As for Russia, its military build-up in the Caucuses places
more combat aircraft closer to Turkey. Nevertheless, Russian
efforts in the region are aimed more at deterring Iran, the
Ukraine and other regional states than Turkey. Ankara is clearly
aware that this larger presence gives Moscow options vis-a-vis
Turkey should the need arise as these two countries work toward
different ends in the Nagorno-Karabakh conflict.



445



SUPPLEMEMTMi QUESTIONS SUBMITTED BY

THE SUBCOMMITTEE ON EUROPE AMD THE MIDDLE EAST

TO THE AGENCY FOR INTERNATIONAL DEVELOPMENT

AND RESPONSES THERETO

MAY 11, 1993 HEARING ON U.S. FOREIGN ASSISTANCE TO EUROPE

FOR FY 1994



I. U.S. ASSISTANCE — GENERAL
QUESTION l:

How much of the FY 1992 program was expended entering FY

1993, that is, last October 1st?

— What is the size of the pipeline in aid for Eastern
Europe today?

How much of the funds provided in FY 1993 do you expect
to be outlays in FY 1993?

Over how many years do you expect the FY 1993 program to
be dispersed?

ANSWER 1: Approximately $61 million of FY 1992 funds were
expended in FY 1992 out of a total of $432.7 million obligated,
or 14%. A total off $220.5 million was spent in FY 1992 from FY
1992 and prior year funds, and by the end of FY 1992, we had
cumulative expenditures of $589 million, or 57% of funds
obligated through that date. As of March 31, 1993, $155 million,
or 38% of the funds obligated in FY 1992, were expended, and 66%
of all funds obligated in any year had been spent. By any
project assistance standards, this is relatively high expenditure
rate for the early period following obligation.

The pipeline (obligated, but unexpended funds) for the
Central and Eastern Europe program was $352,165 million as of
March 31, 1993. This represents 33% of total funds obligated for
the program, and less than one year's obligations. The Eastern
Europe program continues to expend funds more rapidly than the
AID average.

Approximately 10% of the funds obligated in FY 1993 will be
expended in FY 1993. The majority of funds are not obligated
until late in the fiscal year. Total outlays in FY 1993
(including prior year obligations) should approach $330 million.

The FY 1993 program will disburse over approximately 3 to 4
years with over half the FY 1993 funds disbursed by the end of FY

1994. We are beginning very few new activities, and most of the
contracts, grants and cooperative agreements which will be funded
are continuations rather than new procurements.



446



QUESTION 2:

As of September 30, 1992, you had spent $67.4 million in
bilateral programs for developing democratic institutions in
Eastern Europe. This represents 6.5% of overall spending in
Eastern and Central Europe.

— What do you expect to spend in this area in FY 1994?

On what type of activities will these funds be spent?

How have your programs in this area shifted since 1989 and
1990 — when the focus was largely on election monitoring?

How much do you intend to spend through the National
Endowment for Democracy?

ANSWER 2: We obligated $67.4 million for strengthening

democratic institutions through the end of FY 1992 , and expect to

obligate $40.9 million, or 10% of the FY 1994 program, for this

purpose. With funds available in FY 1993, we plan $41 million in
obligations in this area.

Public administration will receive approximately 50% of the
FY 1994 democracy strengthening funds. A particular focus is
assistance to help national governments decentralize and local
governments to govern responsibly. Funds also will be allocated
for legal reform; strengthening the independent media; developing
a civil society, i.e. civic education, educational reform, labor
union development, inter-ethnic communication, and parliamentary
training.

The focus has shifted more to institutionalizing democracy,
improving public administration and pursuing legal reform.
Emphasis has shifted from party building and one-time election
monitoring efforts to strengthening the institutions that
underpin a civil society and to the more difficult task of
developing the understanding of rights and obligations in a
democratic society. Increased resources are programmed for
educational reform, for example.

We do not intend to provide funds to the National Endowment
for Democracy in FY 1994. We have obligated a total of $13.6
million for the National Endowment for Democracy since FY 1990.

QUESTION 3:

Of the $802 million the U.S. had provided to countries in
Eastern and Central Europe to promote economic restructuring as
of the beginning off Fiscal Year 1993, $272 million — or 34% —
went to support four Enterprise Funds for Bulgaria,
Czechoslovakia, Hungary and Poland.



447



~ What percentage of your FY 1994 request do you expect to go
to the Enterprise Funds?

— What else will these economic restructuring funds be used
for?

What portion will be used for technical assistance and
training?

— What funds will be used for privatization of state-owned
industries and precisely how will these funds be used?

KKBWER 3t We expect about 21%, or $87 nillion, of FY 1994
funds to be obligated for the Enterprise Funds. Funding for the
Northern Tier Enterprise Funds will decrease, while funding for
the Southern Tier and Baltic Funds will increase.

The total amount planned for economic restructuring in FY
1994 is $286 million, or 70%, of the funding for Central and
Eastern Europe. The majority of these funds will provide
assistance for privatization and private sector development,
including agriculture and agribusiness, and energy. Other
activities not specifically included in the economic
restructuring part of our program, such as health and housing
finance, are also concerned with privatization and private sector
development.

All of the $199 million in FY 1994 Economic Restructuring
Funds that are not going to the Enterprise Funds will be used for
technical assistance, training and feasibility studies.

The privatization and enterprise restructuring project, which
will receive a projected $45 million in FY 1994, is providing
technical assistance to Central and Eastern European governments
for privatization of State-owned industries. Funds will finance
quick response teams of financial and legal experts under
fully-competed standing contracts known as "ICQs" (Indefinite
Quantity Contracts) .

QUESTIOM 4:

The third major category of support has been improving the
quality of life. As of the start of Fiscal Year 1993, $152.6
million or 14.8% of overall U.S. . assistance to Eastern Europe
went to fund projects in this category. These projects have
included:

o support for labor market transformation;

o housing sector assistance;

o partnership in health care; and

o environmental initiatives and training.

How much of the FY 1994 funds do you plan to spend for quality



448



of life projects?

— What are your priorities in this category — environment,
health, housing or some other area?

ANSWER 4:

We plan to obligate $75.8 million, or almost 19%, for quality
of life projects.

The breakdown for obligations is planned as follows:
environment ($24.7 million); health ($22.1 million); housing ($15
million) ; short-term emergency and humanitarian aid ($8 million) ;
and employment and the social safety net ($6 million) .

QUESTION 5:

How many projects do you have on-going in Eastern Europe in FY
1993?

By how much do you estimate your project portfolio will
increase in FY 1994 if the $409 million is approved?

ANSWER 5:

Thirty projects will be funded in FY 1993; another five
projects will continue to function with prior-year funds.

While we will have a few new or expanded initiatives under
on-going projects such as with public administration, we do not
plan to start any new projects in FY 1994, absent unforeseen
developments. We plan to add funding to on-going projects.

QUESTION 6:

Do you expect to spend roughly $5 million again for project
oversight and evaluation in Fiscal Year 1994?

What are these funds used for?

For a program this size ($1.03 billion since FY 1990), how
does this level of funding for Administration compare to other
programs of equal size?

How much, if at all, do you estimate you save each year due to
the regional organization of this program?

— How much more in time and money do you estimate a traditional
country-based program could cost you?

ANSWER 6:



449



We expect to obligate $6 million in FY 1994 for our Audit,
Evaluation and Program Support project. The funds are used for
evaluation, needs assessments, contract assistance to help
implement projects, short-term consultancies, non-federal audits,
and design of the assistance program in Central and Eastern
Europe .

This funding (the $6.0 million for evaluation, audit, etc.) is
not for AID administration. Operating expense funds are used for
administration of the program. The administrative costs for the
Central and Eastern European program remain among the lowest in
AID.

It would cost between $35 and $40 million more per year to run
conventional AID missions for this program. Conventional missions
in 13 or more countries would require over 200 U.S. direct hire
officers overseas and bureau of about 80 in Washington at a total
cost of some $68 million. The regional structure has 34 USDH
overseas and a Washington staff of 150 USDH, at a total cost of
$26 million. Some of the savings come from the regional character
or projects and some from Washington basing of staff. A regional
organization overseas would save less than the $35 to $40 million
presently saved.

As mentioned previously, to staff 13 or more bilateral
missions, AID'S budget office estimates the additional cost would
be between $35 and $40 million in Operating Expense Funds per
year.

QUESTIOH 7:

How many people does AID have in the field today administering
these programs and how mc-ny are you budgeting for in FY 1994?

Where do you currently have people, and how many in each
country?

ANSWER 7:

We currently have in the field 24 U.S. direct hire staff, 25
U.S. personal services contractors, and 101 foreign service
national employees for a total of 160. To implement the FY 1993
legislation directing greater involvement of AID representatives
in the field, preliminary estimates are that we would need
increases of 13 U.S. direct hires, 25 personal services
contractors and 40 foreign service nationals. It is uncertain at
this point how many additional field positions we can afford given
FY 1994 operating expense constraints.

Following is a list of numbers of employees in each country:

Country USDH U.S. PSC FSN



450



Poland




6


6


27


Hungary




5


7


13


Czech Republic




5


2


13


Slovakia




2


2




Romania




4


2


14


Bulgaria




4







Albania




2


1




Croatia




1







Lithuania




1


1




Estonia




1


1




Latvia




1







Regional Fin. Mgt.


Center-Hungary


2


3


5



TOTAL t 34 25 101

ZI. THS rOSMSR TUOOSLAyZA AM) THE BALKAM8

QUS8TIOV l:

The Adninistration is proceeding with a $10 million program of
technical assistance to Macedonia, a country which the U.S. has
not yet recognized. The package includes humanitarian assistance,
technical assistance for economic reform and building democratic
institutions.

— How much of the $10 million has been spent?

— On what specific projects is the money being spent?

— Are other Macedonia-specific projects being considered?

— Macedonia is now eligible for GSP benefits. For what other
preferential benefits is it eligible?

— Why are we giving assistance to a country we don't recognize?

AM8WSR l:

Program activities funded with FY 1993 money have only just
begun to be implemented. Of the $10 million in FY 1993 SEED
funds, approximately $1,350,000 in technical assistance activities
had been obligated as of May 1993, and very little of that had
been disbursed. Much of the humanitarian assistance provided in
Macedonia, however, was funded with FY 1992 money, the bulk of
which came from accounts other than SEED (OFDA, Food for Peace,
DOD) .

Approximately $10.1 million in humanitarian assistance has
been provided to date, all but $3.2 million of which was from FY
1992 money and only $1.2 million of which came from SEED FY 1992
money (to pay for emergency medical supplies delivered by Project
Hope) .



451



Humanitarian assistance provided has included bulk foodstuffs
(wheat, flour, vegetable oil, beams, corn/soy meal (CSM) , and
wheat/soy blend (WSB) ) ; Meals Ready to Eat (MRE) ; and emergency
medicines.

Under the heading of Democratic Initiatives, a legal advisor
from the American Bar Association's Central and East European Law
Initiative (ABA/CEELI) has been provided to assist reform of the
judicial system. Additionally, the International Media Fund
conducted a survey of the independent media's needs and has
provided equipment and technical assistance to radio and
television stations.

Activities to date to promote economic transformation of
Macedonia have included advisors and training in the areas of
finance, taxation, commercial banking, central banking, budget
matters, pension policy and management, privatization,
telecommunications and customs. Assistance to Macedonia's nascent
customs service includes some $200,000 of equipment (computers).

Other areas of contemplated assistance, in addition to
continued help in the fields already under way, are energy,
assistance to private farmers and agribusiness, assistance to
private firms, participant training and political process.

Other than GSP, Macedonia is not eligible for sny preferential
benefits.

We have designed and are executing a modest, carefully
targeted assistance program in Macedonia to help promote political
and economic reforms, while helping preserve its political and
social stability. Macedonia has played a constructive role in
trying to contain conflict in the region, including its
participation in UN sanctions against Serbia/Montenegro which,
together with the influx of refugees from Bosnia, has had a major
negative impact on Macedonia's economy. Our assistance is
designed to help alleviate the burden of these refugees and ease
the transition to democratic pluralism and a market economy
without prejudicing our position on recognition of Macedonia or
hindering resolution of differences between Greece and Macedonia.

QUESTION 2:

A program of economic assistance to Croatia, Slovenia and
Macedonia was approved for FY 1993: $10 million for Macedonia, $3
million for Slovenia for privatization, development of commercial
loans, energy and export assistance, and $2 million for Croatia
for development of an independent media, journalist training and
strengthening pluralism and the rule of law.

- How much of this money has been spent?

Have the programs been successful?



452



What difficulties have been encountered?

Have efforts to develop pluralism in the media had any success
in Croatia where the press remain under firm control of the
government?

Does the Administration plan to expand the program in FY 1994?
ANSWER 2:

We have covered Macedonia in response to previous questions.
For Slovenia and Croatia, FY 1993 SEED funded assistance
activities are largely still being designed, so little money has
actually been spent thus far. In Slovenia, $1.5 million in
technical assistance will be provided beginning this fall, in
conjunction with World Bank assistance, to the Slovenian
Privatization Agency for industrial restructuring and
privatization. A commercial/anti-trust law advisory effort worth
$200,000 will also begin in the fall, provided by the American Bar
Association's Central and East European Law Initiative
(ABA/CEELI) . $600,000 has been programmed for telecommunications
assistance including help in transforming the legal/regulatory
framework to one appropriate for an open market and privatized
environment; a spectrum management seminar; telecommunications
procurement and privatization training; and feasibility studies
leveraging IBRD/EBRD funding for telecommunications projects.

Work in the telecommunications sector will begin in June. A
modest energy efficiency pilot program, worth $100,000, will be
implemented based upon an earlier energy audit of a pharmaceutical
plant.

In Croatia, ABA/CEELI has had an advisor at the University of
Zagreb Law Faculty since April working on legal education at the
university; support for the independent Croatian Bar Association;
criminal code reform; and helping write a new judicial code. This
program is currently funded at $200,000. The International Media
Fund has provided assistance to the Media Resource Center at the
University of Zagreb, as well as journalism curriculum assistance
to the University. It has also provided assistance to two
independent magazines of political comment and opinion. These
activities have been funded at $180,000. Additionally, we have
approached the International Democratic Institute, International
Republican Institute, and Free Trade Union Institute about
democratic initiatives programs in Croatia, but they have yet to
produce concrete proposals, so no activities have taken place. We
are in the midst of designing the $5.25 million War Victims
project which, while targeted largely at Bosnian victims of rape,
torture and other trauma, will at least initially be primarily
carried out in Croatia.

Only democracy and humanitarian activities are presently under
way in Croatia.



453



Inasmuch as these activities are either still in the
planning/design phase or just getting under way, it is premature
to determine whether they will be successful.

We have had some difficulties with staffing. A permanent AID
representative will not arrive in Macedonia until August or
September. The program there is being managed by persons on
temporary duty. Planning for an AID position in Bosnia has been
held up due to uncertainty about the best location for an AID
office. In addition, AID'S Washington technical staff is
over-stretched and unable to visit the field as often as we would
like.

While regime control of the media in Croatia remains
troubling, the International Media Fund's support for developing a
journalism curriculum and conducting workshops and seminars
through the University of Indiana and Zagreb University's
journalism school has made a productive contribution to moving
towards the eventual freer practice of journalism in Croatia
through shaping the attitudes of a new generation of future
journalists.

Circumstances could warrant an expansion of SEED funding for
humanitarian assistance. However, other sources of funding are
more appropriate for dealing with the large scale humanitarian
assistance needs of these countries.



III. CYPRUS

QUESTION l:

Your Fiscal Year 1994 request for Cyprus is $15 million in
economic support funds.

I want to note how pleased I am, for the record, that the
Administration has put an end to the game that we have played for
a number of years now with successive Administrations over aid to
Cyprus. Each year, the Administration would come in with a very
low request, with full knowledge and expectation that the Congress
would raise that number to $15 million.

How do you intend to use the $15 million for FY 1994?

Do you intend to spend roughly $5 million on scholarships for
Cypriots to study in the United States?

Will the remaining $10 million be spent on project assistance,
both bicommunal projects which bring Turkish and Greek
Cypriots together and on projects in the two communities?

ANSWER l:

Of these funds, $5 million will be used for the continuation



454



of the Cyprus-America Scholarship Program (CASP) , and $10 million
will be used to continue bicommunal development activities.

Yes, $5 million of the $15 million FY 1994 request will be
used for U.S. scholarships. Scholarships will include
undergraduate and graduate level programs. Length of scholarships
will vary from one to four years.

We expect to continue activities in such areas as health,
environment, and urban renewal with the goal of bringing the
Turkish and Greek Cypriot communities together to implement
sustainable activities. Since March 1990, persistent efforts have
been added to design and fund activities that are truly
bicommunal. We define a bicommunal project as one which involves
joint planning and participation, and is of mutual benefit to both
communities, with an objective that contributes to the long-term
economic development of Cyprus and to political reconciliation.
Physical barriers to mobility between the two sides of the island
make it difficult to implement some types of development
activities in a joint way. For this reason, some parallel
activities in the two communities which benefit the entire island
will continue for the short term, including reforestation, forest
firefighting and pest control

QUESTION 2:

As you may be aware, the Committee has had a long-standing
interest in promoting bicommunal projects on Cyprus. There has
been report language to this affect in the authorization bills
that have come out of the Committee since 1989.

How much of the FY 1992 program was spent on bicommunal
projects?

How much of the FY 1993 project to you intend to spend on
bicommunal projects?

What progress have you make in devoting more resources to
bicommunal projects on Cyprus?

What have we told the Greek- and Turkish- Cypriots about our
desire to fund such projects, instead of bilateral project
assistance on either side of the green line?

ANSWER 2:

The $15 million Cyprus program implemented in FY 1992
allocated $10 million for bicommunal development activities. We
expect to spend $10 million for new or continued bicommunal
development activities.

In 1989, guidance from the U.S. Embassy to the Office of the
UN High Commissioner for Refugees advised that at least 50% of the



455



$10 million of FY 1990 assistance should be used for bicoimnunal
activities. Since 1992, AID has required that all new funding
support activities are bicominunal in character. Health care
presents a particular target of opportunity for bicommunality,
based on shared needs and financial realities.

Our official definition of bicommunality was communicated to
the UNHCR in March 1990, and has been used as the standard for
decisions on the funding of bicommunal development proposals since
then. The subject of bicommunality if frequently discussed by the
Ambassador with Greek and Turkish Cypriot leaders and Red Cross
officials at both private Embassy conferences and public meetings.

QUESTION 3: I

/. .

What are the key bicommunal projects receiving US funding on

Cyprus today?

Have we added any new projects onto this list?

If so, could you please provide the Committee with a listing
of bicommunal projects receiving U.S. funding?

ANSWER 3:

The key projects are in the health, environment and urban
renewal sectors. Activities include construction and improvement
of health facilities, improvement of sewage treatment systems,
reforestation, pest control, and urban renewal in historic
neighborhoods in Nicosia.

For example, funding for the Cyprus Institute of Neurology and
Genetics and for rehabilitation of the handicapped have maintained
a high level of bicommunal cooperation between physicians from
both the Greek and Turkish Cypriot communities in the diagnosis of
diseases and physicians' training. Planning is underway to
construct and equip a multi-disciplinary medical services facility
that will provide cardiology, bone marrow transplant, and
psychiatric services on a single site that will serve both
communities. Joint activities in air and water pollution
monitoring and control have been supported, and a single set of
sewage treatment facilities has been constructed to serve all of
Nicosia, a city currently split by the buffer zone. Collaborative
pilot efforts to rehabilitate historic buildings in both parts of
the city have also been funded.

New projects developed include health, environment, urban
development and educational activities. The most important new
effort involves the expansion of Conflict Resolution skills
training, which AID tested on a pilot basis during a highly
successful May 1993 workshop for Greek and Cypriot scholarship
students in the United States. Next year, we are planning to
provide this type of negotiation and mediation training to



456



biconununal leaders, and alumni of the scholarship program and
their families in Cyprus, and this will become an annual part of