Foreign Assistance: U.S. Economic and Democratic Assistance to the
Central Asian Republics (Chapter Report, 08/11/1999, GAO/NSIAD-99-200).

Pursuant to a congressional request, GAO examined the economic and
democratic assistance that the United States has provided to the Central
Asian Republics (CAR) of Kazakhstan, the Kyrgyz Republic, Tajikistan,
Turkmenistan, and Uzbekistan, focusing on: (1) what the Agency for
International Development's (AID) economic and democratic reform
initiatives in the CAR were designed to achieve, what has been
accomplished, and what factors, if any, have limited the implementation
of reforms; (2) whether lessons learned from similar AID programs in
Central Europe and Russia have been applied in CAR; and (3) how AID
ensures that its assistance funds in CAR are spent for intended
purposes.

GAO noted that: (1) AID's economic and democratic reform initiatives in
the five republics are designed to help develop market-oriented
economies, increase citizen participation in economic and political
decision-making, and promote more democratic and responsive governments;
(2) with AID and other donor assistance, the CAR governments have made
progress in this regard; (3) most notably, Kazakhstan and the Kyrgyz
Republic--the two republics most committed to reforms--have privatized
many small and medium-sized, state-owned enterprises, implemented trade
and financial reforms, and developed nongovernmental organizations and
independent broadcast news stations to encourage greater citizen
involvement in governmental activities; (4) however, the goal of
reaching a market-oriented democracy in each of these five republics is
decades away; (5) even those republics that appear to have the greatest
commitment to reform--Kazakhstan and the Kyrgyz Republic--have not
completed many reforms; (6) with the exception of the Kyrgyz Republic,
none have supported key democratic reforms, such as holding fair and
free elections; (7) several important factors have affected the
implementation of reforms in all the republics, including long-standing
government corruption, inadequate resources to implement and enforce new
laws and regulations, inexperience in managing market economies and
democracies, and most importantly, the governments' limited commitment
to implement comprehensive reforms at the national level; (8) AID's
programs in CAR reflect numerous lessons learned from similar programs
in Central Europe and Russia; (9) for instance, based on efforts to
privatize economies in Central European countries, AID designed an
integrated program to privatize the CAR economies, stressing
simultaneous reforms in the fiscal, legal, and financial sectors; (10)
similarly, based on experience with democratic reforms in Russia, AID
has focused on working with citizen groups rather than with national
political leaders and institutions that are adverse to reforms; (11) to
ensure that assistance funds are spent for intended purposes, AID
requires that cognizant technical officers carry out various project
oversight requirements; and (12) based on GAO's review of 14 CAR
projects, AID was meeting the requirements.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-99-200
     TITLE:  Foreign Assistance: U.S. Economic and Democratic
	     Assistance to the Central Asian Republics
      DATE:  08/11/1999
   SUBJECT:  International relations
	     Foreign governments
	     Privatization
	     Political activities
	     Foreign policies
	     Elections
	     Foreign economic assistance
IDENTIFIER:  Kazakhstan
	     Kyrgyz Republic
	     Tajikistan
	     Turkmenistan
	     Uzbekistan
	     Soviet Union
	     Russia

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ns99200 GAO United States General Accounting Office

Report to the Chairman, Committee on International Relations,
House of Representatives

August 1999 FOREIGN ASSISTANCE

U. S. Economic and Democratic Assistance to the Central Asian
Republics

GAO/NSIAD-99-200

  GAO/NSIAD-99-200

United States General Accounting Office Washington, D. C. 20548
National Security and

International Affairs Division

B-283079 Letter August 11, 1999 The Honorable Benjamin A. Gilman
Chairman, Committee on International Relations House of
Representatives

Dear Mr. Chairman: This report responds to your request that we
examine the economic and democratic assistance that the United
States has provided to the Central Asian Republics of Kazakhstan,
the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan.
With the break up of the Soviet Union in 1991, the United States
has provided a broad foreign assistance program to these
republics, including development of market- oriented economies and
democracy building. Unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30
days after its issue date. At that time, we will send copies to
the Honorable Madeleine K. Albright, the Secretary of State; the
Honorable Harriet C. Babbitt, the Acting Administrator of the U.
S. Agency for International Development; and other interested
congressional committees. We will also make

copies available to others upon request. Please contact me at
(202) 512- 4128 if you or your staff have any questions about this
report. Other GAO contacts and staff acknowledgements are listed
in appendix II.

Sincerely yours, Benjamin F. Nelson Director, International
Relations and

Trade Issues

Lett er

Page 2 GAO/NSIAD-99-200 CAR Assistance

Executive Summary Purpose With the breakup of the Soviet Union in
1991, the five countries that comprise the Central Asian Republics
(CAR) 1 Kazakhstan, the Kyrgyz

Republic, Tajikistan, Turkmenistan, and Uzbekistan became
independent along with Russia and the other former republics of
the Soviet Union. The United States has important strategic
interests in CAR, including dismantling Kazakhstan's nuclear
arsenal; developing oil and gas reserves;

and helping stabilize a region surrounded by China, Iran, and
Russia. The FREEDOM Support Act of 1992 authorized a broad foreign
assistance program for the independent states of the former Soviet
Union that included development of market- oriented economies and
democracy

building. 2 Since fiscal year 1993, the U. S. Agency for
International Development (USAID) has provided about $274 million
for economic and democratic reform initiatives in the five
republics. Expressing concern about what USAID has accomplished in
CAR and USAID's oversight of its CAR programs, the Chairman, House
Committee on International Relations, asked GAO to determine  what
USAID's economic and democratic reform initiatives in CAR were

designed to achieve; what has been accomplished; and what factors,
if any, have limited the implementation of reforms;  whether
lessons learned from similar USAID programs in Central Europe 3
and Russia have been applied in CAR; and  how USAID ensures that
its assistance funds in CAR are spent for

intended purposes. Results in Brief USAID's economic and
democratic reform initiatives in the five republics

are designed to help develop market- oriented economies, increase
citizen participation in economic and political decision- making,
and promote more democratic and responsive governments. With USAID
and other donor

assistance, the CAR governments have made progress in this regard.
Most notably, Kazakhstan and the Kyrgyz Republic the two republics
most committed to reforms have privatized many small and medium-
sized, 1 CAR is a term of convenience applied by the Department of
State to the five independent republics and does not signify a
political or economic union among them. 2 The Freedom for Russian
and Emerging Eurasian Democracies and Open Markets Support Act of
1992, also known as the FREEDOM Support Act. (P. L. 102- 511, 106
Stat. 3320, 22 U. S. C. sec. 5801).

3 The Central European countries gained their independence from
the Soviet Union in 1989.

Lett er

Executive Summary Page 3 GAO/NSIAD-99-200 CAR Assistance

state- owned enterprises; implemented trade and financial reforms;
and developed nongovernmental organizations and independent
broadcast news stations to encourage greater citizen involvement
in governmental activities.

However, the goal of reaching a market- oriented democracy in each
of these five republics is decades away. Even those republics that
appear to have the greatest commitment to reform Kazakhstan and
the Kyrgyz Republic have not completed many reforms. For example,
both still have many large, state- owned enterprises that have not
been privatized and new tax codes that have not been effectively
enforced. With the exception of the Kyrgyz Republic, none have
supported key democratic reforms, such as holding fair and free
elections. Several important factors have affected the

implementation of reforms in all the republics, including long-
standing government corruption; inadequate resources to implement
and enforce new laws and regulations; inexperience in managing
market economies and democracies; and, most importantly, the
governments' limited commitment to implement comprehensive reforms
at the national level.

USAID's programs in CAR reflect numerous lessons learned from
similar programs in Central Europe and Russia. For instance, based
on efforts to privatize economies in Central European countries,
USAID designed an integrated program to privatize the CAR
economies, stressing simultaneous reforms in the fiscal, legal,
and financial sectors. Similarly, based on experience with
democratic reforms in Russia, USAID has focused on working with
citizen groups rather than with national political leaders and
institutions that are adverse to reforms.

To ensure that assistance funds are spent for intended purposes,
USAID requires that cognizant technical officers carry out various
project oversight requirements. Based on GAO's review of 14 CAR
projects, USAID

was meeting these requirements. Background Based on the FREEDOM
Support Act of 1992, the current U. S. strategy for CAR seeks to
have each country adopt and implement policies, laws, and

regulations that provide the framework for market- oriented
economies and

Lett er

Executive Summary Page 4 GAO/NSIAD-99-200 CAR Assistance

democratic societies. 4 The strategy provides the basis for
USAID's economic and democratic reform initiatives. Complicating
USAID's efforts, however, is the region's long history of
isolation. According to USAID, over 150 years of Russian and
Soviet domination left CAR isolated from western technology,
economic progress,

and political development. In addition, unlike the other newly
independent states (NIS) in the former Soviet Union and Central
Europe, CAR had no history as independent nation states. The
historical lack of citizen involvement in economic and government
decision- making has led to the underdevelopment of citizen
involvement with and experience needed to operate market- oriented
democracies. Consequently, CAR began the

transition process far behind the other former Soviet Union
states. Principal Findings USAID's Assistance Has Contributed to
Economic and Democratic Reforms

USAID, in conjunction with other donors and the host governments,
has helped the two republics most committed to reform Kazakhstan
and the Kyrgyz Republic begin the transition to market- oriented
democracies. USAID has concentrated its reform efforts on these
two republics, providing $150 million and $83 million,
respectively, since fiscal year 1992, or more than 85 percent of
USAID's economic and democratic assistance to CAR.

 USAID's overall economic reform strategy is to help the CAR
governments (1) privatize state- owned enterprises, (2) introduce
tax and budget reforms, (3) promote the growth of private
enterprise, and (4) improve the financial sector.  USAID's
democratic reform initiatives are aimed at promoting

democracy at the national level, increasing citizen participation
in economic and political decision- making, and advancing more
responsive local government.

USAID provided advisors, training, small grants, and some
equipment to assist both governmental and nongovernmental
organizations (NGO) in 4 United States Assistance and Economic
Cooperation Strategy for Central Asia (Washington, D. C.:
Department of State, July 1994).

Executive Summary Page 5 GAO/NSIAD-99-200 CAR Assistance

designing and implementing economic and democratic reforms. For
example, in Kazakhstan and the Kyrgyz Republic,  USAID helped
privatize 17,000 and 1,000 small to medium- sized,

state- owned enterprises, respectively; adopt modern tax codes;
enact commercial legislation; convert over 2,000 enterprises to
the use of international accounting standards; improve the banking
systems; and establish stock exchanges. In the Kyrgyz Republic,
USAID helped the government join the World Trade Organization.
USAID helped increase public participation in the political
process by developing over 2,500 NGOs; strengthening over 100
independent radio

and television news stations; and assisting in organizing town
hall meetings, political debates, and public hearings. USAID has
not provided much assistance to the other three republics. The
Turkmenistan and Uzbekistan governments generally have not been
committed to reforms, and civil strife has limited opportunities
to initiate reforms in Tajikistan. State and USAID rank
Tajikistan, Turkmenistan, and Uzbekistan as having made the least
progress in their transition to sustainable, market- oriented
democracies compared to other countries in NIS. Nevertheless,
USAID has assisted with some accomplishments in

each country, such as privatizing about 500 small state- owned
enterprises in Tajikistan, increasing the number of NGOs in
Turkmenistan, and implementing a modern tax code in Uzbekistan.
USAID and State officials said it could take decades before CAR's
transition to market- oriented economies is complete. USAID's
economic reform initiatives have been supported by the national
governments, at least in

part, because of the potential income from foreign investment and
resource development. Yet, despite the privatization of nearly
two- thirds of the small- and medium- sized enterprises in
Kazakhstan and the Kyrgyz Republic, many large enterprises are
still owned and operated by the governments. Moreover, many of the
laws and regulations that support a market- oriented economy are
either not being enforced or are

nonexistent new tax codes have not been effectively enforced, most
commercial legislation has not been fully implemented, and the
banking sector has not been fully reformed. In all the republics,
corruption is longstanding and pervasive. For example, unnecessary
export licensing processes remain a source of bribery and
corruption. With the exception of the Kyrgyz Republic, the CAR
governments have been slow to initiate democratic reforms because
they threaten the

Executive Summary Page 6 GAO/NSIAD-99-200 CAR Assistance

incumbent governments' control. Only the Kyrgyz Republic has
committed to hold free and fair elections at the presidential and
parliamentary levels. Democratic development is still
characterized by a lack of citizen involvement and government
controls over the broadcast news media have led to self-
censorship and a reluctance to report stories that might offend
public officials.

USAID Has Incorporated Lessons Learned From Other Similar Programs

USAID officials said that incorporating lessons learned from
Central Europe and Russia was inherent in the CAR program's design
and implementation, as illustrated by the following:  Based on
USAID's approach to privatization in Central Europe, USAID

designed an integrated plan for market development. USAID found in
Central Europe that five elements were essential to enable private
sector growth following privatization. These included the
development of (1) tax reform to support the financial obligations
of the government; (2) the legal framework for commercial, trade,
and investment activity; (3) accounting reform to provide credible
financial data for economic decision- making; (4) bank reforms to
provide the capital for private sector growth to improve corporate
governance; and (5) stock markets to help enterprises raise
capital. USAID incorporated each of these elements in its
development plan for the republics.  Based on USAID's experience
in Eastern Europe and Russia, USAID has

focused its democratic assistance on working with citizens to
develop a civil society that would push for democratic reforms
from the bottom up, rather than focusing on the national
government. USAID found in Russia that without the political
support of national leaders, assistance targeting national
institutions and political processes was not likely to achieve
democratic reform. USAID has adopted this strategy to establish
and support nongovernmental organizations to build

consensus for democratic reform and has purposely avoided
providing direct assistance to national governments that have not
been supportive of democratic reform.

These and other lessons applied in CAR were identified through
various studies, conferences, and staff experiences. Although the
use of lessons learned was envisioned from the start of the USAID
program in CAR, USAID is now taking steps to develop a more formal
system. USAID officials said such a system would help identify and
disseminate lessons learned more effectively than the current
system.

Executive Summary Page 7 GAO/NSIAD-99-200 CAR Assistance

USAID Is Meeting Its Oversight Requirements

USAID ensures that assistance funds are spent for intended
purposes through various project oversight requirements. USAID
regulations and guidance generally require its cognizant technical
officers to maintain communications with contractors and grantees,
conduct site visits to verify work performance, and review
programmatic and financial reports to compare actual progress and
costs against expected results and costs. GAO reviewed seven
economic and seven democratic reform projects in

CAR and found that USAID had complied with its oversight
requirements. 5 Recommendations GAO is not making any
recommendations in this report. Agency Comments The Department of
State and USAID were provided a draft of this report for comment.
USAID provided written comments (see app. I), which State

said it concurred with. USAID also provided technical comments
that we have incorporated, as appropriate. In its written
comments, USAID noted that the report makes a number of important
points about the region and does a good job of describing USAID's
efforts in CAR. USAID also provided a listing of recent changes in
CAR that are not specifically addressed in the report.

5 Funding for the economic reform projects selected represented
$136 million or 6 2percent of the total economic assistance to CAR
since fiscal year 1992. Funding for the democratic reform projects
selected represented $32 million or 60 percent of the funding for
democratic assistance since fiscal year 1992.

Page 8 GAO/NSIAD-99-200 CAR Assistance

Contents Executive Summary 2 Chapter 1 Introduction

10 U. S. Economic and Democratic Reform Strategies 10 Historical
Constraints to Development 12 The Central Asian Republics 12
Objectives, Scope, and Methodology 14

Chapter 2 USAID's Assistance Has Contributed to Economic and
Democratic Reforms

16 Economic Reforms 16 Democratic Reforms 25 CAR's Economic and
Democratic Transitions Are Far From Complete 31 Conclusions 33

Chapter 3 USAID Has Incorporated Lessons Learned in Its Car
Programs

35 Lessons Learned 35 USAID Is Formalizing Its Lessons Learned
Process 37

Chapter 4 USAID Complied With Its Oversight Requirements

38 Communications 39 Site Visits 39 Performance and Financial
Reports 40 Files 41

Appendixes Appendix I: Comments From the U. S. Agency for
International Development 42 Appendix II: GAO Contacts and Staff
Acknowledgments 46

Table Table 1.1: USAID Obligations for CAR Economic and Democratic
Assistance Programs by Country, Fiscal Years 1992- 98 11

Contents Page 9 GAO/NSIAD-99-200 CAR Assistance

Figures Figure 1. 1: Map of the Central Asian Republics 13 Figure
2.1: Ratings of Economic Policy Reforms and Democratic

Freedom in Central Europe and NIS 32

Abbreviations

CAR Central Asian Republics CTO cognizant technical officer IMF
International Monetary Fund NGO nongovernmental organization NIS
newly independent states USAID U. S. Agency for International
Development WTO World Trade Organization

Page 10 GAO/NSIAD-99-200 CAR Assistance

Chapter 1 Introduction Chapt er 1

Significant economic, political, and security interests have
shaped U. S. assistance to the five Central Asian Republics (CAR)
Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and
Uzbekistan. In addition to furthering the nuclear disarmament of
Kazakhstan, U. S. interests in CAR

include (1) promoting market- oriented economic reforms; (2)
establishing democratic political institutions; (3) developing
energy resources in the region; and (4) fostering regional
stability, including the movement toward

greater integration with western and international institutions.
This report examines the U. S. Agency for International
Development's (USAID) assistance program to help each of these
republics develop market- oriented economies and make the
transition from communism to

democracy. Since fiscal year 1992, USAID has provided about $274
million to assist CAR in this transition. U. S. Economic and
Democratic Reform Strategies

The FREEDOM Support Act of 1992 authorized a broad foreign
assistance program for the independent states of the former Soviet
Union that included development of market- oriented economies and
democracy

building. The current U. S. strategy for CAR forms the basis for
USAID economic and democratic reform initiatives. 1 The strategy
seeks to have each country adopt and implement policies, laws, and
regulations that provide the framework for market- oriented
economies and democratic societies. Specifically, the strategy
calls for

 competitive, market- oriented economies in which the majority of
economic resources are privately owned and managed and
transparent (open) and accountable governments and the empowerment
of citizens, working through civic and economic organizations that
ensure broad- based participation in political and

economic life. The U. S. strategy recognized the importance of
other donors in the region, including the International Monetary
Fund (IMF), the World Bank, and the European Bank for
Reconstruction and Development. These institutions

have provided CAR over $4.3 billion in financial assistance since
1992, and significantly influence economic reforms by setting
certain requirements or conditions for their loans and grants. The
strategy called for systematic in- country coordination with these
and other donors to avoid duplication,

1 United States Assistance and Economic Cooperation Strategy for
Central Asia (Washington, D. C.: Department of State, July 1994).

Lett er

Chapter 1 Introduction

Page 11 GAO/NSIAD-99-200 CAR Assistance

to assure consistency in programming and advisory services, and to
leverage U. S. resources.

USAID has developed strategic objectives, action plans, and
strategies for its own programs to implement the U. S. strategy.
Table 1.1 illustrates USAID funding for its economic and
democratic reform initiatives in CAR

for fiscal years 1992- 98.

Table 1.1: USAID Obligations for CAR Economic and Democratic
Assistance Programs by Country, Fiscal Years 1992- 98

Note: Obligations are commitments to provide federal funding
resulting in the immediate or future outlay of funds.

Source: U. S. Government Assistance to and Cooperative Activities
With the New Independent States of the Former Soviet Union, Fiscal
Year 1998 Annual Report (Washington, D. C.: the Office of the
Coordinator of U. S. Assistance to NIS).

The strategy also stated that the size and type of the U. S.
assistance were expected to reflect the extent to which national
leaders demonstrated a commitment to reforms. USAID has
concentrated its economic and democratic reform efforts in
Kazakhstan and the Kyrgyz Republic the two republics most
committed to reform. USAID has limited its assistance to
Turkmenistan and Uzbekistan because of their lack of commitment to

reforms, while Tajikistan has had few opportunities to initiate
reforms due to civil strife. USAID does not provide U. S. funds
directly to the CAR governments.

Instead it funds U. S. contractors and grantees that, in turn,
provide technical assistance, small grants, and equipment to CAR
government agencies and nongovernmental organizations (NGO)
involved in economic

and democratic reforms. For example, USAID hired experts to advise
CAR ministries on drafting laws needed to privatize the state-
controlled

Dollars in millions

Country Economic reform Democratic

reform Total Percentage of total

Kazakhstan $122 $28 $150 55 Kyrgyz Republic 70 13 83 30 Tajikistan
3 4 7 2 Turkmenistan 3 2 5 2 Uzbekistan 23 6 29 11 Total $221 $53
$274 100

Lett er

Chapter 1 Introduction

Page 12 GAO/NSIAD-99-200 CAR Assistance

economy. USAID advisors also worked with citizen groups to help
develop NGOs and provide advice and equipment needed to establish
independent broadcast news stations. Historical Constraints to
Development

According to State and USAID, CAR is the most undeveloped region
in the newly independent states (NIS) of the former Soviet Union.
None of the countries had experience with market- oriented
economies or democratic governments before the breakup of the
Soviet Union. First Russian and then Soviet, domination left the
area isolated from western technology, economic progress, and
political development.

As a result, according to State and USAID, the development of
market economies requires major changes in attitude and incentive
systems for individuals as well as businesses. For example, USAID
officials pointed out that in three out of the five republics,
current leadership continues in the hands of former Communist
Party chairmen who have recast themselves as national leaders,
renamed the party, and were elected unopposed or with limited
opposition. In general, according to State, the parliaments remain
dominated by these national leaders, and there is little
understanding of large- scale, rule- based democracy among the
general public, who are largely disinterested in politics. The
Central Asian

Republics With the breakup of the Soviet Union, the United States
and other countries recognized CAR's strategic location and
largely untapped natural resources. Figure 1.1 illustrates the
region's geographic significance, with

CAR bordering China, Iran, and Russia.

Chapter 1 Introduction

Page 13 GAO/NSIAD-99-200 CAR Assistance

Figure 1.1: Map of the Central Asian Republics

Following is a brief description of each of the republics.
Kazakhstan is the ninth largest country in the world and stretches
from

Mongolia to the Caspian Sea. It has large reserves of oil, gas,
and minerals. Its size, location, and overall political and
economic stability have made Kazakhstan an important regional
force. Despite being a very large country, Kazakhstan has a
population of just under 15 million, according to a recent census,
with a per capita income of $1,300.  The Kyrgyz Republic is a
small, mountainous country situated south of

Kazakhstan and west of China. It is landlocked, with few natural
resources and limited industrial and agricultural production. The
United States considers the Kyrgyz Republic an enthusiastic
regional Russia

China Iran

Kazakhstan

Caspian Sea Afghanistan

Kyrgyz Republic

Tajikistan Uzbekistan

Ashgabat Tashkent

Dushanbe Bishkek

Almaty Tashkent

Almaty Ashgabat

Kazakhstan Turkmenistan

Aral Sea

Chapter 1 Introduction

Page 14 GAO/NSIAD-99-200 CAR Assistance

reformer and views it as a laboratory for demonstrating the
effectiveness of market- oriented democratic reforms. Its
population of 4.5 million has a per capita income of $440.

 Tajikistan is bordered by Afghanistan, China, the Kyrgyz
Republic, and Uzbekistan. Civil war broke out in 1992 and, despite
a 1997 peace accord, continued fighting poses a challenge to peace
in the republic. U. S. assistance is primarily focused on
humanitarian aid and promoting the peace process. Tajikistan's 6
million citizens have a per capita

income of $330.  Turkmenistan is primarily a desert country, which
borders Iran and

Afghanistan. Turkmenistan possesses the world's fourth largest
known reserves of natural gas and significant reserves of oil.
Turkmenistan's population of 4. 4 million has a per capita income
of $630.

 Uzbekistan borders the other four republics. The Department of
State views Uzbekistan as central to maintaining the stability and
independence of the region. Uzbekistan's 22 million population is
the largest in CAR, and its relatively large market is viewed as a
potential launching point for commercial expansion in the region.
Uzbekistan's per capita income is $1,000. Objectives, Scope, and
Methodology

To determine what USAID's economic and democratic reform
initiatives were designed to achieve, what has been accomplished,
and what factors have limited their implementation, we reviewed
program documents, including State and USAID strategy documents
and project assessments. We also interviewed State and USAID
officials in Washington D. C., who designed and managed the
program, and met with headquarter representatives of key USAID
contractors and grantees involved with projects in CAR. Our
references to and observations about CAR or former Soviet Union
laws and regulations are based on interviews with USAID and

CAR government officials and other secondary sources, rather than
our own independent legal analysis.

In Kazakhstan and the Kyrgyz Republic, which accounted for about
85 percent of USAID's economic and democratic reform assistance to
CAR, we reviewed USAID documents discussing accomplishments and
impediments, survey data, and independent evaluations of USAID's

economic and democratic reform efforts. We also met with the U. S.
Ambassador to the Kyrgyz Republic; the U. S. Charg d'Affaires in
Kazakhstan; the USAID Director for CAR; various USAID project
officers and USAID's in- country contractors and grantees; and
host government officials, including members of parliament, the
Supreme Court, and

Chapter 1 Introduction

Page 15 GAO/NSIAD-99-200 CAR Assistance

government ministries. We visited project sites and observed
training sessions to see how transition activities were
implemented and to discuss the views of the recipients of USAID
assistance. To determine whether USAID applied lessons learned to
its country

programs in CAR, we reviewed program documents and evaluations of
USAID's assistance programs in Central Europe and Russia and
compared the strategy and program implementation with those of
CAR. We interviewed USAID officials in Washington, D. C.;
Kazakhstan; and the Kyrgyz Republic and analyzed program documents
to catalogue examples of lessons learned. In the region, we
attended regularly scheduled discussions hosted by the USAID
mission with its contractors and grantees

to see how program experiences were communicated and coordinated.
Finally, we reviewed documentation used by USAID to identify and
communicate lessons learned.

To determine how USAID ensures that its assistance funds in CAR
are spent for intended purposes, we reviewed relevant federal
regulations including Office of Management and Budget circulars;
Federal Acquisition Regulations; and USAID regulations and
guidance for contracts, grants, and cooperative agreements. To
assess USAID's compliance with its oversight requirements, we
selected seven economic and seven democratic reform projects as
case studies. Funding for the economic reform projects selected
represented $136 million or 5 9percent of the total economic
assistance to CAR since fiscal year 1992. Funding for the
democratic reform projects selected represented $32 million or 64
percent of the

funding for democratic assistance since fiscal year 1992. To
determine if USAID was complying with USAID regulations, we
reviewed the 14 project files; observed meetings between USAID and
its contractors and grantees;

conducted site visits; and interviewed contractors and grantees,
cognizant technical officers, and USAID Office of Procurement
officials. We conducted our review from July 1998 to June 1999 in
accordance with

generally accepted government auditing standards.

Page 16 GAO/NSIAD-99-200 CAR Assistance

Chapter 2 USAID's Assistance Has Contributed to Economic and
Democratic Reforms Chapt er 2

In working with other donors and the CAR governments, USAID has
assisted with a number of economic and democratic achievements in
all the republics. These include privatization of small and
medium- sized state- owned enterprises; trade, investment, and
financial reforms; and the development of NGOs and independent
broadcast news stations to promote reforms. However, most of the
achievements have occurred in Kazakhstan and the Kyrgyz Republic
the two republics most committed

to reforms. Officials from CAR governments and local NGOs said
that USAID assistance was instrumental in furthering these
achievements.

USAID and State officials said it could take decades before CAR's
transition to a market- oriented democracy is complete. Even in
Kazakhstan and the Kyrgyz Republic, many large enterprises are
still owned by the

governments; new tax codes have not been effectively enforced;
most commercial legislation has not been fully implemented; and
the financial sectors have made few loans. With the exception of
the Kyrgyz Republic, none of the countries have instituted
critical democratic reforms at the national level, such as holding
fair and free elections for the heads of

government, or endowing the legislative representatives with the
independence or authority to challenge the executive branch.
Furthermore, Tajikistan, Turkmenistan, and Uzbekistan have not
demonstrated a commitment to implementing comprehensive reforms.

USAID and State officials cited several factors that have impeded
reforms, including long- standing government corruption, the lack
of resources to implement and enforce new laws and regulations,
and the governments' limited commitment to implement comprehensive
reforms at the national

level. Economic Reforms CAR's command economies and its economic
dependence on Russia present major challenges to the development
of market economies in CAR. The historical lack of citizen
involvement in economic decision- making has

led to the underdevelopment of citizen involvement with and
experience needed to operate market- oriented economies. USAID's
efforts to promote economic reform have been impeded by these
historical constraints, as well as by the resistance of CAR
governments to make comprehensive economic reforms.

To facilitate CAR's transition to a market- oriented economy,
USAID initiated programs to help the governments (1) privatize
state- owned enterprises, (2) introduce tax and budget reforms,
(3) improve the trade

Lett er

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and investment climate, and (4) develop the financial sector.
Although USAID has provided assistance to all five republics, it
has focused on Kazakhstan and the Kyrgyz Republic because they
have been more supportive of reform.

USAID has helped the governments of Kazakhstan and the Kyrgyz
Republic begin creating the foundation for market economies. Both
have privatized most of their state- owned enterprises; passed
market- oriented laws to spur

commerce, trade, and investment; and created the basic
institutions needed for banking and capital markets activities.
However, the complete transition to market- oriented economies is
decades away. Impediments

include the limited government commitment to comprehensive
economic reforms, inexperience in operating a market economy,
insufficient resources to pay the costs associated with
implementing new institutions and laws, and pervasive corruption
in the region.

Privatization of State- owned Enterprises

In CAR, as in the rest of the Soviet Union, Moscow's central
planners established production patterns based on political
objectives rather than economic efficiencies. Free enterprise was
not permitted, and monopoly production through giant state
enterprises dominated economic activity, skewing incentive
structures, misallocating resources, and encouraging wasteful
production patterns. The privatization process sought to break the
linkage between the government and enterprises to allow private
sector activity to develop.

In its strategy, State considered privatization of state- owned
enterprises to be the single most important element in the
economic transformation of the region. Privatization was needed to
transfer the majority of economic resources from the CAR
governments to the private sector. USAID's assistance aimed to
help CAR governments design and implement privatization programs.
This included providing experts to help the

governments put in place policies to promote competitive
privatization procedures, such as methodologies to determine the
value of state- owned enterprises, and procedures to accelerate
their sale. They also trained local staff that worked closely with
their government counterparts to help implement and monitor
enterprise sales during the privatization process. The degree of
privatization has varied based on the governments' commitment to
reforms. Kazakhstan, the Kyrgyz Republic, and to a lesser extent,
Tajikistan, have been the most committed to privatization. For

example,

Lett er

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 Kazakhstan privatized over 17,000 small- and medium- sized state-
owned enterprises by the end of 1997, or nearly 70 percent of all
state- owned enterprises in the country;  the Kyrgyz Republic
privatized approximately 1,000 enterprises by the end of 1996, or
about 70 percent of small- and medium- sized enterprises;

and  Tajikistan privatized 500 small enterprises by the end of May
1998, and an estimated 65 percent of the small enterprises are now
in the private sector, with the government planning to complete
privatization of these small enterprises by the end of March 1999.

However, Kazakhstan and the Kyrgyz Republic have backed away from
their commitment to privatize their largest, most profitable,
state- owned enterprises, including those in the energy and
mineral sectors. USAID considers privatizing these enterprises
critical to the overall success of the economic reform efforts
because of the potential foreign investment value

and potential contribution to their respective countries' tax
base. USAID and State officials said that corruption was a key
factor in the governments' retrenchment, as it would reduce
government officials' ability to control

the enterprises for kickbacks and profit skimming. Tajikistan has
not privatized many of its medium- and large- scale enterprises,
and the process has been plagued by problems, such as how to value
the enterprises. According to USAID/ CAR 1 officials, Tajikistan
has recently begun planning to privatize additional enterprises in
response to deadlines required to meet World Bank loan
requirements. Turkmenistan has rejected advice on

privatization from USAID, the World Bank, and IMF because it lacks
the commitment to reforming its economy.

Tax and Budget Reforms Under the Soviet Union, tax systems often
stymied the growth of private enterprise through excessive
taxation, and none of the CAR governments had experience
overseeing a decentralized, voluntary, compliance- based

tax regime. Local governments were dependent on subsidies from the
national governments and lacked the autonomy or the authority to
raise and spend revenue on its needs. Annual budget allocations
were based on ad hoc adjustments to traditional expenditure
patterns, and performance- based budgeting was nonexistent.

1 We use USAID/ CAR to refer to USAID's mission for CAR located in
Almaty, Kazakhstan. USAID/ CAR manages USAID's programs in all
five republics.

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USAID's action plan considered tax and budget reforms as necessary
to help create a stable macroeconomic environment. USAID focused
its efforts at the national level on (1) implementing modern tax
codes and improving tax administration, (2) rationalizing the
finance system between national and local governments, and (3)
improving budget planning and implementation.  In the tax reform
area, USAID advisors provided technical support to

the governments in the development of the new tax codes, provided
technical support and training on tax administration, developed a
strategy to automate tax administration, and helped develop
software

for the automated system.  For fiscal decentralization, USAID
provided advisory support and training to promote basic fiscal
decentralization.  In the budget reform area, USAID provided long-
term advisors and

training support designed to help the governments rationalize
their expenditure process and provided technical expertise in the
development of a budget process law designed to rationalize the
annual budgeting process and modernize the budget classification
systems. With USAID assistance, Kazakhstan, the Kyrgyz Republic,
and Uzbekistan

became the first countries in NIS to adopt modern tax codes,
enacting the new codes in 1995, 1996, and 1998, respectively.
Kazakh and Kyrgyz officials said USAID assistance, which included
drafting the new codes and providing training for its
administration, was instrumental in gaining these

achievements. Despite the enactment of the new tax codes, tax
collection has not improved in Kazakhstan or the Kyrgyz Republic.
According to USAID, these governments have not developed the
strong tax administration capabilities necessary to improve tax
collection efforts, and

must substantially improve their tax collection to maintain
macroeconomic stability. USAID is working with these governments
to make these improvements but has been stymied by funding
limitations and government resistance to fully implementing
reforms.

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USAID officials also stated that the governments had made little
progress on intergovernmental finance and budget reforms. For
example, accordingto a 1998 USAID report, 2 the following
conditions existed:

 In Kazakhstan, the government was not committed to reforming its
intergovernmental finance and fiscal analysis systems, and in
budget reforms, the Ministry of Finance was resisting changing
expenditure norms. In addition, ministry officials were unwilling
to implement cash control systems necessary to prevent a
commitment of funds beyond available resources.  The Kyrgyz
Republic had not proceeded with reforms of

intergovernmental finance or the budget systems, despite
assistance from USAID, the World Bank, and others. This was due,
in part, to the relatively poor economic conditions of the local
governments, which reduced their ability to implement reforms. As
for budget reforms, the lack of automated systems reduced the
government's ability to produce accurate budget reports. More
recently, according to USAID/ CAR officials, the situation has

improved in both countries, with USAID helping the governments
develop program budgeting. USAID advisors are also helping to
draft a law on intergovernmental finance in Kazakhstan.

Nevertheless, according to USAID/ CAR officials, these reforms
would have proceeded much more quickly if government bureaucracies
in both Kazakhstan and the Kyrgyz Republic were less corrupt and
less reluctant to cede power over funding sources. Regarding
intergovernmental reforms, the Kazakhstan government has not
wanted to decentralize control, while in the Kyrgyz Republic, the
problem is the relative poverty of most regions five of the seven
Kyrgyz regions are financed by the remaining

two, providing few options for a systematic solution. In addition,
budget reforms are considered more difficult to make than tax
reforms because there is little public interest in reforming a
system that most people know little about. USAID officials said
that both national and local government ministries have resisted
the development of transparent budgets, fearing that it could lead
to budget reductions. This occurred in Turkmenistan, for example,
where USAID's fiscal reform program has made limited progress
because, in part, ministries refused to reveal their real
expenditures.

2 Strategic Review of Fiscal Reforms in the NIS (Washington, D.
C.: USAID, Oct. 1998).

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Improving the Investment Climate

Under the Soviet Union, laws provided little protection for
private property or investor rights, which dampened the
willingness of domestic and foreign investors to invest in CAR.
USAID is helping the CAR governments create the legal and
regulatory systems needed to establish a stable investment climate
for private enterprise. USAID's assistance is aimed at helping the

governments (1) draft, pass, and implement key commercial laws and
regulations; (2) join the World Trade Organization (WTO) which
would help promote passage of commercial laws and help integrate
the countries with international trade organizations; (3)
implement international accounting

standards to promote transparency and investment and improve
management capability; and (4) improve the customs services to
increase foreign investment. Commercial Laws The lack of
commercial, trade, and investment laws has been a major impediment
to the development of market- oriented economies in CAR. USAID's
commercial law initiative is designed to put the legal and

regulatory framework in place to promote commercial transactions
and spur local and foreign investment in CAR.

With USAID assistance, Kazakhstan and the Kyrgyz Republic have
adopted a number of commercial laws. For example, the Kyrgyz
Republic passed a modern civil code (with sections on contracts,
leasing, and intellectual property), as well as laws on
collateral, bankruptcy, customs, procurement, and foreign
investment. A judge on the Kazakhstan Supreme Court, as well as
the Director of the Legal Department in the Kyrgyz White House,
both of

whom had participated in the reform efforts, said that USAID
assistance was critical in the development and passage of their
country's new commercial laws. According to USAID, these laws
provide a basic framework for commercial activity. According to
USAID, neither government has fully implemented most of the new
laws or developed the institutional capacity to enforce them.
USAID officials said that the governments do not have the
necessary funds to publish and disseminate new laws and
regulations. Nor do the governments have adequate funds to train
the thousands of administrators necessary to interpret and enforce
the new laws and regulations.

Furthermore, the governments have yet to establish an enforcement
system for the efficient adjudication of commercial disputes.

World Trade Organization Accession USAID has supported CAR efforts
to join WTO as a way to promote a greater understanding of and
commitment to trade and investment

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liberalization. 3 USAID/ CAR officials have also encouraged WTO
membership as a means to cement links with critical international
institutions and to pursue policy dialogue on a number of
investment issues. These include the passage of commercial laws on
intellectual

property rights, contracts, licensing, customs, tax
administration, bankruptcy, and collateral. USAID has provided
technical assistance and training support to encourage a range of
investment reforms that are crucial for the economic growth
prospects in CAR. USAID also provided assistance to help
interested governments draft WTO membership documents and
technical support to prepare the governments for negotiations with
WTO on membership.

With USAID assistance, Kazakhstan, the Kyrgyz Republic, and
Uzbekistan, have taken their initial steps toward WTO membership.
In 1998, the Kyrgyz Republic became the first country in the
former Soviet Union to join WTO. According to a director in
Kazakhstan's Ministry of Energy, Industry, and Investment, as well
as the Deputy Minister for Economic Policy in the Kyrgyz White
House, USAID advisors played an indispensable role both in helping
the countries' progress toward WTO membership and in

encouraging overall trade and investment reforms. Despite progress
toward WTO membership by Kazakhstan, it missed a 1998 self-
imposed goal to join WTO and failed to adopt key trade and
investment- related legislation. USAID/ CAR officials attributed
this delay to pressure from Russia not to join WTO before Russia
does, which, according to USAID officials, will not occur in the
foreseeable future. Uzbekistan submitted its application for WTO
membership but has not passed key commercial legislation necessary
for membership. According to USAID officials, USAID has provided
no assistance to Tajikistan because of the ongoing civil strife,
and Turkmenistan has not made a commitment to join WTO.

International Accounting Standards

When CAR gained its independence, the republics had no
standardized, credible financial data with which to make rational
economic decisions. Without accurate, reliable financial data,
private domestic and foreign

firms, banks, and governments cannot make key business decisions.
3 WTO is a multilateral organization that provides the legal and
institutional framework for the international trading system. It
also serves as a forum for international trade negotiations.

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To help provide accurate financial information, USAID has
encouraged CAR to adopt International Accounting Standards as a
means to attract international investment. USAID officials said
that accounting standards are critical for potential investors to
analyze and act on investment opportunities and for enterprise
management's decision- making. USAID helped the governments
implement the standards. In late 1996, Kazakhstan became the first
of the former Soviet Republics to adopt International Accounting
Standards, and as of December 1998, 1,500 Kazakhstani enterprises
had converted to the new standards. In January 1998, the Kyrgyz
Republic became the second country in NIS to adopt the standards.
USAID helped the Kyrgyz Republic convert approximately 800
enterprises to the new standards and trained over

260 accounting specialists in training institutions, audit and
accounting firms, and enterprises undergoing conversions on how to
implement the new standards. However, USAID has not yet succeeded
in establishing fully functional self- regulatory organizations
required to develop and enforce professional standards for the
accountants and auditors needed to fully implement the

new standards. According to USAID/ CAR officials, however,
significant progress has been made in both Kazakhstan and the
Kyrgyz Republic in this area during the first half of 1999.

Customs Reforms To facilitate trade and investment, USAID has
provided technical assistance to improve customs procedures in
CAR. For example,

 Kazakhstan adopted rules to improve customs processing and has
eliminated export tariffs and the requirement to register exports;
the Kyrgyz Republic passed laws to eliminate repetitive and

burdensome licensing requirements; and  Uzbekistan passed both a
customs code and a customs tariff law, as well as issuing
implementing regulations on customs valuation.

According to USAID/ CAR officials, corruption and the lack of
political commitment to fully implement the new laws and complete
additional reforms have hampered progress. In both Kazakhstan and
the Kyrgyz Republic, the licensing process remains a source of
bribery, with chaotic procedures and no standardization of
requirements across ministries. Unnecessary licensing requirements
remain both as obstacles to investment and sources of corruption.
USAID officials also said that the governments lack adequate funds
for training customs officials and do not

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normally provide funding for the printing and distribution of new
laws and regulations. The Director of the Legal Department of
Kazakhstan's Customs Committee said that, as a result, customs
officers are not always aware of new laws or regulations or
understand how to interpret them.

Improving the Financial Sector

Key financial institutions, such as banks and capital markets, did
not exist in the western sense in CAR. In response, USAID adopted
two initiatives, banking reform and capital markets development,
to promote private sector growth. According to USAID's strategy,
these were needed to provide (1) new sources of capital to
enterprises as they restructured under

private ownership, (2) investors with accurate information on the
financial status of newly privatized enterprises and (3)
mechanisms for capital to flow to profitable enterprises and away
from nonviable ones. Banking Reforms With USAID assistance,
Kazakhstan and the Kyrgyz Republic have

strengthened their financial sector through banking reforms.
Central bank representatives from both countries said that USAID
provided critical assistance in helping the banks implement
international banking regulations and enhance their monitoring of
commercial banks. These officials said that, as a result of these
reforms, the health of the commercial banks has improved. For
example,  the Kazakhstan Central Bank closed insolvent banks and
reduced the

number of banks from 230 to 75 to improve capitalization through
implementation of stricter licensing procedures; and  the Kyrgyz
National Bank implemented new capital adequacy

requirements and closed insolvent banks; as a result, the number
of banks meeting the new capital requirements rose to 85 percent
in 1997 compared to 42 percent in 1995. Despite these
achievements, banking reforms are far from complete. In both
Kazakhstan and the Kyrgyz Republic, the banking sector is lending
at very low levels, with an adverse impact on business
development. USAID and the central banks lack adequate funds to
completely implement

additional reforms, and the governments have not fully committed
to supporting these reforms. For example, the Kyrgyz Republic has
yet to complete the automation of its accounting system, adopt a
modern payments system law, and implement an efficient electronic
payments system for the banking sector.

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Capital Markets Development Institutional mechanisms for raising
capital through equity or secured debt did not exist in CAR.
USAID's strategy was to provide technical assistance and training
support to the reform- minded governments in CAR to help develop
key laws and institutions needed for securities markets, including
a stock exchange, broker- dealer associations, and national
securities commissions.

USAID assistance has helped Kazakhstan, the Kyrgyz Republic, and
in a very limited way Uzbekistan develop and implement the laws,
regulations, and infrastructure necessary to establish capital
markets. USAID officials said that, despite these achievements,
none of the three stock exchanges are fully developed.

 Activity on the markets is low due to public mistrust and limited
savings and, more recently, the Asian and Russian financial crises
and the resulting capital flight from the emerging markets.  Both
the Kazakhstan and Kyrgyz governments have pulled back from their
plans to offer high- quality shares of state- owned enterprises
for sale through the stock exchanges. USAID/ CAR and U. S. embassy

officials in Kazakhstan and the Kyrgyz Republic attributed these
decisions to corruption associated with government control over
these lucrative state- owned enterprises, as well as to low prices
associated

with the slump in the global commodities markets.  For a while,
the Kyrgyz Republic was not able to bring gray market (outside of
the exchange) trading into the stock market. In May 1999,

however, the Kyrgyz Republic ended this activity, which accounted
for a significant percentage of trading. In order to enhance the
prospects for sustainability, a Presidential Decree stipulated
that all trading shall be conducted through the exchange.
Uzbekistan has maintained government control over the securities

regulatory body, the central depository, and the stock exchange.
According to USAID officials, this is a clear conflict of
interest, and as a result, these institutions have not developed.

Democratic Reforms CAR's closed political systems, combined with
the dual legacy of communism and CAR's centralized regimes,
present major challenges to democratic development. The lack of
citizen involvement in government decision- making has led to the
underdevelopment of a civil society and fostered the belief that
citizens have little ability to influence government decisions
affecting their daily lives. USAID's efforts to promote democratic

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reform have been impeded by these historical constraints as well
as by the resistance of CAR governments to make the necessary
changes.

As a result, USAID has focused its assistance on CAR citizens, as
opposed to national institutions, in an effort to develop a broad-
based consensus for democratic change. USAID is promoting
increased and better- informed citizen participation in political
and economic decision- making. To meet this goal, USAID has (1)
targeted national pro- reform officials to promote democratic
reforms, (2) helped develop NGOs to lobby for reforms, (3)
increased independent news media to better inform CAR citizens,
and (4) recently initiated a program to promote democratic reforms
at the local government level.

Promoting Effective Government at the National Level

USAID has sought to increase the CAR governments' transparency,
responsiveness, and accountability to its citizens by assisting
newly elected legislatures, judicial bodies, and electoral
commissions to organize and carry out their functions. USAID
worked to support the development of democratic institutions and
practices within national governments (except in Turkmenistan) by
targeting pro- reform government officials for assistance. USAID
provided (1) training and technical assistance to improve
parliamentary practices and legislative drafting; (2) legal
resource

and judicial training centers in order to help organize the legal
system, improve training, and adopt ethical codes of conduct; and
(3) electoral law development and civic/ voter education in
preparation for upcoming local, parliamentary, and presidential
elections.  In Kazakhstan, USAID focused its democracy assistance
on areas

outside of national government institutions, concluding that the
government would not support democratic reforms. The Kazakhstan
government is dominated by its president, who was recently
reelected to a second 6- year term. However, the primary
opposition candidate was not allowed to run in the election, which
the U. S. embassy considered

flawed. Despite the government's resistance to democratic reforms,
USAID has had some recent successes in promoting government
accountability, including staging a debate where parliamentary
candidates discussed issues in a nationally televised broadcast
for the first time.  The Kyrgyz Republic is considered the most
open and democratic country in the region and, unlike in the other
republics, USAID has provided technical assistance and training to
the parliament and

judiciary. For example, USAID training and liaison support
increased

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the capacity of the parliament to initiate and draft legislation.
USAID also played an active role in persuading members of the
parliament to meet with their constituents and allow USAID-
assisted NGOs to contribute to the legislative process.
Tajikistan is still emerging from over 6 years of civil war. A
peace

accord signed between the government and the opposition in June
1997 formally ended the civil war. However, splinter groups and
warlords fighting over the drug trade have continued to
destabilize the country. Due to the political situation, USAID has
focused its democracy activities in Tajikistan on promoting and
supporting the peace process.

However, USAID also provided guidance on constitutional and
judicial reform issues and assisted the government in developing a
voter registration system to promote elections to meet
international

standards.  In Turkmenistan, the president has dominated the
national government since his days as head of the Communist Party
in 1985. According to State, the president has retained power over
the judiciary and a 50- member parliament. Given this, USAID has
limited democracy programs in Turkmenistan.  In Uzbekistan, USAID
has made limited progress assisting the

government in becoming more transparent and accountable to its
citizens. According to State, Uzbekistan is ruled by a highly
centralized presidency, comprised of the president and a small
circle of advisers. Nonetheless, USAID's efforts recently resulted
in the formation of a judges' association and its adoption of a
code of ethics, signs that provide some encouragement for future
reform initiatives.

With the exception of the Kyrgyz Republic, CAR's governments have
resisted opening and liberalizing government and have impeded
USAID's efforts to promote democracy at the national level. As a
result, USAID attempted only modest reform efforts to achieve this
goal and targeted its assistance in areas where it was most likely
to achieve positive results.

Government officials in the region were largely holdovers from the
Soviet period. State officials noted that these officials were
generally tolerant only to democracy initiatives that were not
perceived as threats to their control and so have largely resisted
democratic reforms at the national level.

Developing NGOs Because USAID views CAR as lacking the political
commitment to institute democratic reforms at the national level,
it has focused on promoting democracy by increasing citizen
participation through the development of

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NGOs. According to USAID, the underlying rationale for this
approach is that systemic reforms cannot be forced upon a
government. If the political will to reform does not exist at the
national level, then primary emphasis needs to be placed on local
level reforms. USAID has worked with NGOs that are active across a
wide spectrum of disciplines, from economic to social development.
A growing number are

involved in public advocacy efforts and, through targeted USAID
training and technical assistance, have demonstrated a capacity
for developing governmental relations, providing public education,
and performing community organizing. For example, a film
documentary on tuberculosis produced by a public advocacy
organization led the Kazakhstan

government to initiate a tuberculosis eradication campaign. Also,
an NGO in the Kyrgyz Republic that 2 years ago was unable to
obtain an appointment with government officials now has its
counterparts in the government regularly travel to the
organization's offices to coordinate with them on consumer rights
legislation and regulations.

USAID's effort to develop the CAR's NGO sector has achieved
measurable results. Less than 5 years ago, the only NGOs were
social welfare organizations connected with the government and a
limited number of environmental groups. At the end of 1998, over
2,500 were active in CAR 609 in Kazakhstan, 870 in the Kyrgyz
Republic, 515 in Tajikistan, 117 in Turkmenistan, and 439 in
Uzbekistan an increase of 65 percent from 1996. USAID played a
critical role in the development of these NGOs by providing
training, technical assistance, legislative drafting, and legal
support.

Despite these achievements, the NGOs in CAR still have funding and
other problems that challenge their viability. The majority of
NGOs are dependent on external financing to maintain operations
and activities.

Most organizations have low memberships and a narrow constituency
base. The majority of these organizations which are predominantly
located in the capitals and some major cities have an urban bias
and underserve rural areas. USAID officials told us that pending
legislation in several of the CAR parliaments, such as tax laws on
charitable giving,

would be a key factor in enhancing the sustainability of NGOs.
USAID was assisting in drafting and supporting the passage of such
legislation. Promoting Independent Broadcast News Media

Increasing the availability of information is a key component of
USAID's efforts to encourage better- informed citizen
participation in economic and

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political decision- making. A diverse flow of information is a
means to promote government transparency and accountability and
serves as protection against corruption. USAID worked to
strengthen and promote independent media by providing (1) radio
and television station

management training, (2) technical assistance, (3) broadcast
equipment, and (4) legal and legislative drafting assistance.

USAID assistance has helped strengthen over 100 independent news
broadcasting stations and has provided citizens with an
alternative to state- controlled media. USAID assistance has
contributed to an increase in independent daily news broadcast
time and the percentage of the

population with access to independent news. For example, USAID
estimates that in Kazakhstan, 26 television and 18 radio stations
averaged 25 minutes of independent daily news broadcast time, and
40 percent of the population had access to independent news.
Similarly, in the Kyrgyz

Republic, 16 television and 11 radio stations averaged 20 minutes
of independent daily news broadcast time, and 81 percent of the
population had access to independent news. The number of stations
and news time in Tajikistan and Uzbekistan was less impressive,
but nonetheless had increased as the result of USAID's efforts.
USAID has not conducted independent media activities in
Turkmenistan because the government opposes an independent media.

USAID's training was highly valued by media officials we met.
Station management training modules were credited with making
outlets more economically viable, and the provision of
broadcasting equipment was viewed as a key input that enabled
stations to be competitive with

state- owned stations in terms of production quality. USAID legal
assistance was responsible for helping broadcast stations
throughout the region obtain licensing and maintain compliance in
an uncertain regulatory environment, thereby preventing many
stations from being closed. Despite the gains in independent media
outlets, serious challenges to the media exist in the region. The
greatest challenge to an independent media was in Kazakhstan,
where recent actions by the government, including

cost- prohibitive rates for licenses, have increased government
controls over the media and resulted in the closing of 36
television and radio stations. In addition, throughout CAR, the
independent media face many common problems, including challenges
to editorial independence and to economic survival. Independent
stations are subject to both direct and indirect pressure from
government officials. According to media officials we spoke with,
there is a clear understanding on their part about what can

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and cannot be reported, and self- censorship is practiced.
Government officials at the national and local level apply
pressure to restrict reporting on political matters, resulting in
the media's shying away from stories that might offend public
officials. USAID officials report that governments

manipulate access to information by channeling information to
government- controlled stations. Finally, many independent
stations, especially those located outside major urban areas, have
difficulty generating advertising revenues to sustain their
operations.

Assisting Local Governments

In the summer of 1998, USAID began promoting effective,
responsive, and accountable local governments in Kazakhstan and
the Kyrgyz Republic. 4 By supporting the development of democratic
institutions at the local level,

USAID sought to promote decentralization, citizen involvement, and
appropriate resource management. Historically, CAR has had little
experience with local government, as most administrative and
financial decision- making power resided at the national level.
USAID is providing a broad array of technical assistance,
including

assistance in budgeting, financial management, competitive
procurement systems, public hearings, and policy development
guidance to local government officials. In Kazakhstan, USAID has
been limited in its ability to address local government reforms
due to resistance by the national government. USAID

assisted in several attempts to draft an effective local
government law to increase fiscal and administrative
decentralization, but the national government either withdrew or
weakened the draft laws before submitting them to parliament. This
was largely because after independence, the national government
allowed oblasts (provinces) significant autonomy, but several
northern oblasts with large Russian populations pressed for

secession from Kazakhstan. As a result, the national government
significantly limited its efforts to give local government greater
authority and autonomy. USAID's start- up activities have been
hampered by the lack of a national government counterpart to
coordinate and advocate for local

government initiatives. 4 USAID has not pursued this strategic
objective in Turkmenistan or Uzbekistan due to a lack of central
government commitment to local government reform and in Tajikistan
due to the ongoing civil conflict.

Chapter 2 USAID's Assistance Has Contributed to Economic and
Democratic Reforms

Page 31 GAO/NSIAD-99-200 CAR Assistance

According to USAID officials, the Kyrgyz Republic government
appears committed to decentralization, and it is beginning the
process of devolving authority to local governments. Elections for
council members were held in over 450 villages, and all villages
had enacted charters (20 towns, including the capital, Bishkek).
The national government created an Office of Local Government that
actively promotes an agenda to strengthen local government. The
existence of a counterpart agency in the government facilitated
start- up activities, and most of USAID's project tasks were being
implemented on schedule. However, despite these achievements,
local governments remained constrained by the Ministry of
Finance's control over their budgets. Until local governments are
able to generate sufficient

revenue to cover their expenses, the ability to achieve effective,
responsible local government will be significantly limited. CAR's
Economic and

Democratic Transitions Are Far From Complete

USAID and State monitor the pace of economic and democratic
transitions of the 25 countries that constitute Central Europe and
NIS. A 1998 State/ USAID report 5 ranked three of the five
countries in CAR Tajikistan, Turkmenistan, and Uzbekistan among
the least economically and democratically developed of the 25
countries that made up Central Europe and the former Soviet Union.
The semi- annual report used a wide variety

of indicators drawn primarily from non- U. S. government sources
such as the Freedom House and the European Bank for Reconstruction
and Development Investment. These indicators cover such areas as
whether (1) most of the gross domestic product is derived from
private enterprises, (2) foreign investment and foreign trade are
encouraged, (3) the head of state and parliaments are elected
through free and fair elections, and

(4) the media is free and independent. The Kyrgyz Republic was
rated the most advanced in CAR with economic and democratic
reforms ranked 12 and 16, respectively. Kazakhstan was ranked 16
economically and 21 politically. Figure 2. 1 depicts the economic
reform and democratic freedom rankings for the countries of
Central

Europe and NIS. 5 Monitoring Country Progress in Central and
Eastern Europe and the New Independent States (Washington, D. C.:
USAID and the Department of State, Apr. 1998).

Chapter 2 USAID's Assistance Has Contributed to Economic and
Democratic Reforms

Page 32 GAO/NSIAD-99-200 CAR Assistance

Figure 2.1: Ratings of Economic Policy Reforms and Democratic
Freedom in Central Europe and NIS

Source: Monitoring Country Progress in Central and Eastern Europe
and the New Independent States.

The report also noted that none of the 25 countries have completed
their economic and democratic transitions. Even the most reformed
countries, such as Poland and Hungary, still have far to go
relative to the economic policies of industrial market- oriented
economies. In addition, the report said that CAR, like others in
the former Soviet Union, have implemented

the easiest reforms, such as privatizing small and medium- sized
enterprises and passing new laws. None of the countries in the
former Soviet Union or Central Europe have completed the hardest
transitions.

These include implementing commercial laws, banking reforms, and
capital markets development reforms that often challenge the
vested interests of the ruling elite or require the full
involvement of the region's citizens.

USAID/ CAR officials agreed that, despite the accomplishments in
CAR, the transitions are far from complete and the remaining tasks
are the most 1 2 3 4 5 1 2

3 4

5

Democratic freedoms Economic policy reforms

Turkmenistan Tajikistan

Belarus Azerbaijan

Ukraine Macedonia Latvia

Uzbekistan

Moldova Albania

Romania Bulgaria

Slovenia Lithuania

Kazakhstan Armenia Georgia

Kyrgyz Republic

Croatia Russia

Slovakia Czech Republic

Poland Hungary Estonia

Chapter 2 USAID's Assistance Has Contributed to Economic and
Democratic Reforms

Page 33 GAO/NSIAD-99-200 CAR Assistance

difficult. However, they noted that the State/ USAID rankings do
not give sufficient credit to the amount of progress made by CAR,
particularly Kazakhstan and the Kyrgyz Republic. They said that
the region was much less developed than those countries in Central
Europe that had a tradition of market- oriented democracies to
build upon and the report's rankings do not adequately portray the
degree of movement thus far. They noted that neither the ruling
elite nor their citizens have any experience with the institutions
nor the behaviors needed to operate market economies and
democracies and that this could take generations to develop. Given
the

historical constraints to development in CAR, and where CAR began
the development process, USAID/ CAR officials said that Kazakhstan
and the Kyrgyz Republic had made considerable progress since the
beginning of the USAID program.

USAID's 1998 Agency Performance Report further stated that CAR,
like other areas of NIS, continues to have transition
difficulties. 6 According to the report, two- thirds of USAID's
economic programs failing to meet USAID expectations were in NIS.
Contributing factors included (1) the

difficulties of replacing entrenched communist institutions, (2)
USAID's limited experience (approximately 10 years) in helping
countries transition from communism compared to its 40 years of
development work, (3) the limited USAID field presence in NIS, and
(4) unexpected political and economic crises. Democratically, the
report ranked Kazakhstan, Tajikistan,

Turkmenistan, and Uzbekistan as not free, while the Kyrgyz
Republic was ranked partly free. The report stated that all of the
countries in NIS continue to face challenges to a fuller
transition to democracy. Organized crime and corruption undermine
effective governance, while the economic woes of the republics
leave citizens little time for political participation.

Conclusions USAID has helped Kazakhstan and the Kyrgyz Republic
begin the transition to market- oriented economies and lay the
foundation for democratic, civil

societies. Kazakhstan and Kyrgyz officials said that USAID
assistance was instrumental in their achievements. However, the
reforms are far from complete, and further development of the
region must be considered a long- term effort. USAID's economic
reform initiatives have been supported by the national
governments, at least in part, because of the potential income
from foreign investment and resource development. In contrast,
with the exception of the Kyrgyz Republic, the CAR governments
have

6 1998 Agency Performance Report (Washington, D. C.: USAID, Apr.
1999).

Chapter 2 USAID's Assistance Has Contributed to Economic and
Democratic Reforms

Page 34 GAO/NSIAD-99-200 CAR Assistance

been slow to make democratic reforms because they threaten the
incumbent governments' control.

Page 35 GAO/NSIAD-99-200 CAR Assistance

Chapter 3 USAID Has Incorporated Lessons Learned in Its Car
Programs Chapt er 3

Incorporating lessons learned from Central Europe and Russia into
the CAR program was envisioned from the beginning of the program.
State's strategy document stated that lessons learned from Central
Europe and the other regions of the former Soviet Union would
figure prominently in the design and implementation of the CAR
programs. 1 USAID's action plan for economic reforms was based on
USAID's economic reform efforts in Central Europe. USAID officials
noted that the application of lessons learned was inherent in
devising their program strategies and operations,

and numerous channels exist for their continued utilization.
Nevertheless, USAID recently began an effort to formalize its
lessons learned process to help the agency identify and
communicate those lessons.

Lessons Learned USAID/ CAR officials provided numerous examples of
lessons learned from similar programs in Central Europe and Russia
that had been applied to the

economic and democratic reform programs in CAR. They said that the
identification and implementation of lessons learned was an
integral part of their planning and program operations. Among the
most prominent lessons were that USAID should (1) take an
integrated approach to privatization to help create the enabling
environment necessary for private sector development, (2)
coordinate with other donors working in the region, (3) focus
democratic assistance at the grassroots level if national

governments do not support democratic reforms, and (4) ensure that
NGOs and independent media have the necessary legal and financial
underpinning for sustainability. USAID officials said that lessons
learned emanated both from efforts to refine ongoing USAID
programs as well as in response to specific problems identified in
Central Europe and Russia.

Economic Reform Lessons Learned

Based on USAID's approach in Central Europe, USAID designed an
integrated approach to market development. USAID found in Central
Europe that five priority areas must coincide with the
privatization process to create the enabling environment needed
for private sector development. These include development of (1)
tax reform to support commercial development and the fiscal
sustainability of the government;

(2) commercial laws and regulations to provide the legal framework
for trade, investment, and commercial activity; (3) accounting and
audit reform to provide the standardized and credible financial
data necessary 1 United States Assistance and Economic Cooperation
Strategy for Central Asia.

Chapter 3 USAID Has Incorporated Lessons Learned in Its Car
Programs

Page 36 GAO/NSIAD-99-200 CAR Assistance

for rationale economic decision- making; (4) bank reforms to
provide the capital for private sector growth and improve
corporate governance; and (5) capital markets development to serve
as a source for enterprises to raise capital and provide market
discipline. USAID incorporated all five elements in its action
plan and has accomplishments in each area.

Also using lessons learned from Central Europe, USAID/ CAR has
coordinated with other donors working in CAR. Although USAID
provides relatively small amounts of money compared to the World
Bank and IMF, USAID found that by working with these institutions
it could use its expertise to help countries implement World Bank
and IMF programs that support USAID goals. USAID/ CAR has employed
this approach. For

example, USAID/ CAR worked with (1) the World Bank to get
commercial banks in Kazakhstan to convert to international
accounting standards; (2) IMF to train monetary policy officials
in Kazakhstan and the Kyrgyz Republic on how to implement IMF's
macroeconomic stabilization programs; and (3) IMF to develop tax
codes for Kazakhstan, the Kyrgyz Republic, and Uzbekistan.

USAID/ CAR also used USAID's successful approach in Central Europe
to help integrate CAR into the world economy by developing their
links with international multilateral economic institutions, such
as the World Bank

and IMF. Central European countries, according to USAID, had a
strong incentive to proceed with reforms based on the prospects of
memberships with these western institutions, and the reforms
required for such membership are closely aligned with USAID
objectives. For example, USAID used the Kyrgyz Republic's desire
to join WTO to encourage the passage of commercial, trade, and
investment laws needed for membership. Similarly, all the
republics in CAR are members of the World

Bank and IMF, and the Kyrgyz Republic has joined WTO. Democratic
Reform Lessons Learned

USAID has focused its democratic assistance on citizens rather
than on the national government. In Russia, USAID found that
without the political support of national leaders, assistance
targeting national institutions and political processes was
unlikely to achieve democratic reform. This lesson is especially
relevant for CAR, where four of the five national leaders have
resisted democratic reforms. As a result, USAID worked with
citizen groups to help develop a civil society that would push for
democratic reforms. Thus far, the CAR national governments and
institutions have not been directly affected and, as previously
noted, USAID has helped

numerous NGOs get started.

Chapter 3 USAID Has Incorporated Lessons Learned in Its Car
Programs

Page 37 GAO/NSIAD-99-200 CAR Assistance

Based on USAID's experience in countries throughout the former
Soviet Union, USAID worked to provide the legal foundation to
establish NGOs. USAID has given legislative drafting assistance to
parliaments, using examples of laws adopted elsewhere in NIS to
encourage a number of legislative reforms. These laws are intended
to help NGOs develop and

thrive, and secure their right to exist and operate in society. In
addition, in Russia, USAID found that the biggest problem facing
independent television and radio stations was maintaining their
economic viability. As a result, USAID has incorporated
advertising and business management seminars into its CAR training
programs. In addition, to help stations increase their revenues
with advertising, USAID has also commissioned ratings surveys to
demonstrate to potential advertisers the audience levels of the
independent stations.

USAID Is Formalizing Its Lessons Learned Process

These lessons learned (and others) were identified by USAID
through various channels, including USAID conferences,
publications and reports, and weekly and monthly discussions
between USAID and its contractors and grantees. In addition,
USAID's selection process for hiring advisors gives significant
weight to prior work experience in the former Soviet

Union. These advisors in turn had their own mechanisms for
incorporating lessons learned into their activities.

Although numerous lessons learned from Central Europe and Russia
have been applied in CAR, USAID's Bureau for Europe and New
Independent States has begun considering ways to help ensure that
such experiences

are not overlooked or forgotten. According to USAID officials, the
lessons learned system has been largely dependent on staff sharing
their experiences with one another. But many veterans of the
region are retiring or rotating to different posts. USAID risks
losing their acquired knowledge and expertise without a central
mechanism to identify, analyze, and communicate lessons learned.
Consequently, the Bureau has undertaken a number of stock- taking
exercises to extract "lessons learned." These include assessments
of nearly 10 years of progress on each of the Bureau's program
objectives. In the fall of 1999, USAID plans to sponsor a Lessons
in Transition Conference, where public and private sector leaders
from all NIS countries will exchange experiences in transforming
their economic,

political, and social systems. The Bureau is also preparing a
strategic plan that will incorporate lessons learned into guidance
for field missions. On this foundation, USAID plans to begin
development of a more formalized system to identify and
communicate lessons learned.

Page 38 GAO/NSIAD-99-200 CAR Assistance

Chapter 4 USAID Complied With Its Oversight Requirements Chapt er
4

Oversight for assistance activities in CAR is shared between USAID
headquarters in Washington, D. C., and USAID/ CAR in Almaty,
Kazakhstan. Initially, all U. S. assistance activities in CAR were
managed from Washington, D. C., as was the case with other NIS
countries because USAID

had few staff and resources in the region. As USAID/ CAR's
staffing has increased, USAID has shifted the management of
assistance activities to the mission to provide for more direct
oversight and greater accountability. According to USAID, USAID/
CAR managed about 65 percent of USAID's

assistance programs in CAR as of December 1998. By the end of
fiscal year 1999, USAID/ CAR expects to manage 80 percent of
USAID's assistance programs in CAR. USAID safeguards its
assistance funds to CAR through various oversight requirements.
For the 14 CAR activities we examined, 1 USAID is meeting its
project oversight requirements for contracts, grants, and
cooperative

agreements the financial instruments used by USAID. 2 USAID
regulations and guidance 3 generally require its cognizant
technical officers (CTO) to provide oversight of contractor and
grantee activity. According to these regulations and guidance,
CTOs are required to maintain communications with contractors and
grantees, conduct site visits to verify work performance, and
review programmatic and financial reports to compare actual
progress and costs against expected results and costs. CTOs
working with contracts must also maintain files documenting

significant actions, and, while not specifically required, CTOs
are encouraged to do the same for grants and cooperative
agreements.

USAID's regulations and guidance give broad authority to CTOs to
determine the level of required oversight. For example, CTOs have
wide latitude in determining how often they should communicate
with contractors or grantees and how many site visits they should
conduct. According to USAID's Office of Procurement, this gives
CTOs the discretion to determine how best to manage their
programs. 1 Funding for the economic reform projects selected
represented $136 million or 62 percent of the total

economic assistance to CAR since fiscal year 1992. Funding for the
democratic reform projects selected represented $32 million or 60
percent of the funding for the democratic assistance since fiscal
year 1992.

2 Contracts are used to acquire property or services. Grants and
cooperative agreements are used to transfer money, property, or
services to grantees whose programs support U. S. goals and
objectives. We use grantee to refer to both grant and cooperative
agreement awardees.

3 USAID oversight guidance for contacts is in its Contractor
Information Bulletin 93- 8, while the oversight requirements for
grants and cooperative agreements are in its Automated Data
System- 303 regulations.

Chapter 4 USAID Complied With Its Oversight Requirements

Page 39 GAO/NSIAD-99-200 CAR Assistance

Communications CTOs are required to maintain regular
communications with the contractor or grantee. We found that
USAID/ CAR CTOs had regular, if not daily,

interactions with contractors and grantees via telephone and
electronic mail, and weekly meetings with contractors and grantees
at USAID/ CAR offices for program updates and coordination of
development strategies. In addition, CTOs, contractors and
grantees, and the Ambassador met

monthly to discuss progress on and impediments to meeting project
goals and objectives. USAID/ CAR also had country representatives
in each of the satellite offices in the Kyrgyz Republic,
Tajikistan (until all U. S. personnel were evacuated in mid-
1998), Turkmenistan, and Uzbekistan who maintained communication
with CTOs, monitored projects, and served as liaisons for the
contractors and grantees and the respective embassies.

The five Washington, D. C.- based CTOs we interviewed said that
they maintained regular communication with the U. S. offices of
contractors and grantees. We documented examples of this
communication, including electronic mail, facsimiles, and
telephone conversations with their U. S. offices concerning
progress and impediments in meeting project objectives, workplans,
and funding issues. In addition, they relied upon

project officers in USAID/ CAR for oversight of contractor and
grantee activities in CAR. These project officers attended the
weekly and monthly USAID/ CAR meetings with contractors and
grantees used to assess program status. Site Visits CTOs are
required to visit project sites to help gauge project progress.
USAID's Office of Procurement officials stated that CTOs could
meet this requirement by delegating this responsibility to project
officers in country.

CTOs for the projects we reviewed all met USAID's requirement. In
the USAID/ CAR project files we reviewed, we found numerous trip
reports documenting CTO site visits. For example, USAID/ CAR CTOs
and staff attended a conference on accounting conversion and
evaluated a contractor's progress toward implementing accounting
reforms at two

Kazakhstan factories. We also participated in numerous site visits
with CTOs in Kazakhstan and the Kyrgyz Republic. During these site
visits, CTOs met with the contractors and grantees as well as with
government and NGO officials.

Two of the five Washington, D. C.- based CTOs we interviewed had
conducted site visits in CAR. But, due to time and resource
constraints,

Chapter 4 USAID Complied With Its Oversight Requirements

Page 40 GAO/NSIAD-99-200 CAR Assistance

these CTOs said they often relied on project officers at USAID/
CAR to make site visits on their behalf.

Performance and Financial Reports CTOs are required to review
periodic performance and financial reports filed by the contractor
or grantee. CTOs we interviewed all used

performance and financial reports submitted by contractors and
grantees to monitor performance and progress toward meeting
project objectives and to verify key cost elements in the award.
Several Washington, D. C.- based CTOs said that, given their
distance from CAR, reviewing performance reports was critical to
staying informed about grantee activities. We also found that CTOs
used the reports to evaluate the performance of contractors and to
support USAID/ CAR's contractor performance reports. Based on
these reports, in one instance, USAID/ CAR

forced a contractor to make personnel changes to improve project
performance.

CTOs we interviewed also reviewed financial reports submitted by
contractors and grantees to determine whether USAID funds were
properly expended. Records in the files we examined showed that
CTOs had reviewed the financial reports for correctness and
appropriateness of costs billed to USAID, as required. CTOs at
USAID/ CAR assessed the accuracy of the financial reports based on
their weekly and monthly meetings with their contractor or
grantee, site visits, and review of performance reports.
Washington, D. C.- based CTOs said that they relied on information
from USAID/ CAR project officers, the contractor and grantee,
performance reports, and past experience when reviewing the
reasonableness of costs. USAID/ CAR officials stated that further
verification provides additional

assurance that costs billed by contractors conform to award
provisions. USAID/ CAR was conducting line- by- line payment
verifications on all the monthly vouchers submitted by
contractors, using time and attendance sheets; expense records for
travel, per diem, and direct costs; and other financial
documentation. USAID/ CAR officials stated that this level of
effort was justified based on an October 1998 analysis that found
that five of eight contractors in CAR provided inadequate
documentation to support their vouchers or presented questionable
costs for reimbursement. For the three USAID/ CAR- managed
contracts we reviewed, payment verifications

had been done.

Chapter 4 USAID Complied With Its Oversight Requirements

Page 41 GAO/NSIAD-99-200 CAR Assistance

Files USAID requires CTOs to keep files that include financial and
program reports; CTO trip reports; briefings; and correspondence
among the contractor, the contracting officer, and CTO. Based on
our review of three USAID/ CAR contract files, all were in
compliance with USAID regulations. However, the USAID/ Washington,
D. C., contract file we reviewed was missing all monthly and
quarterly performance reports. The CTO stated that he had received
and reviewed the reports, as required, but his files were not
readily available, and we could not independently verify his

assertion. Although CTOs are not required to keep files for
grantees, CTOs for the one grant and five cooperative agreements
we reviewed maintained files that included program reports,
vouchers, and correspondence among the grantee, CTO, and project
officers in country. Files for the five cooperative agreements we
reviewed also contained workplans and staffing approvals for the
grantee's in- country personnel.

Page 42 GAO/NSIAD-99-200 CAR Assistance

Appendix I Comments From the U. S. Agency for International
Development Appendi x I

Appendix I Comments From the U. S. Agency for International
Development

Page 43 GAO/NSIAD-99-200 CAR Assistance

Appendix I Comments From the U. S. Agency for International
Development

Page 44 GAO/NSIAD-99-200 CAR Assistance

Appendix I Comments From the U. S. Agency for International
Development

Page 45 GAO/NSIAD-99-200 CAR Assistance

Page 46 GAO/NSIAD-99-200 CAR Assistance

Appendix II GAO Contacts and Staff Acknowledgments Appendi x I I

GAO Contacts Jess T. Ford, (202) 512- 4268 A. H. Huntington, III
(202) 512- 4140

Acknowledgments In addition to those named above, Edward J.
George, Jr.; Patrick A. Dickriede; Jodi M. Prosser; Jiyearn Chung;
and Rona Mendelsohn made key

contributions to this report.

(711412) Let t er

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