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USAID and the Polish Decade
1989
- 1999
The narrative section of this USAID/Poland close-out
publication is shown below. The publication further includes a
timeline providing a month-by-month view
of the major events of Poland's transition and the USAID assistance
program, as well as a collection of local views
- interviews and local reports. And there is also a summary list of
projects (including approximate funding levels).
This report is produced by the United
States Agency for International Development, an agency for the United
States Government. USAID was created in 1961 to implement U.S. foreign
assistance throughout the world.
Research by June Lavelle
This publication could not have been
reported or written without the attention and care of the USAID Poland
Mission, in particular: Tim Bertotti, Scott Dobberstein, William Frej,
Howard Handler, Stephen Horn, Maryla Jakubowicz, Krzysztof Janiak, Krzysztof
Jaszczolt, Joanna Kaminska, Mikolaj Lepkowski, Pawel Krzeczunowicz,
Michael Lee, Nina Majer, Barbara Matusewicz-Protas and Tomasz Potkanski
Table of Contents
PROLOGUE
"Could Poland have done what they did without Western assistance?"
asks Zbigniew Brzezinski, Polish-born national security adviser under
President Jimmy Carter and author. "I’d have to say no."
Explaining success is always elusive: It has many authors while failures
are orphans, the saying goes. Poland’s transformation happened
because of the Polish people. Yet Western donors supported the process,
and USAID definitely assisted Poland’s take off. When communism
collapsed, USAID was among the first donors to hit the ground with significant
assistance to accelerate Poland’s transformation from a Soviet-Bloc
country to a new democracy. This close-out publication is a testament
to USAID’s decade of involvement and the legacies it left behind.
For all the institutions the agency established, from the Polish-American
Enterprise Fund to dozens of NGOs, and the laws and regulatory bodies
it contributed to, those who have benefited say that the most formidable
legacy is in Poland’s people, and how the assistance helped individuals
think creatively and boldly. USAID’s investment in education was
massive, from technical assistance to the establishment of business
schools, schools of public administration and centers for community
organizing. USAID sent 2,600 people to the United States for training
and study tours, and sent hundreds more to "third countries"—in
Central and South America and all over Europe.
In 1989, Poland suffered from hyperinflation and a shortage of basic
products, a currency that could not be converted and an inefficient
economy with subsidies amounting to 15 percent of the gross national
product. Poland’s housing sector had no private or legal infrastructure
and a stock of housing well below Western European standards. All governmental
services were centralized, but that system had broken down and social
benefits were deteriorating, the regulatory framework and financial
infrastructure were weak. There was a lack of trained entrepreneurs
with adequate access to credit and more generally an industrial sector
incapable of adapting to the new conditions of a market economy.
The very severity of the situation was in a way a blessing, as it demanded
a radical approach. The "shock therapy" program applied in
late 1989 resulted in the dismantling of most central economic planning
mechanisms and the introduction of a market economy. The effects were
dramatic. Liberalization of prices allowed them to rise in response
to market forces, during a period of corrective inflation, and to find
their own level. As a result, inflation fell from 685 percent in 1990
to 43 percent in 1992, reaching 8.7 percent in October 1999. Virtually
all government subsidies were eliminated. A new currency law ended the
previous artificial official exchange rate for the zloty and full domestic
convertibility within an exchange rate band set by the National Bank
of Poland was introduced. Foreign trade transactions were liberalized
and trading monopolies abolished, initiating a considerable rise both
in exports and imports. In 1997, Poland registered the highest growth
rate in Central and Eastern Europe with GDP growing 6.8 percent.
The introduction of reforms brought results: Production levels rose
supported by export growth and increased domestic consumption; hyperinflation
was gradually brought under control; the zloty regained its monetary
function and foreign currency reserves were established; with the exception
of a limited number of goods, prices were liberated; the command economy
was replaced by a broad, balanced market economy; agreements were reached
with foreign state and commercial creditors; and privatization programs
and foreign investments reduced the dependence of the economy on the
public sector. The private sector now employs over 60 percent of Poland’s
labor force and produces more than half of its GDP.
Poland continues successfully to evolve toward economic modernization.
Although the Polish economy entered the 1990s as one of the weakest
in Central and Eastern Europe (CEE), it enters the new millennium as
one of the strongest. Ten years after its transformation to a democratic,
free-market country, Poland stands out as one of the most successful
and open transition economies in CEE. The European Bank for Reconstruction
and Development (EBRD) in late 1998 rated Poland and Hungary as the
two countries most advanced in the transition process. Most important,
however, the country has not rested on its laurels of its earlier bold
reforms. In 1999, the Polish government launched several large structural
reform programs in education, pensions and health care and introduced
a new system of local government.
USAID assistance has contributed significantly to the Polish success
story. Using funds from the Support for East European Democracy (SEED)
Act of 1989, USAID initiated office operations in Poland in 1990. USAID’s
objective was to partner with Poland to achieve the double transition
from a centrally planned economy to a private-sector led competitive
economy and from a society ruled by a single-party political structure
to a vibrant participatory democracy. The program focused on: 1) Development
of a strong market economy and private sector; 2) development and strengthening
of the institutions necessary for sustainable democracy; and 3) improvement
of the basic quality of life in selected areas. From 1989 to 1990, USAID
assistance was predominantly focused on humanitarian assistance and
stabilization programs, and far less on the transformation and development
of an adequate institutional and legislative framework. This was considered
by the Government of Poland (GOP) to be the first phase of assistance,
and it was called "fast emergency aid."
The second phase of assistance addressed the process of transforming
the economy and the social-political system. Poles credit the U.S. government
with significant contributions to the country now known as the corporate
capital of Central Europe, the tiger of transformation and the geopolitical
gateway to the East: Over the past ten years, USAID assistance in debt
restructuring, financing the Polish-American Enterprise Fund (PAEF),
as well as bank privatization and supervision, helped pull Poland out
of recession and transform key financial structures. Since 1995, USAID
support has helped stimulate the private sector through assistance to
improve the viability of small and medium-sized enterprises (SMEs) and
business development. USAID has contributed to energy saving technologies
and legal, regulatory and judicial reform to foster competition and
to create what has become one of the most attractive private sectors
in the region. Assistance was also provided to the financial sector,
highlighted by increasing liberalization and investment in the banking
sector, high levels of accountability, growing professionalism, and
strengthened supervisory structures for banking, insurance and capital
markets based on global standards of transparency.
Assistance has been provided to a competitive pension fund system that
contributes to the deepening of Poland’s capital markets and long-term
fiscal stability. USAID assistance strengthened financial services,
including: businesses and municipal credit ratings; licensed warehousing;
banking associations; housing finance; credit unions; municipal bond
markets; and cooperative banking. USAID-funded assistance was also directed
at strengthening the SME environment, enabling the sector to generate
employment, absorb labor from restructured large-scale enterprises,
and contributing significantly to the expansion of the entrepreneurial
middle class. USAID support in deregulation, institutional development,
information systems and tariff setting has created an effective energy
regulatory environment. Finally, in support of extensive fiscal and
political decentralization reforms, USAID directed assistance to local
governments to improve resource management to meet citizens’ needs
while developing and strengthening a network of support organizations.
The above activities have been supplemented over the years by a number
of special initiatives in collaboration with other U.S. government (USG)
agencies: environmental protection (Environmental Protection Agency,
EPA); redeployment of redundant mine workers (Department of Labor, DOL);
modernizing the criminal justice system (Department of Justice, DOJ);
and tax administration (Treasury Department). Again examples of the
effectiveness and sustainability of the USAID-Polish development assistance
partnership abound. The DOL project will leave in place a sustainable
structure to assist workers, enterprises and communities to adapt to
economic restructuring. The Department of Energy’s Krakow Low Emissions
project has eliminated 90 percent of the city’s low emission sources.USAID
support to the Warsaw School of Economics has left in place a sustainable
dual-degree MBA program and a cooperation agreement between that school
and the University of Minnesota, assuring program sustainability. USAID
assistance supported the Government of Poland’s efforts to implement
reforms in local government, education and infrastructure finance including
a draft Local Government Finance Act. Fifty local governments have implemented
model participatory processes in preparing budgets, long-term investment
and economic development plans or housing strategies during the past
year, and seventy-four local governments received assistance to strengthen
their management and improve service delivery. The Agency has also played
a dominant role in introducing Poles to the cultures of volunteerism,
grant giving, and philanthropy, many visionaries said.
As part of its close out strategy, USAID has encouraged Poland, now
a member of NATO and on the fast track for European Union (EU) accession,
to assist its neighboring countries in their development. Poland has
become a role model for other transition counties. With USAID support,
trilateral cooperation under the Poland-America-Ukraine-Cooperation
Initiative (PAUCI) will enable Ukrainian entrepreneurs to obtain training
and advice from Poland-based sources of expertise. The GOP is also conducting
its own foreign assistance program, focusing on neighboring countries
and facilitated through creation of the Polish Know-How Foundation (PKHF),
an organization USAID supports.
Poland’s graduation from USAID assistance does not mean that the
United States is ending its support to the country’s transformation
process. The ongoing cooperation of the legacy organizations mentioned
above, and participation in selected USAID regional projects managed
out of Washington, will ensure the continuation of USG collaboration
in future development activities.
The decision to close the USAID operation in Poland is fully consistent
with current U.S.-Polish relationships, which emphasize partnership
on a broad array of economic, political and security fronts. It is also
consistent with the objectives of the USAID program and a sovereign,
economically strong Poland which, as will be demonstrated throughout
this report, contributes to peace and stability throughout Central and
Eastern Europe.
While it is impossible in this publication to describe in detail each
of the more than 400 activities supported by USAID over the past eleven
years (at an approximate cost of one billion dollars), and their contributions
to facilitating Poland’s transition process to a democratic, open
market society, the information included in the following pages highlights
some of the most significant accomplishments of the U.S. assistance
program in Poland as seen through the eyes of those involved in one
of Europe’s most successful and dynamic development efforts. These
individuals—although sometimes separated by vast differences of
geography, culture and history—are firmly joined by the desire
to build a better future for the people of Poland.
The stories that follow in this report are varied, yet the themes are
the same: Dynamic, driven Poles, many imprisoned under communism for
their activism, became partners in the assistance program, and USAID
offered a generation of Poles new skills and ideas on how to approach
problems. Most of them are visionaries—government ministers and
judges, mayors and social activists, leaders in finance and social reform.
What follows are their stories in the grand sweep of the Polish Decade.
Back to Top ^
THE LAND OF PROMISE
Only four months into 1989, Poland’s communist leaders signed
the Round Table agreement with the Solidarity-led opposition.
The revolutionary accord, which allowed for the legalization of Solidarity,
a popular vote, and the creation of an independent media, was the first
hint that 1989 would be a year like no other since 1848, according to
the writer and historian Timothy Garton Ash.
Poland’s emergence from Communism over the next several months
was so smooth that most of the world did not understand until the cataclysmic
fall of the Berlin Wall in November that freedom was echoing throughout
Central and Eastern Europe, and a number of countries were transforming
themselves.
Washington had long been observing the precursors of these events,
from the Pope’s visit nudging Poles toward democracy in 1979 to
Lech Walesa scaling the walls of the Gdansk Shipyard, occupied by workers
in 1980, to the days of Martial Law from 1981 to 1983. Faced with grim
economic realities and fueled by glasnost in what was then the Soviet
Union, First Secretary Wojciech Jaruzelski opened negotiations with
Solidarity in 1988. It is startling now to recall that after the Round
Table accord, Jaruzelski, the architect of Martial Law, resigned from
his positions in the Communist Party, became president, and resigned
early. Walesa, the former shipyard organizer, would be elected to replace
him.
There was an urgent pace in the halls of the U.S. government, and everyone
was trying to answer at light speed the same questions: What do we know
about post-communist reform? How do we hit the ground running in Poland
and accelerate the pace of democracy? In July 1989, President George
Bush was in Poland announcing the assistance package while the development
officers in D.C. continued to hammer out the details.
During 1989, the U.S. Congress fashioned a document called the Support
For East European Democracy, or SEED Act. Passed with bipartisan support
over the Thanksgiving holiday, the law provided for critical assistance
to promote democracy and economic reforms throughout Central and Eastern
Europe. "From late November—when the SEED Act was passed—
through Christmas we were working night and day," said Donald Pressley.
"We had six weeks left in 1989 to develop a plan." Pressley
arrived in Poland as a temporary mission director for USAID in 1990,
before the arrival of Mission Director Bill Joslin, and again returned
in 1993 as mission director.
The idea of aid to Poland, and all of Central Europe, was seen as a
new Marshall Plan designed to revitalize post-Cold War Europe, but "reconstructing"
perceptions would prove a lot harder than the brick and mortar post-World
War II reconstruction of Western Europe. The first thing the U.S. wanted
to do in Poland was help lay the groundwork for a market economy. One
way to do that, considering the lumbering, state-owned giants that needed
to be privatized, was to help new businesses get started. The earliest
and most enduring effort would be the $254 million Polish-American Enterprise
Fund, a precedent-setting loan and investment program that has funneled
about $180-million into the follow-on Polish-American Freedom Foundation,
which will continue to provide broad based development assistance and
underpin democratic reforms.Many scholars and economists have tried
to answer the question, "Why was Poland so uniquely successful
in its transformation?" To fully understand the passion of the
early days in Poland’s transformation, one must at least glimpse
Polish history. Throughout the ages, whether fighting Tatars, Swedes,
Germans or Russians, the Poles have shown an indomitable spirit and
sense of nationhood. Even during the partition years, when Poland eventually
disappeared from the maps, the idea of the nation survived and was nourished
in the collective imagination. Poles had seen precious little independence
yet they could always taste it. And when 1989 arrived, tens of thousands
of Poles had very specific visions of democracy, civil society and a
market economy waiting to be realized. USAID quite possibly had its
most responsive host country ever. Throughout this text, there are stories
of heroes—mayors, activists, consultants, entrepreneurs, advocates,
researchers—who took the assistance and ran with it, creating strong
institutions where before there were none.
Back to Top ^
SUCCESS
AND SHOCK IN THE NEW POLAND
At the outset, there was widespread public support for the economic
policies of Leszek Balcerowicz, the new finance minister. The immediate
implementation of radical economic reforms Balcerowicz ushered in quickly
became known as "shock therapy". The main pillars were macroeconomic
stabilization, liberalizing the market place, privatization, reform
of the social safety net, and international assistance to implement
these reforms. Balcerowicz had a strong rapport with Western donors,
and he requested a small business credit program in late 1990: Soon
afterward, USAID’s $5-million Enterprise Credit Corporation offered
$2,000 to $3,000 loans to a new wave of entrepreneurs.
1990, however, was a tumultuous year: All price controls were eliminated
and subsidies, including food subsidies to families, were slashed. All
this was designed to control the hyperinflation that was killing the
economy. The zloty was devalued and foreign trade flourished. Harvard
University professor Jeffrey Sachs, who assisted Balcerowicz in this
now-famous design, recalled those first days in a lecture:"The
average price level jumped by 80 percent in the first two weeks of January.
It was a gut-wrenching experience for the public and reformers alike.
I was very confident that price explosion would soon end, but it was
frightening to watch nonetheless. Would panic set in, would a rock be
thrown through a bakery window, setting off social unrest?"
The program was soon called "shock without therapy." Yet
a vital street trade—such as selling fresh fruit in the middle
of winter for the first time since 1939—had begun. Said Sachs:
"The blankets on which the food was placed in January became table
stands by March, covered awnings by May, wooden sheds by July, and electrified,
refrigerated kiosks by November."But despite the growth in business
start-ups and the deluge of consumer goods that filled once-empty shelves,
many Poles were hurting. In 1990, Solidarity leader Lech Walesa was
elected President and many hoped that he could stanch the suffering.
Balcerowicz, whose purity of purpose would only be understood by some
later in the decade, resigned in 1991. Many Poles blamed him for the
human cost of the reforms.
Back to Top ^
SHOWING
SUPPORT IN EVERY WAY POSSIBLE
It was decided in 1989 that USAID in Poland would be run primarily
by a task force in Washington, D.C. A handful of Americans at the U.S.
Embassy monitored the millions of dollars of assistance that was being
pumped into the country. "We thought then that the democracy was
very fragile and could easily roll back," said Donald Pressley,
who is currently the Assistant Administrator for the Europe and Eurasia
Bureau of USAID. "We thought it was important to show support in
every way possible. The idea was, just get in there."One of the
most significant and powerful forces in transforming Poland in the early
1990’s was the transition to a market economy and USAID clearly
played an integral part in early reforms. They include a now-exemplary
banking supervision model and general inspectorate for the National
Bank of Poland, improvements to the tax system, legislation, technical
assistance to the Warsaw Stock Exchange, housed, ironically in the old
Communist Party headquarters, and development of a Securities Commission—to
name a few."This work was a success," said Hanna Gronkiewicz-Waltz,
chairwoman of the National Bank of Poland and a longtime observer of
USAID. "We have the best banking supervision in Central and Eastern
Europe. Hundreds of inspectors were trained by the U.S. And the Polish-American
Enterprise Fund helped us develop small and medium enterprises quite
early with quite efficient investments."Those involved in the aid
process 10 years ago say there was not so much a plan of what to do
first as much as a recognition that a broad approach was essential,
and the results are formidable. USAID assisted in the development of
the banking system, housing finance, health, local government, non-governmental
organizations (NGOs), and legal and regulatory bodies, as well as the
private sector. Early projects also helped strengthen the trade union
movement with about $1.5 million of direct support for Solidarity, establishing
bureaus for consultation and negotiation in different regions to deal
with worker lay-offs.
The program responded to needs expressed by Poles across an incredibly
broad spectrum, and many of the results were exciting: USAID helped
Parliament develop its first library and research and analyses bureaus.
The Emergency Medical Supply Project was set up in 1990 to control deteriorating
health standards with coordinated efforts for treatable diseases like
influenza and pneumonia. The Water Supply Foundation helped build thousands
of miles of water pipes in rural areas for 40,000 households. The East
Central European Scholarship Program, administered by Georgetown University,
was established in 1990, providing training in the U.S. for thousands
of Polish democratic leaders in the areas of public policy, administration,
health reform, rural development, finance and banking, business administration
and education.
More than 185 agricultural experts were sent all over Poland to provide
technical assistance in fruit and vegetable processing, business management
and marketing. Armies of volunteers, from MBA graduates to retired business
people, arrived in Poland to help all over the emerging private sector.
Volunteerism was an unknown commodity behind the Iron Curtain. The
diversified efforts of money and technical support helped the process
of dismantling and decentralizing the communist dinosaur known as the
"old system," while the continuous flow of people exposed
Poles to new ways of working, with reverberations around the country.
In May 1991, the Opportunities Industrialization Center Poland Foundation
began, with USAID funding through the U.S. Department of Labor, to promote
entrepreneurship and economic development. By mid-1995, OIC Poland had
trained and provided advice to more than 9,000 people. Sixty percent
of the unemployed participants secured a job by the end of the program
and 80 percent of the unemployed women found jobs after the training.
By 1993, highly trained Poles were swiftly catching up to the Western
consultants in their skills and they deserved managerial roles inside
USAID and in the field. Poland was emerging as THE democracy and THE
economy of the region. It was time to hone U.S. activities and come
up with well-considered strategies.
As the transition process rapidly evolved, the mission could no longer
be run out of Washington, D.C.
In the mid-1990s, USAID began some internal changes to shore up its
own activities. Implementers had grown to 85 U.S.-based organizations
scattered across 1,500 locations all over Poland, yet the management
of the operations had been handled out of Washington. Mission Director
Donald Pressley arrived in 1993: "Part of what I was doing was
focusing on local government and civil society. We were moving from
macro to micro." Pressley (together with his successor, Suzanne
Olds) presided over a revamping of the USAID program to concentrate
on fewer areas, called strategic objectives, which were narrowed from
seven to three by the end of 1996: private sector development, financial
sector development (including housing finance) and effective and accountable
local government. USAID would give direct support to the government’s
encompassing social policy reforms at the end of the decade and use
Poland’s experience as an example for the region.
Close to the time of USAID’s internal re-engineering, an ambassadorial
decision was made in Warsaw by former U.S.Ambassador Nicholas Rey to
coordinate more closely with various donors. "We saved a lot of
money and made sure there was no replication of efforts between the
Western donors," Rey said. By 1995, USAID was generally viewed
as a mature operation with both feet on the ground and a significant,
strategic presence in Poland contributing to the country’s success.
By 1997, Poles would have more and more of a say over the direction
of the programs, and would rise within the ranks of projects and internally
at USAID.
Back to Top ^
POLES VOTE
THEIR SUFFERING
After the 1993 parliamentary elections when a left-wing coalition formed
a government, it was clear that Solidarity, the power elite of only
three years, had been handed a message. The interpretation of that message
changed from pundit to pundit. USAID and other foreign donors feared
the painstaking reforms, especially in the areas of decentralization
and fostering local government, might well be turned back.
But the rollback of reforms never happened. "By the time I arrived
in the spring of 1994, we no longer thought there was a pervasive problem
dealing with the government," said Nicholas Rey. "My overwhelming
impression, and I think that of everyone else at the U.S. Embassy, was
that [the post-communists] were bending over backwards to overcome their
history and were more cooperative with the U.S. than some people on
the right."In a key address to the Sejm, Poland’s Parliament,
in 1993, then-Democratic Left Alliance (SLD) party leader and now president
Aleksander Kwasniewski apologized to "all those—and some of
them are here in this Chamber—who suffered injustice and misdeeds
from the authorities and the system before 1989." Kwasniewski said
that the SLD wanted to "square past accounts." He said that
decentralization would continue, but other SLD officials said that reforms
needed to be slowed down. Thus, the early emphasis of USAID on emerging
local governments was deemed even more critical by the U.S. About the
same time, USAID also became deeply involved with municipalities and
housing policy assistance.
Back to Top ^
USAID GOES LOCAL
After the Local Government Act of 1990, The Foundation for the Support
of Local Democracy (FSLD)—headed by Prof. Jerzy Regulski, the father
of local government in Poland—rapidly became the leading institution
helping local governments learn their trade. In 1990, FSLD received
support from USAID through Rutgers University, helping to develop the
capacity of FSLD’s regional training centers and their core training
cadre. FSLD was encouraging mayors to share with other municipalities,
called gminas, what they had learned. Over a decade, FSLD has trained
and provided technical assistance to over 300,000 local government officials.
"USAID was very helpful in developing the capacity of Polish institutions,"
said Regulski. "You can’t underestimate the psychological
character of USAID’s support. It was crucial at the time to our
success. People were afraid; we had no experience but we had someone
assisting us."
After the left-wing coalition came to power, USAID was not certain
whether the new Government was going to continue decentralization reforms.
The Democratic Governance and Public Administration Project (DGPA),
a new $12.8 million USAID program, delayed starting assistance to Government
institutions, including placement of resident advisers with the Ministry
of Finance, till late 1996. At that time, it became clear that the left-wing
coalition, although unable to make political decisions on decentralization
reforms due to internal disagreements, had decided to continue analytical
work in this direction and allowed for important local experiments testing
future reforms.
Observing this process, USAID decided that a promising partnership
could be nurtured between local governments in Poland and the American
government itself – a relationship that endures today. With the
objective of supporting local democracy and decentralization reforms,
an agreement between the U.S. government and four local government associations
was signed in the spring of 1996. DGPA provided these four organizations:
Association of Polish Cities, Association of Rural Gminas, Union of
Polish Metropolises and Union of Small Polish Towns with a wide range
of support, from technical assistance, training, purchasing computers
and installing internet software to fund the associations’ own
analytical research on local government finance. Similar assistance,
although of smaller scale, was provided to the Association of Polish
Poviats, which was established in 1999. USAID’s objective was to
help these organizations more effectively represent their constituents.
The government of Nowy Sacz, located in the foothills of the Tatra
mountain borderlands with Slovakia, wanted to be a site of a great experiment.
DGPA in consultation with the Ministry of Finance and the Ministry of
the Interior and Administration, helped Nowy Sacz create a zone to provide
public services to test the idea of regional government, called poviat
in Polish. By late 1997, two other groupings of gminas created similar
zones in other parts of Poland. The experience from these pilot experiments—combined
with the decentralization policy agenda of the new post-Solidarity government
which came to power in late 1997—contributed to legislation that
created a system of self-governing poviats throughout Poland.
USAID was aware that citizen support in a democratic system begins
with their satisfaction at the way their own local government works.
With this in mind, USAID was providing assistance to individual cities,
aiming at increasing the effectiveness of local government, its professionalism
and its responsiveness to community needs. After 1990, gminas were saddled
with communist legacies like unusable water services, poor sanitation
and municipal housing stock in staggering states of disrepair. A new
approach to municipal management was needed to respond to all these
needs. And after over forty years of a centralized system, transparency
of decision-making and public participation needed to be revived. Responding
to these needs, from the early nineties, USAID advisers, working alongside
Polish consultants, helped many cities improve management of existing
financial resources and assets, access capital for investment, and encourage
involvement of the private sector in the provision of public services.
Over the course of the decade, USAID helped develop a number of modern
management tools that have already proved to be crucial for the success
of many gminas, for example Szczecin on the German border, Ostrow Wielkopolski,
a mid-size city in the center of Poland, Krakow, an historic capital
of Poland, and many others. These tools have ungainly titles like task-based
budgeting, capital improvement planning, credit worthiness analysis
and enterprise accounting. But they have contributed to the increasing
professionalism in managing dozens of gminas across Poland. The result
was more roads, water supply systems and improved waste-water treatment.
In 1997, USAID begun the Local Government Partnership Program (LGPP).
Today, LGPP, with a large group of Polish consulting firms, NGOs and
educational institutions, works with about 150 gminas in Poland and
supports their efforts to improve financial management, restructure
municipal services, prepare infrastructure projects for financing, prepare
economic development plans and increase citizen participation.
Task-based budgeting and capital investment planning and strategic
management may sound boring but they lead to very important changes
in decision-making. As explained in a press interview by Tomasz J. Kayser,
Deputy President of Poznan, the city, by developing its five-year investment
plan, adopted a new management style that led to more efficient and
effective planning of investment and its financing. He also mentioned
that with clear criteria for prioritizing investment the whole process
is more transparent and much less prone to political pressures. This
may not be liked by some of the politicians, but has helped rational
decision-making understood and accepted by citizens.
Other gminas see benefits in long-term investment planning as well
and Swiecie nad Osa is among them. A plan for 2000 to 2003 includes
such investments as a primary school, modernization of the existing
water supply system and local sports facilities.
The Mayor of Swiecie explained that the plan was very useful because
it included both a list of long-term investments and an accounting of
how they were going to be funded. Mayor Halina Kowalkowska also stressed
that this plan was developed in consultation with the local community
and that the involvement of the community in discussions on investment
priorities would become a standard when the plan is reviewed each year.
Swiecie nad Osa is among more than 50 gminas assisted by LGPP that
have already changed the way they do business and have successfully
included citizens in decision-making on budgets, investment priorities,
and economic development plans. In these gminas, citizens joined committees
or task forces, were surveyed about their priorities and needs, and
encouraged to participate in discussions during town hall meetings.
In Olecko, a gmina in northern Poland known for its cultural initiatives,
a local NGO was formed to participate in the economic planning process,
and will be also involved in monitoring how the plan is implemented.
In Spring 1999, after a strategic management-planning workshop with
LGPP consultants, the rural gmina of Zgierz made a decision to privatize
its village clinics. This was a response to a tough question that the
mayor was faced with: how to restructure six village health clinics
that were providing poor quality services and were nearly bankrupt.
A year later, the rural gmina of Zgierz was among the pioneers in the
successful privatization of primary health care services in Poland.
Others are learning from them. Within a year quality of health services
in the village clinics increased substantially while the gmina is no
longer subsidizing them. Finally, it was able to redirect saved resources
to other community priorities like education or infrastructure investments.
LGPP has also made a concerted effort to ensure that as many gminas
in Poland as possible know about these examples of good management practices
and innovation at the local level.
As an example, with a monthly insert into a weekly journal "Wspolnota"
LGPP reached nearly all 2,500 Polish gminas with such information. LGPP
or gminas that it worked with have appeared for almost a year on the
Monday morning TV show "Tea or Coffee" This program reaches
an audience of 1.5 million. More then 30 mayors have been interviewed,
speaking from experience about the benefits for gminas of introducing
task-based budgeting, long-term investment planing and the benefits
of increased citizen participation.
Energy is also a critical issue for local governments. Among about
14 successful USAID thermo-modernization demonstrations on public buildings
that have been completed under USAID energy efficiency projects, two
stand out for their social significance: the primary school in Krapkowice,
a Foundation for the Effective Utilization of Energy (FEWE) grantee,
and the Rehabilitation Center for Children in Gliwice. Because of the
school project, the whole community was mobilized to become more energy
conscious, and parents volunteered their time to help with simple carpentry
to save energy. The school has become a model for others on how to implement
a cost effective and energy efficient heat supply system.
The Rehabilitation Center also reduced its costs which is crucial to
its sustainability and therapeutic effectiveness—the exercise rooms
are warmer. As a result of the project, Gliwice Power Distribution Company
has started to provide pro-bono technical support to the center. Both
of these projects were implemented by local small businesses.
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A HOME OF THEIR OWN
Poles had relatively poor housing in 1989, and the stock had long since
stopped keeping up with demand; Poles frequently needed to wait up to
25 years to get a flat. When they did get one, it was heavily subsidized
or, for Communist Party members, free. The idea that a family might
have to pay market value for their home, in a still-unpredictable marketplace,
was a difficult concept. USAID faced more resistance and obstacles to
assist that transformation than in any other sector.
Landmark institutions in housing finance started to coalesce in 1993.
USAID had been working with other donors to capitalize a Mortgage Fund,
including a $10 million loan guarantee from the Agency. The Fund, which
became operational in 1994, was also bolstered by USAID technical assistance
to the bank managing the Fund, and later to the Housing Finance Project
Office, a Polish governmental agency.
Only a small number of loans were made by the Mortgage Fund. It did,
however, serve to demonstrate to banks that mortgage lending was practicable
and profitable, and it developed the initial public demand for unsubsidized
home loans. The fact that there is a burgeoning middle-class lending
market in Poland today, with 30 banks offering mortgages, is in large
part due to the Fund and to USAID’s education of so many Poles
on how mortgage lending works.
Since its arrival in Poland, USAID had a commitment to developing banks
as lending institutions, explaining the concept of mortgages and sowing
the seeds for affordable home ownership. USAID’s journey proved
to be a grueling road of policy development, training and infrastructure
work and, most significantly, changing the way people think through
widespread media initiatives.
Since the State had produced most of the urban housing under communism,
there was no such profession as a developer in 1990. Today, the word
"developer" has been subsumed into the Polish language much
like "internet" and "computer." In the following
years, under the USAID program, U.S. professional organizations, like
the National Association of Realtors and the U.S. National Association
of Homebuilders, provided major input in the establishment and strengthening
of Polish organizations of real estate brokers (1,500 members), appraisers
(3,000 members), builders and developers (over 1,500 members), and property
managers (over 800). In each case Polish partners were assisted not
only in organizing issues but supported also through introduction of
professional standards and comprehensive training programs.
Clearly, mortgage lending would not reach most Poles in this decade.
Interest rates were not yet low enough and incomes not yet high enough,
among other obstacles. For this reason, in the mid 1990s, USAID got
involved in the development of an effective social housing system at
both central and local government levels. U.S. experts contributed to
the design and implementation of laws on rents, housing allowances,
condominia, spatial planning and rental housing. Almost 100 Polish gminas
were assisted in various aspects of local level housing policy design
and implementation. The USAID program directly supported the construction
of over 1,700 affordable homes in democratically managed cooperatives,
and another 1,000 units under the social housing rental scheme.
Housing production output started to grow in 1996. According to some
estimates, the average annual growth in recent years is in the range
of 15 to 20 percent. By 1999, well over 100,000 mortgages had been issued.
Today, every third purchase of a newly constructed apartment will be
supported by a mortgage loan.
These achievements in the housing and housing finance sectors were
possible because of the major Polish successes in macro-economic reform,
marked by over four percent average annual growth in real wages and
significant decreases in inflation. However, housing growth would not
gear up until the huge task of restructuring the legal and financial
framework of this sector was completed. The reform was accompanied by
the difficult process of changing the thinking of Poles—that the
government by definition owes a home to every household.
"Foreign assistance can always do more," according to Zbigniew
Brzezinski. "But you can’t expect it to be a substitute for
government; it cannot carry water on its own. It can only spur or support."
Clearly, in the development of a housing finance sector, USAID was
finding ways to make its support count.
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POLAND’S
EMERGENCE
In 1995, Aleksander Kwasniewski won the presidential election. The
former junior minister in the last Communist government beat Solidarity
leader Lech Walesa. This time, though, donors and investors and officials
understood that the economy was humming along and that the "post-communists,"
many of them reformist, had no interest in reversing what worked. The
heated presidential runoff took the temperature of the investment community
and foreign investment continued to flow as Poland completed its fourth
year of growth. "We keep on investing and we’re still closing
deals," one investor told the New York Times in 1995.
Six years after shock therapy was announced, there was a lot of good
news in Poland. Foreign investment continued to pour in. Unemployment
fell to 13.5 percent by 1996 from a high of 16 percent in 1994. Real
pay, buying power and industrial production were rising rapidly. The
market for cars, televisions, furniture and appliances had also emerged
among everyday people, who were beginning to pay on credit. There was
bad news too, not the least of which was the apparent abandonment of
one of Balcerowicz’s stated pillars—the reform of the social
safety net. Privatization had become as politicized and lumbering as
the state-owned giants.
"The biggest lesson we learned in Poland," said Brzezinski,
"is that shock therapy can only be successful if it is pursued
relentlessly without turning back or dilution or de-fanging compromises."
Poland wasn’t without its problems, but by 1998, it would be considered
the economic engine and corporate capital of the region for several
reasons: the early shock therapy that Poles endured, early and continued
Western assistance over a decade, and foreign investment, which reached
more than $30 billion by 2000. In 1999 alone, there was $6.8 billion
in foreign investment and Poland projects there will be $12 billion
in the year 2000.
More significant than any other single component of Poland’s remarkable
success, according to analysts, is the renaissance of the Polish entrepreneur.
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BIG TREASURES
FROM SMALL GEMS
The Polish-American Enterprise Fund (PAEF), which by its nature assisted
small and medium sized businesses like computer stores and manufacturers,
was not set up to help Poland’s dressmakers, kiosk owners, bakers
and candlemakers. From the start, however, there were clues that Poles
without collateral—some of them scribbling handwritten notes in
Polish to the Fund in 1990—needed money for these very small businesses.
In 1995, PAEF established a microlending program called Fundusz Mikro,
committing $20 million; USAID added another $4 million. The highly successful
fund started out with four fundamental assumptions, according to Fundusz
Mikro director Witold Szwajkowski: "That we could give loans of
$1,000, and businesses would be happy with this amount. That people
are generally honest. That we could do this without collateral. And
that people would support each other."
Each of those assumptions has been borne out. Fundusz Mikro offers
lower interest loans to groups of people who guarantee each other, often
to buy merchandise for their businesses. If one member defaults, the
others have to pay the difference, and that’s the collateral. The
organization has issued 30,000 loans in five years, and 50 percent of
them are repeat loans to people who are expanding their businesses.
With 31 branch offices all over Poland, Fundusz Mikro has "created
a new profession," according to Szwajkowski. "When I took
over in 1997, there were already no foreigners in the operation.
All loan decisions are made by a Polish staff. It’s something
that PAEF has left behind in Poland."
USAID also worked with small and medium enterprises (SME) from the
early 1990s, providing technical assistance and training, as well as
grants and loans to all kinds of entrepreneurs. The Gemini project started
in 1992, offering advice to the government on how to strengthen its
advocacy role and deal with the constraints on available credit. By
1994, a foundation was set up with the Ministry of Industry and Trade
to help coordinate donor work with government support. Gemini and the
foundation worked closely on a number of USAID projects including developing
SME policy, passing a market-oriented law on economic activity and helping
to establish the Parliamentary SME Committee.
By the end of 1996, USAID had moved away from the approach of helping
individual SME firms and instead gave broader assistance at a higher
level. The Firma 2000 project was established by USAID to help develop
Business Support Organizations (BSOs) to offer assistance to SMEs and
help them grow and expand. More than 20 of Firma 2000’s 30 BSOs
around the country are profitable and sustainable now that the project
is over, but that isn’t the project’s only legacy. Firma 2000
recently began its reincarnation as a for-profit consulting firm staffed
by Poles. It joins a number of legacy organization that have stemmed
from successful projects, including Gemini’s successor UNILOB;
LEM, a sustainable firm that sprung from the Local Environmental Management
Project; and the Academy for the Development of Philanthropy in Poland,
which grew out of the Democracy Network Project, among many others.
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INCUBATING
PEOPLE AND NGOs
When Poles interested in volunteerism traveled to the U.S. in the early
1990s, at the invitation of USAID, they were excited by the humanitarian
activities of non-government organizations in that country. "If
we ever tried to do something on our own," one organizer recalled,
"the government took down our names." Forty years of suppression
and suspicion had to give way to citizen participation in democracy.
But how to foster it with such fresh wounds? Through the work of thousands
of dedicated Poles, NGOs went from virtually zero to 35,000 in ten years,
according to Jakub Wygnanski of the Association for The Forum of Non-Governmental
Initiatives. Wygnanski, an activist since his student days when he coordinated
the Flying University during Martial Law, and an institution in the
NGO movement, has several times been a beneficiary of USAID.
USAID has been a catalyst in the NGO effort, Wygnanski said. "USAID
was a good training path for all of us, and it has made for healthier,
flexible, better NGOs. USAID provided a new culture of grant giving,"
he continued, "and a whole new concept of transparent funding,
and widespread accessibility to grants and technical support."
In 1995, the Democracy Network Project (DemNet), was set up by USAID
to strengthen the NGO sector through grants, training and technical
assistance. DemNet worked with foundations and associations all over
the country, from Warsaw to Zelow to the small gmina of Sokolka, which
managed against the odds to create and sustain its own NGO. Whether
one travels to the dusty middle of Poland, or to the harsh beauty of
the Belarussian border, one can see DemNet’s social contribution
through the work of NGOs.
Today, 25 percent of Poles are involved with an NGO, while 7 percent
are in a trade union, and membership in political parties is too low
to be measurable, according to Wygnanski, who meets visitors in a building
on Ulica Szpitalna, in the room where Solidarity had its first meetings.
It is now chock full of NGOs, many of whom have had help from USAID.
Most of the recipients spoken to for this review believe USAID’s
best investment was in the Polish people, skilled leaders who have learned
through education, study trips, training and experience how to lead
other Poles toward democracy and civil society. They have also learned
to ask for the right kind of assistance.
A range of Poles say they benefited from study in the U.S., from Miroslaw
Kruszynski, the mayor of Ostrow Wielkopolski, to Krzysztof Pietraszkiewicz,
director general of the Polish Bank Association.
"My personal impression is that one of the most important elements
of U.S. assistance was the training of several thousands of professionals
in the U.S.," said USAID local government specialist Tomasz Potkanski.
"All these people now play key management roles on different sides
of the political barricades. They were the best investment in the stability
and continued reform of the country regardless of changing governments."
"Before I was a reformer, I thought there was no space for me
in professional life," said former Szczecin city councilor Janusz
Szewczuk. It almost sounds disingenuous coming from a political insider
who is still heavily involved with Szczecin’s development as a
consultant for USAID’s LGPP. But he clearly believes that USAID
programs provided direction for an entire generation of Poles, and that
its best work has been in "incubating people".
His home, Szczecin, is a city of displaced Poles who moved there after
World War II. They were low-skilled, often without families. It is strangely
a place with too much and not enough history. Perhaps it was the perfect
place for USAID to take root. Szczecin’s success in creating professional,
transparent and customer-friendly local government—seen most obviously
in its gleaming, crisp one-stop customer service center in the heart
of City Hall—can also be attributed to USAID programs, from FSLD
to LGPP. The School of Public Administration in the city trains people
to work in local government and generates research on what Poland’s
gminas and poviats need. And today Szczecin is bustling with a harvest
of leaders like Szewczuk who are changing this border city’s image.
The other way USAID has "incubated" Poles is through education.
The Warsaw Journalism Center, a USAID project, educated hundreds of
Polish journalists in the tradition of a free press. USAID helped establish
schools of Public Administration like the one in Szczecin and developed
the concept of an MBA degree program in Poland. The Lodz executive MBA
program began in 1996 with 26 executives and a distance learning center
with the University of Maryland. Lodz began holding conferences for
all universities interested in such a partnership. The most renowned
executive MBA program in Poland at the Warsaw School of Economics started
with assistance of a USAID grant and University of Minnesota technical
assistance. USAID was also behind the Credit Union school in Sopot which
in May 2000 received accreditation to offer the equivalent of a bachelor’s
degree and expand its curriculum to include other kinds of financial
education. It was USAID assistance that helped foster the credit union
movement which grew from zero to more than 450 branches in less than
10 years.
USAID’s massive efforts in education over the decade also included
collaboration between Central Connecticut State University and Wroclaw
Technical University in business education. In 1991, the two universities
created the Institute of Business Studies. Also in 1991, New York University
and the University of Wisconsin began cooperating with Polish universities.
The Solidarity Economic Foundation with the assistance of Ohio State
University encouraged universities in Poland to teach market economics
starting in 1992. The University of Minnesota began training faculty
at the Olsztyn Agricultural College and the Warsaw School of Economics
in 1991—by the end of the decade, the Olsztyn Agricultural College
was upgraded to university status, in part as a result of this assistance.
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USAID’S
OWN TRANSFORMATION
"On the whole, USAID was a great success," said former ambassador
to Poland Daniel Fried. "This country has a banking system in pretty
good shape that we helped create. That’s not marginal.
The technical assistance took off in the mid-90s, and USAID got off
the ground programmatically," he added speaking on his last day
in his Warsaw office before returning to Washington, D.C. in May 2000.
"They started focusing on the black holes and institutional gaps
and they used real experts and it showed. It was really something to
be proud of."
When current Mission Director William Frej took the reins three years
ago, the process of "Polonizing" USAID was underway. Before
the mid-90s, all programs were handled out of Washington, D.C., and
much of the USAID and project staffs were American. "We made a
major shift from D.C. management to Polish management," Frej said.
"It was an absolutely critical move on our part. We were intent
on decentralizing and making the shift out of D.C. And now Poland has
become a real model for this [kind of] shift."
The internal restructuring of USAID activities in the mid - 90s did
make a difference to the morale of Polish staff and recipients. Suddenly,
Polish organizations existed where a USAID project once stood, and successor
organizations like the Academy for the Development of Philanthropy in
Poland, which became a self-sustaining organization in 1998, developed
from USAID projects. Polish consulting firms flourished across sectors.
USAID has nurtured Polish consultants who now provide training to municipalities,
or strengthen the capacity of Polish firms.
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POLAND’S
POLITICS AT THE END OF THE CENTURY
In ten years, Poland’s role in the region has solidified enough
that it has shifted from receiver to giver. There could be no higher
compliment to USAID and all of the key donors than Poland’s current
efforts to give aid in all forms to its neighbors, from translating
handbooks on community organizing into Russian (as the Dialog program
in Bialystok did) to large-scale assistance programs like Poland’s
Know-How Foundation and the Polish America-Ukraine Cooperation Initiative
(PAUCI). The U.S., Poland and Ukraine launched this to accelerate Ukraine’s
democratic and economic reforms through grants and training.
Today Poland has the strongest NGO sector in Central Europe and Polish
NGOs are providing assistance to NGOs in the region, including helping
to start new NGOs in Kosovo. The Poland-based Institute for Democracy
in Eastern Europe is promoting an independent local press throughout
Central and Eastern Europe.
"I think it’s unfair to those countries who are really hurting
to say that Poland needs assistance now," said Wygnanski, who headed
up Polish humanitarian efforts in Kosovo. "It’s time to move
on."
"Poland’s role as donor was integrated in the AID strategy,"
said Ambassador Daniel Fried. "And it’s an example of the
agency’s creativity and flexibility. There’s no precedent
for an aid recipient giving back money to the U.S. Treasury. But Poland
did."
The $254 million Polish-American Enterprise Fund, which made good investments
and a tidy profit over the last decade, has established the Polish-American
Freedom Foundation with $180 million. And the remaining $120 million
from the final investment portfolio has been returned to the U.S. Treasury.
The Freedom Foundation has decided to continue USAID’s work of
supporting local democracy. Its mandate also includes outreach training
for Belarus and Ukraine. The Foundation recently announced a special
fund for students from surrounding countries to receive special training
at Polish universities and private business schools. "There were
long discussions about what the next step should be," said Ryszard
Kruk, vice president of PAEF and its new foundation. Those conversations
included dialogue with Polish Americans who lobbied the U.S. Congress
to keep the money in Poland. "And everyone, the Poles and the Americans,
are satisfied," Kruk added.
"The Freedom Foundation is USAID’s legacy in Poland,"
said Zbigniew Brzezinski. "It is a continuous reminder of our presence
there."
After USAID closes shop this summer, Poland’s presidential election
will be held in late 2000. Whatever the result, the country’s courage
and vision over the last 10 years will continue. "When USAID was
at its most successful," said William Frej, "we had an understanding
of the problem. Our help came at the right time. There was a desire
for change, and we added to the process by accelerating and deepening
what had already begun."
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