FORMER YUGOSLAV REPUBLIC OF MACEDONIA

	FY 1998 Actual	FY 1999 Estimate	FY 2000 Request
Support for East European Democracy	$17,204,000	$16,000,000	$14,000,000

Introduction.

The Former Yugoslav Republic of Macedonia (FYROM), the poorest country of the former Yugoslavia, was the only republic to gain independence peacefully. The maintenance of stability in FYROM is a key element of U.S. Government efforts to reduce instability in former Yugoslavia and the Balkans. The U.S. assistance program to FYROM supports U.S. interests in national security, economic prosperity, and democracy. Since declaring its independence in 1991, the FYR Macedonians have consistently pursued policies aimed at reforming the economy and strengthening democratic institutions. Despite the hardships imposed by external forces, such as the United Nations sanctions against Serbia and the 1992-95 Greek trade embargo, FYROM persisted in implementing the key reforms urged by the World Bank and the International Monetary Fund (IMF) in their proposed economic stabilization program.

The Development Challenge.

FYROM is suffering from many of the same ills as other Central European countries in transition from a command economy and centralized government to a market-oriented, democratic society. However, the country also has had to manage the negative effects of compliance with the UN-mandated sanctions against Serbia, which accounted for 60% of its markets prior to the disintegration of Yugoslavia, and which also served as a conduit to other East, Central and West European markets. Modest recovery from the Greek trade embargo has been followed by threatened spillovers from Kosovo hostilities. Although the situation remains stable in FYR Macedonia, continuation and any escalation of Kosovo fighting could spill over and ignite the tense ethnic situation in FYR Macedonia. The rise in unemployment has roughly paralleled the drop in national income, between 25 and 35 percent. The FYROM government faces the additional challenge of having to create institutions to perform national functions previously performed by the federal government in Belgrade. This is compounded by a lack of public confidence in institutions at every level of government.

The key objectives of the U.S. assistance program are: (a) economic restructuring and sustainable growth, with accompanying employment generation; (b) the development of democratic practices and institutions, and a viable civil society; and (c) Euro-Atlantic integration as the basis for regional stability. U.S. assistance will address these problems through targeted efforts in development of the private sector economy, with a particular focus on agriculture and agribusiness, and through assistance to non-governmental organizations, local governments, independent media and other democratic and representative civic intermediaries.

Other Donors.

FYROM receives assistance from international financial institutions such as the World Bank, European Bank for Reconstruction and Development (EBRD), the International Monetary Fund (IMF) and the World Bank's International Development Association. As a result of the signing of the Greek/FYROM Interim Accord on September 13, 1995, FYR Macedonian participation in the European Union (EU) PHARE program has been formalized. An EU Resident Representative has been assigned to Skopje and has established the Macedonia office. Germany (GTZ) has been the largest provider of assistance to FYR Macedonia (primarily in humanitarian assistance and commodities). The United States ranks second among bilateral donors to FYROM.

FY 2000 Program.

The U.S. assistance program in FYR Macedonia has coalesced into three strategic objectives involving expansion of the private sector, increased civic participation and local government strengthening. The local government objective represents a new opportunity with substantial potential, but for which FYR Macedonian political will has yet to be fully tested.

The three objectives will address a number of important cross-cutting themes, of which unemployment and ethnic tensions are two of the most important. Unemployment may get worse before it gets better as newly privatized enterprises shed redundant labor. It is USAID's position that the best and quickest way to increase employment is through expansion of the private sector including the agribusiness sector. Similarly, all three objectives address ethnic tensions by providing the means for citizens to strengthen the economic well being of their communities through the government, private sector and non-governmental organizations (NGOs).

Under the economic restructuring goal, USAID is requesting funding for accelerated development and growth of private enterprises. Under this objective, assistance is being provided for enterprise development, legal/accounting reform and financial sector reform. Continued assistance to enterprises provides training and education of managers of small to mid-size firms, association building for farmer cooperatives and development of export markets, legal/accounting reform to level the playing field for companies, the establishment of an internationally harmonized trade regime (WTO), and the creation of an enforceable rule of law. Current financial sector activities range from providing funds to micro-enterprises and development of rural credit unions to technical assistance directly to banks and to the National Bank in the area of bank supervision. Positive developments have occurred in all these areas but much work still needs to be done, especially in the areas of increasing foreign and domestic investment, implementation and enforcement of recently-passed legislation and economic development at the community level.

Under the democratic transition goal, USAID is requesting funding to increase citizens' participation in political and economic decision-making. Despite the enactment of a new constitution in 1991 and a subsequent series of laws to implement the Constitution, citizens continue to be distrustful toward the government. Frustration and growing apathy among the people, particularly in rural areas, is widespread as they see no solutions to their problems. Parliamentary assistance will focus on strengthening procedures, legislative drafting and constituent outreach. NGOs will play a key role but are still nascent and need to overcome the people's cynicism towards associations and working together. The USAID assistance program is targeting the development of mechanisms, especially NGOs, to increase citizen participation in democratic systems, and the willingness of government officials, at both local and national levels, to actively involve citizens in the policies of government.

Also under the democracy rubric, a new strategic objective supporting more effective, responsive and accountable local government is being developed in connection with steps taken by the FYR Macedonian Government. The new government has established a new Ministry for Local Government and placed public administration reform on their priority agenda. USAID has financed an assessment that will provide recommendations to empower local governments to better serve and give a greater voice to citizens. The nascent movement to devolve authority to local government may offer an opportunity to restore a degree of public confidence and perhaps bridge ethnic differences by allowing all citizens, including ethnic Albanians, to solve problems locally. This program will work to leverage important resources from EU PHARE and the World Bank and will include an important USAID element addressing FYR Macedonia's municipal pollution problems.

As a complement to these three strategic objectives USAID is requesting funds for a number of cross-cutting activities, including participant training, evaluation and activity support.

FORMER YUGOSLAV REPUBLIC OF MACEDONIA

FY 2000 PROGRAM SUMMARY*
(in thousands of dollars)

USAID Representative: Stephen Haynes

Strategic Objectives	Economic Restructuring	Democratic Transition	Social Stabilization	Cross-cutting / Special Initiatives	Total
Privatization	--	--	--	--	--
Fiscal Reform	--	--	--	--	--
Private Enterprise	8,750	--	--	--	8,750
Financial Reform	--	--	--	--	--
Energy	--	--	--	--	--
Environmental Management	--	--	--	--	--
Citizens' Participation	--	1,810	--	--	1,810
Legal Systems	--	--	--	--	--
Local Government	--	1,200	--	--	1,200
Crises	--	--	--	--	--
Social Benefits	--	--	--	--	--
Environmental Health	--	--	--	--	--
Cross-cutting / Special Initiatives	--	--	--	2,240	2,240
TOTAL	8,750	3,010	--	2,240	14,000
* Support for East European Democracy (SEED) Act funds

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ACTIVITY DATA SHEET

PROGRAM: FYR Macedonia
TITLE AND NUMBER: Accelerated Development and Growth of the Private Sector,180-SO01.3
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCES: FY 2000: $8,750,000 SEED
INITIAL OBLIGATION: FY 1993 ESTIMATED COMPLETION DATE: 2004

Summary: Despite a trade embargo, international sanctions on one of its major trading partners and its proximity to economically and politically unstable neighbors, FYR Macedonia has maintained macro-economic stability. The USAID mission is supporting this by providing technical assistance to FYR Macedonia in the areas of enterprise assistance, legal/accounting reform and financial sector reform. Privatization of FYR Macedonian firms after independence was done in a quick share transfer to company managers and employees. Firms often found themselves without the advantages of additional capital or know-how. The enterprise assistance and agricultural marketing projects are helping with this transition. New commercial laws have been drafted, presented to Parliament, passed, and are now in the implementation stages. Judges are being trained and legal associations are forming, all with the help of USAID-funded technical assistance. Banks are unable to provide businesses with loans because of a lack of deposits, primarily due to the public's general lack of faith in the banking system. USAID is working to strengthen the banking system at the National Bank level as well as with several of the commercial banks. USAID is also providing alternative financing resources to businesses through micro-lending, rural credit and equity capital.

Key Results: The key intermediate results that will determine whether the objective is met include: 1) Improved transparency of businesses which will attract domestic and foreign investment; 2) an increase in available sources of financing which will allow businesses to invest and expand; 3) development of the necessary legal reforms which will create a level playing field, increase transparency in the legal system, and establish the rule of law for businesses; and 4) improved management skills so managers can better take advantage of market opportunities.

Performance and Prospects: The two largest projects in the USAID private sector portfolio address the opportunities and threats to FYR Macedonia’s private and privatized companies. The projects include a three-year old Business Resource Center which has directly assisted over two hundred firms in developing management and marketing skills and assisting in business plan development and a recently established agricultural marketing project. Other related activities include farmer-to-farmer assistance and association building and a very successful micro-lending program that has made over 600 loans and recently opened its third office. In early 1998, USAID also established the first equity investment fund in FYR Macedonia.

Passage of several laws, which include a Collateral Law and a Law on Accounting Standards which promulgates the use of international accounting procedures for companies, have all helped FYR Macedonia's investment climate. USAID is funding a World Trade Organization accession assistance activity on harmonizing FYROM's trade regime with the rest of the world, which will lead to facilitation of trade and foreign investment. USAID is addressing banking instability through its Bank Operations project and with an advisor in the National Bank providing assistance in bank supervision. USAID assistance to establish rural credit unions is moving ahead after a decision was made to establish a savings and loan association under existing laws, recognizing that waiting for a credit union law to be passed would unduly delay the project goals of providing loan resources to rural communities. Its first office will open in early 1999.

With the maturing of the FYR Macedonian indigenous consulting market and with the influx of other donor assistance to enterprises, USAID will turn its focus slightly towards development of the financial sector to include capital markets and a more advanced banking sector activity which will both begin in 1999. Emphasis will continue on agribusiness development to assist one of FYR Macedonia's major income and employment sectors.

The newly-elected government has set goals of 8-10% annual increase in production and 8-10% annual increase in exports. Export promotion and import substitution will be key areas of private sector development. USAID will begin to provide technical assistance to the newly-established Ministry of Trade to support FYR Macedonia’s accession into the World Trade Organization.

Successes in several of these areas could be leveraged by directing activities and resources to economic stabilization and growth in communities reporting high levels of unemployment.

Possible Adjustment to Plans: With the recent change in government and the subsequent creation of several new ministries, USAID will need to be positioned to assist with the priorities of the new government as they unfold.

Other Donor Programs: USAID programs are intermeshed with donor activities throughout the portfolio. The World Bank is developing a Financial and Enterprise Stabilization Assistance Loan which will work to stabilize balance of payments. The EBRD and the IFC will be contributing to the USAID/SEAF Equity Fund. EU PHARE has activities which complement USAID programs in accounting and banking. The German and Dutch governments are also active in providing funds for small businesses. The British Know How Fund participates in enterprise assistance and has contributed funds to the USAID-financed micro-lending project in order to start a business club. Coordination of strategy is an ongoing task with other donors.

Principal Contractors, Grantees, or Agencies: Current partners include Crimson Capital, Land O'Lakes, the Center for Financial Engineering and Development (CFED), Barents/KPMG, VOCA, ABA/CEELI, IBTCI, WOCCU, Carana, and Opportunity International.

Selected Performance Measures:

	Baseline	Target
Private Sector share of GDP (%)	35% (1994)	50% (2000)
Exports/GDP (%)	41% (1995)	50% (2000)
Increase in foreign investment (annual)	$36M (1995)	$72M (2000)

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ACTIVITY DATA SHEET

PROGRAM: FYR Macedonia
TITLE AND NUMBER: Increased, Better-Informed Citizens' Participation in Political and Economic Decision Making, 180-SO0 2.1
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 2000: $1,810,000 SEED
INITIAL OBLIGATION: FY 1993 ESTIMATED COMPLETION DATE: 2004

Summary: This strategic objective targets the strengthening of political parties and civil society groups, both of which serve as vital channels for information dissemination, interest aggregation, and representation. They are the key mechanisms through which and by which citizens can identify their interests, negotiate conflicts and have an impact on government policy. The nascent democratic institutions (independent media, Non-Governmental Organizations (NGOs), and political parties) have demonstrated progress since independence in 1991, but more work is needed before the people will believe that these entities can be accountable and responsive to their issues. Given the authoritarian history of the country, fear still exists within the NGO sector about local and national government reaction to its activities, although no instance of direct harassment has taken place in several years. Strengthening a critical mass of Macedonia's NGOs and political parties will help reduce ethnic tensions and lead to a stronger, more transparent and responsive democracy by increasing citizens' participation and awareness. An active citizenry can help relieve the destructive effects of inter-ethnic intolerance. Assisting political parties and NGOs to become more organized and community focused will help to resolve issues and decrease counterproductive "ethnic" politics and self-serving nationalistic interests.

Key Results: Six key intermediate results were concluded to be necessary to achieve this objective: (1) improved financial viability of NGOs; (2) improved and more democratic NGO management; (3) more effective advocacy by NGOs; (4) improved party and government systems for conducting elections; (5) strengthened party operations in Parliament; and (6) enhanced communications between citizens and legislators.

Performance and Prospects: USAID has played an important role in enhancing citizen participation in FYR Macedonia. Both grants and technical assistance have been provided to more than 80 NGOs consisting of all ethnic and gender groups. USAID has assisted three communities in the development of Local Environmental Action Plans (LEAPs) to serve as models of participatory democracy and NGO-business-local government partnerships. NGO-NGO coalition activities, supported by USAID, contributed to the national government involving NGO participation in the development of a National Environmental Action Plan (NEAP). Community groups which unite in grassroots organizations will be more effective in influencing public policy decisions when they later form advocacy coalitions at a national level. USAID will build on the successes of the LEAPS by strengthening partnerships and networking among NGOs, particularly at the community level by encouraging community efforts which mobilize local economic resources for development and job creation.

Through USAID assistance to the FYR Macedonian Government and local NGOs, a new law was passed last year which reflects a number of international best practices, including provision of a legal framework for foundations, expansion of the rights of foreigners to establish NGOs, establishment of appropriate rules for internal governance of NGOs, and limitations on the ability of the government to dissolve an NGO. The new law is being recognized as one of the most progressive in the region and was recognized by government officials as one of the few examples of participatory law-making in Macedonia. Work on additional laws, such as enabling the NGO sector to engage in income-generating activities using their special tax status, will be essential for strengthening the sustainability of these organizations. In order for the public to turn to NGOs as conduits for change, USAID will assist NGOs in establishing successful models of being responsive to their members and community needs as well as make their financial and decision-making processes more transparent.

FYR Macedonia recently completed its third national election which was deemed to have been generally fair and open by both domestic and international election monitors. A permanent Central Election Commission (CEC) has been established, but is poorly staffed and trained. USAID assisted the formation of a consortium of local NGOs which carried out an extensive voter education campaign using significant in-kind contributions from media and local businesses. Voter turnout for both the first and run-off national elections exceeded 70 percent, and other donors are interested in supporting the same model for presidential elections this year.

The national elections brought about surprise outcomes with the opposition coalition gaining control of the Parliament. Political parties clearly benefitted from USAID-funded training through adopting outreach techniques to poll voter issues, developing clear and focused platforms, organizing their branches to spread their messages through door-to-door campaigns, and bringing in spokespeople to handle media queries.

Several dozen journalists have obtained training in investigative reporting, basic writing skills, and management of media operations. American journalists have provided in-country assistance in reporting techniques, use of new technologies, and curriculum development. The media played an active role in presenting different points of view for the recent parliamentary elections, and this demonstrates an independent and open media.

USAID is the largest donor in the NGO sector. Macedonia will likely require several more years of U.S. assistance before an adequate transition can be said to have taken place. It is also assumed that other donor contributions to the sector will increase.

Possible Adjustments to Plans: With the recent change of government, USAID will need to be positioned to assist the new priorities of the government as they unfold. The new government has already announced its plans on changing the FYR Macedonian Constitution by augmenting the power of the President. The original idea of building democracy in FYR Macedonia was through a parliamentary system. USAID would need to be prepared to assist the new government in ensuring that these institutions retain their foundation in democracy.

Other Donor Programs: Donor assistance in this area has been rather limited. Except for well coordinated assistance from the Dutch and minor amounts from the British Know-How Fund, the U.S. largely has the field to itself. In 1999, the World Bank will start an NGO small grant assistance program. Dutch Interchurch Aid assisted in the creation of an indigenous civic organization (the FYR Macedonian Center for International Cooperation).

Principal Contractors, Grantees or Agencies: Current grantees and contractors include International Center for Not-for-profit Law (ICNL), Institute for Sustainable Communities (ISC), National Democratic Institute (NDI), and Search for Common Ground (SCG).

Selected Performance Measures:

	Baseline	Target
NGO Sustainability Index*	4.4 (1998)	3 (2000)
Number of political parties in Parliament with a functioning caucus	0 (1998)	4 (2000)
*The USAID Sustainability Index uses a seven point scale, to facilitate comparisons to the Freedom House indices, with 7 indicating a low or poor level of development and 1 indicating a very advanced NGO sector. Five different aspects of the NGO sector are analyzed in the Index: legal environment, organizational capacity, financial viability, advocacy and the public image of NGOs.

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ACTIVITY DATA SHEET

PROGRAM: FYR Macedonia
TITLE AND NUMBER: More Effective, Responsive and Accountable Local Government,180-S002.3
STATUS: New Activity in FY 1999
PROPOSED OBLIGATION AND FUNDING SOURCES: FY 2000: $1,200,000 SEED
INITIAL OBLIGATION: FY 1999 ESTIMATED COMPLETION DATE: 2004

Summary: In response to the newly-elected (November 1998) government and previous assessments completed by USAID, a new local government initiative is being implemented under Strategic Objective 2.3. Currently, there are two activities, both in the planning stages, that will be funded.

The primary activity is the Local Government Reform (LGR) project. This activity is in the initial planning stages which are expected to be completed in March 1999. The first phase of the LGR project focuses on the identification of problems and issues as provided in an open dialogue with central and local government entities and officials. The findings and conclusions of the assessment stage (Phase I) of this project will make specific policy recommendations, detail plans regarding central/local government relations, and provide for implementing actions at both levels of government. The analysis presented in Phase I will define the specific activities to be carried out in Phase II to improve municipal management in meeting citizens' needs. Phase II activities are expected to begin by June 1999 in cooperation with the new Ministry of Local Government.

Linked to the development of the LGR project is a second activity supporting the government's establishment of the Fund for Environmental Protection and Promotion (Environmental Fund). USAID is funding technical assistance to assist the FYROM in establishing a transparent institution that will identify and package bankable environmental projects. USAID's support will be provided to the newly-established Ministry of Environment (MOE) which has assumed responsibility for the previously-established environmental fund financed solely from revenues of automobile registration taxes. Cooperating municipalities have requested financing for landfills, wastewater treatment plants and other infrastructure needs.

Key Results: Intermediate results are currently being developed to measure success in achieving this objective. However, one key result is expected to be improved transparency in the funding of local- level infrastructure projects. Other anticipated results include the rational budgeting of municipal funding based on competitive and technical criteria, and improved management skills of government employees to administer and budget public funds.

Performance and Prospects: The two activities under this objective are still in the planning stages. However, the Environmental Fund, which has been assumed by the MOE, has generally received good public and local government support for financing locally-requested projects which address and mitigate problems related to solid waste and wastewater management. USAID-financed technical assistance to this activity will also provide an improved set of criteria, streamline the packaging of proposals and shorten the time frame for reviewing and providing a financing decision.

The Local Government Reform project requires a review by the FYROM of Phase I findings and recommendations before activities can move forward into Phase II implementation. The review process is expected to be completed by March 1999. The project will provide a clear set of policy recommendations that can be acted upon and which are known and vetted through an open dialogue between citizens and central and local government entities.

Possible Adjustments to Plans: The newly elected government has created several new ministries including the Ministries of Local Government and Environment. USAID is coordinating with the new Ministries, and as strategy and policy statements emerge from the government on local government and environmental issues, the USAID will consider options to assist with FYROM priorities.

Other Donor Programs: USAID maintains close coordination with other donors. The World Bank is planning a local government project and has just begun the initial assessment and planning.

Principal Contractors, Grantees, or Agencies: The assessment and recommendations on local government are being carried out by the Urban Institute. Chemonics International will be the primary implementor for the Environmental Action Program and Environmental Fund activity. The activities to be implemented under Phase II of the Local Government Reform project will be competed.

Major Results Indicators: To be determined from the Phase I assessment.

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