the scholarship program in the future. Management training will
also be offered in Cyprus by U.S. trainers, for the first time,
during the coming year.
Examples of activities are:
construction of the Institute of Neurology and Genetics;
medical expert exchange and lecture series;
transplant technology (lecture series);
rehabilitation program (training and equipment) ;
multi-disciplinary medical services (lecture series,
architectural plans) ; and
Nicosia Master Plan, sanitary facilities and urban renewal.
* Library Feasibility Study (Greek and Turkish Cypriot Experts,
to prepare basic concept; international experts to prepare the
study) ; and
management training (lectures and studies) .
* Workshops of the cooperative Society for Deaf Persons
(bicommunal workshop for the deaf) ; and
* conflict resolution training.
air/sea pollution measurement and equipment, pest control and
Agriculture and Forestry
â€” soil analysis for farmers, veterinary services, crop seminars,
tree planting and forest f iref ighting.
(* = New Bicommunal Projects)
How much money was in the pipeline for the scholarship program
entering Fiscal Year 1993?
â€” How far into the future will that pipeline provide
Is the scholarship program still sending close to 70 students
a year to the United States?
â€” Of the Cypriots who have received scholarship awards since the
program started in 1981, how many students have not returned
At the start of FY 1993, $17 million was in the pipeline for
graduate and undergraduate scholarships and short-term training.
The current pipeline will fund scholarship training initiated from
1990 through 1993. These degree programs will end in the spring
of 1994 through 1997 respectively. Short-term training in 1993
and 1994 will also be funded by this pipeline.
At present, 65 graduate and undergraduate students are
studying in the United States under the program. Approximately 70
new students will begin training during 1993. In 1992, there were
approximately 43 short-term students; approximately the same
number are expected in 1993-94.
Due to the duration of the scholarship program (initiated in
1981) , it is difficult to identify the present location of all
alumni. Virtually 100% of the students return to Cyprus upon
completion of their program; some, however, may leave Cyprus at a
later date for more training and/or job opportunities.
In the past, AID has a ceiling of $7500 a year on a tuition
grant for a Cypriot student studying in the U.S.
Does that ceiling still exist for this program on Cyprus?
At present, the AID tuition grant ceiling for all
participants, worldwide, is $10,000 per year. We feel that amount
is sufficient for the Cyprus program.
IV. INTERNATIONAL FUND FOR IRELAND AND NORTHERN IRELAND
For a number of years now, the Committee has expressed
interest in having AID study the feasibility and practicality of
an endowment fund for Ireland to which the United States and other
donors would contribute which could allow the Fund to use annual
interest income for projects.
Is there any interest in the Administration in such a
How do you envision the IFI?
Wouldn't such an endowment, similar to the Portuguese
Luso-American Foundation, for example, help insure long-term
funding and enable the United States to get out of the
business of making annual appropriations for this activity?
AID has not pursued the concept of an endowment for several
reasons. First, in order to maintain the International Fund for
Ireland's (IFI) current level of activity, a substantial up front
appropriation would have to be made, given current and projected
interest rates. With other pressing foreign assistance needs and
limitations on overall U.S. foreign assistance resources, such a
substantial up front appropriation would not be feasible. Second,
if the current level of appropriation was to be largely used to
create an endowment, there would be a sharp reduction in the
projects that the IFI could undertake now. With discussions among
the competing parties now in progress, we believe it is important
to maximize the use of current appropriations rather than to hold
their benefits in reserve until an endowment could generate
adequate income. Third, we view the IFI as a temporary facility
to catalyze and support other political and social initiatives
aimed at permanent reconciliation among the communities.
The IFI is a non-partisan, bicommunal venture to promote and
support grassroots efforts to reconcile the different communities
in Northern Ireland and the bordering counties in the Republic of
Ireland. The IFI's principal effort should be directed at
reducing the economic hardships of unemployment and community
environmental neglect, which abet differences and prejudices
exhibited along religious lines. The IFI appears to be quite
successful in helping to organize bicommunal community
organizations which, in partnership with the IFI, access and
obtain additional resources from government and private sources.
We do not envision the IFI as a permanent organization. Rather,
we hope indigenous private organizations emerge to continue this
type of activity if needed.
The IFI, as presently structured with an independent Board of
Directors, functions essentially as a foundation. It is important
to maximize the activities of the IFI, subject to the current
limitations on the U.S. foreign assistance budget. In addition,
we view the IFI as a temporary facility to catalyze and support
other political and social initiatives aimed at permanent
reconciliation among the communities.
How many jobs have Fund projects created to date?
How many of these have been temporary jobs, and how many
How many of the new jobs created to date have been in the
areas of highest unemployment?
The Fund estimates that more than 26,257 jobs have been
created since the establishment of the Fund. There have been
17,963 permanent jobs created and approximately 8,294 person-years
of temporary employment. Approximately 2,157 permanent jobs have
been created in the areas of highest unemployment. In addition,
the Fund has created approximately 1,389 person-years of temporary
employment in these disadvantageous areas, mainly construction
What is the value of total funding provided to the Fund by all
contributors to date?
How much of this money has been expended?
What is the breakdown by project area?
Of the money not yet expended, how much has been committed
What is the breakdown by project area?
Are you satisfied with the Fund's record to date?
Contributions to date total approximately $271 million as
United States $170.0 million*
European Community $100.0 million
New Zealand $ .3 million
Canada $ .5 million
TOTAL : $270.8 million
* U.S. will contribute in 1993 another $39.4 million remaining
from FY 1992 and FY 1993 appropriations, following necessary
The Fund has disbursed approximately $182 million for on-going
and completed projects, including $25 million given to two
investment companies to re-allocate. One hundred percent of the
remaining $102 million have been committed to projects.
The Fund directly undertakes projects in 10 different theme
areas, plus projects through intermediary investment companies,
and we have the following data on its performance through
September 30, 1992, the end of its last fiscal year.
Experimental community relations projects have received $2.5
million of the $3.5 million committed for this purpose. Under a
special initiative for disadvantaged areas affected by civil
unrest and urban decay, the Fund has disbursed $11 million of the
$42 million committed for activities. Other urban development
activities, principally commercial regeneration of town centers,
have received $19 million of the $41 million committed for
Of $10 million committed for innovative agriculture and
fisheries projects, $6 million has been disbursed. Science and
technology projects that stimulate research and product
development have received $12 million of the $17 million committed
for this purpose.
The Fund has disbursed all of the $21 million committed for
vocational training of youth, and $37 million has also been
disbursed against commitments of $48 million for small business
development. Dundalk and Belfast investment companies have
received $24 million of the $29 million committed for their
redisbursement as venture capital for enterprise start-up and
There are two major "flagship" projects, one for the
Erne-Shannon navigation link, and one for archeology/tourism
development of the ancient capital of Ulster; the Fund has
disbursed $7 million of the $10 million committed for these
purposes. Other efforts to promote to promote tourism have
received $34 million of the $52 million in commitments. Other
special projects have received $8 million out of $10 million in
The Administration is satisfied with the Fund's performance.
Since its establishment in 1986, the Fund has approved at least
2,800 projects totalling over $284 million for activities that are
being implemented by government agencies and the private sector.
In recent years, the Fund has sought to shift its priorities
to the most under developed areas of Northern Ireland.
How successful has the Fund been in this area?
How much money was used in the most disadvantaged areas in
calendar year 1992?
How much does the Fund plan to target to such projects in 199 3
The Fund has recently increased resources for the more
disadvantaged areas of Northern Ireland. This year, 70% to 80% of
the resources available are earmarked for program sectors in
According to the Fund's 1992 Annual Report, $83.3 million were
used in this sector.
The Fund plans to continue progress in reaching out to the
disadvantaged areas. Seventy to 80% of resources available are
earmarked for programs in these areas. Four additional program
schemes have been developed. The Community Economic Regeneration
focuses on community driven regeneration of economic activity in
urban areas. Community relations projects are designed to promote
reconciliation. Disadvantaged Areas Special projects target areas
of civil unrest and urban decay. The Community Regeneration and
Improvement Special Program (CRISP) designates disadvantaged areas
in Northern Ireland as a focus for the Fund's investments in
smaller towns and villages.
Honcarian-American Enterprise Fund
lÂ«20 CvC Stmcct. N W
Wasmington. O C 2000e .
alCxanoch C tomcinSOn
AMO CMicr ciccuTivc o^riccM
April 2, 1993
The Honorable David R. Obey
Chainnan. Subcommittee on Foreign Operations
Committee on Approphaiions
2462 Raybum House Office Bldg.
Washington. D.C 20515
Dear Mr. Chainnan:
Having in mind that you are leaving today for an important trip to Poland and
the former Soviet Union, I would like to respond in a preliminary way to a brief
message received last night from AID. as your "messenger". 1 understand the
transcript of your remarks will not be available for another day or sa
I am enclosing a memorandum describing the purposes of the Fund in
financing the establishment of a financial and investment services firm to which it
could have access. Your staff previously received an earlier version. As it notes, the
intention of the Fund to establish "an investment/merchant banking operation" was
stated in the Ftmd's original Management Plan, submitted to your ofRce and to A.LD.
in 1990. In our consideration of the EurAmerica deal it was never seen as a
"restructurine" of the Fund, but oniv as an imix>nant investment made to provide seed
capital for much needed financial services. As you may know, the banking system in
Hungary is still not privatized and the lack of loan credit^vestment capital is limidng
the emerging private sector. We have never thought of the deal as hiring EurAmerica
to make our investment decisions, nor have its principals participated in any way in
doing so. Conversely, I have reviewed their client project list, and have found hardly
any that would be a logical undertaking for the Fund itself the two address qmie
Furthermore, evasion of a perfectly understandable salary limitaiioa on our own
organization (about which we have never complained) was not a consideratioo. If it
had been so, I suppose I might have asked to stan with myself. In fact, 1 serve as
Chairman of EurAmerica without pay, my purpose being to assure acceptable ethical
and quality standards, proiea the Fund's invesmient and occasiooally assist in
obtaining business. Fund represenutives also serve on the Boards of many of the
other companies in which we invcsL The salancs paid by Eur.\merica are the market
ra:es for persons of their cxpcncnce and abilirv- in invcscmen: ba-iJong. In any case
Â±e salaries are pa:d not from the Funds capital LTvcstmcr.t but from crrunes
Â£er.sr3tcd. Lt that \^av i: is diffcrrn: froT. some of l^c othc.- cc~zir.::i ^f^c r.ive
invested in, where one or more senior executives make very substantial salaries (in the
EurAmerica case only two are anywhere near the reported range); our primary conceni
as hard-nosed investors is, as I believe it should be, whether the companies' actual or
andcipated earnings jusdfy the salaries and provide an adequate investment return.
EurAmerica was seen by the Fund's Board and management as an investment
which would give us access to skills not otherwise available to us in Budapest, where
the necessary compensadon levels involved would be earned by the principals through
their own effons. Our capital investment ($4 million, the least deemed necessary and
the most deemed appropriate for us) was intended to (1) give EurAmerica credibility
in the financial community it sought to enter, (2) cover temporarily the andcipated
inioal stan-up costs and (3), after achieving profitability, use its capital to purchase
companies being privadzed, restructure them and subsequendy market them to others
(possibly, but not necessarily, including the Fund), i.e. a merchant banking operaxioo,
something it would not be appropriate for the Fund to undertake in-house. Like our
other investments, the agreement includes an exit strategy, through the transfer of
ownership to the principals over time. EurAmerica will in due course require more
capital, and they will go to other sources than the Fund; the EBRD has already
expressed an interest in such an investment and will depend primarily on our
oversight In the meantime, die EBRD has shown its coofidence in the project by
offering EurAmerica SIO million to invest for EBRD in deals it works on, without
specific approval for each by EBRD.
I understand the quesdon has been raised as to whether there was a need for
such an organizanon as EurAmerica in Budapest This, of course, has to be a matter
of judgment; based on our experience in Hungary and knowledge of the then available
services, we believe diere was (and is) this need. The immediate success of the
organizadon after its establishment also is a measure of need. Recendy the ten
leading entrepreneurs in Hungary, who had joined together to try to purchase (widi
their own funds) a company being privadzed, retained EurAmerica to handle the entire
transaction for them - about their ISth client and surely the ultimate verificanon thai a
need in Hungary is being met I might add that the quoted badinage in the New
Republic arncle about woridwide acdvity should be understood as indicating that their
reputation, not their acrivitv. has extended already well beyond their assigned territory
because of the quality of their work. Ultimately, we believe that Budapen has the
potential to become a major financial center for Eastern Europe, and this is one smaD
step in that direction.
I hope the foregoing rr.ay clear up ihe e%icJer.t misi-dir^undijigs created by
this amcle. I care Ner\- much about the success of -jie Fu.nG. xj'ji in us contnbunon to
ihe r-insidon in H-j.-.2a-'%' a.".d as a nc* a.-:d \er\ ;:'f;crvc M'T:.i.i for U.S. foreign
assistance to countries attempting the transition to a market economy. If the
Enterprise Funds arc to be subjected to second guessing on steps seen by their Boards
of Dirccton and management to be within their mandate, as I firmly beUeve this one
to have been, then it may become impossible to evaluate the merits of the basic
concept of the Funds, i.e. if you want to help develop private enterprise in these
countries, use the private sector to do iu
I very much regret that a sensationalized magazine anick full of inaccuncks,
innuendos. and off-hand comments taken out of cooiext, could have led to a
misunderstanding of one of our investments. Needless to say. I also very much regret
the quotes uncomplimentary to A.IJ). amibuted to HAEF individuals, including (in the
fuller version published in Budapest) myself. Much of the work of A.LD. is excellent,
and I assume Congress agrees. I worked closely with A.LD., also very largely on a
personal pro bono basis, for about five yean prior to accepting my present poddoo,
and I believe there has been real muuai rcspea and cooperanoo during thai period
and indeed to this day. We have felt since the inceptioa of die Fund thai iMgimiim
openness to the press was imponant to assure the widest knowledge of the availability
of the resources of the Fund for the benefit of Hungary. This is the fim bad stocy we
have suffered in three years, but I have to note it is not without piecedent in the
experience of others.
I am also concerned that you feel you may have been somehow blind-sided
with regard to the EurAmerica matter. We try to keep all of our consotuencies
informal, and the press release announcing EurAmerica was seat widely, followed
closely by our Six Months Review whidi also covered the subjea and was mailed or
delivered in June, 1992. Addidonal treatment of the investment figured prominemly in
our Third Annual Repon published in January. 1993. [Because of the pioneering
nature of our work, we try to include in our aimual repons what we hope are useful
details as to what we are doing, and we have been told our lepons are models of
clarity.J None of the above-menooned coverage of EurAmerica gave rise to any
quesdons until reports of the New Republic article fim drculaied. I had hoped to
have the opportunity to review the year with you in person before now. Needless to
say, I would be happy to sit down widi you on your return to discuss further any
aspea of this matter or other developments.
It is important for you to know now that the Fund is ai a cridcal stage and
cannot be deprived of funding for very long without disastrous results. We are, I
believe, the only one of the four Enterprise Funds which andcipates exhaustion of this
year's allocated fu.nding (complecne our total S60 million u.ider '^.t SEED Ac: plus
S5 millior. :or technicii assistance: before our fiscal year tnÂ± Members of cur staff
ire al-:a*v u.-.eisv about Â±6 f-r.JT o: Lhej- 'obs. Cish i.-. \ir.i as I v^r.:; :s a^our
SI. 5 million. Our present focus is very strongly on various avenues toward obtaining
outside funds, however, and depending on how long they take until closing we may
â– We are about to offer a "side-by-side" mvestmem fund to banks and other
financial insniutions in Hungary, which will be sold on the basis that the Fund
will be around for five years (or more) to manage it Negodadons with the
Nadonal Bank of Hungary have obtained a number of agreements to implement
the plan, which will represent a number of firsts for Hungary, and contribute
significandy to the development of the capital maiitcL
â– We are in the midst of due diligence together widi EBRD lootdng to the
purchase by each of us of 2S% ownership interests in a small but strong
Hungarian bank, at a cost to each of about $4 J million which will effecnvely
result in the privatizadon of the bank. We are developing elaborate plans to
use it as a basis for obtaining preferred access to the $100 million credit by
The Expon-Impon Bank of Japan to the Hungarian Government to provide
medium term loans to small and medium-sized businesses through Hungarian
banks which lack any experience with such loans. This wiU put us back in the
business of loans to such enterprises, hopefuUy in a bigger way, now that the
SS million we allocated to it is fully loaned out Experience has shown that
significant technical assistance for training will have to be provided. We hope
the closing will be in May, since the need is urgent
â– We are initiating work on a major side-by-side fund to be offered to U.S.
pension funds and intemadonally, along lines similar to that sold by the Polish-
American Enterprise Fund, although hopefuUy without any cash contribudon by
the Fund. This was deferred while the Polish Fund completed its own, to
avoid compednon in the market; it is now urgeoL
I would be glad to discuss these particular projects wid> you at any time.
Very truly youn.
Alexander C. Tomlinson
HUNGARIAN-AMERICAN ENTERPRISE FUND
Purposes of the Fund in Financing Establishment of
EurAmerica Capital Coqwration
April 2, 1993 (Revised)
The need for a financial and investment services organizadon to which the
Fund would have access was recognized at the time HAEF commenced operations.
Attached is the relevant section of the Fund's Management Plan, as ^jproved by the
Fund's Board of Directors and submitted to the Agency for Intemaiional Development
and to the Foreign Operadons Subcommittees of the Appropriations Committees
before release of initial fimding in 1990. It is understood the Polish-American
Enterprise's Fund Management Plan included a similar concept Because of HAEFs
public identificadon with the U.S. Government, we felt it was necessary to have initial
control of such an endty to assure that it would operate at the highest ethical and
Prior to the establishment of EurAmerica in May, 1992, we had considered and
rejected two proposals for the creadon of a financial services/merchant banking
operanon. In the far more attracnve EurAmerica proposal offered to us there were
three (now four) principals (including one Hungarian) who were all from one leading
U.S.-based intemadonal investment banking firm and had dcme a considerable amount
of business in Hungary and elsewhere in Eastern Europe. Only oac had already left
the firm; all expected compensation equal to what they were leaving behind and very
likely would not otherwise have left their previous posidons. This was pardculariy
understandable because they brought existing relaoonships (suggesting eariy revenues)
with a variety of clients. The risk we insisted they take was that if they did not
produce a profit for us in the first year their compensadon would be halved in the next
year (or similarly in the case of a loss in any subsequent year).
Following are the purposes for the establishment of EurAmerica, as seeti by
HAEF management at the time based on its first two years of experience. The need
for such an tKganizadon remained evident; additional benefits had become evident:
1. To obtain access to experienced persons with investment banking skills,
who would generate their own salaries.
2. To make an attractive investment return.
3. To help develop the Hur.ear.an capital markets. The Fund's abiiir>- to divest
>uccissri;l i.-AcsnTients depends in considerable measure on the development of
â– r2j-.k:n2 ir.a. &.i r.xk exchaiiEe. is docs i^.c srowth of small busmess. We believe
that EurAmcrica will be able to contribute significantly to the development of the
nascent Budapest Stock Exchange.
4. To attract to Hungary highly professional investment banking skills not
otherwise available to the Fund or other potential Hungarian clients, and to
demonstrate the investment attractiveness of a high-quality Budapest- based financial
5. To raise equity capital for Hungarian companies in general and specifically
for companies in which the Fund wishes to invest
6. To train (and motivate) outstanding young people (including the Fund's own
personnel) in investment/financial type skills. It is to be expected thai EurAmcrica