuvering to stack the deck on upcoming licensing processes to benefit state-favored private media from the Milosevic period. This was reflected in lower than desirable "free speech" ratings for 2003. USAID activities helped strengthen media performance in "professional journalism" and "business management."
Performance Indicator: CRDA communities mobilize at least 25% of project costs. (Source: CRDA PRS, USAID)
|
FY 2002 Baseline |
FY 2003 Actual |
FY 2004 Target |
FY 2004 Actual |
|
0 |
45% |
25% |
47% |
FY 2004 Results: The success of the CRDA communities in mobilizing the required 25 percent counterpart contribution is a measure of their participation in and willingness to work together on activities to improve local living conditions. The contribution target remains at 25 percent throughout the life of the program because that is the target stated in the cooperative agreements. To date, USAID has largely exceeded the target in Serbia (43 percent in Year One, 45 percent in Year Two, 47 percent in Year Three) and expects to continue to remain above the 25 percent mark for the program as a whole.
Performance Indicator: Percentage of SLGRP Municipalities with Transparent Financial Management Systems (n = 50) (Source: SLGRP, USAID)
|
FY 2002 Baseline |
FY 2003 Actual |
FY 2004 Target |
FY 2004 Actual |
|
0 |
30% |
60% |
72% |
FY 2004 Results: To be fully transparent, the results of the annual local government budget process must include a concerted effort by local officials to inform the public of the key budget features, including how it was formulated, community participation was solicited, priorities were identified and decided, and external factors are affecting the budget. The annual budget review letter provides an accessible summary of key issues to increase public understanding of the budget process and expected budget outcomes. Nonexistent before the advent of the SLGRP, the budget review letter is a good measure of a transparent financial management system. In FY 2004, the 60 percent target of was exceeded (36 municipalities).
ECONOMIC AND SOCIAL REFORM
Performance Indicator: Foreign Direct Investment (US$ in millions, Source: IMF and National Bank of Serbia)
|
FY 2002 Baseline |
FY 2003 Actual |
FY 2004 Target |
FY 2004 Actual |
|
475 |
1,200 |
2,500 |
800 (est.) |
FY 2004 Results: Privatization activity slowed substantially, following the March 2004change of government. The vast majority of FDI has entered Serbia through privatization. Greenfield investment has been very limited. Due to a lack of leadership and clear policy of the new government, reduced offerings, particularly tenders for larger companies, limited the potential for FDI. Political factors and negative signals from the new government about the direction of privatization contributed to an increased level of uncertainty, causing hesitancy among potential investors. Nevertheless, most existing foreign investors experienced success and were satisfied. This dynamic, economic stability, strong growth and the general perception that Serbia is solidly on a path toward EU integration combined to continue the increase in foreign investor interest, if not commitments. Privatization activity picked up toward the end of FY 2004, with the appointment of an effective minister, and is expected to increase in FY 2005. USG assistance on business environment improvements and increasing the profile and competitiveness of the Serbian economy has been central to fostering the general rise in investor interest in Serbia. A joint USAID/U.S. Treasury project that secured a commercial credit rating for Serbia was particularly significant. The U.S. remains the largest investor in Serbia.
Performance Indicator: EBRD Economic Reform Index (Source: EBRD)
|
FY 2002 Baseline |
FY 2003 Actual |
FY 2004 Target |
FY 2004 Actual |
|
2.29 |
2.44 |
2.6 |
2.46 |
FY 2004 Results: The Kostunica government posted a commendable record on passing important economic reform legislation in FY 2004. Quality new laws were passed on core elements of a market economy, including bankruptcy, business registration, execution of legal judgments, and corporate governance. The GOS passed an energy law that sets the stage for the unbundling and eventual privatization of state-owned electricity and oil companies, as well as EU-standard regulation. The USG provided critical technical assistance for drafting most of these laws. The EBRD index was weighed down by the stagnation of privatization in the first three quarters of 2004. The fact that the EBRD completes its Transition Report and Economic Reform Index in the summer also makes the index understate the actual scope of reform achievements for the fiscal year. This was particularly relevant in FY 2004, because the new coalition government was not formed until March 2004, and most of its reform achievements came by mid-summer at the earliest, leaving many not factored into the index.
Performance Indicator: EBRD Financial Sector Reform (unweighted average of EBRD banking and non-bank financial indicators)
|
FY 2002 Baseline |
FY 2003 Actual |
FY 2004 Target |
FY 2003 Actual |
|
2.00 |
2.17 |
2.3 |
2.15 |
FY 2004 Results: Both EBRD financial sector reform indicators remained the same as in 2003, at 2.3 and 2.0 respectively. These also understate the actual achievements in this sector due to the timing of the report. Progress in the development of banking supervision was disappointing in FY 2004, with the USG, World Bank, and IMF all pointing to this as an area needing faster improvement. The National Bank of Serbia did not take steps to enforce the increased capital requirements for banks, made effective in January 2004. An inappropriate degree of regulatory forbearance was influenced by the dominant government and NBS priority on keeping a stable environment for the start of bank privatization. This latter got off to a good start with the release of tenders for three banks and for a privatization advisor for the largest bank with majority state ownership. These very positive steps, however, were in the early fall, too late to be factored into the EBRD indicators. The decision to establish consolidated financial sector supervision within the NBS, with USAID assistance, was also an important development in FY 2004.
SECURITY, REGIONAL STABILITY AND LAW ENFORCEMENT
Performance Indicator: Judicial Reform Index (Source: ABA/CEELI)
|
FY 2002 Baseline |
FY 2003 Actual |
FY 2004 Target |
FY 2004 Actual |
|
% rated "positive" = 10 |
N/A |
30% positive |
Data not yet available |
FY 2004 Results: 2004 ratings for the Judicial Reform Index are not yet available. In the 2002 baseline data for this index only 10 percent rated "positive" across 30 factors rated. Factors assessed include quality, education, and diversity; judicial powers; financial resources; structural safeguards; accountability and transparency; and efficiency. Rather than assessing all 30 factors in 2003, ABA/CEELI examined 14 factors that were most affected by legal and political developments during 2003, and the score dropped to 7 percent as a consequence. The drop in "positive" scores for judicial selection and appointment, judicial oversight of administrative practice, the system of appellate review, guaranteed tenure for judges, objective judicial advance criteria, judicial immunity for official actions, and removal and discipline of judges were not surprising, given the events of 2003. There should be some improvement by the next assessment in 2005, but it is unlikely that most of even 14 factors will be rated as "positive" by then, in view of the uneven attention the GOS paid to judicial affairs during 2004 and the elections-related political turmoil expected early in 2005. During the relative improvement of 2004, rule of law assistance programs were able to achieve notable results, as discussed in the Democracy and Security sectoral assessments, particularly in work with magistrate and prosecutors associations, and in the first systematic examination of case backlogs in Serbia's non-commercial courts.
SERBIA
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MONTENEGRO
U.S. STRATEGIC INTERESTS
The Republic of Montenegro is the smaller constituent republic in the Union of Serbia and Montenegro. The primary U.S. interest in Montenegro, as throughout South Central Europe, is promoting the political and economic development that is central to maintaining peace and stability in the region and to integrating it into a Europe whole, free, and at peace. Throughout the region, the U.S. supports continued peace and stability, ethnic reconciliation, neighborly relations among states, development of market-based economies and civil society, and integration into Euro-Atlantic institutions. Through regional and bilateral efforts, the U.S. also fights terrorism and extremism; trafficking in persons, weapons, and drugs; and organized crime and corruption. In pursuing these goals, the U.S. promotes its highest national objective, the security of the United States and its citizens.
OVERVIEW OF U.S. GOVERNMENT ASSISTANCE
In addition to the $4.94 million in assistance to Serbia and Montenegro mentioned above, the U.S. Government (USG) provided an estimated $34.79 million in assistance to Montenegro in FY 2004:
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$21.39 million in democratic reform programs (including Public Diplomacy exchanges)
-
$9.40 million in economic reform programs (including health sector reform)
-
$2.40 million in security, regional stability, and law enforcement programs
-
$1.60 million in cross-sectoral and other programs
In FY 2004, a total of 90 Montenegrins traveled to the United States on USG-funded exchange programs.
U.S. ASSISTANCE PRIORITIES
Democratic Reform Programs: The USG provides support for democratic reform, strengthening of democratic institutions, and civil society development through USAID and State Department Public Diplomacy programs. USAID democracy programming promotes support for civil society and more effective governance at all levels through three major programs. These focus on increasing citizen participation in community development and local governance; improving the transparency, fiscal soundness, and management capacity of local governments and intergovernmental systems; and modernizing judicial system structures and operations at the Republic and local levels. Through its democracy and governance strategic objective, USAID helps independent media, NGOs, political parties, and trade unions to develop competence and operational transparency, and to represent citizens effectively. USAID also provides support for trafficking victims. SEED-funded Public Diplomacy programming promotes democratic reforms through support for projects by indigenous NGOs; media training; educational and other exchanges; translation and publishing of American titles; and bringing U.S. experts to speak on various topics.
Economic and Social-Sector Reform Programs: In 2004, the USG, through USAID and U.S. Treasury Department technical assistance, continued to work with the Government of Montenegro (GOM) to implement a comprehensive economic reform program. The program's primary goal is to transform Montenegro from a state-driven economy battered by the impacts of a decade of war and sanctions in the region into a stable, market-driven system buoyed by private sector growth. This support has shifted focus from its initial phase of drafting the new legislative framework governing most key areas in the economy toward implementation of that legislation and the building capacity in key institutions necessary for a modern market economy to function. USAID continued assistance for business consulting, analysis, and lobbying to support the development of the private sector and initiated an expanded effort for private enterprise development and sector competitiveness in tourism, agriculture, and wood processing. Activities undertaken to implement the 2004 coastal earmark ($12 million) will provide key water infrastructure improvements by next tourist season.
Security, Regional Stability, and Law Enforcement Programs: In FY 2004, the USG continued its emphasis on assisting border security, reflecting the 2003 shift ofborder security functions from the former Yugoslav Army to the Republic's police. In addition, the U.S. provided continued SEED funding to OSCE for police training in Montenegro to raise professional standards and, in particular, to combat trafficking in persons. A separate U.S. program supported the renovation of the police training center. Meanwhile, the establishment of a Resident Legal Adviser (RLA) program provides the U.S. with additional means to facilitate training and provide equipment to law enforcement and judicial bodies in response to new investigative techniques introduced by revisions to the Law on Police and the Criminal Procedure Code. Finally, U.S. assistance continues to support the Montenegrin Financial Intelligence Unit and strengthens action taken by Montenegro in 2002 to criminalize money laundering for the first time.
SECTORAL ASSESSMENTS
Democratic Reform
Driven by the goal of EU integration, the GOM launched a substantial Economic Reform Agenda (ERA), in March 2003. The ERA has been the key tool the Prime Minister and his cabinet have used to drive and track reforms in the economy, and provided a useful framework for USG assistance support in many areas in FY 2004. The ERA contains 13 components, including reform agendas for the economy, the judiciary, public administration, local government, and civil society. Reform is tied to public support for the democratic transition, which can only be ensured through a fair, transparent reform process and closer cooperation with civil society. The GOM promoted continued reforms in FY 2004, providing important momentum for the passage of substantial reform legislation. In the Democracy and Governance field, this includes the Laws on Local Self Government, Public Administration, Local Government Finance, and Direct Election of Mayors. Parliament has adopted key draft laws, such as the Laws on the Prosecutor, Criminal and Civil Procedures, and Witness Protection.
The opposition participated sporadically in parliamentary sessions until May 2003, when it began a boycott to protest the decision under the new media law to limit live TV broadcasting of parliamentary sessions. The March 2004 ethnic violence in Kosovo, the murder of the editor-in-chief of the opposition-leaning Dan newspaper, along with disconcerting results from Serbia's first round of presidential elections had the potential further to destabilize Montenegrin politics. Yet, public opinion tracking showed that satisfaction with the GOM and its performance went up by 3 percent, and, despite the opposition's best efforts, public support for its protest and boycott strategy declined. The boycott finally disintegrated after 16 months, in October 2004, with the opening of the fall Parliament session. The Serbian Peoples Party led the way by publicly stating its intention to return to propose a law on direct elections to the Union Parliament, because it was determined to prevent the ruling parties from contributing to the Union's dissolution. The opposition also returned because of an initiative by the Organization for Security and Cooperation in Europe (OSCE) to guarantee the broadcast of parliamentary sessions that was accepted by the public broadcaster (RTCG).
Against this backdrop, USG support through USAID for democratic development at all levels of government and society was $20.74 million in FY 2004, with an additional $650,000 of SEED-funded Public Diplomacy assistance. In addition to its major activities -- the Community Revitalization through Democratic Action (CRDA), Good Local Governance (GLG), and Judicial System Reform Project (JSRP) programs -- USAID activities also included smaller civil society programs to support the NGO sector, independent media, trade unions, anti-trafficking efforts, and political process and elections support activities that incorporate assistance to make Parliament more efficient and transparent. Public Diplomacy programming supported democratic reform through more than 15 education, media training, and exchange programs.
Over the past three years, Montenegro has put in place a body of systemic laws that articulate the policy and structure of a decentralized, representative governing process. Local economic conditions are very difficult, however, as are the finances of the local governments charged with restructuring their operations. The CRDA program builds community-level democratic processes and capabilities through partnership with communities to select and realize hundreds of small- to medium-scale development activities in basic infrastructure; environmental improvement; employment and income generation, particularly for low-income families; and civic activities. The process is inclusive, with emphasis on the participation of and benefit by women, minorities, youth, and vulnerable populations such as pensioners and Roma. CRDA has energized communities republic-wide into active dialogue and partnership among citizens and with their local governments, the private sector, and other communities to develop their communities and improve the social and economic environment. Importantly, citizens and municipalities have set aside local party politics and other differences to collaborate on development.
By the end of FY 2004, Montenegrins had democratically elected and were operating 112 community councils representing the majority of the Republic's population, and a further 35 cluster councils were working to facilitate collaboration among multiple communities. The continued ability and willingness of the CRDA communities to mobilize significantly more than their required counterpart contribution is a compelling measure not only of their commitment to working together to improve local living conditions, but of the value they see in the CRDA approach to strengthen communities through citizen involvement. In FY 2004, CRDA had over 53,000 participants and initiated 171 economic development activities, 101 civil works projects for local infrastructure and environment, and 188 civic participation activities, worth over $5.2 million. Communities set as priority areas addressing poor and deteriorating basic infrastructure and generating new income opportunities, mainly through micro and small entrepreneurs and business associations. Economic activities created 9,127person-months of employment, $3.2 million in increased income generation, and improved economic output by small enterprises. Communities are required to provide a 25 percent cost share but have contributed together with their partners (i.e., private business, NGOs, municipalities, Republic institutions, Diaspora) on average 45 percent of project costs. CRDA communities are well equipped to implement new local government laws. A new program element - municipal development assistance - was designed to mobilize key stakeholders and formalize citizen participation in local government decision-making. USAID also implemented programs in coastal development and reproductive health, as mandated by Congress.
In FY 2004, the USAID GLG Project helped implement core local government laws passed by Parliament in July 2003. The GLG expanded work with municipalities and their public service companies to introduce clear local policies, ordinances, and regulations for local governance and transparent management systems for basic municipal functions, particularly for financial resources (i.e., tax collection, municipal treasuries). These efforts lend to municipal financial stability, enhance municipal government efficiency, and help reduce corruption. In FY 2004, specific achievements include: Model Municipal Charter, the Local Assembly Book of Procedure, and a model ordinance for citizen participation issued by the Ministry of Justice. Charters were passed in local parliaments of nine municipalities; strategic economic planning support brought together citizens, municipal officials and staff, business leaders, and civic leaders, who generated action plans to guide capital investment planning in all 21 municipalities.
In FY 2004, USAID launched an initiative to improve water and wastewater systems, representing the synergy among the CRDA, GLG, and coastal development programs. Water/wastewater is a top GOM priority, particularly to support the tourist economy on the coast. The activities focus on restructuring the business model in waterworks to improve service delivery, improve collections, customer service, and prepare for investment and commercialization opportunities. Water systems are being built in rural areas and renovated or upgraded in urban areas, and selected wastewater systems along the coast are being upgraded for positive environmental impact. CRDA implementers developed and implemented 24 projects and activities in FY 2004 related to Improved Access to Clean Water and Sanitation. USAID, the GOM, and other donors agreed to proceed with design and execution of 12 projects in the coastal development area.
A new JSRP will build on earlier ABA/CEELI work to support an independent, efficient judiciary. Working with the Ministry of Justice, Supreme Court, subordinate courts, Judicial Training Center, and other Montenegrin counterparts, the JSRP continues to provide expertise, training, and commodity assistance to improve the structure and operations of the judiciary, including the creation of the new Appellate and Administrative courts and an Administrative Office for the judiciary. JSRP also works to streamline case processing, improve caseload management and reduce backlogs at all levels of the court system, and enhance the judiciary's physical infrastructure, including computerization of the courts.
The USAID-funded Montenegro Independent Media Program (MIMP) enhanced journalistic professionalism and the legal and regulatory framework for media and business management. In FY 2004, MIMP concentrated on the implementation of Montenegro's innovative media legislation. MIMP provided expert advice to leaders of Montenegro's New Public Broadcasting Service on the adoption of various programming principles and organizational options for restructuring the Radio and Television of Crna Gora (RTCG). It continually advised and monitored the Broadcasting Agency to ensure that it functioned as a neutral, professional entity. Although challenges remain, MIMP results to date show advances in media capacity and competitiveness. The USAID-funded Montenegro Media Institute (MMI) is shaping a new generation of journalists, editors, and media managers by training hundreds of media professionals through seminars and workshops, including through a six-month diploma course with international certification.
The Embassy's Public Affairs Section used in-country SEED media training funds, as well as SEED funds designated for use by BBG, to train Montenegrin journalists in areas such as media management and marketing, civic journalism, radio and TV news production, and a special program introducing democratic principles and practices to government spokespersons. Democracy Commission grants to the Working Group for Media Reform and the Journalistic Self-Regulatory Body were also completed.
USAID's Montenegro Advocacy Program (MAP) continued to strengthen NGO governance. In 2004, MAP worked to build the capacity of the two regional NGO advocacy resource centers by providing access to communication and technical services and training resources. In April 2004, the Foundation for Democratic Alternatives in Society (FONDAS) was founded by ORT/MAP trainers and technical staff as an independent organization. The objective of FONDAS is to support the NGO sector to advocate successfully for legal change on behalf of civil society, and to give NGOs the capacity to mobilize expertise and resources to tackle issues effectively. FONDAS has developed and delivered nine different types of training (organizational development, financial management, advocacy skills, watchdog skills, leadership skills, NGO budgeting, board of directors training, fundraising techniques, PR techniques) to more than 150 members of over 30 different Montenegrin NGO's. The MAP-supported Center for Election Monitoring (CEMI) achieved a major success for NGO advocacy with the drafting of the Laws on Political Party Financing and on Political Parties. CEMI collected over 13,000 signatures from citizens in support of these proposals, and Parliament adopted the laws in March 2004. CEMI defended the laws in Parliament, only the second time in Montenegro that Parliament had adopted laws proposed to it by an NGO.
FY 2004 SEED Speaker Funds from the Office of International Information Programs (IIP) were used to bring U.S. speakers to Montenegro to address audiences on issues including tourism, U.S. values, the U.S. election system, ethics in journalism, educational reform, and NGO/government cooperation. These programs not only educate, but also form bonds between U.S. and local experts.
A variety of organizations in Montenegro were supported with SEED-funded Democracy Commission small grants during FY 2004, with an emphasis on refugees and internally displaced persons (IDPs); women's, minority, and human rights; transparency in government; rule of law; independent media; and environmental protection.
The U.S. Embassy's Public Affairs Section funds education reform initiatives at all levels. In elementary and secondary schools, programs in civic education, applied economics, and school connectivity (regional understanding through the Internet) are funded by SEED and then executed in cooperation with NGO partners. SEED university linkage funds in FY 2004 strengthened relations between the Law Faculty of the University of Montenegro in Podgorica and the University of Nebraska and the University of Texas in Arlington. Another linkage program between the Economic Faculty of the University of Montenegro in Podgorica and the University of Pittsburgh continued throughout FY 2004. English Language funds were used to provide fellows to the English Department of the University of Montenegro in Niksic, as well as to the Economic Faculty and the Institute for Foreign Languages of the University of Montenegro in Podgorica. These efforts will improve the English-speaking skills of future government and civic leaders.
Three Ron Brown Scholarships and three Hubert Humphrey Fellowships for FY 2004 in areas such as journalism, public administration, business administration, and drug prevention will provide U.S. experience to current and future Montenegrin reform leaders. The Junior Faculty Development Program currently has six young Montenegrin professors working with American mentors at U.S. universities.
SEED-funded Freedom Grants supported 14 additional Montenegrin participants in the International Visitors Program to see first-hand how their American counterparts overcome obstacles. Areas covered ranged from judicial reform and witness protection to leadership development for women, conflict resolution, border security, and municipal issues.
Economic and Social-Sector Reform Programs
Due to continuing data reliability and capacity problems in the republic-level Bureau of Statistics, basic national accounts information remains controversial and likely is subject to a wide margin of error. Probably the best figures for GDP were constructed on an expenditure basis for 2001 by a USAID-supported effort. Accounting for growth, these calculations would project 2004 GDP at about 1.38 billion, or just over 2,000 per capita. Inflation continues to fall and is expected to be around 5 percent for 2004, down from 7.5 percent for 2003. Although Montenegro still has a relatively high current account deficit, the gap appears to be more than covered by unrecorded financing flows, including tourism receipts that fall into the gray economy, since most foreign tourists still use cash. Inflation may also be driven by the practice of wage indexation and continuing inflationary expectations. Although recent official data on average wages put the net monthly wage at about 145, other sources, including household-level surveys, show that income is significantly higher, at about 250 per month.
The GOM continues to spend more than it collects in revenues. However, without the ability to issue currency and having a limited capability to borrow in the domestic market, budgets are in balance on a cash basis, limiting the macroeconomic effects of these deficits. Supported by on-going USAID assistance, the GOM central budget fiscal deficit was reduced by over 40 percent, to 17.2 million for the January 1 through October 31, 2004 period, well over the 20 percent target. The deficits remain relatively low by international standards, now around 4 percent of GDP, but the main fiscal problem remains the structure of expenditures, both realized and unrealized. Deficits are stable and funded, and the medium-term impact of the new pension law should help to reduce transfers over time. All revenues now pass through the central budgetary account and are subject to public disclosure. Progress is being made on rationalizing the structure of expenditures, which is still heavily weighted toward wages and social transfers. The GOM still typically under-budgets for capital expenditures and related recurring expenses. Given the priority given to public sector wages, continuing budget deficits reinforce further deterioration, resulting in an expenditure structure that does not support long-term growth objectives. The impact of the new USAID-supported treasury system and procedures, along with U.S. Treasury budget efforts, has done much to limit this weak fiscal discipline.
The financial sector continues to show marked improvement. Only Podgoricka Banka remains with majority state ownership. USAID assistance in strengthening bank supervision by the Central Bank of Montenegro has put it largely in compliance with Basel II Core Principles, and the application of risk-based supervision is increasing throughout the sector. As banking sector competition has strengthened, interest rates have continued to decline, although the significant element of country risk has tended to keep them high. While the relatively low level of deposits still limits financial intermediation, leading to over-reliance on expensive international capital sources for on-lending, private sector deposits continued their strong growth in 2004. This growth of 37 percent well exceeded the 20 percent target level. The monopoly payments system (ZOP) will be fully dismantled by the end of 2004. Although bank deposits, and consequently lending, have risen dramatically, they are still comparatively low. Effective implementation of the recently adopted deposit insurance scheme, starting from mid-2004, should help alleviate some mistrust toward banks. At the micro-level, the USAID-supported Opportunity Bank (OB) disbursed more than 8.3 million in loans to small and medium-sized enterprises (SMEs) over the last 12 months, leading to creation of over 350 jobs and maintenance of over 1,700 others. OB now has branch offices and representative offices that provide service to all of Montenegro.
USAID technical assistance facilitated the passage of new commercial laws that are now being implemented at a reasonable pace. The Business Organization Law, among the most progressive in the Balkans, is largely implemented. Implementation of the new Bankruptcy Law, with its voluntary restructuring provision similar to the U.S. "Chapter 11," has continued to improve. The new Mortgage Law should enhance conditions for bank lending against real estate, and the new Laws on Gaming and on Money Laundering have increased transparency in these sectors. A new Law on Licensing, designed to streamline the permit processes for establishing new businesses, is in the final stages of development and will complete the core legislation to facilitate development of an open market economy.
Montenegro's energy sector continues to suffer from over a decade of under-maintenance and tariffs that remain below cost-recovery rates. Although rates were increased in the spring of 2003, largely due to USAID budget conditionality, virtually the entire benefit was absorbed through a worsening of collections. In an important success, for the first time ever the 2003 electric utility company (EPCG) current operating accounts received an unqualified audit report, largely due to USAID support to improve accounting practices. Despite significant remaining issues regarding payments, substantial progress was made in 2004 on the structural unbundling of EPCG. Payments by the aluminum company (KAP), which accounts for early 40 percent of total system demand, is a key element of EPCG financial solvency. The privatization of KAP is likely to be concluded in early 2005, which should improve KAP payments to EPCG for power. Finally, significant progress on energy sector governance was recorded, as USAID successfully completed its support to establish the independent Energy Regulatory Agency, which issued licenses for main sector operators in July 2004 and is now fully staffed, equipped, and self-financing.
Despite significant progress on reform of the macro-economy, the private sector remains depressed. Unemployment and underemployment are high, and the lack of local production contributes to an excessive dependence on imports and consequent trade imbalances. Employment remains heavily oriented toward the public sector, both in administration and production. Most of the state-owned production enterprises in key sectors have been ravaged by the problems that characterize other economies in transition: weak management, especially in marketing and financial management; remaining regulatory burdens; lack of low-cost capital; and a restrictive, inflexible labor regime.
Corruption continues to impede private sector growth. Despite improvements in the commercial law regime, many citizens still do not trust the courts to give them a fair hearing on contractual and property rights issues. Likewise, although there have been some steps to remove bureaucratic discretion from simple procedures, administrative rules still allow for rent seeking and long delays in the completion of basic licensing and other tasks. Lacking a sound set of competition laws and practice, new entrants to the market also fear that entrenched players will receive preferential treatment from regulatory and tax administration bodies. These extractive regulatory practices often drive entrepreneurs into the gray economy, where they remain outside the tax regime.
USAID continued to target each of these areas, although it will take time for reforms to take hold, and the GOM needs to take additional action to limit overly restrictive labor practices, complete the privatization process, remove residual barriers to business, and improve the judiciary. USAID activities in FY 2004 contributed significantly to strengthening the development of private enterprise, both in policy and organization and at the firm level. In addition to the employment-generating SME lending accomplishments of Opportunity Bank noted above, the highly successful CEED Consulting fee-for-service business generated over 94,000 in fees, working with 94 companies and five Privatization Investment Funds. In FY 2004, CEED Consulting became the only consulting company in Montenegro able to conduct ISO 9000 pre-certification and already has several clients. It also provided critical advice in establishing the Montenegro Leasing Company (MLC), the country's only registered leasing company. The Montenegro Business Alliance (MBA) continued to grow, both in membership and as an effective lobbying force working to reduce impediments to business development. MBA successfully lobbied the GOM to lower personal income tax and contributions and corporate profit tax rates and make the labor law more market oriented.
The key sectors in Montenegro's economy are tourism, agriculture, and metallurgy -- primarily KAP. Previously, the wood processing industry was a major exporter, and the GOM is working with donors in a concerted effort to revive the sector. Metallurgy is currently critical for maintaining export levels, but it is not a high value-added industry and requires considerable implicit subsidies to survive. Beginning in mid-2004, USAID started a three-year private sector development and competitiveness project, which has already successfully engaged key private and public sector stakeholder commitment, with an initial focus on agriculture, tourism, and wood processing. Activities will seek a maximum impact on sustainable income and employment growth by working both to improve firm-level knowledge, skills, and technologies and to address sector-level barriers to growth.
In FY 2004, $100,000 in SEED funding was provided to the U.S. Commerce Department's Central and East European Business Information Center (CEEBIC) to support enhanced Commercial Service assistance to U.S. companies interested in doing business in Montenegro. SEED support to CEEBIC helped to leverage other USG programs promoting trade and investment, such as the U.S. Export-Import Bank, Overseas Private Investment Corporation (OPIC), and U.S. Trade and Development Agency (USTDA). USTDA provided $306,711 to Telecom Montenegro for a Telecom Development Policy Feasibility study in order to create the environment and establish the direction for the sector's development. The study will provide an accurate current picture of Montenegro's telecommunications sector and will also examine the existing legal and regulatory environment.
Security, Regional Stability, and Law Enforcement Programs
In FY 2004, the USG continued its emphasis on assisting border security, reflecting the 2003 shift ofborder security functions from the former Yugoslav Army to the Republic's police. The U.S. also provided continued SEED funding to the Organization for Security and Cooperation in Europe (OSCE) for police training in Montenegro to raise professional standards and, in particular, to combat trafficking in persons. A separate U.S. program supported the renovation of the police training center. Meanwhile, the establishment of a Resident Legal Adviser (RLA) Program provides the U.S. with an additional mechanism to facilitate training and provide equipment to law enforcement and judicial bodies in response to new investigative techniques introduced by revisions to the Law on Police and the Criminal Procedure Code. Finally, U.S. assistance continues to support the Montenegrin Financial Intelligence Unit and strengthens action taken by Montenegro in 2002 to criminalize money laundering for the first time.
In FY 2004, the USG provided $4.5 million in border security improvements. This included $1.2 million for a USAID-implemented project involving physical upgrades of six critical border crossings with Bosnia-Herzegovina, Croatia, and Albania, and three administrative checkpoints with Serbia. The purpose of the upgrades was to construct fully functional buildings with associated infrastructure suitable for conducting border-crossing operations, as required by Montenegrin law. The entire project was completed on schedule in mid-2004. Already by September the upgraded facilities had proved their value, as the Republic intercepted illegal activities at the boundaries, including attempted human trafficking and the smuggling of goods, persons, and currency.
U.S. law enforcement assistance also seeks to assist Montenegro in strengthening its efforts against trafficking in persons (TIP), following a scandal provoked late in 2002 by the arrest of a Montenegro deputy state prosecutor for involvement in sex trafficking. A tangible U.S. response to this scandal was the allocation of $400,000 to OSCE to carry out police training, including instruction specifically focused on the fight against TIP. Montenegro has also reestablished its special anti-human trafficking police unit, and arrests for TIP have increased sharply.
On financial crime, after assisting Montenegro to pass its new Law on the Prevention of Money Laundering, the U.S. focused in FY 2004 on helping to set up the Republic's new anti-money laundering agency (Financial Intelligence Unit or FIU), regulated under the law. USG aid provided computer equipment and technical assistance to the new agency. In addition to getting the new FIU and in compliance with international standards, a primary U.S. objective will be to prepare it for membership in the Egmont Group, a 100-member international organization for Financial Intelligence Units. Egmont Group membership will enable Montenegro to assist local police and other authorities in money laundering investigations where activities involve other jurisdictions. The FIU is also the central point of contact in international efforts to freeze the assets of terrorists and others sanctioned by the UN Security Council.
RLA program activities have centered on assisting Montenegrin criminal justice authorities to reform the criminal procedure code and providing training in specialized investigative techniques. Regarding witness protection, the RLA has sought to use the Southeast European Prosecutors Advisory Group (SEEPAG) as an informal forum where justice ministry representatives of member states can gather and exchange assistance and information. The RLA sponsored a seminar on specialized investigative techniques to combat organized crime and drug trafficking. Montenegro's Code of Criminal Procedure (April 2004) introduced new investigative measures that are widely accepted in many other countries, such as controlled deliveries, undercover agents, wiretaps, etc. However, even though the law allows their use, the measures are seldom if ever applied, partly due to the lack of experience in this field and the lack of equipment. The RLA program will continue to focus on implementation programs for the Prosecutors and Judiciary in conjunction with the new criminal procedure code.
The RLA organized the visit of Department of Justice, International Criminal Investigative Training Assistance Program (ICITAP) officials to SaM to conduct an assessment of investigative and forensic capabilities there. The assessment identified what training and equipment the Montenegrins needed to raise their investigative techniques to Western European standards. This assessment was a follow-up to the RLA's efforts to initiate an ICITAP Program, in Serbia-Montenegro, to work in conjunction with the RLA. In that regard, a $2 million ICITAP program will focus on equipping and updating the Montenegrin forensic lab and providing technical advice and assistance to the organized crime police. This program was initiated in November 2004 with the arrival of the new ICITAP Program Manager for Serbia-Montenegro. Furthermore, the RLA, ICITAP, and the FBI/SECI advisor will work with Montenegrin law enforcement and judicial officials to equip and train their anti-trafficking police unit.
MEASURES OF PROGRAM EFFECTIVENESS IN FY 2004
DEMOCRATIC REFORM
Performance Indicator: NGO Sustainability Index (Source: USAID, 1 = highest; 7 = lowest)
|
FY 2002 Baseline |
FY 2003 Actual |
FY 2004 Target |
FY 2004 Actual |
|
4.6 (mid-transition) |
4.7 |
3-5 (mid-transition) |
4.0 |
FY 2004 Results: Montenegro's average ranking on the USAID NGO Sustainability Index improved from 4.7 in 2003 to 4.0 in 2004, with significant progress in advocacy, infrastructure, and public image. The factors rated include legal environment, organizational capacity, financial viability, advocacy, service provision, infrastructure, and public image. The 4.0 rating reflects a sector in "mid-transition" that is not yet sustainable; progress toward developing local capacity is hampered by continuing weakness in the economy and less than fully matured organizational development skills. In particular, as NGO funding has been declining and moving from humanitarian to development assistance, donors increasingly are demanding greater accountability and organizational strength from local counterparts. However, a large number of long-term advocacy initiatives begun by NGOs in 2002 and 2003, began to yield results in 2004.
Performance Indicator: Media Sustainability Index (Source: USAID 1 = highest; 7 = lowest)
|
FY 2002 Baseline |
FY 2003 Actual |
FY 2004 Target |
FY 2004 Actual |
|
2.116(near sustainability) |
2.31 |
2 - 3 (near sustainability) |
2.42 |
FY 2004 Results: Media index figures for 2004 are preliminary and show near sustainability across all five elements. The elements include legal and regulatory environment, professional journalism, plurality of new sources, business management, and supporting institutions. Montenegro's average index rating in 2004 was 2.42, which indicates a media sector "near sustainability." Montenegro now has a strong legal framework in support of free speech, although implementation of such key steps as restructuring the public broadcaster and implementing open access to frequencies via tender remain a challenge. Professionalism of journalists continued to improve, with the USAID-funded Montenegro Media Institute (MMI) leading these efforts with its six-month international diploma course in journalism. Media business management also made steady, if slow, progress, as indicated by a business management attribute of 2.19. Business management improvement was noted in the increased commercialization of journalism, with new TV networks, print outlets, foreign investment in the daily Vijesti, and improvement of the Montenegro Independent News Agency (MINA).
Performance Indicator: CRDA communities mobilize at least 25 percent of project costs. (Source: CRDA PRS, USAID)
|
FY 2002 Baseline |
FY 2003 Actual |
FY 2004 Target |
FY 2004 Actual |
|
0 |
42% |
25% |
45% |
FY 2004 Results: The continued ability and willingness of the CRDA communities to mobilize more than the required 25 percent counterpart contribution is a compelling measure, not only of their commitment and willingness to work together on activities to improve local living conditions, but also of the value they see in the CRDA-led approach to strengthen communities through citizen involvement. CRDA has fostered the development of a strong, expanding network of partnership among citizens, local private business and the NGO sector, within and between municipalities, and with select Republic Ministries and public enterprises.
ECONOMIC AND SOCIAL REFORM
Performance Indicator: Foreign Direct Investment (millions of euro)
|
FY 2002 Baseline |
FY 2003 Actual |
FY 2004 Target |
FY 2004 Actual |
|
76.3 |
13.02 |
50 |
38 (est.) |
FY 2004 Results: Performance in attracting the levels of FDI needed to invigorate and transform Montenegro's economy remained mixed. Notable activity included the sale of Niksic Steel, significant progress in the tender process for aluminum producer KAP, and opening of the tender process for the remaining GOM shares of Telekom CG. Foreign investor interest remained subdued in 2004, matching the quality of offerings and the difficulties of effectively removing the lingering perception of weaknesses in the business environment. With the exception of Telekom, these companies have substantial financial problems, so the level of quality foreign investor interest is uncertain.
Performance Indicator: EBRD Economic Reform Index (Source: EBRD, rates Serbia and Montenegro together)
|
FY 2002 Baseline |
FY 2003 Actual |
FY 2004 Target |
FY 2004 Actual |
|
2.29 |
2.44 |
2.50 |
2.46 |
FY 2004 Results: With substantial assistance from USAID, the commercial law environment strengthened further in FY 2004, and implementation is moving at a satisfactory pace. The Secured Transactions Law has been implemented effectively, and the on-line collateral registry is now used by all banks in Montenegro. Implementation of the new Bankruptcy Law has continued to improve, helped by on-going USAID-provided training for judges, bankruptcy administrators, and participating companies. The new Mortgage Law will improve conditions for bank lending on real estate, and new Laws on Gaming and on Money Laundering have increased transparency in these sectors. A new Law on Licensing, designed to streamline the permitting processes for establishing a new business, is in the final stages of development, which will complete the core legislation to facilitate development of an open market economy.
Performance Indicator: EBRD Financial Sector Reform (unweighted average of EBRD banking and non-bank financial indicators - rates Serbia and Montenegro together)
|
FY 2002 Baseline |
FY 2003 Actual |
FY 2004 Target |
FY 2004 Actual |
|
2.00 |
2.17 |
2.5 |
2.15 |
FY 2003 Results: The financial sector continues to show marked improvement. Only one bank remains with majority state ownership, and although privatization has been slow, IFC remains the key player working to this end. As a result of significant USAID assistance, bank supervision by the Central Bank of Montenegro is largely in compliance with Basel II Core Principles, and the overall application of risk-based supervision is deepening throughout the sector. As banking sector competition has strengthened, interest rates have continued to decline, although a significant element of country risk remains. While the relatively low level of deposits still limits financial intermediation, private sector deposits maintained very strong growth in 2004. Consumers remain wary of bank safety, based on their experience from the mid-1990's, but the introduction of deposit insurance from mid-2004 should help to restore confidence.
SECURITY, REGIONAL STABILITY AND LAW ENFORCEMENT
Performance Indicator: Judicial Reform Index (Source: ABA/CEELI)
|
FY 2002 Baseline |
FY 2003 Actual |
FY 2003 Target |
FY 2004 Actual |
|
% rated "positive" = 16.75% |
30% positive |
50% positive |
48% positive |
FY 2004 Results: While FY 2004 demonstrated a 48 percent positive score across the 30 factors addressed in the Judicial Reform Index (JRI 2002), representing a 37.5 percent increase from the previous years, the target of a 50 percent positive score was just missed. The JRI covers six essential categories: quality, education, and diversity; judicial powers; financial resources; structural safeguards; accountability and transparency; and efficiency of the judiciary. In reality, Montenegro's judicial system is still in transition. In particular, the legal system is struggling to support a market economy where judges who have had little or no relevant experience are called on to make reasoned, independent judgments on difficult commercial issues. Moreover, the past few years have placed a significant burden on Montenegro's court system, the weight of which is only now beginning to be understood. Low salaries that are dwarfed by the amounts in controversy in cases judges must to decide, lack of experience in business related cases, the inaccessibility of higher court decisions for guidance, the unfamiliarity of counsels' arguments, have all contributed to weakening the court system at the very time that an independent, sensitive judiciary is most needed.
MONTENEGRO
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KOSOVO
U.S. STRATEGIC INTERESTS
U.S. policy in South Central Europe is intended to help create a Europe whole, free, and at peace. Within Kosovo, those goals take on a special urgency as a result of the legacy of ethnic conflict and the need to develop a sustainable final status solution for the territory. U.S. goals in Kosovo are focused on helping effective implementation of the Standards for Kosovo, achievement of which will be reviewed in mid-2005. In particular, USG assistance aims to promote effective self-governance and functioning democratic institutions; adherence to the rule of law; rapid development of a dynamic, free-market economy; ensuring that the door to returns is effectively open and minority rights, including freedom of movement, are respected; and deepening regional stability and integration.
OVERVIEW OF U.S. GOVERNMENT ASSISTANCE
In FY 2004, the U.S. Government (USG) provided an estimated $84.34 million in assistance to Kosovo:
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$14.80 million in democratic reform programs (including Public Diplomacy exchanges);
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$12.41 million in economic reform programs;
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$42.78 million in security, regional stability, and law enforcement programs;
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$ 8.00 million in humanitarian programs; and
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$6.35 million in cross-sectoral and other programs.
In FY 2004, a total of 100 Kosovo residents traveled to the United States on USG-funded exchange programs.
U.S. ASSISTANCE PRIORITIES
Democratic Reform Programs: In FY 2004, SEED funding and other USG assistance continued to emphasize the development of an independent, effective, and impartial system of justice; strengthening the role of the independent media and civil society; and building a multi-party political system that is representative of and responsive to its constituents. These goals took on a new urgency after riots swept through Kosovo in March 2004, and to the extent possible USG assistance was recalibrated to focus attention on the problems highlighted by that turmoil. Namely, efforts to build local capacity, encourage civic participation, and foster an atmosphere of reconciliation and peaceful coexistence have been intensified. Much work remains to be done, particularly in increasing local focus on Standards implementation. The results of these programs will be visibly measured by the international community in mid-2005.
Economic and Social-Sector Reform Programs: USG assistance in FY 2004 provided help and support for an economic reform program to stimulate a private sector-led economy by promoting reforms in fiscal and monetary policy, financial markets, commercial law, and privatization. SEED funds also supported business and enterprise development and financial intermediation programs to generate income and employment. The agricultural sector continued to receive special emphasis through programs that foster increased production, as well as business partnerships that allow Kosovo's farmers to sell their goods locally or abroad. A major business development initiative came to an end on September 30, 2004, and a follow-on activity aimed at building on its success was launched on October 1, 2004. In addition, much of the USG's social sector reform targeted community services and facilities, including activities supporting economic and social recovery at the community level, through infrastructure rehabilitation, restoration of essential services, and community development. Under these programs, communities and municipal governments participate in identifying, designing, implementing, and maintaining the infrastructure activities undertaken, thereby contributing to the dual program goals of institutional strengthening and community infrastructure rehabilitation.
Security, Regional Stability, and Law Enforcement Programs: During FY 2004, the U.S. contributed about $42 million in SEED funds to provide U.S. police officers to the United Nations Interim Administration Mission in Kosovo (UNMIK) police force, which is responsible for public security and law enforcement in Kosovo. In addition, SEED funds support the operations of the Kosovo Police Service School, which provides training to officers in the new Kosovo Police Service (KPS). The KPS now consists of roughly 6,350 officers and is gradually assuming responsibility for law enforcement activities from the UNMIK Police force. UNMIK has raised the planned end strength for KPS to 7,330 by the end of 2005, from the initial goal of 6,500 by the end of 2004. The transition of police authority from UNMIK's Civilian Police (CIVPOL) to KPS was initially delayed following the violent events of March 2004, but later resumed as part of a broader process of transferring competencies from UNMIK to Kosovo institutions. During the year, 15 police stations were handed over to KPS control, for a total of 19 police stations under KPS authority throughout Kosovo. UNMIK plans call for the remaining 15 police stations to be turned over to the KPS by the end of 2005. U.S. CIVPOL stood at 287 at the end of FY 2004. There are currently about 96 international instructors at the KPS School, 15 percent of them from the U.S. Building local capacity within KPS is a priority for the KPS School, and the training of select officers has been expanded to include investigative processes, including intelligence, organized crime, and covert operations. Lastly, in FY 2004, an additional $2.5 million in remaining FY 2003 SEED funds was used for the training and development of the Kosovo Protection Corps, the non-military successor to the Kosovo Liberation Army, now serving as a civilian emergency response organization.
SECTORAL ASSESSMENTS
Democratic Reform
USAID's programs contributed substantially to furthering the development of transparent, accountable governance in Kosovo through: extensive technical assistance to the Kosovo Assembly and training of political parties; technical assistance to the courts to create basic administrative and management systems independent of the executive branch; training of judges and prosecutors; and support to civic groups to promote effective articulation of citizens' interests and civil participation.
Political Processes: USAID's Political Process Strengthening program met or exceeded expectations for the period. USAID added to previous assistance by working with political parties represented in central and local governments to build inclusive and transparent internal operations, sustainable structures, and membership input into party statutes, policies, and platforms. In order to have greater institutional impact, the Training-of-Trainers program for political parties was refined by reducing the number of participants and focusing on identifying priority projects to assist parties to reach the targets set in their strategic plans. Further, the program was expanded to include training of branches and youth groups. In addition, during FY 2004 two out of the three planned rounds of public opinion surveys conducted focused on public attitudes toward the main social and economic issues, political parties and leaders, and domestic and international institutions. Two of the three biggest political parties in Kosovo, PDK and AAK, have established mechanisms within their own parties to conduct surveys and research to help their political platforms and election campaigns better represent their members' and voters' views. The third-largest party, AAK, enacted a new open, democratic procedure for determining the name and rank of candidates on the party's electoral list. OSCE monitors compared the AAK's selection process, as well as its stance on changing Kosovo's electoral system, favorably to that of Kosovo's two dominant political parties. During FY 2004, USAID assisted the National Assembly and three targeted municipal assemblies in institutionalizing the use of public hearings as a tool by which decision-makers can not only inform the public of upcoming legislation, but also gather citizen input on the legislation through a standardized process of public consultation. Assistance was offered to Parliamentary Committees to help them organize public hearings and provide them with a step-by-step manual on conducting public hearings. The parliamentary groups were also assisted in the pre-election period, as they promoted their newly formed party platforms through proposed amendments and parliamentary debate.
USAID's Kosovo Non-Governmental Organization (NGO) Advocacy Program supported its local partner NGOs as they conducted their political process monitoring activities to develop issue-based advocacy campaigns with the goal of involving more citizens in decision-making processes. Most NGOs participating in the program focused on get-out-the-vote (GOTV) activities for the October 2004 parliamentary elections.
USAID also provided a sub-grant to a local NGO, the Council on Defense of Human Rights and Freedoms (CDHRF), for election monitoring. CDHRF launched election activities on August 1, coordinating closely with the OSCE and the Central Election Committee. CDHRF trained election monitors on political party financial expenditure monitoring, municipal and central election committee monitoring, and monitoring polling stations on election day. It also finalized the list of 60 election monitoring coordinators, who recruited more than 2,000 volunteers to monitor the elections and the pre-election political party campaigns. CDHRF organized parallel vote tabulation (PVT) and was the first organization to announce election results on election day, with a 0.5 percent margin of error.
Justice Sector/Legal Framework: In 2004, USG activities focused on providing assistance to UNMIK, Kosovar legal professionals, and civil society in preparation for the eventual transition of the justice sector to Kosovo institutions. Specific program activities worked to strengthen the operation of the courts, enhance the oversight for judges and prosecutors, improve Kosovo criminal laws, and increase public awareness of Kosovo's evolving legal framework and justice system. As a result of USG assistance to UNMIK's Department of Justice, a broad strategy for the justice sector and concept papers on specific transition issues were developed. USAID also assisted UNMIK in establishing the Audit Section Unit, completing the setup of the division and ensuring its proper functioning. USAID assisted in drafting internal audit manuals, terms of references for staff contracts, and an operational plan. In FY 2004, USAID continued activities to improve the operations and management of Kosovo's courts. USAID supported records management, court automation, case flow management, audio recording, enforcement of civil judgments, legal publication and chain of custody of evidence, and harmonization of investigative procedures. In addition, to reduce court case loads and ensure more expeditious administration of justice, USAID introduced alternative dispute resolution into the Kosovo system. It completed the first public survey measuring the level of citizen trust in the judiciary in Kosovo, which revealed a markedly low level of trust in the judiciary.
During FY 2004, USG assistance continued activities to enhance the professional skills of judges and lawyers, as well as to strengthen the institutional capacity of professional membership associations. The Department of Justice, Office of Prosecutorial Development, Assistance and Training (DOJ/OPDAT) and the Department of State's Bureau of International Narcotics and Law Enforcement Affairs (INL) have provided training to prosecutors and judges on new criminal codes, money laundering, trafficking in persons, and organized crime. USAID provided direct assistance and guidance to both the Kosovo Judges' Association (KJA) and the Kosovo Chamber of Advocates (KCA) to develop and start implementation of strategic plans, while also identifying budgetary needs and funding to sustain their activities. USAID supported the KCA's work to advance the professional skills of its members by establishing a comprehensive system for continuing legal education (CLE); KCA's CLE committee subsequently organized a series of CLE courses for lawyers throughout Kosovo. In addition, KCA and KJA have demonstrated an increasing ability to generate their own financial contributions toward the implementation of their projects, making these key organizations less dependent on donor input. INL and DOJ/OPDAT have also supported capacity building in the Kosovo Public Prosecutors Association (KPPA) and the Criminal Defense Resource Center (CDRC).
USAID has expanded the current legal internship program of placing legal interns in the offices of lawyers by also placing them in judge's offices. This will allow the interns to gain valuable practical experience, to fulfill the legal practice requirement before eventually taking the bar exam, and improve professional preparedness before they commence professional activity. USAID, INL, and DOJ/OPDAT have established for the first time in the Pristina Law Faculty a legal clinical program to provide hands-on experience to promising law students, giving them opportunities to practice and build professional skills and values.
Media Freedom and Freedom of Information: USAID continued to support the development of independent media through the Kosovo Independent Media Program (KIMP). To this end, KIMP focused in four areas: 1) increased professional standards in journalism; 2) increased capacity of media associations and the Kosovo Terrestrial Transmission Network (KTTN, the network of transmission equipment available to Kosovo-wide TV broadcasters); 3) an improved legal and regulatory framework that supports free speech and access to public information; and 4) increased business viability of targeted media outlets.
In FY 2004, according to three different quarterly surveys, RTV 21, one of the two USAID-supported Kosovo-wide private television stations, became the market leader with more than 53 percent of viewer market share. The large increase in RTV 21 viewers came largely at the expense of public station RTK, which was the market leader in all previous surveys. Kosovo's highest rated weekday news show remains TV 21's nightly program "21 Minutes." In addition to the increase in viewership, the financial balance sheets for both RTV 21 and Koha Vision (KTV) have improved, with financial viability exceeding the KIMP program's projected targets. The two stations now cover 77 percent of their operational costs through advertising sales and other revenues.
Strengthening Civil Society: In FY 2004, through the Kosovo NGO Advocacy Program, USAID continued its assistance to strengthen advocacy NGOs through training, technical assistance, and grants. Organizations receiving USAID support were active on issues such as electoral law reform, Get Out the Vote Campaigns, government transparency, consumer protection, and equal gender representation in political processes. The major successful advocacy efforts were the adoption of: a Freedom of Information Act in Kosovo; procedures for public participation in two municipalities of Kosovo; equal access for the disabled in a new law regulating building construction standards; a gender equality law; and a number of local-level regulations on consumer protection rights.
Democratic Local Government and Decentralization: USAID support for improved local governance through the Local Government Initiative (LGI) commenced in May 2004. At the central level, the program assisted in improving the legislative framework for local governance by providing technical assistance to a Local Government Working Group (LGWG) established by UNMIK and the Provisional Institutions of Self-Government (PiSG) that is spearheading the decentralization process in Kosovo and on which USAID was represented. LGI contributed two working papers on Municipal Finance and Municipal Properties and Facilities, which contributed significantly to the draft legislative framework on the reform of local self-government in Kosovo.
At the local level, LGI's mandate is to improve the effectiveness, responsiveness, transparency, and accountability of selected host municipalities. These goals will be accomplished by placing Resident Municipal Advisors (RMAs) in selected "host" municipalities to deliver targeted technical assistance. The LGI was still in the early stages of implementation at the end of FY 2004 but will be fully implemented throughout FY 2005, with "lessons learned" shared with other municipal governments not selected for the initial phase of the program.
Public Diplomacy Programs: A key goal of the Standards for Kosovo is the development of a diverse, multiethnic society with full protection for minority rights. Accordingly, many of the U.S. Office's Public Affairs Section's programs in FY 2004 pursued this goal by supporting civil society organizations with similar objectives and by exposing Kosovo government officials to these ideas through exchange programs. In this vein, the U.S. Office's Democracy Commission provided grants to a number of NGOs for projects aimed at building a successful multiethnic society. Some examples include: a monthly magazine for youth from Kosovo's Turkish minority; art instruction classes designed to bring together teenagers from different ethnic groups; radio shows on nonviolent resolution and prevention of interethnic conflicts; a women's business education and advocacy group; and a human rights film festival. In addition, the Public Affairs Section's International Visitors Program sent participants to the U.S. for short-term programs on various topics. In light of the key role that media outlets play in affecting perceptions and the development of a healthy civil society, the Public Affairs Section also administered a Television Cooperatives (TV Co-ops) program that sent a Kosovo television crew to the U.S. to produce a story for broadcast on local television -- thereby exposing them both to U.S. society as well as U.S. media standards and practices. Similarly, SEED funds were used for media training activities for ethnic minority outlets to increase the breadth and quality of news available to Kosovo's minority communities.
Economic and Social Sector Reform
In FY 2004, USAID's economic growth support strategy promoted the effective institutionalization and implementation of key fiscal policies and procedures, financial market development including pensions, commercial law development, privatization, and improved trade and investment policies. Much of the support was focused on human capacity development through intensive technical assistance and training.
Economic and Fiscal Governance and Policy: USAID continued to strengthen the Ministry of Finance and Economy by providing policy direction and technical assistance in macroeconomic analysis and revenue forecasting, budget and treasury, the Ministry's core functions. With the support of USAID advisors, Kosovar counterparts efficiently and effectively executed the 2004 budget and wrote the 2005 budget. Development of systems and processes and intensive training of public officials and civil servants are providing an excellent basis for sustainable institutionalization in Kosovo. In the area of fiscal decentralization, the Municipal Grants Commission provides significant funding to municipalities, which, along with improved property tax collections, is giving municipalities the ability to manage their own finances and meet the needs of their communities. These efforts to increase the autonomy and fiscal sustainability of municipalities were highly successful and resulted in 27 municipalities out of 30 being certified to issue bills and collect taxes. More than 8 million have been collected to date. The treasury software FreeBalance is being expanded to provide access to all budget users for expenditure commitments and to access data. The Tax Authority also completed an institutional reorganization designed to improve procedures. While additional strengthening is still needed, this institution has developed a cadre of professional tax inspectors and operates effectively. With a staff of more than 500, it now administers a number of taxes, including VAT, presumptive tax, profit tax, and wage tax, and also helps the Kosovo Pension Savings Trust to collect pension contributions. The tax regime was expanded to broaden the wage tax to a more inclusive personal income tax, the profits tax was expanded, and a modern tax administration law was developed.
Financial Regulation: The "Kosovarization" process at the Banking and Payments Authority of Kosovo (BPK, counterpart to a central bank), begun in January 2003, continues to make good progress. USAID assists BPK by providing training and support to Kosovar executives and management within BPK to ensure operational sustainability. The three supervision units (banking, insurance, and pensions) are each working under the direction of a local manager. A new Chief Supervision Officer (CSO) position, created in January 2004, is the counterpart for the Deputy Managing Director, who is an international advisor. A stringent bank licensing system and tight financial reporting and performance requirements were established. BPK conducted pre-opening inspections and approved 12 new commercial bank branches, bringing the total number of branches, sub-branches, and offices in Kosovo to 207. By the end of FY 2004, total deposits in the banking system had increased by 24 percent over the previous year. Banks increasingly act as financial intermediaries, as shown by the increase in loan/deposit ratio from 44 percent at the end of 2003 to the current level of 57 percent. The Department of Insurance Supervision, with a staff of 13, performed annual financial audits on eight insurance companies.
USAID's design and implementation of a three-tier pension system for Kosovo is largely complete. First-tier pension payments of 40 per month provide a pension to more than 100,000 elderly pensioners. USAID's continued assistance in pension reform focuses on Tier Two, the mandatory defined contribution system, administered by the Kosovo Pension Savings Trust (KPST). With more than 70 million collected, this fund is placed in safe investments, following KPST investment principles consistent with international best practices. More than 110,000 individual account statements are generated and distributed to Tier II contributors. Also, KPST has processed its first applications for benefits and made the first lump sum payments. Tier Three allows for voluntary pension schemes, which are in accordance with the BPK rules.
Commercial Law: In FY 2004, USAID continued to enjoy substantial success in assisting the Government and the Assembly with the development of economic and commercial legislation and in strengthening the legal drafting and implementation capacity of the Provisional Institutions of Self-Government (PISG). Commercial legislation enacted by the Assembly with USAID involvement includes the Laws on Competition, Obligations, Real Property Rights, Copyrights, Patents, Energy, the Energy Regulator, Electricity, the Chamber of Commerce, Internal Trade, Consumer Protection. USAID has begun drafting a new, modern Company Law that will provide the basis for good corporate governance. Finally, USAID was instrumental in achieving a political consensus on and drafting the text of a new Law on Mining, critical for the privatization of a large mining company.
Privatization: Privatization was significantly delayed during 2004, with the third wave of privatizations cancelled in October 2003, and not re-tendered until July 2004, due to several changes in operational policies. In addition, legal issues, including the personal liability of Kosovo Trust Agency (KTA) Board members and how to determine if an enterprise is indeed eligible for privatization, delayed the launch of new tenders. USAID has been working closely with the UN and European Union (EU) to resolve these issues, and by the end of 2004, a fourth wave of tenders had been announced.
Business Development: USAID's Kosovo Business Support program, which was completed at the close of FY 2004, and a related follow-on project have focused on both developing business and employment in Kosovo and increasing its economic integration into the region. Business-to-business events and participation at trade shows have brought Kosovo's business community together with business people from Southeast Europe and other parts of the world. Local companies have concluded more than 3.3 million in business deals that are facilitating Kosovo's integration into regional markets. An invitation to Horizonte Venture Capital, an Austrian venture capital company, helped facilitate a 1.1 million investment in a local company to build a new good-manufacturing-practices (GMP)-compliant pharmaceutical manufacturing facility.
Over 300 businesses were provided training and technical assistance. In addition, training has been provided for a certification program in accounting and auditing to 92 people. Two hundred inspectors have been trained in accounting standards, financial and managerial accounting.
USG-funded assistance was provided to the Ministry of Trade and Industry to pass an industry-appropriate Law on Standardization. In addition, two new associations were established as a result of USAID assistance: the Kosovo Medicinal and Aromatic Plants Association (KOMAPA) and the Wood Processing Association.
Through USAID economic programs, more than 2,000 farmers were introduced to improved production technologies through training, demonstrations, and individual technical assistance. This program has enabled small vegetable producers to increase yields by 40 percent and improved quality by 30 percent, compared to traditional farmers. This resulted in farmers getting 15 to 20 percent higher product prices through marketing agreements with different buyers. Eight feed mills signed agreements with 222 farmers (including 30 Serb farmers) purchasing 14,441 metric tons of maize, sunflower meal, and wheat valued at 2,500,000. The USAID program resulted in institutional linkages being developed across 29 farm associations and 28 private agribusiness processors in four sub-sectors.
Under the USAID-assisted programs, 44 milk collection points throughout Kosovo began applying improved handling and business management practices, with domestic milk production increasing by 21 percent. The dairy sales of participating producers rose by 78 percent on average and household incomes from dairy production by 25 percent. Several USAID-supported dairy sector clients launched new products, such as fruit flavored yogurts and flavored whey products. Assistance to the poultry industry has helped increase local producers' market share for domestically produced eggs, which has risen from 55 percent to almost 85 percent during the past two years and reduced the cost of production by 15-20 percent.
Energy Sector: The focus in 2004 was to leverage the work of the previous USAID assistance in institutional strengthening of the Kosovo Energy Corporation (KEK) and Kosovo's energy regulatory framework. This year marked two important changes in the energy sector. A new private management team from Ireland, ESB International (ESBI), was contracted in July to run KEK, and the Energy Regulatory Office (ERO), a critical legislative framework element in Kosovo's evolution in the Southeast Europe Regional Energy Market, was created.
In October 2004, the USAID Institutional Strengthening team re-located to the KEK office, a major step forward in USAID's efforts positively to influence the promotion of performance, market-based principles in KEK. The data of the Customer Care Package (CCP), the USAID-supported automated customer billing and collection system, revealed significant improvements in areas where the hardware exists, leading to European Agency for Reconstruction funding of a $2.4 million roll-out package to expand the coverage and broaden improvement in collection. The CCP equips the ESBI management with the performance measurement tools necessary to make management changes.
Security, Regional Stability, and Law Enforcement
Kosovo's internal security and law enforcement environment suffered a significant setback in March 2004, as three days of interethnic rioting demonstrated a breakdown in law and order and resulted in the deaths of 20 people, injuries to over 900, and the damage or destruction of nearly 900 homes and 30 churches. In the March riots' aftermath, UNMIK and international donors reassessed the administration of the police services, temporarily freezing international Civilian Police (CIVPOL) force reductions while continuing to recruit and train officers for the domestic Kosovo Police Service (KPS).
KPS had about 6,350 trained officers by the end of 2004, following concerted efforts to boost recruitment and train and develop senior officers. KPS also was successful in recruiting minority members, with officers from the Serb and other ethnic minorities now composing 15 percent of the KPS. Target strength for KPS has since been revised upwards to 7,335 officers by the end of 2005, when is also slated to become Kosovo's primary police force. The KPS' performance during the March riots was generally good, with officers in some areas exhibiting considerable bravery in response to the riots and efforts to evacuate Kosovo Serb residents who were in danger. At the same time, some disciplinary proceedings have taken place to deal with a small number of officers who abandoned their posts or otherwise failed perform their duties. UNMIK has also worked to increase KPS communication equipment, as well as training specialized police units to deal with potential unrest.
SEED funds were also used to support CIVPOL efforts to transfer more responsibility to KPS for investigating crimes in particularly sensitive and/or complex areas, such as inter-ethnic crimes, economic crimes/corruption, and trafficking in persons. While CIVPOL retained primary responsibility for these investigations, efforts continued to support training of KPS officers for work in the Kosovo Organized Crime Bureau (KOCB) and handover of greater responsibility to those KPS officers already working in KOCB. Efforts are underway to appoint local officers as heads of many of the operational commands within UNMIK police. The Kosovo Police Service School (KPSS) met the target of successfully training 6,500 KPS officers since its founding.
This was the final year of USG support for training of the Kosovo Protection Corps (KPC), a civil emergency response organization. With this support -- and after significant USG engagement to ensure that training continued with funding from the Kosovo Consolidated Budget -- the KPC expanded its ability to carry out disaster response while also engaging in public works projects in various areas of Kosovo. SEED assistance continued to fund the KPC's main training program, implemented by the International Organization for Migration (IOM). The KPC's primary missions are responding to disasters affecting the population and territory of Kosovo; conducting search and rescue operations; and assisting in rebuilding Kosovo's infrastructure. In close coordination with UNMIK/KFOR, the KPC engaged in operations requiring rapid reaction to emergency training scenarios, testing leadership and unit ability to meet internationally recognized standards of performance. The KPC also increased its participation in humanitarian demining and unexploded ordnance (UXO) mitigation programs, under close KFOR supervision. In accordance with the goals set out in the UN's Kosovo Standards Implementation Plan, the KPC continued to reduce its size and reached its target of 3,000 members (from 5,052 in 2003) during FY 2004. Recruitment of minority members, particularly Kosovo Serbs, remains challenging.
Humanitarian Assistance
The events of March 2004 posed a significant challenge to USG goals in providing humanitarian assistance to Kosovo. The USG's primary objectives for humanitarian assistance have been to encourage an open climate for returns and resolve outstanding humanitarian issues stemming from the pre-1999 conflict. Funding from the State Department's Bureau for Population, Refugees, and Migration (PRM) supported the activities of NGOs that work with UNMIK's Office of Returns and Communities in its efforts to facilitate returns and encourage inter-ethnic cooperation. PRM's contributions to the region-wide activities of the UN High Commission on Refugees (UNHCR) and the International Committee of the Red Cross (ICRC) also gave substantial support to those organizations' efforts in Kosovo. The March riots, however, produced a major new caseload of displaced persons, while at the same time strongly discouraging previously displaced persons from returning to Kosovo. USG assistance through PRM was used by NGOs to provide humanitarian assistance to this new caseload, as well as to improve the returns climate as much as possible while providing assistance to those internally displaced persons (IDPs) still interested in returning.
PRM funding for NGO activities provided much of the direct assistance to returnees, as well as to communities faced with absorbing high numbers of returnees. Many of these projects involved support for activities by branches of the same NGOs both in Serbia and Montenegro, where potential returnees are identified and briefed on their options, as well as in Kosovo itself. Project funding for the American Refugee Committee, International Catholic Migration Commission, and other organizations allowed the identification and education of potential returnees in Serbia and support for their return to Kosovo. Further support came from Mercy Corps International, whose program complemented the returns assistance of other implementing partners by providing agricultural inputs and assistance to returnees.
Kosovo's Housing and Property Directorate (HPD) and the Housing and Property Claims Commission (HPCC) have exclusive jurisdiction to receive and decide claims from individuals who lost residential property in the 1990's. The work of the HPD and HPCC contributes to the restoration of property rights and return of refugees and IDPs, the ability of owners and legal occupants to use their property as collateral for investment, thereby reinforcing economic stability, and support for the rule of law through the enforcement of legal decisions. SEED funds facilitated the work of the HPD and HPCC during 2004. HPD continued steady progress toward concluding its current caseload, which should be resolved by the end of FY 2005.
A prominent humanitarian issue in Kosovo is the plight of those with family members whose whereabouts are still unknown. The issue received increasing attention from international and local officials in FY 2004, particularly following a pair of significant demonstrations by family members of the missing. SEED funding continued to support the activities of the International Committee for Missing Persons (ICMP), which provided scientific and technical support to the identification of human remains found in Kosovo or in Serbia proper, using its relationships and formal agreements with UNMIK and the Serbian Government Coordination Center for Kosovo. Beyond DNA matching and scientific identification of remains, ICMP also played an important role in the growth of civil society's capacity to deal with the issue of missing persons through NGO training and development and advocacy on behalf of the families of the missing. PRM's contribution to the ICRC supported their Kosovo missing persons program, which included leadership of the Working Group on Missing Persons and a tracing service that published the third edition of the Book of Missing. Largely as a result of efforts by the U.S. Office in Pristina, ICMP, ICRC, and other organizations working on this issue, UNMIK greatly increased its efforts to produce results on this sensitive issue, starting in late FY 2004.
MEASURES OF PROGRAM EFFECTIVENESS IN FY 2004
DEMOCRATIC REFORM
Performance Indicator: USAID NGO Sustainability Index (1 = highest; 7 = lowest)
|
FY 2002 Baseline |
FY 2003 Actual |
FY 2004 Target |
FY 2004 Actual |
|
4.3 |
4.0 |
3.8 |
3.5 |
FY 2004 Results: During FY 2004, Kosovo NGOs were able to form a number of significant issue-based coalitions that carried out successful campaigns. These coalitions brought together think tanks, community groups, and human rights, women, and minority NGOs to advocate for issues such as electoral law reform, voter mobilization, and campaigns on the missing persons issue.The legal environment is relatively permissive, insulating NGOs from any real degree of government control. The straightforward NGO registration process, which has improved as the Ministry of Public Services has taken steps to handle this task more efficiently, is also a favorable element. The primary factor hampering NGO sustainability is the high dependence on international donor funding, with little progress made in finding alternative, longer-term funding sources. Decreased funding over the past year has apparently set off a consolidation within the NGO sector and has pushed NGOs to start being more aggressive in building constituencies, attracting funding, and developing their internal management structures.
Performance Indicator: IREX Media Sustainability Index (1 = lowest; 4 = highest)
|
FY 2002 Baseline |
FY 2003 Actual |
FY 2004 Target |
FY 2004 Actual |
|
2.3 |
N/A |
2.4 |
2.4 |
FY 2004 Results: Kosovo enjoys a relatively good environment for independent media and freedom of speech, but key laws and institutions have not yet been established, and private media outlets still struggle to survive financially, though Kosovo's two major private TV stations appear to have some financial stability. The establishment of a domestic Independent Media Commission (IMC) to replace the UNMIK-run Temporary Media Commission has yet to take place, although a draft IMC law is now with the PISG. Media associations have become more active and are viewed as institutions that protect freedom of speech and journalists' rights; however, professional journalistic standards suffered at key moments during the year, particularly in the case of inflammatory and biased reports that helped to spark the March 2004 unrest.
ECONOMIC AND SOCIAL REFORM
Performance Indicator: Kosovo exports as a percentage of GDP (Source: Economic Policy Department of Ministry of Finance and Economy)
|
FY 2002 Baseline |
FY 2003 Actual |
FY 2004 Target |
FY 2004 Actual |
|
2% |
3% |
4% |
N/A |
FY 2004 Results: Kosovo remains heavily dependent on imports. Although some progress has been made in increasing exports and implementing the free trade agreement signed with Albania in 2003, there is still a large trade imbalance. Agricultural production and distribution within Kosovo have improved, helping advance the goal of import substitution, but Kosovo products have made limited progress in penetrating foreign markets. Another promising step forward is the recent negotiations for obtaining an international bar code for products of Kosovo origin, the lack of which had been a significant barrier to exports. Important strides are also necessary to improve quality standards and marketing practices in order to be competitive in neighboring markets. Negotiations for a free trade agreement with Macedonia are in progress.
Performance Indicator: Cumulative number of state- or socially-owned enterprises (SOEs) privatized (Source: Kosovo Trust Agency)
|
FY 2002 Baseline |
FY 2003 Actual |
FY 2004 Target |
FY 2004 Actual |
|
0 of 350 |
23 of 350 |
25 of 350 |
7 SOE privatization tenders awarded |
FY 2004 Results: Privatization of SOEs in Kosovo continued to face significant problems and delays during 2004, with only 19 SOEs formally privatized. Only one wave of privatization was completed during FY 2004. The process came to a halt at the beginning of the fiscal year due to a number of legal concerns raised within the Kosovo Trust Agency (KTA), the body charged with privatizing SOE assets. Recent changes to the government (following the October 23 elections), UNMIK Pillar IV management, and the legal regime authorizing privatization may help accelerate the process in FY 2005.
Performance Indicator: Number of fixed and cellular telephone subscribers (Source: USAID/Post and Telecom of Kosovo)
|
FY 2002 Baseline |
FY 2003 Actual |
FY 2004 Target |
FY 2004 Actual |
|
100,000 landlines/ 200,000 mobile telephone numbers |
109,000 / 295,000 |
120,000/300,000 |
138,000/310,000 |
FY 2004 Results: The level of telephone line penetration improved over FY 2004 but remains near the bottom for societies in Europe, with only an estimated 8 percent of households possessing a fixed telephone line. Both mobile and fixed-line access improved over the past year as a result of investment by sole telephone service provider Post and Telecom of Kosovo (PTK) in the networks. However, the regulatory and market access picture is still highly problematic, as was demonstrated by UNMIK's eventual cancellation of a highly flawed tender for a second mobile telephony license.
SECURITY, REGIONAL STABILITY, AND LAW ENFORCEMENT
Performance Indicator: Number of trained Kosovo Police Service officers (Source: UN CIVPOL/KPS)
|
FY 2002 Baseline |
FY 2003 Actual |
FY 2004 Target |
FY 2004 Actual |
|
5,500 officers |
5,850 |
6,500 officers |
6,350 |
FY 2004 Results: KPS largely met its goals for officer training and recruitment, while also making significant strides in minority officer recruitment. KPS has subsequently revised its goals to bolster its size in 2005, in preparation for greater transfer of police responsibility from UN CIVPOL to KPS over the next year.
Performance Indicator: Number of outstanding Internally Displaced Person claims resolved by the Housing and Property Directorate/Housing and Property Claims Commission (Source: HPD/HPCC)
|
FY 2002 Baseline |
FY 2003 Actual |
FY 2004 Target |
FY 2004 Actual |
|
1,856 cases resolved during FY; 1,856 total cases resolved |
7,895 cases resolved during FY; 9,751 total cases resolved |
10,000/19,7511 |
12,398/22,149 |
FY 2004 Results: HPD/HPCC processing of claims continues to increase and is on track with HPD/HPCC goals to have all cases decided by the end of 2005. At the same time, continued effort and liaison with police and justice institutions will be necessary to ensure that decisions are implemented. An additional looming issue is the probable high number of claims related to agricultural and commercial land, which are currently outside the HPD mandate.
KOSOVO
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