MOVING BEYOND ASSISTANCE FINAL REPORT OF THE IEWS TASK FORCE ON WESTERN ASSISTANCE TO TRANSITION IN THE CZECH AND SLOVAK FEDERAL REPUBLIC, HUNGARY AND POLAND (Revised Edition) Members of the Task Forcé: Raymond Barre (France) Stephen B. Heintz (USA) William H. Luers (USA) John Edwin Mroz (USA) Krzysztof J. Ners (Poland) Jerzy Osiatynski (Poland) Michael Palmer (UK) István Salgó (Hungary) Anthony Solomon (USA) Judita Stourafcová (¿SFR) The Report was written by: Krzysztof Ners, with Arjan van Houwelingen, Michael Palmer and Kate Storm Steel O Routledge Taylor & Francis Group LONDON AND NEW YORK Stirín, June 1992 First published 1992 by Westview Press Published 2018 by Routledge 52 Vanderbilt Avenue, New York, NY 10017 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Routledge is an imprint o f the Taylor & Francis Group, an informa business Copyright © 1992 by the Institute for EastWest Studies, New York All rights reserved. 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ISBN 13: 978-0-367-01109-3 (hbk) GLOSSARY OF ACRONYMS ACC - Assistance Coordination Council BIS - Bank for International Settlements CMEA - Council for Mutual Economic Assistance COCOM - Coordinating Committee for Multilateral Export Controls CSCE - Conference on Security and Cooperation in Europe CSFR - Czech and Slovak Federal Republic DAC - Development Assistance Committee of the OECD EBRD - European Bank for Reconstruction and Development EC - European Community ECE - Economic Commission for Europe of the UN ECOSOC - Economic and Social Committee of the EC ECSC - European Coal and Steel Community ECU - European Currency Unit EFF - Extended Financing Facility EFTA - European Free Trade Association EIB - European Investment Bank FY - Fiscal Year G-7 - Heads of State or Government of the seven major industrial countries G-10 - Central Bankers plus Finance Ministers of the G-7 and Sweden, Switzerland and Benelux G-24 - 24 OECD members taking part in the assistance initiative (twelve EC member states, the six EFTA countries, Australia, Cañada, Japan, New Zealand, Turkey and the United States) GATT - General Agreement on Tariffs and Trade GDP - Gross Domestic Product GDR - Germán Democratic Republic GEV - Grant Equivalent Valué GSP - General System of Preferences IAEA - International Atomic Energy Agency IBRD - International Bank for Reconstruction and Development (the World Bank) IEWS - Institute for EastWest Studies IFC - International Finance Cooperation IFI - International Financial Institution IMF - International Monetary Fund ILO - International Labour Organization of the UN LDC - Less Developed Country NATO - North Atlantic Treaty Organization NGO - Non-Governmental Organization OECD - Organization for Economic Cooperation and Development OEEC - Organization for European Economic Cooperation PHARE - Poland and Hungary: Assistance in Restructuring Economies SAL - Structural Adjustment Loan SDR - Special Drawing Rights (created by the IMF) SIGMA - Support for Improvement in Governance and Management UN - United Nations UNIDO - United Nations Industrial Development Organization USAID - United States Agency for International Development CONTENTS FOREWORD Page iii I. INTRODUCTION Page 1 II. THE CONTEXT FOR WESTERN ASSISTANCE Page 5 Initial Euphoria: Sober Realities The Challenge of Economic Transformation An Uneasy Mix: Stabilization and Structural Transformation Extemal Challenges to the Reform Effort Internal Challenges Redefining Western Security Ecological Jeopardy Investing in a Common Future III. DEFINITION AND FORMS OF WESTERN ASSISTANCE Page 13 What is Assistance? Forms of Western Assistance to Transition Comparative Views IV. EXPERIENCE OF WESTERN ASSISTANCE TO DATE Page 19 The G-24 Initiative Western Assistance Commitments Different Forms of Assistance Multilateral Assistance Bilateral Assistance Non-Reimbursable Aid Non-Economic Assistance The Role of Prívate Funding Mechanics of Prívate Funding Humanitarian and Emergency Assistance The Recipients’ Perspective V. DISBURSEMENT AND ABSORPTION Page 38 Organization of the Assistance Process Competition and Conditionality Disbursement to Date Absorption Impediments to Absorptive Capacity VI. CONCLUSIONS AND PRINCIPLES GOVERNING WESTERN Page 48 ASSISTANCE VII. RECOMMENDATIONS Page 53 VIII. THE ASSISTANCE COORDINATION COUNCIL Page 65 Structure and Goals Funding of the ACC Proposal to the G-7 IX. LESSONS FROM THE THREE COUNTRIES’ EXPERIENCE Page 73 FOR THE OTHER POST-COMMUNIST STATES AS THEY ENTER TRANSITION APPENDIX 1. Grant Equivalent Valué (GEV) Page 78 APPENDIX 2. Notes on Task Forcé members and other contributors Page 79 TABLES, GRAPHS AND FIGURES T ah le 2 .1 Recession Indicators for the CSFR, Hungary and Poland Page 7 Table 4.1 IMF Arrangements with the CSFR, Hungary and Poland in 1991 Page 24 Table 4.2 Financial Commitments of the World Bank to the CSFR, Hungary Page 25 and Poland Table 5.1 Disbursement Rates 1990 (percentage of commitments) Page 42 Table 5.2 Disbursement Rates of G-24 Assistance Page 43 Graph 4.1 Total Assistance by Type of Assistance Page 21 Graph 4.2 Total Assistance by Sector of Destination Page 22 Graph 4.3 Shares of Multilaterals and Bilaterals in Western Assistance Page 26 Commitments Graph 4.4 Total Bilateral Commitments broken down to show Individual Page 28 Donor’s Shares Graph 4.5 Total Bilateral Grants broken down to show Individual Page 29 Donor’s Shares Figure 1 Central European Assistance Pyramid Page 23 Figure 2 Function of the ACC within the Area of Assistance Coordination Page 71 Figure 3 ACC Organigram Page 72 FOREWORD The reaction of the international community to the release of the provisional text of this Report on May 7, 1992 in Bonn, Warsaw, Prague and Budapest has been immediate and gratifying. We are indebted to the Western as well as Czechoslovak, Hungarian and Polish leaders, experts and journalists who have studied this Report and responded to it, giving us new, unpublished or hitherto unavailable information, as well as making constructive comments on policy recommendations. We welcome all the suggestions made since the release of this provisional text. Suggestions we consider particularly constructive include the immediate need for on-the-spot coordination in each country to complement an effective international coordinating body such as the one advocated in this study (the Assistance Coordination Council or ACC). This Final Report incorporates a number ofthese suggestions, including specific proposals made by decision-makers in both the donor and recipient countries, which have been thoroughly tested and discussed. Among the most frequent concerns expressed to the Task Forcé since release of the Report is the increased fear on the part of the states of Central and Eastern Europe that they will have to compete with the Commonwealth of Independent States for the limited assistance resources which are available or are likely to become available. A number of individuáis from neighboring states have asked whether the Task Forcé is proposing the establishment of "a closed club" of three countries (the CSFR, Hungary and Poland). In the few weeks since the provisional text was released, events have moved rapidly in this regard. The European Community has signed Cooperation Agreements with Estonia, Latvia and Lithuania, and has decided to intensify negotiations towards Association Agreements with Bulgaria and Romania. The time may come shortly when some or all of these countries, too, will take their place in the Assistance Coordination Council (ACC) proposed in this Task Forcé Report. The ACC has been designed as a flexible operational vehicle, and should not be regarded as an inflexible proposal. The head of a major international organization has recently suggested that the chairmanship of the ACC could be held on a rotating basis. We encourage suggestions of this sort, and intend that the debate triggered by this Report should be studied and considered by officials responsible for Western assistance as carefully as the recommendations contained within it. In this Final Report of the Task Forcé on Western Assistance to Transition in the Czech and Slovak Federal Republic, Hungary and Poland, the Board of Directors of the Institute would like to note that it is deeply indebted to Raymond Barre, Tony Solomon and Bill Luers for their extraordinary devotion and firm leadership of the Task Forcé during this past year. All of us are particularly gratified that the provisional text of this Report has been carefully studied by those preparing for the July 1992 Summit of the G-7 in Munich, as well as for the Lisbon Summit of the European Community in June. We welcome the interest shown by govemments and international organizations in studying and publicizing the findings of this Report. For example, the Polish Ministry of Foreign Affairs has issued to all governmental agencies a statement iii in support of the Report’s recommendations. We welcome the serious reception of the Report by the European Community. The Office of the President of the Commission of the European Communities, Mr Jacques Delors, has stated that: This Report provides