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Decade of USAID Assistance

In 1989, Poland was characterized by an unsettled political scene; hyper-inflation and shortages of basic products; non-convertible currency and lack of foreign monetary reserves; hidden unemployment; an inefficient economy with subsidies amounting to 15% of Gross Domestic Product (GDP); a state-owned sector amounting to over 75% of GDP; a housing sector with little private or legal infrastructure and a stock of housing well below western European standards; highly centralized government services and inadequate public administration; deteriorating social benefits; a weak regulatory framework and financial sector infrastructure; and lack of trained entrepreneurs with adequate access to credit (in general, 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 a dismantling of all 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% in 1990 to 43% in 1992, reaching 8.7% in October 1999. Many direct government subsidies were eliminated. A new currency law ended the previous artificial official exchange rate for the zloty and full domestic convertibility 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 Europe with GDP growing 6.8%. Growth fell to 4.8% in felt further in 1999 to about 4%, as Poland continues to feel the effects of the economic downturn in Russia and Western Europe. Essentially, the introduction of reforms resulted in: improved quality and increased competitiveness of industrial production, supported by export growth and increased domestic consumption; hyper-inflation gradually being brought under control; the zloty regaining its monetary function and foreign currency reserves being established; prices liberated with the exception of a limited number of goods; the command economy replaced by a broad, balanced market economy; agreement reached with foreign state and commercial creditors; and privatization programs and foreign investments reducing the dependence of the economy on the public sector. (The private sector now employs over 70% 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 Europe, it has entered 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 Central and Eastern Europe (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. All three of the major credit rating agencies have given Poland an "investment grade" sovereign rating. Most important, however, the country has not stood on its laurels given the impressive success of its earlier bold reforms. In 1999, the Government of Poland (GOP) launched several large structural reform programs including introduction of a new system of local government administration, pensions, education and health care. In public administration, political and some financial authority devolved to regional and local governments. The pension system will now increasingly rely on investments in private pension funds thereby reducing the burden of the social security system on the central budget and, over the longer-term, increase the depth of Polish capital markets. The health care reform introduces Health Care Management Organizations (HMO)-like regional organizations and freedom of choice among competing providers. The education system will be revamped to make it more efficient. The GOP has also embarked on a coal sector restructuring program.

Sections on this page:

• Early Years of Assistance: 1990-1993
• Maturing of Reforms: 1994-1995
• Current Program: 1996-1999
• List of Acronyms

Early Years of Assistance: 1990-1993

1. Economic Stabilization and Restructuring
2. Social Sector Restructuring and Quality of Life
3. Strengthening Democratic Institutions

1. Economic Stabilization and Restructuring

In the area of economic stabilization and restructuring USAID, in collaboration with the United States Information Agency (USIA), Department of Labor (DOL), Environmental Protection Agency (EPA) and Department of Commerce (DOC) provided assistance to: enterprises; developing an adequate legal/regulatory framework (in particular competition policy and laws); farmers; and the removal of trade impediments. In 1993, greater attention was placed on privatization and enterprise restructuring, bank recapitalization and business development, with small and medium enterprises (SMEs) becoming a priority area. During the 1990-1993 period, efforts to assist economic reforms took the form of establishing new frameworks through:

1. Introduction of Legislative Changes:

Assistance was provided that aimed at improving the business climate through design of new tax policies and establishment of anti-trust laws, practices and procedures for a nationwide network of regional offices. The Antimonopoly Office, in cooperation with the U.S. Federal Trade Commission (FTC) and U.S. Department of Justice (DOJ), successfully developed a strong legal and institutional framework to pursue investigative practices and competition policies. The American Bar Association's Central and Eastern European Law Initiative (ABA/CEELI) worked with the GOP and Polish universities to design and implement foreign and domestic investment laws, a system for resolving commercial disputes, procurement systems and supporting legislation, and commercial real property and intellectual property rights. Further, the work of the U.S. Securities Exchange Commission (SEC) resulted in the establishment of a sound Polish securities market. Advisory assistance was provided which led to banking reform including exchange rate policy, credit policy, analysis and internal credit rating systems, training in negotiations with external creditors and donors (which led to effective Paris and London Club agreements), and the assessment of international and financial developments.

2. Enterprise Restructuring, Privatization and New Investments:

1991 saw the beginning of assistance for bank recapitalization and enterprise development. The resources dedicated to these activities increased significantly in 1993. The activities conducted under the Privatization and Restructuring Project included provision of pre-privatization assistance (LOT Polish Airlines); training of management union leaders and SME state enterprises in privatization issues and basic skills under the regional Privatization Initiative; business valuation of a joint venture for Huta Warszawa (a steel mill and one of Warsaw's largest plants); and development of a complementary scheme of private pensions with the Ministry of Labor (MOL). Concomitant with this effort, Price Waterhouse provided assistance to the Ministry of Privatization (MOP) to enhance its capacity to rapidly select, appraise, value and divest enterprises.

Since 1990, the activities of the Polish American Enterprise Fund (PAEF) have been essential to the above efforts. During the past ten years it has provided loans for investment purposes to SMEs, as well as financing for private banking, agribusiness and health care products and services. In addition, several successful joint ventures, which included large investments, were also financed by PAEF. The profits generated by the PAEF helped, subsequently, to finance its further activities and attract investment from other sources. The rapid growth and expansion of activities and increased technical assistance were significant and resulted in the expansion of the private sector. The numbers speak for themselves. The U.S. provided $240 million to PAEF and programs linked with it, and together with other capital (and the multiple involvement of entrusted capital), the fund has disbursed more than $505 million. Today, the enterprises in which the Fund has invested generate combined revenues exceeding one billion dollars and employ more than 21,000 people. In addition to more than $200 million worth of loans, including 26,000 small and micro-scale loans distributed by entities linked with the PAEF, many direct capital investments have been made - a total of 310 million by the end of September, 1997. In brief, the Fund has become a major source of support for the development of entrepreneurship in Poland.

Significant attention, during 1991-1992, was also given to agribusiness development and to the adjustment of the agricultural sector to the emerging market system. Business and management training, and assistance in the development of an independent cooperative banking system, were priority areas. Equally important were the Support for East European Democracies (SEED)-funded programs that addressed modernization of animal breeding, improvement in food production (processing and marketing), and meat processing. As a result of these efforts, Polish agriculture began to be better positioned to face global market realities.

3. Restructuring of the Housing Sector:

In 1991, USAID embarked on a program to assist in the transformation of a housing delivery system from one constrained by central planning to one which was market-based, efficient and effective. The aim of assistance in this area was to increase the supply of affordable housing and enhance the role of the private sector in this process. USAID assistance focused on: 1) development of a housing finance system; 2) decentralization of responsibilities for housing delivery through local government and housing privatization; and 3) increased production of housing by private developers and builders. The USAID program addressed policy and institutional reform and provided technical assistance.

4. Human Resource Development:

The East Central European Scholarship Program (ECESP) provided for international training programs aimed at supporting democracy and improving quality of life. Over the course of its ten year history in Poland (the program began as a regional activity in 1989), ECESP trained 436 Polish leaders, experts, administrators and managers in such fields as: democratic leadership, public administration, formulation of public policy, health care administration and reform, finance and banking, regional development, business administration and education. The program will continue to work with the ECESP Alumni Association and the Institute for Public Health Management that it helped found. The program plans to cooperate with Polish alumni to provide training for other countries in transition throughout Europe.

Business development through training, technical assistance from Private Voluntary Organizations (PVOs) and establishment of other business services represented a third essential component of support for economic reforms. These programs, many of them implemented by USIA, focused on curricula design and resource base formation. In addition, Peace Corps Volunteers (PCVs) provided business training courses throughout Poland. Furthermore, the outcome of programs conducted by U.S. universities such as the Midwestern Universities Consortium for International Activities (MUCIA), Central Connecticut State and the University of Minnesota, although not directly aimed at the reform of institutions of higher education, nevertheless instituted such reforms. Not only was an essential cadre of educators, investors, and market professionals trained, but also - equally important - a new catalyst for further institutional reform of business and economics education emerged.

Back to Top ^ | Early Years of Assistance: 1990-1993 ^

2. Social Sector Restructuring and Quality of Life

The focus of USAID assistance early on in this area was humanitarian and addressed emergency supplies, including food, equipment; training and establishment of health care partnerships. By 1992, housing sector programs received much needed attention through projects aimed at the restructuring of the housing sector, assistance in privatization, development of a housing finance system, and relevant training. In 1993, several environmental initiatives expanded efforts in this area beyond the city of Krakow where they had been initiated. Efforts in this area include the following:

1. Health and Social Safety Net Assistance:

While environmental initiatives dealt with larger issues of systematic change, direct attention was needed to address the deterioration in health services standards. Emergency equipment, medicines, vaccines, antibiotics and improvement in rapid response to infectious diseases received attention in 1991. In subsequent years, health care efforts successfully concentrated on the initiative of rebuilding and restructuring the health care system in Poland. Through the efforts of the Milwaukee International Health Training Center (MIHTC) and the Albany Medical College, several model pilot centers were developed including: an accident prevention and poison control program in Bialystok, cancer detection centers in Warsaw and Krakow, and three Emergency Medical Supplies (EMS) Information and Learning Resource Centers in Krakow, Lodz and Bialystok. USAID assistance also focused on the development of private health markets and the expansion of health care related efforts by U.S. non-governmental organizations (NGOs). The opening of the new wing of the Polish-American Children's Hospital in Krakow, and extensive provision of medical equipment, supplies and medicines, contributed to substantial improvements in health care delivery systems in over 140 hospitals throughout Poland.

Another important and unique initiative has been the Labor Market Transition Project implemented by DOL. This project addressed the plight of workers negatively affected by economic reforms. (A follow-up effort, the Workforce Development Project, commenced in 1998, and is discussed later.)

2. Environment and Energy Assistance:

Initially, environmental assistance had a more regional focus and its direct application in Poland was limited to the establishment of several projects in Krakow aimed at pollution reduction, improvement in drinking water, and establishing a monitoring network. Equipment was provided to improve monitoring of air quality and wastewater treatment. Subsequently, environmental audits and environmental assessment programs were conducted and environmental experts and engineers trained.

In 1991, USAID began work on improving energy efficiency in Poland and restructuring the sector. The Emergency Energy Program went into effect and focused on energy efficiency improvements and price reform. By 1992, efforts had begun to concentrate on the restructuring of the entire sector and development of programs addressing issues of policy, training and public information. By 1993, the program was addressing: 1) institutional development through "twinning" of U.S. and CEE environmental specialists, public education and awareness, risk assessment, and legislative initiatives; 2) technical assistance that involved environmental training and education involving public and NGO participation; and 3) regional cooperation.

A major effort to reduce pollution in the city of Krakow has also been highly successful. With assistance from DOE, at its conclusion, the project will have eliminated 90% of the low emission sources in Poland's historic capital. Unfortunately, another DOE-assisted project to install a flu gas desulphurization system at the Skawina power plant, outside of Krakow, to control CO2 emissions, did not fare as well. As a result of technical problems, the project had to be terminated and the remaining funds used to assist GOP initiatives to mitigate global climate change (see page 13).

Back to Top ^ | Early Years of Assistance: 1990-1993 ^

3. Strengthening Democratic Institutions

USAID activities in support of the democratic process, as in the case of other sectors of assistance, have changed during the history of the program. The initial focus was on political institutions at the national level. Along with the reform of governmental structures, pluralism has been enhanced through the development of independent media, assistance to trade unions, cultural and educational exchanges, educational reform, and book distribution projects run by USIA. Activities include the following:

1. Political Process and Participatory Institutional Development:

In the initial period, 1990-1991, the majority of funding went to the National Endowment for Democracy (NED) which subsequently distributed the funds to a variety of institutions, achieving a large degree of pluralism in the institution-building process, and NGO development. USIA efforts addressed issues of professional development among judges, environmental professionals, urban planners, lawyers, journalists, and local government officials. The acquisition of new experiences and skills contributed to building Polish models and strengthening civil society. SEED-funded assistance also went to the establishment of independent media and the creation of the Media Resource Center. The center provided training in production techniques, management, budgeting, and marketing

2. Rule-of-Law and Public Administration Reform:

Initially, under the "Frost Committee", the Library of Congress and other congressional institutions provided equipment and extensive technical assistance to build parliamentary capacities to provide information and conduct research. On the local government level, by 1992, USAID was providing modest assistance for training local government personnel. The programs developed by Rutgers University, in partnership with the Foundation for the Support of Local Democracy, dealt with local finance and budgeting, personnel management, and service delivery.

Part of USAID's success during the 1990-1993 period in contributing to reforms lies in the diversity of means that were utilized and the wide range of needs that were targeted during that period. However, the predominant emphasis on providing U.S. short-term advisors, rather than on the creation of sustainable institutions, weakened the longer-term impact of some programs. This was to change later as the nature of the USAID program evolved.

Back to Top ^ | Early Years of Assistance: 1990-1993 ^

Maturing of Reforms: 1994-1995

1. Private and Financial Sector
2. Transformation of the Public Sector
3. Strengthening Democratic Institutions

During 1994-1995, USAID assistance was expanded both in terms of numbers of organizations involved and number of locations in Poland where it was delivered. During 1994, for example, over 85 U.S.-based organizations conducted activities in more than 1,500 locations.

By 1994, several programs, which began at the outset of the transition, were completed (e.g., bank training); others, such as emergency and stabilization programs, also ended, as they were no longer needed; and several others were consolidated or expanded in new directions (e.g., housing policy assistance). Given the changing situation in Poland, USAID assistance was reconfigured, in particular private and financial sector development and transformation of the public sector.

1. Private and Financial Sector

Support for privatization and enterprise restructuring continued in 1994, and shifted more directly towards assistance to SMEs and expansion of the banking system. A variety of privatization programs were completed. Within agriculture and agribusiness restructuring, more focus was placed on coordination with other donors, in particular the IBRD. A greater emphasis was also placed on U.S.-based training programs. Finally, emergency energy programs were terminated and remaining energy programs were refocused to address, more specifically, the two assistance areas of private sector development and public sector transformation. This effort was carried out through:

1. Assistance to Enterprises and Privatization Programs:

The initiatives and efforts of the PAEF continued through this period and have been discussed earlier. As indicated, they covered a wide spectrum of activities and resulted in thousands of new jobs being created, a direct outcome of investments and loans made to enterprises. PAEF also provided extensive technical assistance. PAEF made essential contributions to the creation of the first mortgage bank in Poland, became a shareholder in three banks, invested in more than 30 joint ventures, and attracted major funds from the EBRD and other donors to form a Polish Equity Fund (PEF).

The International Executive Service Corps (IESC) and the Citizen's Democracy Corps (CDC) carried out assistance to SMEs, as well as Partners for International Education and Training (PIET) under the Entrepreneurial Management and Executive Development Training (EMED) program. Privatization funding continued, but at a lower level, and was aimed at: 1) preparation for the Mass Privatization Program including design of national investment funds, an adequate legal framework, training, and strategic planning; and 2) assistance with firm-specific privatization efforts. All these efforts were complimented by attempts to improve regulatory mechanisms.

USAID also provided significant assistance to the Energy Restructuring Group (ERG), an advisory group established to support the Ministry of Trade and Industry (MTI). ERG was established in 1993, and was co-sponsored by the Poland Hungary Assistance in Restructuring Economies (PHARE) program, USAID, and the IBRD. Although the IBRD was responsible for restructuring the coal sector, PHARE for heating and USAID for electricity, the three donors reinforced each other's efforts across the three sectors. The major objective of the collaborative effort was to support the GOP energy sector reform program, including the creation of the Energy Regulatory Agency (ERA) and development of the Energy Law.

2. Capital Markets and Financial Sector Development:

Activities in this area focused on the securities industry and were expanded to include development of a regulatory framework for this sector through advisory and training activities for the Polish Securities Commission (PSC). In another activity, the development of the National Depository of Securities (NDS) was initiated to provide mechanisms for the clearance, settlement, and deposit of securities according to international standards. Finally, a concentrated effort was developed to assist small independent brokers through a variety of training and support systems in order to create a competitive securities industry.

In the banking sector, assistance was refocused to address issues of supervision and the development of guidelines and operating procedures and providing assistance to the National Bank of Poland (NBP) in the areas of policy formulation, training and systems development. Procedures were also developed for identifying and systematically dealing with insolvent banks. Poland's success in this area has resulted in the proposal to establish a regional training center in Warsaw for bank supervision.

Most of the assistance was concentrated on helping the Ministry of Finance (MOF), the NBP, and the commercial banks to adopt new practices. The successful debt negotiations with external debtors (e.g., the London and Paris Clubs) demonstrate that a progressive restructuring of the banking system can yield effective outcomes. Technical assistance to the banking sector also resulted in the internal restructuring of two commercial banks, development of new banking investment units, improved corporate finance expertise and new credit underwriting capabilities.

3. Participant Training:

A new initiative, in which a large variety of Polish institutions participated, was the Participant Training Project for Europe (PTPE). This activity was designed to provide short-term courses in the U.S. for managers, executives, and decision-makers. Training was also provided to the staff of the Ministries of Privatization (MOP), and Industry and Trade (MIT), the MOF, chambers of industry and commerce, consulting firms, regional tax offices, banking specialists, managers of companies that were to be privatized and business people from private companies.

Back to Top ^ | Maturing of Reforms: 1994-1995 ^

2. Transformation of the Public Sector

USAID assistance in this area focused on democratic governance, public administration, and specific sector reforms. The latter included expansion of housing sector assistance and a housing finance guarantee program. Environmental programs also expanded and addressed new priorities including strengthening regional cooperation, NGO support, university-based educational programs and expansion of environmental training programs. Public sector activities included:

1. Democratic Governance and Public Administration:

The local government component of the program continued to be coordinated by Rutgers University in partnership with the Foundation for the Support of Local Democracy (FSLD). It focused on further refinement of a team approach to training; provision of training needs assessments for municipalities and expansion of training modules, methodologies and delivery systems. FSLD trainers became certified to provide nation-wide procurement training. During 1994, over 200 participants were trained in the application of the procurement law. The International City Management Association (ICMA) also trained 200 trainees in municipal finance, real property valuation and taxation.

2. Housing Sector Reform:

Adding to the efforts described earlier, activities were added that focused on the housing policy formation process, in particular policies needed to de-regulate the rental market and distribute subsidies in a more transparent and clearly targeted manner. Improvements in the area of housing finance system included: design and initiation of a mortgage fund to finance affordable housing and development of lending practices; the introduction of competition into housing production; and the financing of over 350 affordable housing units. USAID efforts also resulted in the enactment of a condominium law, a rental reform law and several initiatives that mobilized support for increased fiscal autonomy for local government. The latter was particularly important as it supported further decentralization of decision-making and responsibilities at the local government level.

In addition to addressing larger policy issues, the USAID Regional Housing and Urban development Office (RHUDO) continued effective support to individual cities. In Lublin, the creation of a partnership between local government officials and residents resulted in upgrading housing and urban infrastructure. In Poznan, the Communal Housing Enterprise was restructured. In Krakow, major improvements were achieved in the municipal budgeting process, city management practices and overall efficiency and morale of city employees. Finally, progress was made in the development of a real estate market through establishment of the first builders' association, creation of professional networks (brokers, appraisers) and enactment of major pieces of legislation to reform the regulatory framework for real estate market development.

3. Social Welfare Reform:

The primary goal of USAID assistance, as of 1994, was to promote changes to create sustainable private health care markets. Activities included demonstration projects for managed care in several large Polish cities (Krakow, Lodz, Gdansk); establishment of breast cancer screening sites; needs assessments and technical assistance which addressed development and improvement in cost accounting, including training for health care professionals and fund raising. One of the results of these efforts was the creation of a private capital development fund raising initiative to support the Litewska Children's Hospital in Warsaw. Health care reform efforts also included several projects that facilitated the exchange of medical knowledge and technology. MIHTC assistance resulted in improved provision of emergency services in Krakow, Bialystok and Lodz. The Albany Medical College initiated a medical record keeping system, an essential prerequisite for the establishment of quality data systems for clinical purposes.

The DOL Labor Market Transition project continued its successful efforts through 1994. Training and skills enhancement were provided in selected large cities in cooperation with Ohio State University and the Economic Foundation of Solidarity. Over 800 people participated, and the high rate of success in graduates' job placement and business start-ups attest to the effectiveness of those undertakings.

4. Environmental Initiatives:

The continuing activities carried out by the U.S. Department of Energy (DOE) and EPA shifted emphasis from a single-city approach towards formulation of policies at the national level and policy implementation and enforcement. Through long-term advisors placed at the Ministry of Environment (MOE), issues such as the internal restructuring of the Ministry itself, design and development of the funding procedures for environmental investment, and waste minimization were addressed. A new dimension of USAID assistance was introduced which concentrated support on environmental NGOs, on public outreach and on collection and dissemination of information. Training programs also addressed the previously ignored issue of the academic community's involvement in the process of revamping environmental policy, management and education.

Back to Top ^ | Maturing of Reforms: 1994-1995 ^

3. Strengthening Democratic Institutions

Several earlier programs that focused on citizens' participation and exchanges had been completed by 1994. Programs that had focused on human resource development had also declined. However, the support for trade unions and NGOs, in the form of technical assistance and training, increased. The single most important event was the initiation of the Democracy Network Program (DemNet). Two aspects of the democracy building process were addressed:

1. Strengthening the Political Process: Rule of Law, Media and Democratic Institutions:

USAID assistance in support of restructuring pre-existing laws, and the development of a new framework that would serve the needs of the new political and economic system, continued to result in the maturing of the judicial system and the legislative environment. Assistance was provided to the Polish Constitutional Drafting Committee and the drafting of the White Collar Crime Law. Training was also provided for judges, prosecutors, lawyers, and faculty of law schools. In the media area, over 200 journalists and broadcasters received training at the Warsaw Journalism Center in 1994. A variety of activities were undertaken that supported development of democratic practices including, the Ochota project which provided trade union institutional development, the Social Initiatives Services Bureau (BORIS) program, that provided support to NGOs, and the Helsinki Foundation for Human Rights which enhanced the capabilities of the media to analyze and report on developments in human and civil rights.

2. Organizational Capacity-Building and Human Resource Development:

As indicated above, the major undertaking in this area was DemNet that provided broad-based institutional development support to the NGO sector to enhance its capability to participate effectively in the local government policy formation process. This effort was designed to develop the capacity of Polish NGOs to actively participate in policy debate. It was very successful. Approximately 59 local government ordinances, four ministerial decisions, three amendments to national legislation and one article in the new constitution have all been implemented as a result of this project's efforts. DemNet provided funding and technical assistance to 65 NGOs for public policy oriented projects that cooperated with or influenced the public sector. A DemNet successor organization has been established, the Academy for the Development of Philanthropy. The Academy continues to address the issue of NGO sustainability.

Back to Top ^ | Maturing of Reforms: 1994-1995 ^

Current Program: 1996-1999

1. Stimulating Private Sector Growth at The Firm Level
2. Environment and Energy
3. A Competitive, Market-Oriented Financial Sector
4. Democracy and Local Governance
5. Special Initiatives: Social Sector Restructuring/Quality of Life
6. Continuing Implementation of SEED Objectives: The post-USAID Period

A process was initiated in 1994-95 to streamline the USAID program in Poland in light of anticipated decreases in funding and the introduction of a new USAID Strategic Framework. The new strategy went into effect in 1996 and addresses the following three objectives:

• stimulation of the private sector at the firm level
• building a competitive, market oriented private financial sector
• making local governments more effective, responsive and accountable

In addition, a number of special initiatives were put into place to support the GOP's ambitious social sector reform program. These include: passage and promotion of pension reform legislation; joint Harvard/Jagiellonian University development of health management systems initiated in Krakow; a DOL-supported worker adjustment program that is assisting the GOP address the social and economic dimensions of mass layoffs as a result of government restructuring of the coal sector; administrative reform assistance to help local governments deal with new social sector implementation responsibilities; and a new strategic communications activity to enhance the GOP's outreach efforts.

1. Stimulating Private Sector Growth at The Firm Level

USAID assistance since 1996 has contributed significantly to major changes to the regulatory and legal framework that affects SMEs. USAID-sponsored research and technical assistance to the sector has included helping business associations work with the GOP to reduce administrative barriers to doing business in Poland (drafting and passage of the new Law on Economic Activity); and to create and/or prepare existing Polish institutions to implement major reform laws (the ERA). ABA/CEELI provided institutional development support to an institute dealing with intellectual property rights. Assistance efforts also resulted in enhanced implementation by banks and the judiciary of a new collateral law. USAID assistance also resulted in the development of an association of women entrepreneurs and enhanced outreached programs of regional technology transfer and manufacturing extension centers. Approximately 30 business support organizations (BSOs) and over 115 business consultants were trained in modern consulting and training techniques providing an estimated 3,500 Polish businesses with increased opportunities to improve their skills and competitiveness.

During the 1996-1999 period, as a direct result of USAID assistance, a joint MBA program offered by the University of Minnesota and the Warsaw School of Economics was established. The program, completed by 162 students to date, is fully sustainable. The Universities of Maryland and Lodz have brought business training courses to over 3,000 people, 54 of whom obtained an MBA degree through their distant learning facilities. As mentioned earlier in this document, SEED funding has been supporting ever-increasing numbers of start-up and micro-businesses through the PAEF's micro-lending program. The program has now provided 26,000 loans whose total value exceeds $45 million. USAID assistance to the Center for Social and Economic Research (CASE) Foundation, a preeminent Polish think-tank, resulted in significant and influential studies on future reform requirements which have facilitated GOP efforts to ready itself to meet the challenges of European Union (EU) accession.

Back to Top ^ | Current Program: 1996-1999 ^

2. Environment and Energy

USAID assistance to the new ERA, which included advice on deregulation, institutional development, information systems and tariff setting, has enable the ERA to meet its statutory obligations in deregulating the energy market. The ERA is now poised to mange the full deregulation of prices in CY 2000. Technical assistance on least-cost planning for heat and electricity utilities went hand-in-hand with demand-side management training for industrial and municipal customers. Sixty members of a regional association of heat utilities received training in the complex tariff process. USAID assistance established the manner in which the new Thermomodernization Law and all secondary legislation are structured. To support implementation of the law, training was provided to six municipalities including citywide energy efficiency audits, and demonstration low-cost investments in public housing and buildings, thus leveraging over $200,000 in investments from city authorities. A new (1999) $350,000 development Credit Authority mechanism activity will provide loan guarantee coverage of up to $10 million for 50% risk-sharing guarantees to a local bank for thermomodernization loans to private borrowers. USAID also initiated, in 1999, a $5 million Global Climate Change grant assistance program to mitigate the effect of climate change and encourage/facilitate legislative and policy reforms that enhance the prospects for environmental protection and greater energy efficiency. This program helps to lay the groundwork for Poland's accession to the European Union (EU). EPA activities include water management training; management of mining waste, biosolids and hazardous wastes; and development of local projects in support of select local government environmental action plan investments. Three newly-established pollution prevention centers launched 24 waste minimization projects which have already lead to documented cost savings of $700,000 in eight non-ferrous metal mills and $1.5 million savings through utilization of fluorine waste water by a sulfur manufacturer.

Back to Top ^ | Current Program: 1996-1999 ^

3. A Competitive, Market-Oriented Financial Sector

As a direct result of USAID assistance, the pension regulator, UNFE, has emerged as a reliable and effective guarantor of the principles of security and soundness in the Polish financial market. Over $4.5 million of SEED funds have been targeted to build the regulator's capacity and to support a public education campaign for pension reform. USAID assistance has made a major contribution to changing Poland from a cash-based society to one familiar with sophisticated electronic payment systems. These technological innovations, together with an increasing number of financial instruments available to customers, combine to facilitate the integration of Polish enterprises into the global business market. One of USAID's primary partners in financial sector reform - The Warsaw Institute of Banking - has graduated from the American assistance program and is providing effective training to bank managers in such areas as the Basle Committee's new banking operations principles, primarily the newest instruments limiting banking risks. The work of the Institute has contributed immeasurably to improve Poland's standing as a reliable and secure member of the international banking community. Other examples of USAID assistance during the final phase of the program are: the development of the central European Rating Agency, a private Polish enterprise providing investment ratings; the development of the Polish credit union movement which now provides banking and insurance services to over 250,000 lower-income people throughout the country; and, finally, assistance to Poland's housing finance sector through the NBA, MOF and PBA has helped create a well-balanced and dynamic housing finance system in which total mortgage debt is currently growing at a 90% annual rate.

To stimulate a commercial mortgage system, USAID collaborated with other donors to capitalize a Mortgage Fund. USAID's Housing Guarantee Loan (HGL) complemented resources of the IBRD, the EBRD and the GOP, for an initial total of $400 million. Technical assistance was provided to the institution responsible for managing the Fund. By late 1996, the critical elements were in place within banks for a steady take-off of mortgage lending in Poland. The Polish Real Estate Federation (PREF) was established in 1994 and currently has 19 regional associations with 1,500 member brokers. The Polish Federation of Valuer's Associations (PFVA) was established in 1995 and now has 29 regional associations, with well over 3,000 member appraisers. When the HGL program ended in December, 1999 the following elements were in place: a sustainable housing finance training system managed by Polish institutions; a banking sector that is well represented and well served by the PBA in housing finance issues; a housing finance system that is well-balanced and capable of development and expansion; and a public sector that is well informed on the options for support and intervention. Furthermore, pilot projects established under the HGL permitted introduction of U.S. housing development procedures, technology, and construction techniques and provided long-term mortgage loans. Planning and Development Collaborative International (PADCO), the International City Management Association (ICMA), and the Urban Institute Consortium (UIC) provided most of this assistance.

Back to Top ^ | Current Program: 1996-1999 ^

4. Democracy and Local Governance

During the final phase of the USAID program in Poland, assistance has been provided to support decentralization and the development of more democratic and effective local governments in Poland through an integrated strategy of: a) supporting legislative and policy reforms with direct assistance in strategy analyses and policy development; b) strengthening of municipal management through technical assistance and training; and c) developing civil society organizations through grants, training and service contracts.

1. Legislative and Policy Reforms:

Working through the Democratic Governance and Public Administration project (DGPA), USAID provided the MOF and Ministry of Education (MOE) with effective advice and policy-related studies on the development and implementation of local government finance legislation. This assistance helped build the capacity within these ministries to select the most appropriate options as they put into place the legislation and regulations to support decentralization and equitable financing for local governments. The MOF now possesses the capacity required to maintain the forward movement required to complete fiscal decentralization. USAID assistance also greatly enhanced the ability of the MOE to develop transfer formulas that will more rationally and equitably distribute resources for local government education expenditures. USAID-funded experts also worked on a number of regulations that will improve local government access to private sector capital, such as amending the Bond Law to allow revenue bonds for the first time in Poland. This will lead to lower investor risk and, therefore, lower the price of private capital for municipalities. Another project assisted the Housing and Urban Development Agency to draft legislation to standardize and rationalize utility pricing with the aim of attracting private investments in municipal enterprises.

2. Strengthening Municipal Management:

In direct support of the GOP's wide-reaching public administration reform initiative, USAID put into place a Local Government Partnership Program (LGPP). The objective of the project is to enhance the management capability of a large number of local governments and the technical capacity of numerous support organizations. These support organizations provide local governments with the skills and resources they need to make them more effective and responsive. One of the aims of the project is to enlarge the market for the delivery of quality technical assistance to local governments so that, when USAID assistance ends in March 2001, a self-sustaining Polish capacity to deliver quality and affordable technical assistance will be in place. During 1999, the project provided more than 50 local governments with assistance in developing their capacity to implement strategic management plans, introduce task-based budgeting systems, develop capital investment plans, restructure municipal enterprises, undertake effective project preparation for investment, and incorporate more effectively public participation in local government activities. This assistance - which will be expanded to an additional 120 local governments during the year 2000 - has been, and will continue to be, delivered by more than 30 Polish private sector firms and NGOs. During the period 2000 -20001, assistance will continue to be provided to these organizations to expand their capacities further. These organizations include consulting firms, schools of public administration and associations and foundations working on local government management. LGPP has also been responsible for introducing a training certification process for local government.

3. Civic Society Organizations:

Since 1996, the DGPA program has assisted Poland's four Municipal Associations (MA) develop their capacity to represent the interests of local governments in the development of local government laws and regulations. As a result, they played a key role in the development of the Public Administration Reform and the laws on local government finance. Furthermore, as indicated above, the LGPP has assisted a variety of local government support organizations. Also during this period, the National democratic Institute (NDI) carried out a political party building program to support Poland's multiparty system by strengthening the communication skills and organizational capabilities of political parties at the local level. The aim of this activity was to strengthen the organizational structures and public outreach capability of Poland's major political parties, to create more organized, broad-based and transparent party operations and to give the public a better understanding of each party's platform. NDI created a "legacy" organization, the European Institute for Democracy (EID), to carry on political party institutional development and democratization work.

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5. Special Initiatives: Social Sector Restructuring/Quality of Life

In 1999, USAID initiated the Social Sector Reform/Strategic Communications activity to facilitate GOP efforts to implement its ambitious program of reforms in the social sector, consistent with the principles of decentralized decision-making and market economics. Since July 1999, a team of SEED-funded advisors has been working with the Prime Minister's Chancellery, and selected line ministries, to assist with the development of a more effective communication strategy with the public and within the Polish government. Although the activity is only a months old, it is already having an impact on the way information is presented to the public, soliciting feedback from interest groups and in coordinating communications within the Polish government itself. At the suggestion of the advisory team, the Prime Minister recently held a series of twenty town meetings where he discussed the status of the reforms with the public. The success and receptivity of this new approach in Poland was demonstrated in one of the towns where the unexpected turnout of over 800 people required that an external projection screen be set up for viewers outside the Town Hall to observe the proceedings.

In support of pension reform (discussed earlier), the American Center for International Labor Solidarity (ACILS), provided training to 55,000 Polish workers in a number of large, medium and small enterprises in Poland on the newly implemented pension and social security insurance system. As a result, the workers who participated in the program are now able to make educated choices regarding the best possible option for their future retirement plans.

To address the negative impact of worker dislocation, as a result of GOP restructuring of the coal sector, DOL is providing assistance in the development of a comprehensive strategy to help workers, enterprises and communities to adapt successfully to the changes. The project has trained over 600 people in rapid response techniques including more than 50 people who are functioning as Industrial Adjustment Specialists have. To date 17 Polish communities have initiated rapid response programs providing services to workers at 30 enterprises. Approximately 957 individuals in Silesia, an area hard hit by restructuring, have fund jobs with the assistance of Labor Management Adjustment Teams initiated under the project.

After the enactment of the Health Reform Law in January 1999, the Harvard School of Health/Jagiellonian Health management project adjusted its activities and arranged for a study tour to the United States for the managers of the health insurance funds that manage the financing for the public health system in Poland. As a result of the training, strategic plans were prepared and the project expanded its efforts to strengthen the management of health units in 16 newly created HMO-like health insurance funds. Over its history, the project has introduced many health innovations that are being utilized extensively by local governments and recently established insurance funds throughout Poland.

In 1998, USAID launched a project to train Polish experts in disaster preparedness and the coordination and delivery of efficient and effective emergency assistance. During the project, which ended in 1999, forty high-level Polish officials from central and local government, NGOs, and flood experts were trained in the U.S. The training resulted in the development of closer collaboration among those officials in the enhancement of Poland's emergency preparedness, primarily through the development of a Civil Preparedness Law and other supporting legislation.

Finally, DOJ continued its efforts during this period providing the GOP with assistance to create a climate conducive to introducing changes in Poland's Criminal Code and Code of Criminal Procedure which went into effect in September 1998. In addition, DOJ efforts in preparing and promoting a new Prosecutor's law has generated a widespread debate on the role of the prosecutor in Poland's criminal justice system.

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6. Continuing Implementation of SEED Objectives: The post-USAID Period

U.S. developmental ties with Poland will continue during the post-USAID period, not only through discrete Washington-managed USAID regional activities that may include Poland, but more important, through legacy organizations such as the Polish-American Freedom Foundation (PAFF), the Poland-America-Ukraine Cooperation Initiative (PAUCI), and the Polish Know-How Foundation (PKHF). The PAFF will use interest income from its endowment (based on a significant portion of the reflows stemming from the liquidation of the successful PAEF, described earlier) to finance grants to institutions and individuals in support of Poland's continuing transition process, and in accordance with the precepts set out in the SEED Act. PAUCI and the PKHF are mechanisms that have been created to utilize the expertise of Polish advisors to transfer development skills and Polish experiences to other transition countries in the region. In brief, Poland has become a role model and is embarking on its own foreign assistance program with support it has received from USAID.

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LIST OF ACRONYMS

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