U.S. Government Assistance to and Cooperative Activities with the New Independent States of the Former Soviet Union FY 1997 Annual Report Prepared by the Office of the Coordinator of U.S. Assistance to the NIS Submitted Pursuant to Section 104 January 1998 of the FREEDOM Support Act (Public Law 102-511) 1 FOREWORD This Annual Report describes the U.S. Government activities that supported reform in the twelve New Independent States (NIS) of the former Soviet Union during Fiscal Year 1997. This past year, we began to restructure our assistance activities toward more cooperative efforts under the Partnership for Freedom, which emphasizes trade and investment, people-to-people linkages and the development of civil society in the NIS. This report summarizes our contributions to economic and political reform in each of the twelve NIS on a country-by-country basis. It describes the full range of assistance activities through which the U.S. Government is staying engaged in this strategic region of the world. We are pleased to be helping in this historic endeavor. Ambassador Richard Morningstar Special Advisor to the President and Secretary of State on Assistance to the NIS TABLE OF CONTENTS I. INTRODUCTION Progress Made in FY 1997 1 Financial Summary 4 Structure of the FY 1997 Annual Report 4 II. COUNTRY ASSESSMENTS Armenia 5 Azerbaijan 11 Belarus 14 Georgia 17 Kazakhstan 22 Kyrgyzstan 28 Moldova 32 Russia 35 Tajikistan 47 Turkmenistan 51 Ukraine 55 Uzbekistan 62 III. PROGRAM ASSESSMENTS USAID - BUREAU FOR EUROPE AND THE NEW INDEPENDENT STATES 66 TRADE AND INVESTMENT PROGRAMS 73 U.S. Export-Import Bank (Eximbank) 73 Overseas Private Investment Corporation (OPIC) 73 U.S. Trade and Development Agency (TDA) 74 Enterprise Funds 75 U.S. Department of Commerce - Business Development Committees (BDCs) 78 BUSINESS AND ECONOMIC DEVELOPMENT PROGRAMS 80 U.S. Department of Commerce - Business Information Service for the NIS (BISNIS) 80 U.S. Department of Commerce - American Business Centers (ABCs) 84 U.S. Department of Commerce - Consortia of American Businesses in the NIS (CABNIS) 85 U.S. Department of Commerce - Commercial Law Development Program (CLDP) 86 U.S. Securities and Exchange Commission (SEC) 87 U.S. Department of the Treasury - Technical Assistance 88 U.S. Department of Agriculture - Emerging Markets Program 89 USAID Farmer-to-Farmer Program 90 U.S. Department of Transportation - Federal Aviation Administration (FAA) 91 TRAINING AND EXCHANGE PROGRAMS 93 USIA FREEDOM Support Act Exchanges 93 USIA Base Budget Exchanges 101 U.S. Department of Commerce - SABIT Program 105 U.S. Department of Agriculture - Cochran Fellowship Program 107 U.S. Department of Agriculture - Faculty Exchange Program 108 DEMOCRACY PROGRAMS 109 Congressional Research Service (CRS) 109 Anti-Crime Training and Technical Assistance (ACTTA) Program 110 U.S. Department of Justice - Office of Overseas Prosecutorial Development and Training 113 ENERGY AND ENVIRONMENTAL PROGRAMS 115 U.S. Department of Energy - Nuclear Safety Programs 115 U.S. Nuclear Regulatory Commission (NRC) - Nuclear Safety Regulation Program 118 U.S. Environmental Protection Agency (EPA) 119 1 SECURITY PROGRAMS 119 U.S. Department of Defense - Cooperative Threat Reduction (CTR) Program 119 U.S. Department of Defense - Environmental Security Program 129 U.S. Department of Defense/FBI Counterproliferation Program 129 U.S. Department of Defense/Customs Counterproliferation/ International Border Security 130 U.S. Department of Defense - Military-Technical Cooperative Efforts with the NIS 131 U.S. Departments of Defense and State - Warsaw Initiative / Partnership for Peace 132 U.S. Departments of Defense and State - International Military Education and Training Program 133 U.S. Department of State - Science Centers Program 134 Civilian Research and Development Fund (CRDF) 137 U.S. Department of State - Nonproliferation and Disarmament Fund (NDF) Export Control Assistance 137 U.S. Department of Energy - Materials Protection, Control and Accounting (MPC&A) 138 U.S. Department of Energy - Fissile Materials Disposition Program 140 U.S. Department of Energy - Joint U.S.-Russian Reduced Enrichment for Research and Test Reactors (RERTR) 142 U.S. Department of Energy - Export Control Assistance 142 U.S. Department of Energy - Initiatives for Proliferation Prevention (IPP) 143 U.S. Nuclear Regulatory Commission (NRC) - Materials Protection, Control and Accounting 147 SOCIAL-SECTOR AND HUMANITARIAN PROGRAMS 147 U.S. Department of Agriculture - Food Assistance Programs 147 Coordinator’s Office Humanitarian Assistance Programs 149 OTHER PROGRAMS 163 Eurasia Foundation 163 Peace Corps 164 U.S. Support for International Financial Institutions 166 U.S.-Israel Cooperative Development Program (CDP) 168 U.S.-Israel Cooperative Development Research Program (CDR) 169 Program for Research and Training on Eastern Europe and the NIS (Title VIII) 170 IV. ASSESSMENTS OF PROGRESS IN MEETING THE STANDARDS OF SECTION 498A OF THE FOREIGN ASSISTANCE ACT OF 1961 Armenia 173 Azerbaijan 178 Belarus 182 Georgia 187 Kazakhstan 191 Kyrgyzstan 196 Moldova 200 Russia 204 Tajikistan 214 Turkmenistan 219 Ukraine 223 Uzbekistan 229 V. EVALUATION OF THE USE OF “NOTWITHSTANDING” AUTHORITY 234 APPENDIX: CUMULATIVE BUDGET CHARTS Funds Budgeted Obligations Expenditures Commercial Financing and Insurance Graph: Cumulative Funds Budgeted and Obligations Frequently Used Abbreviations 2 I. INTRODUCTION Over the past five years, U.S. Government assistance to the New Independent States (NIS) of the former Soviet Union has reinforced the overall U.S. policy toward this crucially important part of the world: to foster security, stability and prosperity; to develop constructive relationships with the region; and to prevent the emergence of another significant threat to U.S. national security. The security of the United States and the rest of the world is immeasurably enhanced if Russia and the other NIS are stable, market-oriented democracies. The U.S. Government has devoted significant resources to this goal over the past five years—almost $10 billion in grants and $14.6 billion in financing. This report describes the progress made by U.S. Government assistance programs and cooperative activities with the NIS countries in FY 1997. These programs were designed to (1) promote democratic institution- building, the rule of law and the establishment of a civil society; (2) help establish open and competitive market economies and expand opportunities for trade and investment; and (3) enhance U.S., NIS and international security through cooperative threat reduction and nonproliferation efforts. PROGRESS MADE IN FY 1997 In FY 1997, the Coordinator of U.S. Assistance to the NIS began restructuring NIS assistance activities under the Partnership for Freedom initiative. This restructuring recognized that our assistance efforts needed to be focused on investment-led economic growth, people-to-people linkages, and the development of civil society. Especially in Russia, and to a lesser extent in the other NIS countries, the basic institutional building blocks of market economies and democratic governments were being put in place. Technical assistance provided by the U.S. Government and other donors had played an important role in this process. Attention could now be gradually shifted towards more cooperative activities that would enable the United States to remain engaged in the NIS region, such as U.S. investments in small and medium-sized enterprises; partnerships between U.S. and NIS universities, hospitals, non-governmental organizations, cities, and business and professional associations; and exchanges between U.S. and NIS students, professionals and entrepreneurs. In addition, we would continue to move our assistance activities out of the capital cities and into the regions, particularly in Russia. For example, the Regional Investment Initiative (RII) in Russia established centers in three Russian regions— Novgorod, Khabarovsk and Samara. These and other grassroots activities funded by the U.S. Government helped promote long-term stability in the region and supported the transitions of the NIS countries to free-market democracies. The following three sections provide brief assessments of U.S. Government-funded activities in the areas of democratic reform, economic reform, and cooperative threat reduction and nonproliferation in FY 1997. Democratic Reform Programs In FY 1997, the trend toward democracy continued to gain momentum in many, but not all of the NIS countries. As was the case in FY 1996, the most serious setbacks occurred in Belarus, where a combination of increasing authoritarianism on the part of President Lukashenko and actions taken by the Belarusian Government to shut down the grant-making operations of the Soros Foundation’s Open Society Institute left the fate of the country’s non-governmental sector in doubt, and left our embassy-based Democracy Fund as one of the few remaining sources of support available to Belarusian non-governmental organizations (NGOs). In the Caucasian and Central Asian countries, progress in democratic reform was once again varied in FY 1997, as these countries’ presidents, with a few exceptions, continued to dominate over their legislatures and judiciaries. Nevertheless, the most encouraging signs of progress appeared under the more adverse circumstances. For example, although President Nazarbayev continued to have a firm grip over Kazakhstan’s parliament and judicial system, parliamentary deputies forged ahead and