The Phare Programme - Annual report 1996
Date: 1998-03-24
Institutions: European Commission
Subjects: Central and Eastern Europe, EU programme, accession to the European Union, activity report, cooperation policy

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 24.03.1998 
COM(1998) 178  final 

The Phare Programme 
Annual Report 1996 

(presented by the Commission) 

Contents 

Commissioner's  statement 
The Phare Programme 

I 

Phare in  1996 

Developments in 
EU-central European relations 
Phare Programme activities in  1996 
Developments  in operational  management 
Financial overview and  performance 

II 

Phare in the individual  partner countries 

Albania 
Bosnia and Herzegovina 
Bulgaria 
Czech Republic 
Estonia 
FYROM 
Hungary 
Latvia 
Lithuania 
Poland 
Romania 
Slovakia 
Slovenia 

III  Statistical  overview 

Phare funding by country 
Phare funding  by sector 

List of tables 

Europe Agreements 
Phare's grant contributions as a  facilitator 
and multiplier for infrastructure  co-financing 
Shift  towards priority sectors of pre-accession  strategy 
Funds committed,  contracted and paid  1990-1996 
Cumulative funds  committed, 
contracted  and paid  1990-1996 
Contracts concluded by calendar year 
Payments in each budget year 
Cumulative contracts and payments 

1 

Commissioner's statement 

For  the  European  Commission,  1996  was  primarily  a  year  of  consolidation  of  its 
relations  with  the  countries  of  Central  and  Eastern  Europe  (CEECs)  in  particular, 
through  the  instruments  of  the  pre-accession  strategy:  the  Europe  Agreements,  the 
Structured  Dialogue  and  the  Phare  programme  all  of which  are  designed  to  assist  the 
CEECs in their preparation for membership of the European Union. 

1996  was  also  a  year  of  great  challenge,  as  Phare,  for  the  first  time,  was  rapidly 
mobilised  to  provide  essential  aid  to  war-torn  Bosnia-Herzegovina  immediately  after 
the signature of the Dayton  Agreement. 

1996, was lastly,  a year  of reflection  within the  Commission  on how to  adapt  the pre-
accession  strategy  and  its  constituent  instruments  to  best  meet  the  needs  of  the 
candidate countries as they prepare for  membership of the European Union. 

This  Annual  Report  describes  the  activities  of  the  Phare  programme  in  1996.  A 
particular  effort  has  been  made  this  year,  to  include  descriptions  of  results  achieved 
under programmes initiated in earlier years as well as the difficulties  encountered  in the 
implementation  of  a  programme  with  such  challenging  objectives  and  high  visibility. 
This  new  approach  to  the  annual  report  aims  to  provide  the  reader  with  a  clearer 
overview  of  the  Phare  programme,  and  responds  to  the  comments  received  on  the 
1995 Annual Report. 

I would,  nevertheless,  like to  touch  on the most  recent  developments  in relations with 
the  candidate  countries  and  their  impact  on the Phare  programme  in particular.  With 
regard  to  the  Phare  programme  the  Commission  elaborated  new  orientations  for  the 
Phare  programme  in the  candidate  countries  in March  1997.  The  main  thrust  of  the 
orientations  are to  turn  Phare  into  an  "accession-driven"  programme,  focusing  on  the 
most pressing needs of the candidate countries in their preparation  for  accession.  They 
will not  affect  the non-associated  countries that  have not  applied  to join  the  European 
Union and whose programmes, therefore,  are not  directed  towards  preparation  for  EU 
membership. 

Two priority areas are identified  in these  orientations,  as a result  of the  Commission's 
analysis  of  the  situation  in  the  candidate  countries,  set  out  in  the  Commission's 
Opinions  on  each  country's  application  for  EU  membership  which  were  published  in 
July  1997.  First  and foremost,  Phare will henceforth  focus  on institution building, that 
is the  strengthening  of the  administrative  capacity  of the  candidates  to  implement  and 
apply  the  acquis  communautaire  with  the  same  guarantee  of  effectiveness  as  in  the 
current  Member  States.  Second,  it  will  support  investments  needed  in  the  candidate 
countries to  address acquis-related  sectoral,  regional  and  structural  imbalances  in their 
economies,  and help bring their industry and infrastructure  up to EU standards. 

These  new  orientations  for  Phare  form  part  of  the  re-inforced  pre-accession  strategy 
which  the  Commission  has  proposed  to  the  European  Council  in  uAgenda  2000"  in 
order  to  offer  practical  support,  irrespective  of  each  candidate  country's  current  state 
of preparation  in  introducing  reforms  entailed  by  accession  according  to  the  priorities 
identified  in the Opinions. 

As well  as this ongoing  political  process,  the  Commission  has reviewed  the manner in 
which  Phare  operates.  In  July  1997  the  Commission  issued  an  interim  evaluation  of 
the  Phare  programme  which  highlighted  the  strengths  and  weaknesses  of  the  Phare 
programme since its creation in  1989.  Whilst in its conclusions the overall  contribution 
that  the  Phare  programme  has  made  was  evaluated  positively,  shortcomings  were 
identified,  particularly in the construction  of the programme.  In order to address  these 
problems,  the  Commission  has  taken  decisions  to  improve  the  manageability  and 
financial  performance  of  the  programme,  in  addition  to  the  new  policy  orientations 
mentioned  above.  Phare  will henceforth  focus  its efforts  on precise  objectives  and  on 
larger projects.  This should enable Phare to avoid  a multiplication  of small projects  and 
timetables  for  programme 
In  addition, 
the  fragmentation  of  its  effectiveness. 
implementation will be closely monitored  and respected. 

With  enlargement  set  to  profoundly  reshape  the  European  continent,  the  Phare 
programme,  as  the  main  financial  instrument  of  the  pre-accession  strategy,  will  face 
new challenges in the years ahead.  The new orientations  elaborated  by the Commission 
in  1997 will  streamline  and  improve the  efficiency  of this instrument  designed  to  meet 
the  mutual  objectives  of  the  European  Union  and  the  candidate  countries.  As  the 
European Commissioner responsible for the Phare Programme,  I commend  this Annual 
Report  to you and hope that  it will provide useful  information  to  contribute  to  a better 
understanding of the Phare programme in general, its objectives  and results. 

Hans van den Broek 
Member of the European  Commission 

The Phare Programme 

The  Phare  Programme  is 
the  main  channel  for  the  European  Community's 
financial  and  technical  cooperation  with  the  countries  of  central  and  eastern 
Europe.  Set  up in  1989 to support  reform  in Poland  and Hungary,  by  1996 Phare 
had been extended to include  13 partner countries from  central and eastern Europe. 

Initially  designed  to support  these  countries  in their  transition  towards  democracy 
and a market economy, Phare's role has gradually evolved. At the Essen  European 
Council  of December  1994, it was decided  that Phare would be the main  financial 
instrument 
in  their  preparations  for 
accession  to  the  EU.  In  addition,  for  the  non-associated  countries  in  the  region, 
Albania,  the  Former  Yugoslav  Republic  of  Macedonia  (FYROM)  and  Bosnia-
Herzegovina, Phare provides support in their transition to democracy  and a market 
economy. 

supporting  the  ten  associated  countries 

Originally  allocated  a  budget  which  totalled  ECU  4.2  billion  for  the  1990-1994 
period,  the  Phare  budget  was  increased  to  ECU  6.693  billion  for  the  1995-1999 
period,  following  the European  Council  in Cannes  in  1995. Phare  assistance  takes 
the  form  of  grants  rather  than  loans,  and  its  work  encompasses  a wide  range  of 
activities,  such  as  supporting  partner  countries  as  they  adopt  the 
'acquis 
communautaire',  inter-regional  cooperation,  nuclear  safety,  promotion  of  civil 
society,  financing  or  co-financing  of  infrastructure  investment,  often  in  close  co 
operation with IFIs. 

Throughout  the  1989-1996  period,  Phare  has  shown  a  continuing  flexibility  in 
adapting  to  the  changing  priorities  and  limitations  of  the  economic  and  social 
reform  process. The evolving  distribution  of  funding  by  sector  illustrates  the way 
in  which  Phare  has  responded  to  changes  in  needs  and  political  direction.  In  the 
period  1994-1996  Phare  has  increased  its  support  for  the  approximation  of  EC 
legislation  and  administrative 
as  well  as  projects  promoting 
démocratisation  and  civil  society,  and  investment  in  infrastructure,  including 
cross-border  cooperation. 

reform, 

Conceived  as  a technical  assistance  programme  to  provide  direct  support  to  the 
partner  countries, Phare was organised  on a demand-driven  basis. This meant  that 
the  projects  financed  have  generally  been  those  put  forward  by  the  beneficiary 
country.  As  the  objectives  evolved,  however,  it  became  necessary  to  make  a 
thorough  appraisal of the Programme  so as to re-direct  Phare towards the  essential 
task of the coming years, namely, preparing the candidate  countries  for  accession. 
During  1996,  the  Commission  carried  out  a  review  of  Phare,  which  led  to  the 
elaboration  of new orientations  for the programme in March  1997.  While the new 
orientations  appeared  in  1997, and thus outside the period  covered  by this  Report, 
they  are  inseparable  from  the  Phare  Programme  and  its  political  context,  and  it 
was  felt  necessary  to  include  them  in  the  Report.  The  same  reasoning  applies  to 
other  developments  that  took  place  in  1997,  but  which  have  nonetheless  been 
included  in this Report in order that Phare's objectives  can be properly  understood. 

In  July  1997,  the  Commission  presented  its  Agenda  2000,  together  with  its 
opinions on each of the applications for membership by ten associated countries of 
central  and  eastern  Europe.  In  a  single  framework,  the  Commission  outlined  the 
broad  perspective  for  the  development  of  the  European  Union  and  its  policies 
beyond  the turn  of the  century,  the  impact  of  enlargement  on  the EU  as  a whole, 
and the future  financial  framework  beyond  2000, taking  into  account  the prospect 
of  an enlarged  Union.  The  Agenda  2000  documents,  taken  together,  offer  a clear 
and coherent vision of the EU as it enters the 21st century. 

Phare in 1996 

Developments in EU-central European relations 

In  1996  , the  Phare  partner  countries  continued  their  efforts  to  reform  their  political 
and economic structures  in preparation  for accession to the European Union. The pace 
of change was uneven  across the applicant countries. The EU for its part continued  its 
activities  that  assist  these  countries  in  their  efforts,  while  at  the  same  time 
concentrating  on the reforms  it has to undergo itself if it is to be able to welcome new 
members. 

Phare  also  provides  support  to  Albania,  Bosnia-Herzegovina,  and  the  former 
Yugoslav  Republic  of Macedonia.  As non-associated  countries, they  are not  covered 
by  the  pre-accession  strategy.  During  1996, Phare  supported  these  countries  in  their 
efforts  to reform  their economies and political  structures, and to overcome the ravages 
of war and social upheaval. 

The EU's pre-accession strategy 

Phare  is  at  the  centre  of  the  political  and  economic  relations  between  the  European 
Union  and the countries  of central  and eastern  Europe. Bulgaria, the Czech  Republic, 
Estonia,  Hungary,  Latvia,  Lithuania,  Poland,  Romania,  Slovakia  and  Slovenia  have 
applied  to join the European Union. The pre-accession  strategy,  adopted  at the  Essen 
Council  in  December  1994,  is  designed  to  help  them  align  their  political,  economic 
and  legal  systems  with  those  of the  European  Union.  The  pre-accession  strategy  has 
three  main  components:  the  Europe  Agreements,  the  Structured  Dialogue,  and  the 
Phare Programme. 

Europe Agreements 

The  Europe  Agreements  set  the  framework  for  bilateral  relations  between  the 
European  Communities  and their Member  States  on the  one hand,  and  the  individual 
candidate  countries  on  the  other.  Developed  by  the  European  Community  in  1990 
and  signed  with  individual  countries  over  subsequent  years, the  Europe  Agreements 
cover trade-related issues, political, economic and cultural  cooperation. 

Under  the Agreements,  the  associated  countries  prepare  for  progressive  convergence 
in  a wide  range  of  areas  and  commit  themselves  to  approximating  their  legislation, 
particularly in the areas relevant to the internal market, to that of the European Union. 

In  June  1996,  Slovenia  became  the  tenth  country  of  central  and  eastern  Europe  to 
apply  for  accession  to the EU.  The  signing  of  a Europe  Agreement  on  10 June  1996 
meant  that  Slovenia  formally  became  part  of  the  pre-accession  process.  An  Interim 
Agreement,  enabling  the  implementation  of  the  trade  chapter  of  the  Europe 
Agreement  prior  to  ratification  of  the  Europe  Agreement,  was  signed  in  November 
1996. 

Country 

Europe Agreement 
signed 

Europe 
Agreement  came 
into force 

Official 
application for EU 
membership 

Bulgaria 
Czech 
Republic 
Estonia 
Hungary 
Latvia 
Lithuania 
Poland 
Romania 
Slovakia 
Slovenia 

March  1993 
October  1993 

February  1995 
February  1995 

December  1995 
January  1996 

June 1995 
December  1991 
June  1995 
June  1995 
December  1991 
February  1993 
October  1993 
June 1996 

February  1994 

February  1994 
February  1995 
February  1995 

November  1995 
March  1994 
October  1995 
December  1995 
April  1994 
June 1995 
June 1995 
June  1996 

Key  instruments  of the  Europe  Agreements  are the Association  Council,  Association 
Committee  meetings  and  Joint  Parliamentary  Committees.  Association  Councils  are 
bilateral  meetings  at ministerial  level between  the European  Union  and  an  associated 
country,  where  progress  in  all  areas  of  approximation  towards  the  EU  is  discussed. 
The  Association  Councils  are  complemented  by  Association  Committees  at  senior 
official  level,  which  review  in  more  detail  all  areas  under  the  Europe  Agreements. 
These are supported by  a series of sub-committees, which  allow  for more regular  and 
detailed  in-depth  technical  discussions  on  all  areas  covered  by  the  agreements. 
Furthermore,  there  are  Joint  Parliamentary  Committees,  which  bring 
together 
parliamentarians  of the national  parliaments  of the  associated  countries  and  members 
of the European Parliament.  In  1996 a full  cycle of Association  Councils,  Committees 
and sub-committees was completed with the countries with which Europe  Agreements 
are  in  force,  i.e.  Bulgaria,  the  Czech  Republic,  Hungary,  Poland,  Romania  and 
Slovakia. 

The  Europe  Agreements  aim  gradually  to  establish  free  trade  in  industrial  products 
over  a transition  period,  on the basis  of  asymmetry:  the  European  Community  opens 
its  market  more  rapidly  than  the  associated  country.  As  a  result,  industrial  products 
from  the  associated  countries  have  had  virtually  free  access  to  the  European 
Community  since  the  beginning  of  1995,  with  certain  restrictions  in  only  a  few 
sectors such as agriculture and textiles. 

Following  the  Uruguay  Round  and  EU  enlargement  with  Austria,  Sweden  and 
Finland,  the  Europe  Agreements  with  Poland,  Hungary,  and  the  Czech  and  Slovak 
Republics were adapted to reflect  institutional  as well as commercial  changes. Similar 
work  is  continuing  in  order  to  adapt  the  agreements  with  Romania  and  Bulgaria. 
Appropriate  adjustments  have  also  been  made  to  the  free  trade  agreements  with  the 
Baltic States. 

Structured dialogue 

The second instrument  of the pre-accession  strategy is the structured dialogue. Agreed 
at the European  Council  of Copenhagen  in  1993, the structured  dialogue  provides  for 
a multilateral  framework  of regular meetings between the institutions  of the European 
Union  and  the  associated  countries.  In  the  conclusions  of  the  European  Council  of 
Essen  in  1994, the  structured  dialogue  was  listed  among  the  instruments  of  the pre-
accession  strategy  together  with  the  bilateral  Europe  Agreements,  the  Phare 
Programme  and  the  White  Paper  on  the  Internal  Market.  At  Essen  it  was  agreed  to 
hold  regular  meetings  at  ministerial  level  in  order  to  exchange  views  on  issues  of 
interest to both European Union Member States and the associated  countries. 

The  structured  dialogue  enables  discussion  of  issues  of  common  concern  in  areas 
where  solutions  require  action  at  European  level,  ranging  from  cooperation  in  the 
fields  of  energy,  environment,  transport,  science  and  technology  through  Justice  and 
Home Affairs  to the Common Foreign and Security Policy (CFSP). In February  1996, 
Foreign  Affairs  Ministers  from  Member  States  and  from  associated  countries  agreed 
to improve the structured  dialogue by means of better preparation  of the meetings, the 
establishment  of  annual  programming  of  the  work  to  be  done  over  a  period 
encompassing  two  presidencies,  and  by  focusing  on  a reduced  number  of  topics  for 
to  all  delegations,  the 
discussion.  In  order  to  provide  common 
Commission prepares the basic document  for the dialogue at ministerial  meetings  and 
the Presidency of the European Union  drafts  the concluding remarks. 

information 

Phare: deepening and widening 

Developed  initially  in response  to  the  challenges  of transition,  the  Phare  Programme 
has become the main financial  instrument of the pre-accession  strategy. 

In  1996, the  scope  of  Phare  assistance  was  extended  to  include  two  more  countries. 
The  former  Yugoslav  Republic  of  Macedonia  (FYROM)  became  the  twelfth  Phare 
partner  country  in March. Between  1992 and  1995, Phare had  already  operated  under 
a  Critical  Aid  Programme  (ECU  85  million)  with  the  aim  of  providing  the  country 
with essential raw materials, industrial  spare parts and fuel  for  social  institutions  such 
as  schools  and  hospitals.  Since  March,  the  recent  relative  economic  and  political 
stability  in  the  country  has  allowed  Phare  to  evolve  in  harmony  with  domestic 
developments.  A  country  strategy  was  drawn  up  in  1996  that  reflected  government 
priorities  and  identified  activities  most  appropriate  to achieving  market  reforms,  such 
as  the  strengthening  of  the  enterprise  sector,  support  of  land  reform  and  agriculture, 
the development of human resources and support  for overall  restructuring. 

In June, Bosnia and Herzegovina  followed  FYROM to become the  13th Phare partner 
country.  In Bosnia-Herzegovina,  the Phare Programme  operates  in coordination  with 
other  donor's  activities,  and  programmes  were  drawn  up  in  1996  to  reflect  the 
country's  priorities  such  as  economic 
institution-building  and 
démocratisation. As with FYROM, Phare was already providing  assistance through an 
Essential  Aid  Programme  worth  ECU  125  million  before  the  country  officially 
became eligible for Phare assistance. 

revitalisation, 

During  1996,  Albania's  position  as  an  established  Phare  partner  country  was  further 
developed.  Phare  assistance  worth  a  total  of  ECU  32.5  million  in  1996  focused  on 
support  of  the  country's  market  reforms  and  the  medium-term  restructuring  and 
modernisation  of the Albanian  economy  as well  as the strengthening  of links with the 
European Union. 

10 

Phare Programme activities in 1996 

In  1996,  the  Phare  Programme  focused  on  programmes  aimed  at  supporting  the 
candidate  countries  in  their  efforts  and  strategies  to  prepare  for  membership.  The 
reform  efforts  of the non-associated  countries continued to receive  support. The  funds 
made  available  to  the  13  Phare  partner  countries  in  1996  amounted  to  ECU  1,223 
million  of  grant  aid,  i.e.  5 per  cent  more  than  in  1995,  and  this  in  a  context  where 
some other donors are phasing out their assistance. 

Facilitating the approximation  of the EC acquis 
Approximation  towards  and  eventually  adoption  of  the  'acquis  communautaire'  is 
being  pursued  by  all 
the  associated  countries.  To  assist  with  the  adoption  of  the 
single market acquis, the Commission published  a White Paper on the Internal Market 
in  mid-1995; 
subsequently  a  large  number  of  partner  countries  elaborated  and 
adopted  national strategies. 

important 
Programmes  providing  support  for  the 
allocations in the multi-annual programmes. In  1996, this priority was also included in 
national,  horizontal  and  multi-country  programmes.  These  programmes  provide 
support  not  only  for  mechanisms  to  the  legislative  approximation  process  itself  but 
also  for  the  reinforcement  of  the  administration  and  bodies  necessary  to  ensure  that 
this approximated  legislation is effectively  applied and  enforced. 

'acquis'  objective 

receive 

A  closer  look  at  the  1996  Phare  programmes  in  this  area  reveals  activities  in  the 
following  areas: 

•  upgrading of the administrative  and ministerial  structures  in charge of steering the 

European integration process 
raising public awareness of the integration process 
contributing  to  the  development  of  university  and  professional  knowledge  of  the 
wide body of European Community law 
rendering  public  procurement  practices  more  stringent  and  compatible  with  the 
EC model 
facilitating  adaptation  to  EC  standards  and  norms  through  upgrading  labs  and 
services in charge of accreditation and  certification 
particular programmes in areas such as the development  and strengthening of anti-
monopoly  and  competition  bodies,  VAT  administrations,  customs,  veterinary 
services. 

Of the many horizontal  programmes  addressing  this area, the  following  received  new 
budget  allocations:  Sigma  (ECU  5 million)  for  the  continuation  of  support  to  public 
administration  upgrading  and  TAIEX  (ECU  6  million)  for  the  office  in  charge  of 
technical  assistance  information  exchange  on  internal  market  issues  that  became 
operational  in early  1996. 

11 

Integration  through  linking  upgraded  infrastructures  with  Trans-European 
Networks 
A  second  important  component  of  Phare's  contribution  to  the  pre-accession  strategy 
involves  the  integration  of  the  associated  countries  with  the  EU  through  the 
interconnection  of the main communications  infrastructure.  Programmes  in support of 
infrastructure 
transport, 
telecommunication  and  energy  embody  that  objective.  In  the  transport  sector,  nine 
main  corridors  that  ensure  the  interconnection  of  the  associated  countries'  transport 
infrastructure  with that  of the EU were  identified  (the  Crete  corridors)  and  supported 
through  co-financing. 

Trans-European  Networks 

investment 

in 

in 

A  large  amount  of  the  1996  budget  (ECLT 424.4  million  including  cross-border 
infrastructure  projects)  was allocated to such infrastructure  programmes. The relevant 
national  programmes  will  be  described  under  their  respective  country  chapters. 
Significant  funds were also provided under multi-country programmes, which covered 
notably: 

- Transit  facilitation 
ECU  22  million,  providing  an 
infrastructure  and customs services. 

integrated  approach  covering  border-crossing 

- Transport 
ECU  9  million,  for  feasibility  studies  for  rail  and  road  infrastructure  on  the  Crete 
corridors and activities for improving safety  in the transport of hazardous materials. 

- Telecommunications  and post 
ECU  7 million,  notably  to  facilitate  CEECs  compliance  with  international  standards 
and  for  the  management  of  the  frequency  spectra  crucial  for  radio  and  television 
broadcasting and mobile telephony. 

Although  a  large  proportion  of  these  sector  programmes  consists  of  physical 
investment,  they  also  include  funds  for  project  management  and  supervision,  policy, 
approximation of EC norms and feasibility  studies on future  investment. 

Where investment  is concerned, Phare operates as a complement  to the normal actors, 
i.e.  the  partner  country  governments,  the  International  Financial  Institutions  and 
commercial  lenders.  The  Phare  contribution,  however,  is  frequently  the  part  that 
makes  the  whole  project  feasible  by  helping  the  country  provide  the  input  other 
lenders require before they engage their  funds. 

A  concrete  example  of  Phare's  leverage  function  is  illustrated  in  the  box  below.  It 
analyses  a  sample  of  seven  transport 
infrastructure  projects  under  the  1996 
programme. The analysis reveals that with an input of ECU  183 million of Phare grant 
funds,  investment  projects  worth  ECU  886  million  were  started,  i.e.  five  times  the 
Phare  contribution.  Loan  finance  by  the  International  Financial  Institutions  (EIB, 
EBRD, and IBRD) accounted  for ECU 489 million of total funding  in these projects. 

12 

Phare's  grant contributions  as a facilitator  and  multiplier  for  infrastructure co-
financing 

Hungary: Budapest container terminal and intermodal logistics centre 
Romania: railway rehabilitation 
Romania: rehabilitation of Constanta port  facilities 
Albania: Tirana-Durres road 
Bulgaria: road rehabilitation on transit roads II project 
Poland: modernisation of A4 motorway 
Poland: modernisation of E20 railway, Western part 

Contributors: 
Phare 
IFIs (EIB, EBRD, IBRD) 
Partner government 
Total 
Phare leverage 

ECU million  % of total 
183 
489 
214 
886 

21 
55 
24 
100 
| x 5 

| 

Cross-border  and intra-regional cooperation 
A  key  element  of  the  pre-accession  strategy  therefore  consists  in  promoting 
cooperation  initiatives  through  different  types  of programmes.  Regional  cooperation, 
in particular  in regions  where obstacles  to cooperation  rooted  in historical  or  cultural 
heritages have to be overcome, is of great importance. 

In  1996,  cross-border  cooperation  (CBC)  programmes  between  Phare  countries  and 
Member  State  border  regions  have  again  supported  projects  for  an  amount  of  ECU 
180  million  under  a  specific  budget  line,  with  infrastructure  projects  continuing  to 
have  a  large  share  in  this  programme.  A  number  of  these  comprise  environmental 
projects  such as wastewater treatment  projects. 

Investment  at  a  local  or  municipal  level  in  the  regions  around  the  Baltic  Sea  has  a 
direct  impact  on  the  quality  of  life  of  the  macro-region  as  a  whole.  The  Baltic  Sea 
region  has  further  developed  a  specific  cooperation  framework  and  several  Phare-
funded  programmes  underpin  this  effort.  The  cross-border  programmes  of  the  Baltic 
countries  have been  included  in  an integrated  Poland/Baltic  cross-border  programme 
thereby  creating  more  synergy  and  leverage  than  a  bilateral  approach.  A  similar 
development  has occurred  in the region  encompassing  the Czech Republic,  Hungary, 
Poland,  Slovakia,  Slovenia  where  a  cross-border  cooperation  programme  provides 
support  to  multi-country  projects  involving  at  least  two  countries  from  central  and 
eastern Europe and one EU Member State (ECU  11 million under the  1996 budget). 

In addition to the traditional cross-border programmes,  1996 also saw the extension of 
the  cross-border  cooperation  concept  to cooperation  between  the  countries  of  central 
and eastern Europe and those to the east (NIS). The Credo programme made  available 
ECU  12 million in  1996 (out of an indicative envelope of ECU  100 million) and aims 

13 

to  improve  good  neighbourly  relations,  promote  cooperation  between  'East-East' 
border  regions  and  communities  and  contribute  to  economic  and  community 
development  in these border  areas.  It will  fund  small-scale  activities both  of  a  'hard' 
(infrastructure)  and 'soft'  (people-to-people) nature. 

Phare  also  financed  projects  in  collaboration  with  Tacis  within  the  framework  of 
Black  Sea  Economic  Co-operation  (BSEC),  which  comprises  all  Black  Sea  littoral 
states, as well  as Greece and Albania. The Black  Sea region being a future  EU border 
region,  is  of  growing  importance  for  the  EU,  and  the  EU  aims  to  strengthen  both 
political  stability  and  economic recovery  in this region.  The  Commission  contributed 
to  the  establishment  of  the  Black  Sea  Trade  and  Development  Bank  and  the 
International  Centre for Black  Sea Studies. Phare also provided  financial  assistance to 
the energy centre for the Black Sea in Sofia,  Bulgaria. 

A  new  Ecos-Ouverture  partnership  programme  (ECU  6  million)  promotes  good 
governance at local authority  level in the countries of central  and eastern Europe with 
a  view  to  later  decentralisation  and  devolution  of  some  powers  from  central 
governments. 

Two special programmes have been launched to support the aims of good  neighbourly 
relations  and  friendly  cooperation.  The  first  is  the  special  programme  for  'the 
reconstruction  of  the  Danube  bridge  between  the  Slovak  town  of  Sturovo  and  the 
Hungarian  town  of  Esztergom  destroyed  in  1944  (ECU  5  million  from  Phare).  The 
second  is a special  cross-border  programme  (ECU  10 million) between  Romania  and 
Hungary. 

Justice and home  affairs 
The extension of this cooperation  in the area of justice and home affairs  to the current 
partner  countries has been  specifically  included  as a full  priority  of the  pre-accession 
strategy. 

A horizontal  programme  on Justice  and Home  Affairs,  funded  with  ECU  11 million, 
was  launched  in  1996  after  extensive  preparation  with  experts  from  the  Member 
States  and  the  associated  countries.  It  will  support  activities  in  combating  organised 
and trans-national  crime, judicial  cooperation,  immigration  as well  as asylum  policies 
and procedures.  It  will  complement  Phare  support  in related  areas  such  as the multi-
country  drug  programme  for  which  an  additional  ECU  5  million  programme  was 
made available in 1996. 

A  Baltic  Eastern  Border  Management  programme  was  set  up  during  1996  with  a 
budget  of  ECU  6  million.  This  cooperation  programme  aims  at  assisting  Estonia, 
Latvia and Lithuania to solve the problems of a wide range of illegal border activities. 
This Phare Programme  is complemented  by  a similar programme  provided  under  the 
Tacis Programme for  Russia. 

Democracy  and civil society 
Equally  important  for  all partner  countries  is the objective  of developing  the  stability 
of  the  institutions  guaranteeing  democracy,  the  rule  of  law,  human  rights  and  the 
protection  of  minorities.  For  the  candidate  countries,  this  is  one  of  the  Copenhagen 
criteria  against  which  readiness  for  the  opening  of  accession  negotiations  is  assessed 

14 

Programmes  that  operate  in  these  areas  include  support  for  civil  society,  NGOs  and 
local  structures  as well  as cooperation  among  EU  and partner country  bodies  outside 
the  realm  of  central  government.  The  Democracy  programme  (ECU  10  million) 
provides  support  for  projects  from  non-profit  organisations  promoting  a  pluralistic 
and  democratic  society.  The  LIEN  programme,  (ECU  10.5  million)  aims  to  support 
disadvantaged  groups  of  the  population.  The  Partnership  programme  (ECU  10 
million)  focuses  primarily  on  support  for 
local  economic  development  and 
cooperation  between  the  private  sector,  local  government  and  civil  society.  National 
programmes  mobilised  further  support  in  this  domain.  Examples  from  1996  include 
the Bulgarian civil society programme and language training for minorities in Latvia. 

Improving the environment 
Support  to  improve  the  environment  has been  present  in the Phare  Programme  since 
the very beginning. Both the Inter-Ministerial  Conference  of Luzern in  1993 and  Sofia 
in  1995, which  brought  together  EU,  EFT A,  Phare,  and  European  Tacis  beneficiary 
countries, stressed the need for environmental  investment. 

A major  part  of  EC  environmental  legislation  is  not  covered  by  the  White  Paper  on 
the  Internal  Market,  and  help  from  TAIEX  in  this  sector  is  currently  limited  by  its 
mandate.  Therefore  in  order  to  close  this  gap,  the  Commission  decided  to  allocate 
ECU  10  million  to  the  creation  of  an  environmental  apoproximation  facility 
(Development  of  Implementation  Strategies  for  Approximation  in  Environment)  for 
small  projects  dealing  with  the  implementation  of  legislation  and  enforcement.  In 
addition,  ECU  15  million  has  been  allocated  for  the  third  environmental  project 
preparation  facility. 

The true extent of environmental  support cannot be assessed in the sector tables  at the 
end of this report, since direct and indirect environmental projects  are also included in 
energy and cross-border programmes, and in regional development  and local  authority 
programmes. Projects  tend to be classified  under  headings which reflect  the nature of 
the  largest  component  of  the  programme  concerned.  For  example,  the  1996  Czech-
German  cross-border  programme 
(ECU  25  million),  although  classified  as 
infrastructure  for  its main purpose, also comprises  environmental  support worth  ECU 
9  million,  notably  in  sewage  and  wastewater  treatment  projects.  A  less  typical 
example  under  the  1996  programmes  is  a  comprehensive  disposal  programme  for 
unwanted  and  dangerous  pesticides  (ECU  1.7  million)  which  forms  part  of  an 
agricultural  programme  in  Albania.  Analysis  of  the  sector  classification  reveals  that 
within  the  1996  budget  more  than  ECU  100  million  was  mobilised  to  serve  clear 
environmental purposes. 

Consolidating economic  reform 
A  functioning  market  economy  capable  of  coping  with  global  competitive  pressures 
remains  a  fundamental  objective  for  every  Phare  partner  country. 
Therefore 
programmes  aimed  at  consolidating  economic  reform  and  supporting  restructuring 
and the creation of enterprises continued to receive full  attention under the Phare  1996 
allocations (ECU  190 million approximately). 

Programmes  supporting  the  privatisation  and  restructuring  processes,  helping  the 
institutions  for  trade  and  investment  promotion,  maintaining  or  restoring  sound 
banking and financial sectors and furthering  SME development were all present in the 

15 

1996 programmes. 

They were completed with regionally  focused  development programmes that have the 
twin characteristic  of being  instruments  for  fostering  economic  development  and key 
elements  of  current  EC  policies  (cohesion  and  regional  development).  Such 
programmes help the associated countries programme for  accession. 

Education, training, research and social policy 
Physical  infrastructure  networks  facilitate  the  integration  of  the  structures  of  the 
central and east European  countries into those of the EU, as do networks  in the fields 
of research and education. The Tempus programme  supports  links among  universities 
and  higher  education  institutions  in  the  CEECs  and  in  the  EU  through  exchanges  of 
teachers  and  students  and  common  projects.  It  has  maintained  a  strong  presence 
within  the  Phare  Programme.  In  1996,  ECU  83  million  were  made  available  for 
projects  in this  area. The network  of economic research being  supported  by  the  ACE 
programme  also received  a new  allocation of ECU  10 million. In  1996, the  European 
Training  Foundation  managed  16  projects  over  ECU  50  million  in  the  field  of 
vocational education and training. 

The gradual opening up of Community programmes is an important  aspect of the pre-
accession strategy and is expected to lead to the participation  of the Phare countries in 
more  than  10 Community  programmes  in the  fields  of human  resources,  audiovisual 
and  culture,  environment  and  energy  saving.  However,  the process  of  enabling  third 
countries,  even  associated  countries,  to  participate 
legally  and  financially  in 
Community programmes has proved administratively  complex. 

A  number  of  new  programmes  in  support  of  social  development  and  employment 
were  launched.  By  their  nature  containing  a high  level  of  so-called  'soft'  measures, 
their budgetary cost remains moderate. 

16 

Summary of the 1996 programme focus 

Sectors  concerned  primarily  with  EU  integration  and  pre-accession  have  received 
most attention in the  1996 programme package, as illustrated in the table below. 

Shift towards priority sectors of pre-accession  strategy in 1996 

12.9 

1996: 

5.1 

2.6 

) 
1995: 

it-commitments 
1990-94: 

0.8 
13.7 
(3.5) 
0.8 
9.4 
29.8 

(Sector  allocations,  as percentage  of total Phare budgt 
SECTORS: 
PROGRAMMES WITH PREDOMINANT EU  INTEGRATION AND PRE-ACCESSION 
CONTENT: 
Public administration, EU integration, 
legislation (including consumer protection) 
Civil society and democratisation 
Infrastructure:  energy, transport  & telecom 
(of which under CBC) 
Integrated regional measures 
Environment  and nuclear  safety 
Subtotal: 
PROGRAMMES WITH PREDOMINANT TRANSITION AND REFORM CONTENT: 
2.2 
Agriculture 
8.7 
Private - and financial  sector 
Social development  and public health 
1.4 
10.3 
Education 
22.6 
Subtotal: 
OTHER PROGRAMMES: 
Humanitarian  and critical aid 
General technical assistance and 
miscellaneous 
Subtotal: 

0.9 
39.6 
(13.4) 
4.0 
7.1 
54.2 

3.5 
15 
4.2 
12.7 
35.4 

9.1 
21.8 
5.3 
14 
50.2 

10.2 
6.3 

8.6 
10.6 

2.2 
7.4 

16.5 

19.2 

9.6 

1.9 
34.7 
(13.1) 
6.4 
4.5 
60.4 

There has been  strong  growth  in the allocations  for  administrative  reform  (legislation 
and institutions). 
Infrastructure,  either  under  direct  programmes  or  under  cross-border  programmes, 
continued  to  feature  strongly  in  budget  allocations.  There  has  been  a  common 
tendency  towards  front-loading  in the infrastructure  budgets, i.e.  allocating  already  in 
1995-1996  most  of  the  funds  foreseen  for  infrastructure  under  the  multi-annual 
framework  up  to  1999.  This  can  be  explained  by  the  fact  that  Phare's  grant 
contribution  in  public  works  is  frequently  that  which  unlocks  the  loan  funds  of  the 
International Financial  Institutions. 

The  importance  of  the  humanitarian  aid  component  is  mainly  due  to  the  Bosnia-
Herzegovina programme. 

Budgetary  allocations  are an  indicator  of the relative  importance  given  to the  various 
areas  of  support,  albeit  an  imperfect  one:  the  instrumental  importance  of  an  activity 
frequently  bears no direct relationship with its budgetary  costs. The sector allocations, 

17 

as  used  in  this  report,  are  also  an  imperfect  indicator  of  the  sector  coverage  of  the 
programmes,  although  they  are the best  indicator  available. Most  of the  programmes 
consist of integrated  approaches and pursue multiple  objectives. 

Over the  second  half of  1996 and  in  early  1997, the  Commission  developed,  notably 
through  the  exercise  of  preparing  the  Opinions  on  the  countries  having  applied  for 
membership,  a closer  knowledge  of  the  status  of  the partner  countries  in  the  various 
relevant  areas.  This  exercise  revealed  that,  although  a  change  in  direction  had  been 
initiated,  there  remained  a  number  of  problems  in  relation  to  Phare's  capacity  to 
function  as  an  effective  tool  and  help  achieve  its  ambitious  pre-accession  objectives. 
Still  operating  under  the  'demand-driven'  principle,  the  Programme  continued  to 
disperse its efforts  over too wide  a range of subject  areas and beneficiaries.  The need 
to address  the immediate  and  urgent  needs  of reform  had  also  led to the  mobilisation 
of a large variety of  support  mechanisms  and operators. This dispersion  of  objectives 
and  instruments,  while  unavoidable  and  necessary  in  the  first  phase  of  transition  is 
now  inappropriate  to  the  new  goal.  It  was  therefore  decided  to  strengthen  the 
accession  focus  of the programme  and new orientations were  subsequently  elaborated 
by the Commission in  1997. 

Multi-country programmes 

A  large  part  of  the  work  done  in  1996  by  Phare  staff  and  officials,  as  well  as  by 
experts  and consultants, concerned  the implementation  of pre-1996 programmes.  The 
individual  country sections below pay specific  attention to progress and  achievements 
made  in  1996  in  those  earlier  Phare  national  programmes.  In  this  section,  a  brief 
overview  is  given  of  the  most  significant  achievements  of  the  three  main  sectors 
supported by the multi-country programmes. 

Phare multi-country  support in the area of transport, worth ECU  86.5 million over the 
past  few  years, has produced  a comprehensive  training  programme  for  the  air-traffic 
controllers  of all Phare countries, implemented  by Eurocontrol.  A  substantial  number 
of  strategic  and  pre-investment  studies  have been  prepared,  now  underpinning  many 
of  the  effective  investment  projects  under  national  programmes.  The  largest  part  of 
the  budgets  was  spent  on  investment  aimed  at  the  elimination  of  border-crossing 
bottlenecks.  Due  to  a  number  of  difficulties  related  to  the  fact  that  authorities  of 
different  countries as well  as various  layers of government  must  coordinate  and reach 
an agreement before  a specific  project  can start, this component was faced  with  severe 
delays, which have now been  addressed. 

In  the  energy  sector,  Phare  has  developed  through  its  multi-country  programmes 
(ECU 40 million)  an overall  integrated  approach  that  addresses  three crucial  areas  of 
action, namely energy policy, energy  supply and energy efficiency.  Capacity-building 
has been  achieved  through  training  and  twinning  arrangements.  Strategies  have  been 
prepared  for the  gas and electricity  sectors, which have  led to concrete projects  being 
implemented  (UCPTE/CENTREL  electricity  grid  connection  and  works  initiated  in 
south-east  Europe).  The  study  of  an  integrated  approach  to  promote  clean  coal 
technology has been  completed. 

Phare's  multi-country  assistance  for  the  environment  (ECU  56  million)  has  focused 
on  a number  of  key  programmes  including  the  integrated  environmental  programme 

18 

for  the  Danube  river  basin,  the  Baltic  Sea  programme  and  the  Black  Sea 
environmental programme.The Danube programmehas provided  for  the  development 
of  an  enhanced  monitoring  strategy  and  Accident  Emergency  Warning  System, 
support  to NGOs  and the  development  of  river-basin  management  techniques.  Under 
the Black  Sea programme, which has been  funded jointly by Phare and Tacis, support 
has been provided  to Romania  and Bulgaria  for  the  implementation  of the  Bucharest 
Convention  and  the  Black  Sea  Action  Plan,  which  is  designed  to  adopt  a  unified 
approach to the control of pollution in this region. Finally, in the context  of the Baltic 
Sea  programme,  activities  are  related  to  the  implementation  of  the  Helsinki 
Convention  and  address  the  'hot  spots'  identified  by  the  Helsinki  Commission.  They 
have led to improvements  in wastewater treatment  and, as a result,  in the condition of 
the Baltic Sea in general. 

In addition,  1996 saw important progress in the area of statistical  analysis in all Phare 
countries,  with  the  exception  of  Bosnia-Herzegovina.  The  basic  tools  of  the  CEEC 
statistical  systems,  such  as  the  adoption  of  international  classifications,  building  of 
basic  registers  (population,  businesses,  etc.),  were  further  developed.  The  general 
CEEC data processing capacity increased  as a result of training provided by the multi-
country  programmes,  and  investment  in  hardware  and  software  through  the  national 
programmes.  The  quality  of  basic  macro-economic  data  such  as  national  accounts, 
prices  and  basic  labour  related  data  such  as  costs  and  employment  much  improved. 
Some very  specialised  surveys  launched  in areas of particular  interest  to  EU policies, 
such  as  road  transport,  newly  created  enterprises,  and  the  retail  trade,  revealed  data 
that  were  of  comparable  quality  to  those  produced  by  the  Member  States'  statistical 
offices. 

19 

Developments in operational management 

Multi-annual programming 

The  European  Council  in  Essen  of  December  1994  asked  that  Phare  should  be 
developed  "into  an  indicative  medium-term  financial  instrument".  During  1996, 
multi-annual  indicative  programming  was  completed  for  the  majority  of  the  Phare 
countries  with  the negotiation  and  signature of Multi-Annual  Indicative  Programmes. 
These  included  Albania,  Estonia,  Latvia,  Lithuania,  Romania,  and  Bulgaria  with 
Multi-Annual Indicative Programmes covering the period  1996 to  1999. 

Multi-annual  indicative  programmes  set  out  the  basic  objectives  and  strategy  for 
reform  in each  country,  establish  the priority  areas  for  Phare  financial  assistance  and 
actions, and include broad sector allocations of funds  for the period  covered. 

The  Multi-Annual  Indicative  Programme  does  not  constitute  an  official  budgetary 
commitment  on  behalf  of  the  EC.  The  Multi-Annual  Indicative  Programmes  are 
implemented  through  successive  annual  Country  Operational  Programmes  which, 
through  individual  Financing  Memoranda,  constitute  the  formal  EU  financing 
commitment  for  a  given  budget  year.  The  indicative  nature  of  the  Multi-Annual 
Indicative  Programmes  offers  Phare  the  flexibility 
to  vary  annual  allocations 
according  to  the  countries'  absorption  capacity  and  sector  requirements  as  they 
develop. 

the  Multi-Annual 

Nevertheless, 
the 
predictability  of  Phare  assistance  and  resulted  in  improved  programme  design  and 
preparedness of programmes when the commitments are made. 

Indicative  Programmes  have 

increased 

Financial management 

improvements  in  the  financial  management  and  operation  of  Phare  were 
In  1996 
introduced  in accordance with the overall  objectives  of the  Commission's  SEM  2000 
initiative (Sound & Efficient  Management 2000). 

New Financial  Directorate 
These  improvements  were  characterised  at the organisational  level  by the  creation  of 
an  independent  financial  Directorate  within  DG  IA  responsible  for  the  financial  and 
human resources of all programmes managed by DG IA, including  Phare. This meant 
the  creation  of  a 'counterweight'  to  the  operational  Directorates  on  aspects  related  to 
the allocation of human resources, financial  management  and awarding of contracts. 

The  main  functions  of  the  Financial  Directorate,  which  came  into  operation  in 
October  1996, are 

•  human resources 

•  global  coordination  of  the  management  of  the  budget  including  budgetary 

performance  and audits 

20 

•  financial  management 

•  development of procedures and verification  of their application 

• 

• 

evaluation, notably ex-post 

information. 

Increased  transparency 
In  1996  the  Commission  launched  a  significant  initiative  to  further  improve  the 
transparency  and  efficiency  of tendering  and  contracting  under  Phare.  This  initiative 
was  a  response  to  a  modification  in  October  1995  of  the  arrangements  in  the  EC 
Financial Regulation relating to the award of service contracts. 

In  a bid  to make  Phare  more  accountable  to the taxpayer  and  more  transparent  to  its 
partners,  the  European  Commission  decided  to  publish  a  notice  on  every  upcoming 
Phare  tender.  While  this  did  not  affect  the  tendering  for  supply  and  work  contracts, 
which  have  always  been  published  in  the  Official  Journal,  it  affected  the  award 
procedure  for  service  contracts  significantly.  Service  contracts  will  continue  to  be 
awarded  following  a  restricted  tendering  procedure,  but  the  way  shortlists  are 
compiled was changed. 

Information  on  all  upcoming  service  tenders  including  a  standardised  expression  of 
interest  form  was  published  from  October  1996  on  the  Internet.  This  enabled 
companies  and  organisations  to  submit  their  expression  of  interest  and  thus be  taken 
into consideration in a fully  standardised and official  pre-qualification procedure. 

that  general  project  and  contract 

Apart  from  announcing  specific  tenders  on Internet,  the procedure  introduced  during 
(programme 
1996  also  meant 
summaries,  budgets  still  available  for  contracting,  etc.)  relating  to  services  and 
technical  cooperation  is published  in the  Official  Journal. Finally,  the new  procedure 
ensures that  a list  of awarded  contracts  will be published  in the  Official  Journal  on a 
regular basis. 

information 

The new  system  implies  that  any  company  wishing  to be  short-listed  for  a particular 
tender  will  have  to  express  interest  in that  tender  using  a  standardised  expression  of 
interest form,  also available on the Phare Internet  site. On the basis of the  expressions 
of  interest  submitted,  the  short  list  is  established  through  a  standardised  pre-
qualification  procedure. This has increased not only the transparency of this procedure 
but also ensured that only companies having indicated  specific  interest will be invited 
to tender. 

New standard  procedures 
During  1996  the  Commission  undertook  a  detailed  review  of  the  tendering  and 
contracting  procedures  used  in  Phare.  The  process  included  the  introduction  of  new 
standard  tender  and  contracting  documents,  new  procedures  for  tender  evaluation 
committees, clearer definition  on the rules concerning  the formation  of consortia  and 
strengthening of the rules stipulating that firms participating in project preparation and 
design  cannot  participate  in the  subsequent  tender.  These  improvements,  prepared  in 

21 

1996, were decided by the Commission in early 1997. 

The  objectives  behind  these  initiatives  go  far  beyond  the  simple  issue  of  tendering. 
The  Commission  is  now  assisting  the  ten  associated  countries  in  their  efforts  to 
prepare  for  membership  of  the  EU.  This  daunting  task  will  only  be  feasible  if  the 
Commission  and  its programmes,  such as Phare, rely on the two driving principles  of 
maximising transparency and involvement and of striving for greater  efficiency. 

Human Resources 

With the 1996 budget fully committed, the total volume of funds to be managed by the 
same  level  of  staff  increased  by  around  40  per  cent  and  the  ratio  between  human 
resources and commitments to be managed decreased. 

In response to this situation the budgetary  authorities  for the first time  allowed  that a 
small  part  of  the  Phare  budget  (2  per  cent)  be  used  by  the  Commission  to  supply 
technical  support  and  cover  relevant  administrative  expenditures  for  the  mutual 
benefit  of  the  Commission  and  the  partner  country.  Following  agreement  with  the 
partner  countries,  in  1996  these  2  per  cent  were  allocated,  amongst  others,  to  the 
recruitment  of  external  staff  supporting  the European  Commission  Delegations  in the 
supervision  of  programme  implementation  for  the  total  duration  of  the  1996 
programmes. Thus a direct link was introduced between the total  size of a programme 
budget and the resources available for its implementation. 

This development,  together with  an internal  redeployment  of staff  from  Headquarters 
to the EC Delegations in the Phare partner countries, will make it possible gradually to 
increase  the  responsibility  of  the  Delegations  in  supervising  the  implementation  of 
Phare and thus simplify  procedures. 

The  new  orientations  will  also  lead  to  a  significant  increase  in  the  average  size  of 
Phare  contracts  and, therefore,  a reduction  in the number  of contracts  to be  managed 
and  supervised. 

Some  further  organisational  shifts  in  respect  of  the  competence  of  the  various 
Directorates  within  DG  IA took place. Directorate  B  is now  responsible  for  relations 
with the associated countries of central Europe, while Directorate D is in charge of co 
operation  with  Albania,  Bosnia-Herzegovina  and  the  former  Yugoslav  Republic  of 
Macedonia,  and  a  number  of  other  European  countries.  At  the  same  time,  the 
democracy  programmes  have been brought  under  the  aegis  of the Human  Rights  and 
Democracy Unit within Directorate A. 

Monitoring and assessment 

During  1996 the  chain  of monitoring-assessment-evaluation  structures  and  activities 
was  rearranged  with  a view  to  reinforcing  Phare's  potential  for  ensuring  qualitative 
performance,  substantive achievements and impact. 

As part of the newly created  financial  department,  an Evaluation Unit, independent  of 
the  Operational  Directorate  has  been  created.  The  Unit's  remit  covers  all  DG  IA's 
programmes,  of  which  Phare  is,  in  terms  of  budget,  the  most  important.  The 

22 

Evaluation  Unit  establishes  at the beginning  of each year  an evaluation plan which  is 
part  of  the  overall  Commission's  evaluation  plan  covering  all  internal  and  external 
policies with a budgetary impact. Evaluations under this plan will start in  1997. 

During  1996,  a  system  was  introduced  through  which  all  programmes  are  assessed 
regularly  with  the  input  of  external  assessors.  This  system  aims  to  facilitate  early 
corrective  action  and  redirection  of  activities  under  ongoing  programmes.  Teams  of 
external  assessors  have  been  recruited  and  took  up  their  assignments  between  May 
and  September.  By  the  end  of  the  year  the  systematic  release  of  operational 
assessment  reports became  effective.  Before  that,  a specific  effort  had  been  made by 
programme  management  to  conduct  individual  ad  hoc  evaluations  as  and  when 
needed  for the operational progress of the programme  and  for  the  effective  definition 
of new programmes. 

More  than  40  such  operational  reviews  and  reports  were  produced  in  1996.  Their 
immediate and main outputs have consisted of operational  conclusions  fed back to the 
various  relevant  levels  of  programme  management  including  the  partner  country. 
They  have  also  influenced  the  updates  of  sector  strategies,  like  those  on  the  use  of 
financial  instruments in support of SME's or the environmental  strategy. 

The Phare Programme has developed  into the single largest  source of donor  financing 
of know-how transfer  to the Phare partner  countries. Its objectives  and activities have 
been relevant in addressing important issues of the transition process. Its contribution, 
particularly in areas in which other donors have shown little interest and have devoted 
limited resources, such as democracy  and civil  society, has overall been positive. The 
Programme  has  shown  remarkable  flexibility  in  adapting  to  the  rapidly  changing 
political and economic environment of the Phare countries. 

The  demand-driven  nature  of  the  Programme  has  been  both  a  strength  and  a 
weakness;  it  may  have  enhanced  ownership  by  the  partners  but  it  has  also  led  to 
fragmentation  of  effort  and  dispersion  of  resources  with  adverse  effects  on 
programme  performance.  The  Programme  has realised  less  than  its  full  potential:  its 
effectiveness  and impact have, to an extent, been diluted by lack of leverage to ensure 
good programme performance,  by deficiencies  in project  cycle management  and by a 
preoccupation  with  financial  and  procedural  control  to  the  detriment  of  substantive 
programme design and performance. 

23 

Information  and  communications  activities 

The  Phare  Multi-Country  Information  Programme,  providing  finance  for  a  total  of 
ECU  8.7  million,  was  approved  in July  1995. It  comprised  a foundation  programme, 
covering  a visual  and written  identity  and  including  strategic  counselling  and  advice, 
public opinion research,  and database  maintenance. It also provided  for  a publications 
programme  comprising  operational,  financial,  management  and business  information; 
promotional  publications;  an  annual  report;  European  Dialogue  magazine;  the 
Together  in Europe  newsletter;  and  one-off  publications  linked  to  themes  or  events. 
Also  included  in  the  programme  were  internal  communications  and  training  in 
Brussels for Delegations  and PMUs; a media programme,  including  support to  central 
European journalists; visits; audio-visual  sponsoring  and production  of TV dossiers; a 
Parliamentary  programme,  including  visits;  and  an  in-country  communications 
programme linked to partner countries'  own efforts  and those of Delegations. 

The principal  achievement  of  1996 was to put Phare information  on-line, which  came 
into effect  at the beginning  of April. All programme  and contract  information,  as well 
as  background  information,  news  and  general  data  are  being  transposed,  as  well  as 
1995  and  1994  programme  information.  In  addition,  regular  updates  on  programmes 
and contracting  status are published  on Internet. Information  appears within one week 
of the Commission's  decision. 

Another  new  service  is  the  advance  publication  of  tender  opportunities.  From  mid-
July  1996, notices of upcoming  service tenders were published  on the Internet  within 
24  hours  of  task  managers  issuing  the  relevant  notice.  This  service,  which  helps 
companies  to  express  their  interest  in  participating  in  a  tender,  is  a  result  of  the 
Commission's strategy to introduce greater transparency  into Phare and helps it  satisfy 
the  transparency  requirements  (of  Article  118)  of  the  Financial  Regulation.  First 
indications are that the service is in considerable  demand,  and this is likely to increase 
as the Internet gains momentum amongst  central European countries. 

The Information  Unit  also produced brochures to explain wider policies,  such as "The 
European  Union's  pre-accession  strategy",  a  summary  of  the  various  pre-integration 
initiatives  undertaken  with  the  associated  countries  of  central  Europe,  published  in 
June  1996.  The  Unit  carried  out  research  into  press  reactions  to  the  Second  Donor 
Conference  on Bosnia and Herzegovina,  and made proposals to  ensure more balanced 
and positive  press coverage  in future.  It  responded  to over  60,000  external  telephone 
calls,  5,000  visitors  and  well  over  100  speaking  engagements  at  conferences, 
workshops and visitors' programmes. 

The  1995 Financing  Proposal  set aside ECU 2 million  for  reinforcing  the  information 
capacity  of EU Delegations.  Research  is underway  to  establish  the  exact  information 
needs  notably  the  establishment  of  European  Information  Centres  in  city-centre 
locations. These Centres would be under Delegation control. 

in  July, 

the  European  Parliament  approved 

the  rectificatory  and 
However, 
supplementary  budget  on the  eve of the  presentation  of the  1996 Financing  Proposal, 
which  involved  a temporary  suspension  of financing  for  information.  This meant that 
in effect  no funds  were  available vafter  the  1995 budget  had  run  out.  From  the  end  of 

24 

September  1996,  no  further  activities  involving  the  production  of  newsletters, 
brochures or material  for events were undertaken either in Brussels or in the candidate 
countries,  although  essential  services  such  as  speeches  and  the  reception  of  visitors 
were maintained until the framework  contract expired in November.  Since that time, a 
skeleton  Internet  service continued  until  approval  was  given  for  a  1997 budget  at the 
end of November  1996. 

The Commission made  several proposals, notably  in October  1995  and May  1996, to 
increase MEPs'  awareness  of the information  resources  available  and to research  and 
monitor potential areas of conflict.  A first high-level exchange took place at the end of 
October with a parliamentary audience of approximately  50 MEPs, staff and others. 

?s 

Financial overview and performance 

The financial  performance  of the Phare Programme  is summarised  by the level of the 
funds  committed,  contracted  and  paid,  and  by  the  relationship  between  these  three 
over  time.  The  box  on  page  27  explains  the  technical  meaning  of  the  terms 
'commitment', 'contracting' and 'payment'. 

Figure 1: Funds committed, contracted and paid 1990-1996 (in ECU  million) 

•  commitments 
•  contracts 
D payments 

1990  1991  1992  1993  1994  1995  1996 

Figure 2: Cumulative  funds  committed,  contracted  and paid  1990-1996  (in  ECU 
million) 

7000 

•  commitments 
•  contracts 
•  payments 

1990  1991  1992  1993  1994  1995  1996 

26 

Funding procedure 

As  part  of  the  Phare  Programme,  there  are  three  steps  that  take  the  annual  budget 
approved  by  the  Budgetary  Authority  through  to  the  point  where  projects  are 
implemented  and funds  disbursed. 

Phare has a financial management procedure that matches this process. 

Commitment 
Each year  a Phare budget  is agreed,  indicating  the  funds  which  the  Commission  is 
prepared  to  commit  through  the  Phare  Programme  in  each  country.  Country 
operational  programmes  are then designed  and financing proposals prepared.  Once 
these  financing  proposals  have  been  given  a  favourable  opinion  by  the  Phare 
Management  Committee  and  decided  by  the  Commission,  the  relevant  funds 
associated  with  these  proposals  are  said  to  have  been  'committed'.  Phare  must 
commit its entire annual budget within the year to which that budget applies. 

Contracting 
Once  funds  have been  committed,  tenders  are issued  so that  the  activities  outlined 
in  the  operational  programmes  can  be  put  into  practice.  As  soon  as  a  tender  has 
been  successfully  completed  and  a contract  signed,  the  relevant  funds  are  said  to 
have been  'contracted'.  Contracting  is a key  measure  of  the  implementation  of  the 
Programme,  as  it  is  via  the  contracts  that  Phare  funding  is  unlocked  and  real 
implementation  on the ground can start. 

Payment 
Payment  is the final stage  of the  funding  process. It takes place  over the period of 
each  contract,  reflecting  the  completion  of  each  component  of  the  project.  As 
projects may take several years, payments are often  spread over the same time. It is 
for  this  reason  that  payments  always  lag  behind  the  committed  and  contracted 
amounts. 

Committed funds 

In  1996  the  Phare  Programme  committed  via  various  national,  multi-country, 
horizontal  and  cross-border  cooperation  programmes  a total  of  ECU  1,222. 9 million 
(including  Budget  line  B7-7000)  to  its  partner  countries.  This  represents  an  overall 
record  and  an  increase  of  5.9  per  cent  on  1995.  The  commitment  rate  was  100  per 
cent.  Total  commitments  cumulated  over  the  life  of the  programme  now  equal  ECU 
6,636.1  million. 

Contracted funds 

The  sum  of  the  contracts  concluded  in  1996,  through  the  PMUs  in  the  partner 
countries  and via the Commission  services,  amounted  to ECU 927.5  million.  This is 
in Phare's history a very high total. However, the 1996 performance  did not match the 
1995 record  (ECU 1,142.9 million)  and the total  of new  contracts  initiated  remained 
below  that  level  needed  to  keep  pace  with  the  increase  of  funds  coming  from  new 
1996  programme  budgets  (i.e.  the  total  of  new  commitments).  As  a  result,  the 
stabilisation of the contracting backlog realised  for the first time in  1995 could not be 
repeated in 1996. 

The  contracting  backlog,  defined  as  the  .difference  between  the  programmes 
committed  and the activities  contracted,  amounts  over the period  1990-1996  to ECU 
2,335  million.  Only  65%  of  the  activities  included  in  the  programmes  approved 
during that period actually had been contracted. This backlog originated mainly in the 
early years of the programme. It has its origin in the complication of the programming 
cycle,  the  time-consuming  procedures  and  the  large  number  of  small  projects. 
Additional  factors  having  contributed  to the persistence  of the backlog  are linked to 
the absorption  capacity of the partner  countries  and to the comparatively  low ratio of 
staff resources in relation to the programme  portfolio. 

After  a  stabilisation  in  1995, the  contracting  backlog  grew  again  in  1996, thereby 
demonstrating  that  the cumulative  effect  of a number  of programme  measures  taken 
have  not  been  able  to  yield  a  sustainable  improvement.  This  conclusion  led  the 
Commission  in  1997  to  propose  a  number  of  measures  as  part  of  the  Phare 
reorientation to clear the past backlog and prevent the development  of a new backlog 
in the future. 

Figure  3 allocates  the contracting  activity  deployed  during  each  calendar  year  to the 
year of origin of the funds.  It appears that in 1996 ECU 351 million, or 38 per cent of 
the  total  contracted,  related  to  1990-1993  programmes.  This  indicator  of  relatively 
slow  implementation  progress  is  largely  explained  by  delays  incurred  in the  reform 
process  itself  (as can be seen  from  the sector  composition  of those  programmes, i.e. 
mainly  programmes  supporting  reform)  and by  limits  on the absorption  capacity  of 
the partner countries. Being aware of the impact of this overhang  on the  performance 
of  the  programme,  the  Commission  decided  in  the  new  Orientations  that  it 
elaboratedfor  Phare  not  to  continue  with  extending  systematically  the  slower 
programmes and to close  1990-93 programmes. 

Paid funds 

Payments reached  ECU 829.9 million,  which  is an overall  record  and an increase of 
8.9 per cent  compared  with  1995. The initial  budgeted  amount  of ECU  1,139.1 was 
subsequently  reduced  during  the budget  year to ECU 1,002.4 million.  The payments 
effectively  executed  were  82.8 per cent of this budget  appropriation.  Figure 4 relates 
the payments  made  in each  calendar  year to the year  of origin  of the programme. In 
1996, ECU 297 million, or 36% of the total payments, related to activities  undertaken 
under  1990-1993 programmes. 

28 

Figure 3: Contracts concluded by calendar year (in ECU million) 

1.300,00-

1.200,00-

1.100,00-

1.000,00-

900,00 -

800,00 -

700,00 

600,00 

500,00 

400,00 

300,00 

200,00 

100,00 

0,00 

1990 budget  1991 budget  1992 budget  1993 budget  1994 budget  1995 budget  1996 budget 

•  contracted in 1990  D contracted  in 1991  •  contracted  in 1992  D contracted  in 1993 

•contracted  in 1994  •  contracted in 1995  •  contracted in 1996  •  not yet  contracted 

?Q 

Figure 4: Payments in each budget year (in ECU million) 

1300 

1200 

1100 

1000 

900 

800 

700 

600 

500 

400 

300 

200 

100 

0 

IE 

1990 budget 

1991 budget 

1992 budget 

1993 budget 

=*i£ 

1995 budget 

1996 budget 

1994 budget 

•  paid in 1990 

•  paid in 1991 

• p a id  in  1992 

•  paid in 1993 

il paid in 1994 

•  paid in 1995 

•  paid in 1996 

•  not yet paid 

30 

Figure 5: Cumulative contracts and payments  1990-1996  (%) 

Cumulative contracts 
as percentage of 
cumulative 
commitments 

Cumulative payments 
as percentage of 
cumulative 
commitments 

1990 

1991  1992 

1993  1994  1995  1996 

31.0 

36.0  44.0 

48.0 

52.0  62.0 

64.8 

35.0 

36.0 

39.0 

43.0 

50,0 

53.0 

56.2 

31 

II  Phare in the individual partner countries 

32 

Albania 

Year in review 

Albania  has  generally  made  considerable  progress  in  its  transformation  to  a  market 
economy  since  1992.  Implementing  a  series  of  reforms  under  the  guidance  of  the 
International  Monetary  Fund,  Albania  had  annual  growth  rates  of  about  9  per  cent 
during the period  1993-1995. However in  1996 there was slippage. Inflation  rose  from 
8  per  cent  (1995)  to  18  per  cent  (1996)  and  due  to  slippages  in  budgetary  and 
monetary  policies  in the pre-election  period.  The  crisis,  which  occurred  in  late  1996, 
can be traced back to two particular developments. 

The  first  involved  a  setback  in  the  process  of  démocratisation.  There  were  serious 
irregularities  during  parliamentary  elections  in  May  1996  and  although  the  local 
elections  which  took  place  in  October  1996  were  generally  considered  by  the 
international  community to have been  fair,  they did  not lead to  a normalisation  of the 
political  process (continued  boycott of the new parliament  by main  opposition  parties 
and continuing controversy over the drafting  of a new constitution). 

The second trigger was the collapse of a number of "pyramid"  savings schemes which 
had worked  on a speculative  basis with  remittances  from  emigrant  workers  reflecting 
the  absence  of  a  reliable  banks.  Following  the  collapse  of  several  schemes  in 
November  1996 the  situation  in  Albania  was  marked  by  major  unrest  and  the  break 
down of additional  schemes at later  stage brought the country  into a major  state crisis 
during early  1997. 

Phare 1996 Programme in Albania 

Phare  assistance  for  the  period  1996-1999  is  provided  under  the  Multi-annual 
Indicative  Programme,  which  allocates  ECU  145  million  for  Phare  national 
programmes. These programmes will focus on developing 

• 

closer  links  with  the  European  Union  (including  the  modernisation  of  the 
structures of state and  society  and the  approximation  of  standards,  legislation  and 
regulations) 

• 

the domestic productive base (including infrastructure  development) 

•  human and natural resources. 

From  these  broad  strategy  areas,  a  number  of  priority  areas  of  assistance  can  be 
identified. 

33 

European  dimension 
The  development  of  an  EU  dimension  to  the  reform  process  in  Albania  had  so  far 
been  approached  on  an  ad  hoc  basis,  as  elements  of  individual  programmes  or 
activities. There was therefore  a need  for  a more structured  and  strategic  approach. In 
this respect, the development  and implementation of a sector strategy will need to take 
into account the need to establish an institutional  framework,  the definition  of tasks to 
be accomplished  together with  an indicative  calendar. The main  area of  concentration 
will  be  the  approximation  of  legislation  and  technical  standards,  with  emphasis  also 
on  public  administration  reform,  at  central  and  local  level,  which  will  provide  the 
effective  means to implement and enforce  legislation. 

Development of the domestic productive base 
It will not be possible  in the medium  term to maintain  the progress  achieved  so far in 
macroeconomic  stabilisation  unless  Albania  can  develop  a  viable  productive  base. 
Phare projects in a number of key economic sectors are being developed. 

Agriculture 
Since more than half of Albania's  GDP comes  from  the agricultural  sector,  Albania's 
economic  growth  in  the  short  and  medium-term  will  depend  critically  on  the 
performance  of this  sector.  Since  1991, the  Government  has  been pursuing  a policy 
of  privatisation  and  price  reform.  The  challenge  is  to  devise  a  sector  policy  that 
creates  the  conditions  for  the  development  of  a  competitive  and  viable  agricultural 
sector based on a large number of very small family  farms. 

SME Support, Trade Development, Investment Promotion and Tourism 
In parallel  with  Government  actions  to create  conditions  for  successful  private  sector 
development,  Phare  is  seeking  to develop  appropriate  facilities  and  services  aimed  at 
overcoming any existing constraints for developing the private sector. 

Banking and Finance 
In  supporting  the  development  of  the  productive  sector,  the  financial  system  is  of 
crucial  importance  since  it  should  be  able to  service  the credit  needs  of  SMEs. Phare 
support  to  this  sector  contributes  to  the  creation  of  a  modern  and  efficient  market-
oriented  banking  sector  capable  of  inducing  financial  discipline  and mobilising  long-
term financial resources. 

Transport 
The  poor  state  of  the  transport  infrastructure  has  acted  as  a  constraint  on  private 
sector  development.  The  upgrading  and  improvement  of  the  country's  transport 
infrastructure  is a key priority of the Albanian  Government  and this is reflected  in the 
Phare  allocation  of  financial  resources  to  this  sector.  To  date,  most  Phare  assistance 
has concentrated  on the rehabilitation of the east-west  and north-south corridors which 
are of primary importance to Albania in terms of its national  transport  infrastructure. 

Human  and Natural  Resources 
This  core  area  relates  to  interventions  in  the  spheres  of  the  labour  market  and 
education;  health,  water  infrastructure  and  environment;  and  local  community  and 
regional  development.  In  terms  of  the  proposed  indicative  allocations  for  the  period 
1996-1999,  the  water/environment  sectors  receive  most  resources  given  the  urgent 

34 

requirements  in this area, including the rehabilitation  of the drinking water  and  sewer 
networks,  the  construction  of  sewage  treatment  plants  and  the  development  of  the 
legal and institutional  frameworks  for environmental  protection. 

Within the framework  of the Multi-annual  Indicative Programme, Phare  approved  the 
1996  Country  Operational  Programme,  which  provided  ECU  30.5  million  of 
assistance.  An  additional  ECU  2.5  million  were  allocated  under  a  separate  financing 
proposal for the Tempus Programme. 

The  1996 Country  Operational  Programme devoted more than half of its allocation to 
the  transport  sector  (the  rehabilitation  of  the  Durres  to  Vore  section)  in  recognition 
of  the  significant  deficiencies  in  infrastructure  which  Albania  faces  and  which 
constrain its potential  for economic  development. 

Funding  was  also  approved  for  actions  relating  to the  approximation  of  legislation, 
the restructuring  of public  agencies  (customs  and statistics), the provision  of practical 
support  to  the  various  authorities  involved  in  the justice  sector,  the  strengthening  of 
the  capacities  of  three  administrative  units  in  the  Department  of  Economic 
Development  and  Aid  Co-ordination:  ACU,  responsible  for  aid  co-ordination;  EDU, 
responsible  for  Public  Investment  Planning,  and  the  Project  Management  Unit  to  be 
established  for the European  Dimension. 

As  part  of  the  development  of  the  domestic  productive  base,  support  was  also 
approved  for  the  agricultural  sector.  Small  allocations  were  also  approved  for 
education  and vocational  training  and water and environment  (development  of human 
and natural resources). 

In  addition  to  the  national  programme,  ECU  20  million  of  assistance  were  approved 
under  the  1996 cross-border  cooperation  programmes  designed  to  improve  Albania's 
links  with  its  EU  neighbours,  Greece  and  Italy.  These  cross-border  funds  were 
devoted  mainly  to  the  transport  sector,  and  the  rehabilitation  of  the  country's  main 
road axes. 

Phare achievements 

Albania has  become an established partner of the Phare Programme  and the Albanian 
authorities  are  familiar  with  the  programming  and  implementation  procedures. 
Moreover,  increasingly  Phare  programmes  of  assistance  are  being  managed  through 
the  Decentralised  Implementation  System.  This  requires  the  involvement  of  local 
Programme Management Units, which serves to develop Albania's  capacities to make 
proposals, manage and implement Phare programmes and strengthen its institutions. It 
also eases the implementation  of new programmes in each programming cycle. 

Phare  assistance  in  1996,  in  line  with  the  wider  objectives  of  the  1996-1999  Multi-
annual  Indicative  Programme,  supported  the  country's  market  reforms  and  the 
medium-term restructuring  and modernisation  of the Albanian economy  as well as the 
strengthening  of  links  with  the  European  Union.  There  was  a  strong  emphasis  on 
addressing the country's  deficiencies  in transport  and infrastructure  and  strengthening 
institutions in key areas. Phare  investment  in transport  infrastructure  represents by  far 
to  date,  with 
the  most  significant  contribution  of  overall  Phare 

investment 

35 

considerable  impact  on  employment  and  incomes  as  well  as  secondary  investment 
effects. 

Overall  implementation  of Phare  assistance  remains  satisfactory:  69 per  cent  of total 
funds  allocated  in  the period  1991-1996 have  been  contracted.  This  figure  surpasses 
80 per cent if only national programmes are included. 

36 

Bosnia and Herzegovina 

Year in review 

In  1996,  Bosnia  and  Herzegovina  showed  some  signs  of  social  and  economic 
recovery. Wages and costs remained  relatively low, offering  the  short-term  possibility 
of  competitive  prices,  and  a  number  of  companies  have  expressed  interest  in 
establishing or re-establishing trade and investment links. 

the  national  elections 

institutions  were 
Following 
reorganised  and new appointments made. However, much effort  is required from them 
to recreate a stable and integrated  socio-economic  environment. 

in  September  1996,  state 

The efforts  of the new Government  of Bosnia and Herzegovina will focus  not  only on 
economic  and  social  reconstruction  and  the  reintegration  of  refugees  and  displaced 
persons,  but  the  overall  regeneration  of  a  viable  economic  fabric  in  an  open  and 
integrated  economy,  different  from  the  one  that  existed  before  the  war.  It  will  be 
necessary  to  strengthen  common  institutions  to  support  the  economic  reforms  and 
reinforce  the Dayton-Paris Peace Agreement.  The conduct  of economic policy will  be 
of  critical  importance  to  the  future  reintegration  of  the  country,  as  well  as  to  the 
stability of the domestic political  and social environment  during the next few years. 

In July  1996, the Commission opened  a Delegation in  Sarajevo. 

Phare 1996 Programme in Bosnia and Herzegovina 

The overall allocation  for the Country Operational Programme  in  1996 was ECU  14.2 
million.  A financing  proposal of ECU  12 million in the form  of a Country  Operational 
Programme  (COP)  for  economic  regeneration  and  institution-building  was  confirmed 
by the new, democratically  elected  Government.  The balance of ECU 2.2 million was 
the  subject  of  already-approved  financing  proposals  under  Phare  Democracy  (ECU 
700,000), Lien (ECU 500,000) and Pre-Tempus (ECU  1  million) programmes. 

The projects  chosen  in the  1996 Country  Operational  Programme  remain  in line with 
the priorities put forward  by the donor  community under the coordination  of the High 
Representative and are 

• 
• 
• 

support to SMEs and economic recovery 
support to the banking system and the establishment  of a Central Bank 
strengthening  institutions and public  administration. 

A  component  of  the  Pre-Tempus  programme  has  the  objective  of  preparing  the 
restructuring of the higher education  system in order to provide students with a variety 
of  specialisations  such  as the  teaching  of  European  languages,  law,  engineering  and 
technology  in  order  to  give  students  an  education  adapted  to  local  and  international 

37 

job markets. 

Funds were  allocated  to the Democracy  and Lien programmes  with  the  objectives  of 
contributing to the development of a democratic civil society and providing health and 
social  assistance  to  war  victims  and  the  most  disadvantaged  people,  such  as  the 
elderly, the homeless and street children). 

Phare achievements 

Before  Bosnia and Herzegovina became a fully  eligible partner country in June  1996, 
the  Phare  Programme  was  operating  in  the  country  through  an  Essential  Aid 
Programme  worth  ECU  125  million  and  allocated  in  two  equal  tranches.  The 
objective  of  the  programme  was  rapidly  to  provide  the  country  with  supplies  of 
essential  items  such  as medicine  and medical  equipment,  animal  feed,  tractors, water 
pipes,  electrical  cables,  mining  equipment,  buses,  spare  parts,  building  material  for 
housing,  computers,  etc.  Phare's  Essential  Aid  has  been  the  first  step  in  a  major 
reconstruction programme, and has acted as a stabilising  factor  in the  implementation 
of the peace process. 

The  relative  political  stability  in  the  country  has  allowed  the  Phare  Programme  to 
evolve  in  coordination  with  the  donor  community's  actions.  Different  programmes 
were drawn up in  1996 which reflected  the country's priorities. 

Support to the reconstruction  process 
The  European  Commission  programmes  funded  out  of  the  1996  budget  have  aimed 
primarily  to  foster  the  reconstruction  process,  encourage  reconciliation  and  regional 
economic  cooperation,  and  create  the  institutional,  economic  and  social  conditions 
which  will  facilitate  the  development  of  Bosnia  and  Herzegovina  and  encourage  the 
return of refugees  and displaced persons. 

These actions have aimed to 

• 

revive the local economy and provide large numbers of families with an economic 
basis during the present transition period 

•  provide  the  population  made jobless  by  the  war  (demobilised  soldiers,  refugees 
and displaced persons) with a minimum income through labour-intensive  projects 

• 

restore basic physical  and  social  infrastructure  to  improve  the  living  environment 
and the lines of communication damaged during the  conflict 

• 

reinforce  inter-entity relations. 

Ten  projects  for  rehabilitation  in  eight  major  areas  of  activity  (telecommunications, 
agriculture,  water,  housing/return  of  refugees,  energy, 
transport,  health  and 
institutions) have been developed under the Essential Aid Programme. 

Support to economic  revitalisation 
This programme aims to promote the regeneration of economic  activity in Bosnia and 
Herzegovina  on  a  sustainable  basis  through  the  development  of  market-oriented 

38 

systems  of  restored  economic  management,  promotion  of  entrepreneurship,  and 
employment generation. 

Institution-building 
The  objective  of  this  programme  is  to  provide  support  to  a  comprehensive 
Government  reform  programme  for  the  transformation  to  a democratic  society  based 
on  a  market  economy  and  the  reinforcement  of  the  Dayton-Paris  Peace  Agreement 
principles. 

Support to education, human rights and démocratisation 
Programmes  in these  areas support non-governmental  initiatives  in the  reconstruction 
of  a  civil  society,  as  well  as  in  the  reconciliation  process  between  the  different 
national  and  ethnic  groups  living  in  the  country.  At  the  same  time,  programmes 
promote  social  cohesion  by  assisting  the  most  underprivileged  sections  of  the 
population  and  increasing  the  education  level  of  young  people  in  adapting  the 
curricula  to  new  market  demands.  Higher  education  reforms  will  be  tackled  by  the 
Pre-Tempus  programme,  human  rights  and  démocratisation  by  the  Democracy 
programme and support to the disadvantaged by the Lien programme. 

In  August  1996,  the  Commission  contributed  ECU  2  million  to  support  the  Open 
Broadcast Network  (OBN) Project.  The main  objective  of the project  was to promote 
the  development  of  pluralist,  professional  and  multicultural  media  in  the  country 
through  the  setting  up  of  an  independent,  multi-ethnic  TV  network  (TV-IN).  TV-IN 
has been broadcasting on a regular basis since 7 September  1996. 

The  implementation  of  the  Essential  Aid  Programme  (EAP)  has  been  faced  with 
considerable  difficulties  of  a political,  technical  and  organisational  nature,  as well  as 
absorption  constraints  on  the  part  of  the  counterparts.  The  conditionality  and  the 
temporary  suspension  of  this  programme  in  Republika  Srpska,  the  absence  of  real 
counterparts,  the  slippage  of  scheduled  deliveries,  the  difficulties  in  controlling  the 
distribution  and final destination  of deliveries  - these have  all raised  doubts about  the 
suitability  of  import  programmes  in  the  light  of  current  needs.  The  consolidated 
figures  on contracting  and delivery reflect  these difficulties:  only ECU  83 million  (66 
per cent of the EAP) were contractually  engaged. 

Consequently, a consolidated  readjustment  of ECU 42 million into integrated  projects 
has  been  approved,  with  improved  implementation  mechanisms,  and  tailor-made 
measures  to  meet  implementation  needs,  thereby  increasing  control  over  the 
efficiency,  visibility and transparency of the aid delivery process. 

39 

Democracy programme 

Given  that  the country  has  only  recently  become  eligible  for  support  from  the  Phare 
Programme, it is too early in the implementation phase to be able to make any reliable 
evaluation  the  1996  programme's  success.  Nonetheless,  it  should  be  noted  that  the 
Phare Democracy programme has so far been contracted  at a rate of  100 per cent  and 
enabled  some  100 micro-projects  to promote  social and democratic  activity in Bosnia 
and Herzegovina in the following  areas: 

transparency of public  administration 
development of non-profit  organisations 
independent and pluralist media 
confidence-building  measures 
human rights and minority rights 
equal opportunities and non-discrimination 
social reintegration 
sustainable health and social  support. 

40 

Bulgaria 

Year in review 

In  1996,  the  Bulgarian  economy  sharply  declined 
resulting  in  a  major  economic, 
financial  and  social  crisis.  This  in  turn  led  to  the  resignation  of  the  Government  in 
December  1996,  and  elections  in  April  1997.  The  crisis,  rooted  in  the  inability  of 
successive  governments  to  implement  coherent  and  fundamental  structural  reforms, 
was  characterised  by  a  fall  of  almost  11  per  cent  in  GDP;  inflation  at  over  310  per 
cent over the year; a nine-fold  devaluation  of the lev; a virtual  collapse of the banking 
sector;  and temporary  grain  and  fuel  shortages.  A steep fall  in  living  standards  led  to 
social deprivation for a large part of the population. 

Bulgaria's  economic  transformation  has  been  slow  and  difficult.  While  the  private 
sector generated  17% of value added  in  1991,  , increasing to  47 % in  1996, the  share 
of industrial value added generated by the private sector was 9% in 1996. 

Despite  a  relatively  liberal  legislative  framework,  Bulgaria  has  fallen  behind  its 
neighbours  in  terms  of  foreign  direct  investment.  In  addition  to  political  instability 
and  slow  reforms,  institutional  weakness  and  arbitrary  decision-making  have  also 
played a role. 

While  agriculture  has traditionally  been  a  mainstay  of the  economy,  value-added  has 
nevertheless  fallen  from  18 per cent of GDP  in  1990 to  12 per  cent  in  1996. This has 
been  caused  by  a number  of  factors,  including  the  collapse  of the  Comecon  trading 
bloc  and  recent  unfavourable  weather  conditions,  as  well  as  by  policy-induced 
distortions  including  the  slow  process  of  land  restitution,  and  a  non-market-based 
pricing regime.  Export  restrictions,  other  restrictions  hindering  the  development  of a 
market  in  private  land  sales  and  prevailing  state  ownership  in  the  food  processing 
industry, were also contributory  factors. 

Closely  linked  to  the  strengthening  of  the  Bulgarian  pre-accession  process  was  the 
Government's  adoption  in  March  1996  of  a  strategy  for  the  reform  of  public 
administration.  A  reform  department  under  the  Council  of  Ministers  as  well  as  an 
inter-departmental  group chaired by a Deputy Prime Minister were  established. 

In May  1996 the Bulgarian  Government  presented  a  strategy  for  the  implementation 
of the EU White Paper on adopting the Internal Market  'acquis'. 

41 

Phare 1996 Programme in Bulgaria 

The  1996  Country  Operational  Programme  for  Bulgaria  embodied  the  objectives  of 
the  1996-1999  Multi-annual  Indicative  Programme  which  foresees  a  total  budget  of 
ECU  240  million.  The  overall  objective  of  this  Programme  is  to  support  Bulgaria's 
preparations  for  accession  to  the  EU.  The  early  signature  of  the  1996  programme 
meant that the programming cycle was brought forward by six months. 

The  1996  Country  Operational  Programme  allocated  ECU  62.5  million  to  the 
following  areas: 

The development  of  transport  infrastructure  received  a budget  of  ECU  30 million. 
Supported  by co-financing  from  the European  Investment  Bank,  this will provide  for 
the  rehabilitation  of  major  transit  roads.  A  total  of  900  km  of  international  transit 
roads will be brought up to European standards. This will be a significant  contribution 
to the  completion  of  Trans-European  Network  corridors  IV,  VIII  and  IX  which  pass 
through Bulgaria. 

The  energy  programme  provides  for  critical  coal  imports  to  secure  energy 
replacement  capacity  during  the  testing  period  of  the  closedown  of  Unit  1  of  the 
Kozloduy nuclear power plant. 

In  the  area  of  nuclear  safety,  Phare  is  continuing  support  for  vital  programmes 
relating  to  safety  studies,  management  and  accident  information  systems,  on-site 
assistance  and  twinning,  and  support  to  the  Bulgarian  Nuclear  Safety  Regulator 
involving  a consortium  of  EU nuclear  safety  authorities  in  support  of the  1993 NSA 
agreement. 

In education, support is provided  for the Tempus programme  for the reform  of higher 
education. A programme was  launched  to complete  the establishment  of the National 
Assessment and Accreditation Agency for higher educational institutions and to create 
a project  for the re-integration of drop-outs from  secondary  education. 

Closely  linked  to  the  European  integration  process,  a  programme  worth  ECU  2 
million was launched to promote the alignment of the Bulgarian  standardisation  and 
certification  system  with  that  of the  EU.  This  includes  approximation  of  legislation, 
streamlining of structures and institution-building. 

To  enhance  export  performance,  assistance  was  provided  to  the  establishment  of  an 
independent  Centre  for  Export  Promotion  as  the  nucleus  for  export  promotional 
activities at sectoral and enterprise level. 

The  civil  society  component  aimed  at  creating  the  conditions  for  the  activities  of 
NGOs through policy  development,  project  grants  and management  support.  Cultural 
cooperation  was  encouraged  through  institutional  strengthening  of  the  Ministry  of 
Culture and support to decentralised cultural institutions and initiatives. 

42 

Phare achievements 

To  assist  with  the  practical  implementation  of  the  Government's  strategy  of 
preparation  for  the  Internal  Market,  an  ECU  2  million  programme  was  launched  in 
July  1996, providing  for  legal  translations, preparation  of Bulgarian  draft  legislation, 
technical  transposition  of  the  'acquis  communautaire',  training  of  officials,  computer 
upgrading  and  a Documentation  Centre  for  all Ministries  concerned.  Under  the  1995 
Phare  transport  programme,  legal  expertise  was  also  provided  for  the  preparation  of 
seven draft  laws now  awaiting  adoption by the National  Assembly  and which cover a 
major part of EC transport  legislation. 

In  the  area  of  nuclear  safety,  the  Commission  negotiated  an  agreement  with  the 
Bulgarian  authorities  under  which  Unit  1 of  the  Kozloduy  Nuclear  Power  Plant  was 
closed  for  testing  in  May  1996.  The  whole  testing  programme  included  removal  of 
samples  from  the  interior  of  the  reactor  pressure  vessel.  Subsequent  analysis  was 
financed  under  the  Phare  nuclear  safety  programme,  while  the  Phare  conventional 
energy  programme  covered  the  costs  for  coal  imports  to  help  replace  the  electricity 
generation  capacity  that  otherwise  would  have  been  generated  by  Unit  1 during  the 
winter  1996-1997. Furthermore, under the Phare nuclear programme, core monitoring 
equipment  was  installed  and put  into  operation  for  Unit  4  and  a national  strategy  for 
nuclear waste management  completed. 

Strengthening  of  private  ownership  has  been  the  main  focus  of  Phare  assistance  in 
agriculture,  a  sector  which  is  now  dominated  by  private  farms  (85  per  cent  of  total 
agricultural  area),  although  the  legal  nature  of  much  private  land  occupancy  is  still 
uncertain. Agricultural value added (including  forestry)  generated in the private  sector 
was  9%  in  1996.  Support  has  been  provided  for  the  land  restitution  process  and 
privatisation  of the food  processing  industry. Furthermore, given private  farmers'  lack 
of  access  to  credits  from  the  financial  system,  Phare  has  successfully  promoted  the 
establishment  of Private Rural  Mutual  Credit Associations  of which  32 were  licensed 
by November  1996. They  are  the  main  vehicle  for  the  decentralised  management  of 
an ECU 7 million Phare credit  line under which more than 730 loan applications  have 
been made and 475 approved within 3 months of the scheme coming into operation. 

the 

lack  of  Bulgarian  capacity 

The  programme  of  cross-border  cooperation  with  Greece  continued  to  make  little 
progress.  More than  ECU 46 million  from  the  1994  and  1995 budgets  totalling  ECU 
48  million  have  not  been  contracted.  Consequently,  no  new  budget  was  allocated  in 
1996. The significant  implementation  delays have been caused by a number of  factors 
the  original  co-financing 
including 
requirements;  lack  of  management  capacity  and  expertise;  insufficient  cooperation 
between  the  central  government  implementation  unit  and  final  beneficiaries;  and 
overly  complex  programme  design  involving  a large  number  of  sectors  and  projects. 
Towards  the  end  of  1996,  the  Commission  agreed  to  a  substantial  reduction  of  the 
original  Bulgarian co-financing  requirements  and has taken  steps towards  programme 
simplification  and streamlining of implementation. 

to  fulfil 

Overall  Phare  programme  implementation  was  not  significantly  affected  by  the 
worsening  socio-economic  situation, not  least  since the crisis evolved primarily  in the 
latter half of the year. Good progress has been maintained  in most  sector programmes. 

43 

As a result, the backlog  of uncommitted  funds  from  previous  years was  substantially 
reduced: the overall contracting rate increased from 56 per cent in  1995 to 67 per cent 
in  1996. Thus,  1996 was the  second  consecutive  year  in which  Bulgaria's  absorption 
rate exceeded the rate of new allocations. 

Mass privatisation programme 

The  Bulgarian  mass  privatisation  programme  was  announced  in  1993,  legally 
formalised  in  1994  and  effectively  launched  in  January  1996.  The  programme  has 
since  become  the  biggest  and  most  comprehensive  privatisation  initiative  to  date  in 
Bulgaria.  The  programme  has  gained  momentum 
in  a  difficult  operational 
environment  and  succeeded  in  obtaining  wide  political  and  popular  support.  Its 
sustainability has been remarkable, respecting  a tight time  schedule  and  withstanding 
the recent economic crisis. 

The  programme  involves  1,050  state-owned  enterprises  accounting  for  some  13 per 
cent  of  total  state-owned  assets.  Of  these,  75  per  cent  are  to  be  fully  privatised, 
meaning that the state will no longer retain a blocking minority. 

The voucher distribution campaign started in January  1996 and lasted for five months. 
Some  50 per cent  of the  six million  eligible  citizens  eventually  bought  vouchers  at a 
symbolic fee. 

At  the  completion  of  the  first  auction  in  December  1996,  involving  individuals  and 
Investment Funds, 41 per cent of the total capital on offer  was bought. As a result, 341 
enterprises  have  been  fully  privatised.  In  a further  190 enterprises,  more  than  50 per 
cent of their share capital was sold. 

The  success  of  the  programme  to  date  has  relied  on  substantial  and  timely  Phare 
support, provided  since mid-1994 with a total budget  of ECU 4.5 million.  Assistance 
has included 

•  ongoing  expertise  for  the  Centre  for  Mass Privatisation,  the institution  established 

for the programme's  implementation 

legal advice 

information  technology established at the central and regional levels, including 230 
post offices  performing  the functions  of a registration bureau. 

• 

• 

The  mass  privatisation  programme  constitutes  a  first  important  step  towards  the 
transfer  of  enterprise  ownership  and  responsibility  from  the  state.  An  important 
challenge remains in ensuring that the evolving ownership  situation will indeed result 
in improved  management  and much-needed  enterprise restructuring.  Stabilisation  and 
development  of the financial  sector and the embryonic  Bulgarian  capital  markets will 
be important elements facilitating  this process. 

44 

Czech Republic 

Year in review 

The  macroeconomic  performance  of  the  Czech  Republic  in  1996  was  generally 
regarded  as  positive.  Growth  proved  solid;  foreign  investment  remained  relatively 
high; the unemployment  rate, at 3.1 per cent in  1996, continued to be the lowest in the 
region;  and  monetary  and  fiscal  policy  both  showed  restraint.  However,  the  relative 
downturn  that  has  recently  weighed  on  a  number  of  these  trends  suggests  that  the 
microeconomic  problems  of 
technological 
development  now  demand  greater  attention.  In  1996,  growth  was  slower  than  in  the 
previous year (down to 4.1 per cent from 4.8  per  cent); the national  budget  showed  a 
very  small deficit  ; the trade deficit  soared to  10.9 per cent of GDP; and  inflation  was 
persistent,  averaging 8.8 per cent over the year, compared with 9.1 per cent in 1995). 

restructuring,  productivity 

and 

During  1996,  events  in the banking  sector  were  a cause for  concern.  The  collapse  of 
Kreditni banka, one of the largest regional private banks, and the imposed  supervision 
by the  Czech  National  Bank  of  Agrobanka,  the  largest  Czech  private  bank,  exposed 
the fragility  of the banking system's structures. 

On  the  political  front,  parliamentary  elections  were  held  on  31  May-1  June  1996. 
They  resulted  in  a  minority  coalition  government  headed  by  Prime  Minister  Vaclav 
Klaus. 

In relations with the EU, the Czech Republic  officially  applied  for  membership  on 23 
January  1996. 

Phare 1996 Programme in the Czech Republic 

In  the  context  of  the  EU's  pre-accession  strategy,  a  Multi-annual  Indicative 
Programme  had  already  agreed  between  the  European  Commission  and  the  Czech 
Republic in  1995. The Programme, which covers the  1995-1999 period, focuses  Phare 
assistance  on  the  specific  needs  of  the  Czech  Republic  as  it  prepares  for  accession. 
The  main  objective  of  support  within  this  framework,  and  within  the  EU's  pre-
accession  strategy,  is  to  facilitate  the  Czech  Republic's  integration  by  providing 
funding  for 

• 
• 
• 

institutional integration (approximation  of legislation,  institution-building) 
infrastructure  co-financing 
continuing support for the process of socio-economic  transformation. 

45 

The  Czech  Republic's  pre-accession  priorities  were  addressed  in  its  1996  Country 
Operational  Programme  (COP),  which  concentrates  on  support  for  the  process  of 
socio-economic transformation.  The EU thereby committed a total of ECU 54 million, 
which  also  includes  ECU  7.5  million  for  the  Tempus  programme,  as  well  as  cross-
border cooperation with Germany (ECU 25 million) and Austria (ECU 9 million). 

On  the  national  level,  the  1996  COP  included  an  ECU  5 million  commitment  to  the 
creation  of  a Business  Environmental  Programme  (BEP),  establishing  a  loan  facility 
for  environmental  investment  by  SME's  and providing  technical  assistance. ECU  7.5 
million  were  provided  for  regional  development,  which  includes  the  creation  of  a 
Regional  Development  Fund,  worth  ECU  5  million,  to  support  municipality 
investment  in the  local  infrastructure  and  thus promote  private  industrial  investment. 
Funds  were  also  committed  to  the  continuation  of  support  to  the  development  of 
northern  Moravia  and  Silesia  (ECU  2 million)  and  Czechlnvest  regional  investment 
promotion  (ECU  500,000)  for  the  strengthening  of  the regional  information  network 
in order to attract  foreign  investors. 

Phare achievements 

In  1996, Phare produced particularly positive results in the following  areas: 

•  privatisation  and'  restructuring;  and  support  to  the  development  of  small  and 

medium-sized  enterprises 
regional  development 
• 
foreign  direct investment 
• 
• 
approximation of legislation 
•  human resource  development. 

In  the  area  of  privatisation  and  restructuring,  support  for  land  registry  offices  has 
made a crucial contribution to the privatisation process. The JOP programme has helped 
more than  100 projects to create joint ventures between EU and Czech firms. In support 
of SME  development,  an extensive regional network  of 23 counselling  and  information 
centres has been set up, while around 400 Czech SMEs were able to participate in trade 
fairs  and  make  direct  contact  with  their  EU  counterparts.  Under  the  small  loans 
programme,  800  loans  have  been  granted,  facilitating  the  creation  of  more  than  1500 
jobs. 

The  regional  development  programme  launched  by  Phare  in  northern  Moravia  (the 
the 
Ostrava  region)  has 
investment  fund  set up under the programme  is providing much-needed  venture capital. 
The success of the programme has provided  a model  for  the new  Government as it sets 
out the principles of a modern, effective  regional policy comparable with EU practice. 

improved  conditions  for  regional  regeneration,  while 

The  attraction  of  foreign  direct  investment  plays  a  pivotal  role  in  the  transition 
process. The agency promoting  foreign  investment  in the Czech Republic,  Czechlnvest, 
was  established  in  late  1992.  In  1996,  Phare  support  amounted  to  60  per  cent  of  the 
organisation's  budget.  Czechlnvest  has developed  into  a highly  professional  institution 
that  has  enjoyed  considerable  success.  Since  1993  Czechlnvest  has  facilitated  the  start 
of 262 projects, arranged 815 contacts with Czech companies, performed  more than 400 

46 

activities  in  the  Czech  Republic  and  abroad  and  successfully  completed  23  projects 
itself.  As  a  result  of  these  activities,  more  than  6,000  jobs  have  been  created  or 
maintained.  The  Agency  has  expanded  its  activities  both  locally,  with  10  official 
regional representatives,  and abroad through  its foreign  office  representations  (London, 
Paris  and  Diisseldorf).  In  1996,  Phare  support  focused  on  the  integration  of 
Czechlnvest's  activities  in  regional  development,  helping  the  organisation  strengthen 
the regional information  network in order to attract foreign  investors. 

Legal  assistance,  including  access  to  information  on  European  Community  law,  the 
organisation  of  seminars  and  study  visits,  and  the  translation  of  documents,  is  being 
provided  through  a  consortium  of  EU  law  firms  which  continued  its  work  in  1996. 
During the first phase of the project,  over 50 legal consultations took place; more than 
40  consortium  experts  were  called  upon  for  their  assistance;  and  more  than  a  dozen 
Czech  legal  experts  were  involved  in  the  approximation  of  legislation.  Over  11,000 
pages of European  Community  or Czech  legislation  have been translated, while  good 
working  relations  have  been  established  between  the  consortium  experts  and  their 
Czech counterparts. 

Human  resource  development  has  become  a  long-term  priority  for  the  Phare 
Programme.  In  1996,  substantial  assistance  was  provided  for  the  development  of 
management  training  for  the  private  sector  through  the  National  Training  Fund.  A 
for  the  reform  of  the  vocational  and  training  sector  was  successfully 
pilot  project 
implemented  in  19 pilot  schools;  it  is now  expected  to  lead  to policy  and  legislative 
reform.  Labour market reform  was supported by assistance to the Labour  Offices,  and 
Tempus successfully  supported cooperation between Czech and EU universities. 

To support the Czech banking system in its difficult  period, the European  Commission 
and  the  Czech  National  Bank  (CNB)  rapidly  agreed  a  strategy  in  the  autumn  of  1996 
enabling Phare to support the development  of this crucial  sector. Technical  assistance is 
being provided  in the field of banking supervision, the privatisation  of major  banks, the 
prevention of money laundering, and bad loans management. 

Phare's management  performance 
The performance  of the Phare Programme  in the Czech Republic,  as measured by the 
contracting rate, improved in  1996. By the end of December  1996, the contracting rate 
for  1990-1994 programmes had exceeded 90 per cent. 

Certain problems  in implementation  appeared  at the beginning  of  1996. A number  of 
1993 programmes, which  expired by the end of  1996, showed  a poor  implementation 
rate.  This  problem  was  resolved  through  implementation  review  meetings  in  Prague 
held  directly  with  the  Centre  for  Foreign  Assistance  (CFA)  and  the  Programme 
Management  Units  (PMUs)  concerned.  By  31  December  1996,  all  funds  relating  to 
programmes which had expired by the end of  1996, had been contracted nonetheless. 

47 

Civil Society Development Foundation 

The Civil  Society Development  Foundation  (CSDF)  was  established  in  May  1993 to 
administer  funds  from 
the  strengthening  of  non 
governmental  organisations  in  the  Czech  Republic.  More  precisely,  CSDF  provides 
information  services,  specialised  training  for  NGO  employees  and  volunteers,  and 
grants for projects run by individual civic organisations. 

the  Phare  Programme  for 

Phare  funding  for  the  CSDF  initially  amounted  to  ECU  2.6  million;  it  was  then 
extended until  1997 by a further  allocation of ECU 2 million. By the end of  1996, 82 
per cent of the budget had been contracted and 74.6 per cent disbursed. 

By  the  end  of  1995,  397  grants  totalling  ECU  2.33  million  had  been  made  to  NGOs 
(750 applications were received). Grants ranged from  ECU 300 to 25,000. 

In  1996,  248  grants  worth  ECU  1.13  million  were  awarded  to  NGO's  (546 
applications  were  received).  75  per  cent  of  funds  were  allocated  to  projects  by 
individual  organisations  in  the  social,  health,  human  rights,  ethnic  minorities  and 
ecological  spheres.  The  remainder  was  allocated  to  the  support  of  information 
activities  and  training.  Overall,  Phare  support  in  this  sector  has  started  to  enhance 
legislation  in the area of NGO activity and increased  the role of the public in  solving 
a wide range of social and ecological issues. 

48 

Estonia 

Year in review 

Following  a  severe  contraction  of  the  economy  between  1989  and  1994,  national 
output started to grow again in  1994 and continued  to do so in  1996 with an estimated 
growth  rate  of  4  per  cent.  Some  sectors  performed  particularly  well,  in  particular 
construction,  transport,  financial  services,  fishing,  and  wholesale  and  retail.  Inflation 
has continued  to fall,  with the annual  rate  for  1996 at  15 per  cent,  considerably  lower 
than the 29 per cent recorded in  1995. 

Progress  in  structural  reform  has  been  substantial,  and  privatisation  has  advanced 
rapidly.  The  majority  of  state-owned  enterprises  were  sold  through  competitive 
tenders  and  direct  sales,  thus  favouring  strategic  investors  rather  than  management 
and  employees.  By  1996,  more than  1,100  small  and  400  large  enterprises  had  been 
sold  for  a  combined  total  of  over  ECU  220  million.  In  1996,  the  privatisation 
programme  focused  on  utilities  and  infrastructure  companies.  In  many  cases, 
restructuring  has been  left  to investors,  mostly  through  plans  submitted  at the time  of 
bidding. Privatisation  of housing  has also  proceeded,  but  the  privatisation  of  land  has 
been less successful  mainly as a result of the long restitution process. 

The  overall  objective  of Estonia's  fiscal  policy  is to  achieve  a balanced  state  budget. 
However,  in  1996 the general  government  budget  recorded  a deficit  which  amounted 
to  1.5  per  cent  of  GDP.  The  Estonian  kroon  has  been  pegged  to  the  German  mark 
since  1992 and the Government  intends to pursue this fixed exchange rate policy.  This 
has  led  to  an  appreciation  of  the  real  exchange  rate.  The  widening  gap  between 
savings  and  investments  is  mirrored  in  a  large  current  account  deficit,  which 
approached  10%  of  GDP  in  1996.  The  trade  deficit  has  grown  each  year  since 
independence  and reached  a level  of 24 per  cent  of GDP in  1996. The  solid  monetary 
and  fiscal  framework  in Estonia,  combined  with  a liberal  foreign  trade  and  payments 
regime,  has  nonetheless  proved  to  be  very  attractive  to  foreign  investors,  so that  for 
the time  being  the  large  trade  deficit  is being  financed  by  important  capital  inflows. 
Foreign  direct  investment  has been  increasing  rapidly  to  a cumulative  total  of  around 
ECU 360 million for the period  1992-1996. 

The Europe  Agreement  with  Estonia  had  already  been  signed  in  1995 and  ratified  by 
the  Estonian  Parliament  later  in  the  same  year.  A  European  Integration  Office  was 
established  in  1996  and  is  responsible  for  the  monitoring  and  implementation  of  the 
White  Paper  and  the  Europe  Agreement.  In June  1996, Estonia  published  a  National 
Activity  Plan  in  response  to  the  Commission's  White  Paper.  The  Government 
estimates  that  all  parts  of  the  legislation  essential  for  the  adoption  of  the  acquis 
communautaire  will  be  in place  by the  year  2001. A Ministerial  Commission  is  also 
being  chaired  by  the  Prime  Minister  to  formulate  general  policy  and  to  submit 
proposals to the Government  in this respect. 

49 

Phare 1996 Programme in Estonia 

Estonia's  Multi-annual  Indicative  Programme  for the period  1996-1999 was  allocated 
ECU  84  million.  The  main  objective  of  Phare  support  within  this  framework  is  to 
support  the  country's  socio-economic  transformation  in  order  to  facilitate  the  future 
integration of Estonia into the EU. 

The Community,  through  the Phare Programme, provided  ECU  61.8 million  of  grant 
aid  to  Estonia  in  1996,  of  which  ECU  5  million  were  committed  to  cross-border 
cooperation.  In  fact,  the  1996  programme  constitutes  a  relatively  high  commitment 
and  implied  front-loading,  following  the  generally  high  absorption  capacity  of 
previous years. 

In  1996, a total of ECU 6.5 million was provided by Phare for European  integration, 
i.e. approximation  of Estonian  legislation with that  of the EU, including  assistance to 
the Parliament  in strengthening  procedures  for  the approximation  process.  Additional 
funding  will  also  be  provided  to  advise  on  policy-making  and  implement  a  national 
training  strategy. Funding will  also be available to support  the legal translation  centre 
and strengthen enforcement  bodies. 

In  1996, Phare  also  focused  on  institution-building  and  strengthening  of  the  public 
sector bodies  responsible  for  the management  of  a market  economy,  as illustrated  by 
the  special  public  administration  programme  put  in  place  in  1996.  This  provides 
further  training  for  civil  servants,  development  of  fiscal  and  budgetary  management, 
and assistance  for the social sector ministries. 

Export  and  investment  promotion  continue  to  play  a  dominant  role  in  Phare 
funding.  Technical  assistance  is  being  provided  for  institution-building,  promotion 
campaigns  and  further  development  of  the  Estonian  Investment  Agency,  which  was 
established  in  1994.  Regional  development  also  featured  prominently  in  the  1996 
programme,  with  the  emphasis  on  the  establishment  of  a  regional  development 
strategy  and  a  Regional  Development  Fund.  In  addition,  Phare  funding  is  being 
provided  for  the  further  development  and  strengthening  of  the  Business  Advisory 
Centres network and the fostering  of the SME Development  Fund. 

In  the  field  of  agriculture,  Phare  focused  on  institutional  strengthening  of  the  State 
Veterinary  Department  and the Food  Board  in order to ensure  food  safety  and  quality 
control and to permit the export of  animal products to the EU. Regarding land  reform, 
Phare  concentrated  on  institution-building  in  the  public  sector  agencies  responsible 
for the restitution  and privatisation  of land. 

Phare  continued  to  fund  infrastructure  development.  In  particular,  funds  were 
committed to improve the road administration  and the aviation  sector, and to assist the 
Ministry  of  Transport  in  its  restructuring.  Regarding  energy,  activities  centred  on 
policy  and  strategy  advice,  development  of  legislation  and  standards,  pre-investment 
feasibility  studies and training. As for the environment,  funding  is being provided  for 
approximation  of legislation  and co-financing  of large environment  projects. 

50 

The  1996 cross-border  cooperation concentrated  on transport, environment  (Pandivere 
water  protection),  and  regional  and  economic  development  (e.g.  development  of 
tourism). Implementation  is currently being  strengthened  following  the  establishment 
of  a  programme  implementation  unit  in  1996  and  this  should  remedy  the  delays 
experienced in  1994 and  1995. 

Phare achievements 

In  1996, in the banking sector, Phare completed the general  assistance that it had been 
providing  since  1993. This  included  the  co-financing  of  a core  advisors  group  along 
with Danish  and  Swedish bilateral  assistance, whose main  aim was to provide  advice 
and  training  on  credit  and  internal  controls  within  the  banking  sector.  As  a  result, 
skills  in  the  banking  sector  have  significantly  improved  and  the  bad  debt  ratio  has 
been brought  down  from  9 per  cent of the total  loan portfolio  in  1994 to 3 per cent in 
1996. 

Phare  has  been  one  of  the  main  donors  to  the  privatisation  process.  The  Programme 
has  concentrated  on  technical  expertise  for  the  Privatisation  Agency,  and  the 
restructuring  of  large  state-owned  enterprises.  Also,  thanks  to  public  share  offers, 
many  of those  enterprises  are now being  traded  on  the  stock  exchange.  Phare  is  also 
providing  important  funding  for  preparatory  work  in  the  current  wave  of  utilities 
privatisations. 

Regarding  SME development,  four  Business Advisory  Centres were  established  with 
Phare  funding  and an SME policy has been developed.  In the meantime, the Business 
Advisory  Centres  have  already  been  able  to  serve  over  500 clients  and  have  reached 
70  per  cent  self-sustainability.  In  the  area  of  investment  promotion,  the  Estonian 
Investment  Agency  has been  established  with  Phare  funding,  and has now  developed 
a reputation as the national focal point for foreign  direct investment into the country. 

Phare was instrumental  in the establishment  of the Tourism Board, the introduction  of 
standards  for  hotels  and  restaurants,  the  introduction  of  information  systems  and  the 
privatisation of major hotels. 

Tallinn water supply and sewage  rehabilitation 

Water supply and  sewage treatment  in Tallinn required major  capital  investment.  The 
Tallinn  Water  Company  did  not  dispose  of  the  expertise  required  to  conduct  the 
necessary  feasibility  studies  on  leakage  detection  and  control,  or  to  carry  out  the 
inspection and rehabilitation works required. 

The Phare Programme  gave  ECU  2 million  to  improve  the  sanitation  facilities  of the 
capital city, providing 

• 

leakage detection equipment and training 

•  pipeline  rehabilitation,  including  the  acquisition  of  modern  equipment  for  sewer 

inspection and cleaning. 

51 

The former Yugoslav Republic of Macedonia 

Year in review 

In  recent  years,  the  economic  policy  and  reform  efforts  of  the  former  Yugoslav 
Republic  of  Macedonia  have  aimed  at  establishing  a  fully-fledged  market  economy. 
Thanks  to  the  authorities'  commitment,  many  obstacles  have  now  been  overcome. 
However,  several  challenges  remain  ahead.  In  the  past  as  in  the  future,  the 
strengthening  of  relations  between  the  former  Yugoslav  Republic  of  Macedonia  and 
the  EU  will  help  the  country  move  towards  a  sustainable  path  of  long-term  growth 
and  development. 

The  last  couple  of  years  have  seen  a  generally  positive  trend  in  the  country.  The 
Republic  has  managed  to  complete  a  successful  stand-by  arrangement  with  the IMF, 
brought  down the inflation  rate from  2,000 per cent per annum  in  1993 to under  3 per 
cent  in  1996  and  begun  a  privatisation  campaign  encouraging  foreign  investors.  In 
Spring  1997,  it  embarked  on  a  3-year  programme  that  is  supported  by  the  IMF 
Enhanced  Structural  Adjustment  Facility  and  by  other  multilateral  and  bilateral 
donors,  including  the  Community  (up  to  40  MECU)  in  macro-financial  assistance. 
Social tension  has diminished  and comparative  political  stability  has been  maintained 
inside the country and in its international  relations. 

On  the  15th  March  1996,  the  former  Yugoslav  Republic  of  Macedonia  became  the 
12th Phare partner country. 

Before  this,  Phare  was  already  operating  in  the  former  Yugoslav  Republic  of 
Macedonia  under  a  Critical  Aid  Programme  (ECU  85  million)  between  1992  and 
1995.  The  purpose  of  this  was  to  provide  the  country  with  essential  raw  materials, 
industrial  spare  parts  and  fuel  for  social  institutions  such  as  schools  and  hospitals. 
This  programme  softened  the  blow  caused  to  the  country  by  the  dissolution  of  the 
former  Yugoslav Federation  and ensuing  economic  sanctions on its borders despite its 
peaceful  emergence as an independent  state. 

Phare  1996 Programme in FYROM 

The  recent  relative  economic  and  political  stability  in  the  country  has  allowed  the 
Phare  Programme  to  evolve  in  harmony  with  domestic  developments.  A  country 
strategy  was  drawn  up  in  1996 that  reflected  government  priorities  and  identified  the 
sectors of support  most  appropriate  to  achieving  true  market  reforms  after  the  critical 
phase was over. 

Strengthening  and expanding the enterprise sector 
This  is  to be  achieved  by  launching  an  integrated  SME  Development  programme  to 
enhance  the  long-term  sustainable  growth  and  development  of  the  SME  sector.  This 
will  be  coupled  with  targeted  assistance  for  bank  restructuring  so  as  to  develop  the 
ability  of  the  entire  commercial  banking  sector  to  manage  the  disbursement  of  the 
specific  credit lines made available by international donors. 

Land reform and the development of the agricultural  sector 
Land  reform  is a prerequisite  to the establishment  of  a successful  private  agricultural 
sector. This will be combined with an agricultural  aid package with a view to adopting 
an  agricultural  policy  based  progressively  on  non-market-distorting  instruments  and 
improving access to European markets. 

Development of human resources and the restructuring of social policy 
The emphasis here will be placed particularly on public administration reforms  with a 
restructuring  of the social  insurance  sector. This  should  be  done whilst  strengthening 
the  capacity  of  the  Ministry  of  Labour  and  Social  Protection  to  develop  an  active 
labour  market  intervention  strategy.  Higher  education  reforms  will  be  tackled  by  the 
Tempus programme. 

Support to the overall growth and restructuring  strategy 
This general technical assistance facility aims at consolidating the sustainability of the 
reform process by strengthening economic and social institutions. 

On  this  basis,  Phare  launched  the  1996  Country  Operational  Programme  (ECU  13 
million)  approved  in  September  1996.  The  projects  chosen  keep  in  line  with  the 
medium-  and  long-term  priorities  as put  forward  by  the  Government  and  they  focus 
on  support  to  SMEs,  support  to  the  financial  sector,  land  reform,  agricultural  aid, 
support to thé statistical office,  approximation  of law and an Aid Coordination Unit to 
help manage the influx  of aid into the country. 

A  component  of the  Tempus programme, worth  ECU  2 million,  has  the  objective  of 
restructuring the higher education system in order to provide students with a variety of 
specialisations  such  as  the  teaching  of  European  languages,  law,  engineering  and 
technology  to  give  students  an  education  adapted  to  local  and  international  job 
markets. 

In addition to the national programme, the  1996 cross-border programme with  Greece 
(ECU  10 million)  is  designed  to  promote  further  regional  cooperation  in  particular 
through the development of  infrastructure. 

53 

Phare Critical Aid 

Due to the country's recent eligibility for the Phare Programme, it is too early in the 
implementation phase to be able to make any evaluation of the  1996 programme's 
success. However, the Phare Critical Aid Programme has to date been contracted at a 
rate of 99 per cent and disbursed at 90 per cent, which has enabled some 50 industrial 
companies to survive the worst of the country's very difficult  economic period and 
provide heating and nutrition to the most vulnerable members of the  country's 
population. 

54 

Hungary 

Year in review 

In terms of EU-Hungary  relations,  a significant  development  was the entry  into  force 
of  the  supplementary  protocol  to  the  Europe  Agreement  on  1 February  1996.  This 
allows  Hungary  to  participate  in  Community  programmes,  in  particular  training  and 
education  programmes,  such  as Youth  for  Europe  II,  Socrates,  and Leonardo.  Access 
to  Community  programmes  should  facilitate  Hungary's  integration  into  the  social 
fabric  of the EU. 

(Check  with  Hungary  desk  on  economic  section,  as with  previous  chapters)  A  Basic 
Treaty  was  signed  between  Hungary  and  Romania  in  1996.  As  well  as  recognising 
fundamental  minority  rights  and  the  inviolability  of  borders,  the  Treaty  provides  the 
legal  basis  and  practical  framework  for  enhanced  cooperation  between  the  two 
countries  at the  governmental,  regional  and  sub-regional  levels.  A tangible  result  of 
this  growing  friendship  was  the  agreement  in  September  1996  of  a  Hungarian-
Romanian  cross border  cooperation  programme.  In  addition,  a Basic  Treaty  between 
Hungary and Slovakia entered into force in May  1996. 

Phare 1996 Programme in Hungary 

Indicative  Programme 

for 
Hungary's  Multi-annual 
approximately  ECU  425  million  support  and  is  designed  to  help  the  country's 
preparations  for  accession  to  the  EU.  Assistance  will  largely  go  to  financing 
investments  linked  to the  adoption  of the  'acquis  communautaire'  as well  as  bringing 
industry and infrastructure  up to Community  standards. 

(1995-1999) 

provides 

The  1996  Country  Operational  Programme  is worth  ECU  90 million.  It  was  decided 
to  concentrate  on  three  broad  areas:  the  specific  needs  of  accession,  economic 
restructuring, and infrastructure  development.  Thus, greater emphasis than in previous 
years was  placed  on  issues  relating  to  accession,  with  a programme  dedicated  to  EU 
integration  being  allocated  ECU  18.5  million.  This  programme  is  designed  to 
continue  and  expand  upon  the  work  of  the  ECU  5  million  Euro-GTAF  programme 
(General  Technical  Assistance  Facility  for  the  implementation  of  the  Europe 
Agreement)  which  expired  at  the  end  of  1996.  The  EU  Integration  Programme  will 
principally  help  finance  projects  designed  to  prepare  the  public  sector  for  the 
accession  negotiations  themselves  (including  language  training),  to  help  approximate 
legislation,  to  improve  the  dissemination  of  information  regarding  general  EU  issues 
and create a European information  network. 

ECU  46.5  million  have  been  allocated  to  a  programme  dedicated  to  economic 
restructuring, which will further  assist the privatisation process, as well as promoting 
trade and investment,  and regional  development.  Infrastructure  support  received  ECU 

55 

15 million  to be divided between  the transport  sector  (to help with  the  modernisation 
of the Hungarian  railway  system)  and the  energy  sector  .In addition,  ECU  10 million 
was allocated  for Hungarian participation in the Tempus programme. 

As  a  sign  of  the  improving  relations  between  Hungary  and  Romania,  a  cross-border 
cooperation  programme  was  agreed  between  the two  countries  in  September  1996 to 
which Phare has contributed  a total of ECU  10 million  (ECU 5 million  each from the 
Hungarian  and  Romanian  national  programmes).  The  immediate  objectives  of  this 
programme  are 
improve 
infrastructure,  and  protect  the  ecology  and  the  environment  in  the  eligible  border 
regions.  Following  the  signing  of  a  similar  agreement  with  Slovakia,  the  EU  also 
agreed  to  provide  ECU  5  million  towards  a  project  to  reconstruct  the  Esztergom 
Bridge  between  Hungary  and  Slovakia;  this  project  will  be  co-financed  by  the  two 
governments. 

regional  planning  and  development, 

to  enhance 

ties  between  Hungary  and  Austria.  Hungary's 

For  the  1995-1999  period,  ECU  35  million  have  been  allocated  to  cross-border 
cooperation  projects  aimed  at  increasing  local  and  regional  structural  links  that 
straddle  frontiers.  As  part  of  this,  Phare  is  currently  financing  two  programmes  to 
strengthen 
first  cross-border 
cooperation  project  was  agreed  in  1995  and  came  on-line  during  1996  with  the 
creation  of  a  dedicated  Programme  Management  Unit  (PMU)  on  2  May  1996. 
Following  on  from  this programme, in  1996 a further  ECU  11 million were  allocated 
to the Austro-Hungarian  cross-border  cooperation programme, which  concentrates  on 
local development planning in Sopron and the surrounding area. The  1996 programme 
aims  to  increase  traffic  flow  in  the  border  region,  while  reducing  the  levels  of 
pollution in the cities of Sopron, Szombathely, and Zalaegerszeg. 

Phare achievements 

Phare has already made a significant  contribution to the accession process in Hungary. 
A  recent  independent  evaluation  report  on  a  programme  for  regional  development 
which  finished  at  the  end  of  1996  rated  the  overall  programme  implementation  as 
highly  satisfactory.  Among  the  many  achievements  of  this  ECU  10  million 
programme  are  a  new  law  on  Regional  Development  and  Physical  Planning,  which 
came  into  force  in  June  1996  and  is  based  on  the  principles  of  EC  regional  policy. 
There  has  also  been  a  significant  decentralisation  of  regional  policy  planning  and 
implementation. 

The  development  of  appropriate  Trans-European  Networks  have  been  identified  as a 
prerequisite  to  Hungary's  integration  into  the  EU.  Implementation  began  of  a  1995 
programme  worth  ECU  16  million  to  support  the  transport  sector  and  assist  its 
integration  with  Trans-European  Networks,  concentrating  on  a  major 
road 
rehabilitation  programme.  This  programme  covers  the  30,000  km  national  highway 
network  which  carries  over  70  per  cent  of  vehicular  traffic;  more  than  half  of  this 
network  is deemed  to be  in poor  or unsatisfactory  condition.  The total  estimated  cost 
for  the  programme  is  ECU  65  million,  of  which  50 per  cent  will  be  covered  by  the 
EIB, 25 per cent by the Hungarian Road Fund, and 25 per cent by Phare. 

In the field of  higher  education,  Phare  funded  a programme  worth  ECU  8 million  to 
strengthen  the  links  between  education  and  the  economy  by  funding  joint  projects 

56 

between  industry  and  higher  education,  developing  new  post-secondary  education 
programmes and distance learning systems, and promoting the development  of special 
post-elementary  schools  with  a  view  to providing  specialised  training  for  those  who 
opt  not  to  follow  regular  secondary  education.  Although  work  in  this  area  is  by  no 
means  complete, Phare has been  able to  set  education  programmes  like these  ones in 
motion. 

The  impact  of Phare  support  upon  Hungary's  future  accession  to the  EU is harder  to 
quantify.  Harmonisation with EC internal market regulations  is well  advanced,  thanks 
in  part  to  the  support  of  the  Euro-GTAF  programme;  and  a  strategy  for  public 
administration  reform  is  being  developed  with  the  assistance  of  the  mainly  Phare-
funded  SIGMA  programme.  Phare-funded  expertise  and  training  courses  are 
contributing to the process. 

Generally,  Phare  support  to  Hungary  has  been  without  significant  management 
problems.  Nevertheless,  there  have  been  some  difficulties.  At  the  end  of  1996,  the 
Phare contracts backlog  for Hungary stood at almost  ECU 219 million  (around  32 per 
cent of the total), and the payments backlog at nearly ECU 224 million (slightly under 
33 per cent of the total). 

The  1995  Austro-Hungarian  cross-border  cooperation  programme  is  extremely 
ambitious,  including  41  individual  interventions  which  range  in  value  from  ECU 
3,500  to  ECU  700,000,  and  in  content  from  improving  teaching  facilities  in  local 
colleges, to improving  cross-border  air  links by upgrading  the  airport  at  Gyôr-Per, to 
constructing  bicycle  paths  between  the  two  countries  along  the  Danube.  Since  this 
was Hungary's first cross-border  cooperation  programme, the background  experience 
was simply not  available, nor were the administrative  structures  in place to deal with 
such  a  complicated  programme.  The  timing  of  the  programme  has  slipped  by  about 
six  months.  However,  the  PMU  and  the Delegation  have  worked  together  to  address 
the problems constructively,  and there should be no further  delays. 

More  generally,  problems  have  been  caused  by  lack  of  experience  (over-optimistic 
programme  design  or  lack  of  focus  can  manifest  themselves  as  a  contracting  rate 
backlog),  and  low  staffing  levels  in  the  PMUs.  Technical  assistance  has  often  been 
used  to  overcome  these weaknesses,  but  this has  sometimes  had  an undesirable  side-
effect:  the  experts  are  almost  inevitably  used  simply  as  substitutes  for  government 
employees, which  does not  encourage  the training  of new  local  staff,  and renders  the 
administration dependent on outside assistance. 

Public administration  reform  has not been as effective  as might have been hoped. The 
reason  for this appears  to be the lack of management  skills and qualified  personnel  in 
some areas, and this has a large knock-on effect  on the implementation  of  government 
policy,  including  Phare  implementation.  Although  Phare  is  trying  to  rectify  this, 
through  targeted  training  courses  such  as  the  aforementioned  EU  Integration 
Programme,  more  needs  to  be  done.  Inevitably,  projects  designed  to  improve  public 
administration  have  been  hampered  by  the  existing  administrative  structures. 

57 

Rural Credit Guarantee Fund 

Agriculture  and  forestry  contribute  6.3  per  cent  of  GDP,  and  around  8.6  per  cent  of 
total  employment.  The  main  characteristic  of  the  Hungarian  farming  structure  is  the 
predominance  of  large-scale  farms  (occupying  close to  80 per cent of the  agricultural 
land), even though 90 per cent of the farm  land is privately owned. 

The  Hungarian  Rural  Credit  Guarantee  Fund  has  been  created  with  a  Phare 
contribution worth ECU 20 million. The aim of the Fund  is to provide  guarantees  for 
medium-  and long-term  loans to small and medium-sized  enterprises which  otherwise 
lack the collateral  for the development  of basic agricultural, commercial, industrial  or 
service activities. The guarantees provided by the Fund cover 50 per cent of the losses 
on  each  guaranteed  loan,  while  the  other  50 per  cent  is  covered  by  six  participating 
banks.  In  January  1996  the  project  was  evaluated:  over  1,200  small  and  medium 
business  operations,  which  otherwise  would  have  struggled  to  survive,  have  been 
granted  guarantees  by  the  Rural  Credit  Guarantee  Foundation,  which  manages  the 
Fund.  The  impact  of  such  a  project  on  employment,  infrastructure,  and  local 
development, has been  substantial. 

58 

Latvia 

Year in review 

In  1996,  the  Latvian  economy  recovered  from  the  banking  crisis  of  1995  and  showed  a 
modest  economic  growth  of  2.8  per  cent.  This  has  however  not  been  sufficient  to  prevent  a 
rise  in  registered  unemployment,  which  stood  slightly  higher  at  just  over  7.2  per  cent  in 
December  1996. According  to  ILO  definitions,  however,  the unemployment  rate  in Latvia  is 
much  higher.  A more positive development  has been the decline  of  inflation  from  an  average 
of 25  per  cent  in  1995 to  less  than  18 per  cent  in  1996,  following  a  much  tighter  fiscal  and 
monetary policy  in the aftermath  of the banking  crisis. The  deficit  on the general  government 
balance has also been  significantly  reduced,  from  3.4  per cent of GDP in  1995 to  1.9  per cent 
in  1996. This has been  helped  by  disciplined  government  expenditure  and the  proceeds  of an 
accelerated  programme of privatisation. 

Foreign  direct  investment  remains  modest.  In  addition,  while  the  trade  turnover  is  growing 
impressively,  imports  are  rapidly  running  ahead  of  exports,  leading  to  a  large  and  growing 
trade deficit,  in part as a result of the strong currency. 

In  1996, amidst the domestic turmoil  caused  firstly  by the banking  crisis  and  secondly  by  the 
political  difficulties  experienced  after  the elections  of  late  1995, the  Government  was  able to 
reduce  the  budget  deficit  significantly  and  to  continue  structural  reforms.  In  particular,  the 
privatisation  process became more transparent  to potential  foreign  and domestic  investors and 
is  now  entirely  piloted  by  the  Latvian  Privatisation  Agency.  It  is  now  expected  that  the 
privatisation  of small  and  medium-sized  state-owned  enterprises will be completed  by the end 
of  1997,  and  the  Government  intends  to  complete  the  entire  privatisation  process  in  1998, 
including  privatisation  of  state  assets  in the  banking,  energy  and  transport  sectors.  However, 
there are still major  constraints in this respect,  notably the poor financial  status of  state-owned 
enterprises,  a lack  of  investors  and the  slow  pace  of  property  restitution.  Sustaining  progress 
in privatisation  and  creating  a favourable  business  environment  will,  however,  be  crucial  for 
the diversification  and  strengthening  of economic activity,  attracting  foreign  direct  investment 
and addressing current  imbalances on the external side. 

European  integration  continues  to  be  the  main  policy  objective  of  the  Government.  The 
Europe Agreement  had already been ratified  by the Latvian Parliament  in  1995. In early  1996, 
a  Minister  for  European  Union  Affairs  was  appointed  to  lead  the  internal  process  of 
transformation  and to take political responsibility for the European  Integration Bureau.  In this 
context, the ministerial  European Integration  Council, chaired by the Prime Minister,  develops 
and  coordinates  EU  policy  at  ministerial  level.  Furthermore,  23  working  groups  of  technical 
experts monitor the compliance of new Latvian  laws with EU legislation  in various sectors. 

In  December  1996, the  Latvian  government,  in  accordance  with  the  recommendations  of the 
Commission  White  Paper,  presented  a  National  Programme  for  Integration 
into  the 
Community, which  outlines the principles, the measures  and timetable  of legal  approximation 
with the acquis communautaire. 

>>•) 

Phare 1996 Programme in Latvia 

This  is  the  first  year  of  the  Latvia's  Multi-annual  Indicative  Programme,  which  amounts  to 
ECU  108 million  for  the  1996-1999 period.  The  EU committed  ECU  37 million  to  Latvia in 
1996,  of  which  ECU  5  million  will  go  to  cross-border  cooperation.  The  1996  programme 
constitutes  a relatively  high  commitment  and  implied  front-loading,  following  the  generally 
high  absorption  capacity  seen  in previous  years. The  main  objective  of Phare  support  within 
this  multi-annual  framework  is  to  foster  socio-economic  transformation  so  as  to  facilitate 
Latvia's future  accession to the European Union, as part of the pre-accession  strategy. 

More than ECU 6 million were allocated  to European  integration,  focusing  mainly on legal 
approximation  with  the  EU  and  harmonisation  in  agriculture.  Technical  assistance  is  being 
provided  to  ministries  in  order  to  facilitate  the  legislative  process  as  well  as  training  to 
strengthen  law  enforcement  in  the  country.  This  includes  substantial  assistance  for  the  legal 
translation centre. 

The  1996 programme is also providing nearly ECU  10 million  for institution-building,  human 
resources  and  social  sector  development,  including  public  administration  reform,  reform  of 
higher vocational education, and reform  of the social security system and health services. 

Private sector development continued to constitute the major  area of Phare funding  and aims 
to contribute  further  to the transition process. In particular,  assistance  for  the restructuring  of 
state-owned  enterprises  and  support  to  the  Latvian  Privatisation  Agency  remained  a  high 
priority.  Support  also  centred  on  the  banking  sector,  entailing  credit  advice,  twinning 
arrangements,  audits  and  legal  expertise  for  the  Central  Bank  and  several  commercial  banks. 
With  regard  to  SMEs,  funds  were  allocated  to  the  six  Business  Advisory  Support  Centres 
established  across  Latvia  and  to  a  programme  designed  to  develop  product  quality  control. 
Funds  in  the  area  of  foreign  investment  and  trade  promotion  were  assigned  to  the 
development  of  tourism.  Regarding  agriculture,  Phare  focused  on  the  development  of  rural 
economic diversification  strategies, European integration, and institution building. 

In  the  field  of  fiscal  policy,  continued  support  aimed  at  implementing  modern  management 
techniques,  and  strengthening  of budget  and  treasury  management,  and providing  training  in 
accountancy and auditing to the Ministry of Finance. 

Funds were committed to the transport sector in order to harmonise transport law with that of 
the EU; to train ministry  officials;  to develop  a railway  network  strategy;  and to improve the 
road  network.  Phare  is  also  funding  the  development  of  Trans-European  Networks,  notably 
along  the  'Via  Baltica'  (Helsinki-Tallinn-Riga-Kaunas-Warsaw).  In  the  energy  sector, 
technical  assistance  mainly  focused  on  energy  legislation,  energy  planning  and  on  efficient 
energy  utilisation.  Finally,  funds  were  allocated  for  the  environment  in  order  to  support  the 
modernisation  of the environmental protection  service  and  an environmental  water protection 
plan. 

In  addition,  the  1996  cross-border  cooperation  programme  focused  on  transport  (e.g.  marine 
safety  measures;  'Via  Baltica')  and  the  environment  (e.g.  Cesis  waste  water  treatment). 
the  programme 
Implementation  has  been  strengthened  with 
implementation unit (PIU) in  1996 and this should remedy the delays experienced  in  1994 and 
1995. 

the  establishment  of 

60 

Phare achievements 

A  major  project  for  the  strengthening  of  economic  legislation  was  completed  in  September 
1996.  This  provided  expertise  for  financial  law  (securities,  bankruptcy,  commercial  banks), 
commercial  law  (standardisation  and  certification,  company  law),  labour  law  (draft  labour 
code), and constitutional  and administrative law. 

In the transport  sector, restructuring of the Latvia railways is ongoing as a result of the Phare-
funded  preparatory  studies in this respect. The Government has also decided to implement the 
Phare-funded  plan  for  road  passenger  transport.  The  World  Bank,  the  EIB  and  EBRD  are 
already  financing  infrastructure  projects  on  the  'Via  Baltica'  corridor  and  in  the  ports  of 
Ventspils and Liepaja. 

In the banking sector, Phare provided significant  on-site support for the Bank of Latvia to help 
stabilise the banking sector following  the crisis in  1995. 

In  the  field  of  investment  and  export  promotion,  Phare  helped  establish  the  Latvian 
Development  Agency  and  developed  its  operations,  including  export  development  and 
investment promotion campaigns. 

In the agricultural  sector, Phare supported  land reform,  the reorganisation  of the land registry 
services,  and  the  establishment  of  an  advisory  service  for  farmers,  including  food  quality 
control. 

SME development 

As  in  the  other  Baltic  republics,  the  development  of  small  and  medium-sized 
enterprises  will  be  of  crucial  importance  for  the  future  economic  growth  of  Latvia. 
Phare  support  was  provided  to  the  Ministry  of  Economy  for  the  development  of  a 
policy  framework  and  the  development  of  an  institutional  development  programme 
for SME support organisations. The first phase has now been completed and produced 
the following results: 

•  establishment of Business Advisory Services Centres in 6 locations as part of a 

national network 

•  23 local advisers trained to provide services to SMEs though the BASCs network 

• 

the BASC provides training and other support services to an average client base of 
3000 SMEs per year 

•  additional expert services in the area of productivity, quality, technology and 

innovation via the network. 

61 

Lithuania 

Year in review 

The Lithuanian  economy  has finally  emerged  from  a deep  recession  caused  primarily 
by the  dissolution  of the  Soviet  Union.  Economic  development  gained  momentum  in 
1995 and accelerated  in  1996 with  GDP growth  reaching  3.6  per cent. Growth  is now 
also  more  broadly  based  on  construction  and  services.  An  important  positive 
development  has been the  sharp  fall  in year-on-year  inflation,  from  36 per  cent  at the 
end  of  1995  to  13  per  cent  at  the  end  of  1996.  Unemployment  has,  however,  only 
slightly  decreased  and  stood  at 6.2  per  cent  in December  1996.  On the  external  side, 
available figures  point towards only a slight deterioration  of the trade balance. 

Economic  policy  in  the  first  half  of  1996  was  dominated  by  the  aftermath  of  the 
banking  crisis..  Following  the  elections  of  October  1996,  the  newly  formed 
Government  is trying  to  cut the  government  deficit;  review  the  monetary  policy  and 
exchange  rate  framework;  fight  corruption  and  reduce  bureaucracy;  and  accelerate 
structural  reforms  in  order  to  attract  more  foreign  direct  investment.  In  this  context, 
the  Bank  of  Lithuania  is  pursuing  a  medium-term  strategy  (1997-1999)  that  would 
allow  a  more  active  exchange  rate  and  monetary  policy  and  peg  the  litas  to  the 
German mark or the future  Euro. 

large  enterprises 

It  appears  that  the  economic  reform  process  is  gaining  momentum  following  the 
election  of  the  new  Government.  In  earlier  years,  during  the  first  stage  of  voucher 
privatisation,  a large  number  of  small  and  medium-sized  enterprises  were  privatised. 
However, 
remained  under  state  control.  Because  voucher 
privatisation  did  not  generate  sufficient  enterprise  restructuring,  a  second  stage  of 
cash  privatisation  started  in  June  1996.  This  time,  shares  are  being  sold  rather  than 
distributed free  of charge, and the authorities aim to attract the participation  of  foreign 
investors. The scope of this second  wave  of privatisation  initially  looked  modest, but 
the  new  Government  has  announced  lately  that  it  is  prepared  to  sell  stakes  in 
important  enterprises  in  the  telecommunications  and  transport  sectors,  as  well  as  in 
energy  and  utilities.  Such  an  extension  of the  privatisation  process  seems  essential  if 
Lithuania is to attract more foreign  investment  and modernise its economy. 

Foreign  direct  investment  (FDI)  flows  were  low,  with  an  average  annual  inflow  of 
approximately  1%  of  GDP  (SOURCE/EBRD).  This  was  due  to  several  factors, 
including  macroeconomic  instability  and the slow pace of cash privatisation  and  other 
structural  reforms. 

62 

European  integration  continues  to  be  the  main  policy  objective  of  the  new 
Government.  In June  1996, the Lithuanian  Parliament  ratified  the Europe  Agreement 
by  an  almost  unanimous  vote.  The  Government  has  nominated  a  new  Minister  of 
European  Affairs,  whose  role,  in  close  cooperation  with  the  Ministry  of  Foreign 
Affairs,  will concentrate on seeking compliance of Lithuanian legislation with internal 
market  regulations.  In  this  respect,  the  European  Integration  Commission,  an  inter-
ministerial  committee chaired by the Prime Minister,  established  in  1995, is  expected 
to be strengthened  and to play a more prominent role than before. 

Following the Commission's White Paper on the Internal Market, the Government has 
also  drafted  a national  programme  for  approximation  of  legislation  and  this  National 
Legislation  Harmonisation  Programme  was  adopted  by  the  Lithuanian  Parliament  in 
September  1996, specifying  for each Ministry the timetable for  harmonisation. 

Public  Administration  Reform  is  now  an  important  priority  on  the  agenda  of  the 
Government which, as a first step, reduced the number of ministries and created wage 
incentives  for  highly  qualified  civil  servants.  There  are  ambitious  plans  for  the 
overhaul of the administration and the redefinition  of the functions  of central and local 
government. 

Phare 1996 Programme in Lithuania 

The main objective  of Phare support  is to promote  socio-economic  transformation,  so 
as  to  prepare  the  future  integration  of  Lithuania  into  the  EU  as  part  of  the  pre-
accession  strategy.  In  1996,  the  Phare  Programme  committed  ECU  53  million  to 
Lithuania,  of  which  ECU  3.5  million  is  for  Tempus  and  ECU  6  million  for  cross-
border  cooperation.  The  1996  programme  constitutes  a  relatively  high  commitment 
and  implied  front-loading,  following  the  generally  high  absorption  capacity  seen  in 
previous  years.  1996  was  the  first  year  of  the  country's  Multi-annual  Indicative 
Programme,  which  amounts  to  ECU  152  million  of  grant  funds  for  the  1996-1999 
period. 

An important part of the  1996 programme has been oriented towards the core areas of 
the  pre-accession  process,  notably  internal  market  measures,  i.e.  legal  advice, 
training,  documentation  and  translation.  Legal  advice  is  funded  by  Phare  for  the 
legislative  process  through  ten  sectoral  drafting  working  groups  established  in  line 
ministries. 

sector 

restructuring, 

Under  infrastructure  development,  particular  attention  is  being  paid  to  energy 
efficiency  measures,  energy 
rehabilitation  of  existing 
infrastructure  and training  for personnel  at the Ignalina nuclear  power plant.  Funding 
is provided  for  the co-financing  of the gas pipeline  from  Ukmergé to Utena  (close to 
Vilnius), the construction of heavy fuel  oil storage and the Klaipeda geothermal plant. 
Phare  is  also  contributing  to  the  Kaunas  waste-water  treatment  plant.  In  the  area  of 
transport,  support  is  being  provided  to  develop  road  and  railway  infrastructure  in 
order  to  improve  physical  integration  into  the  EU  as  part  of  the  Trans-European 
Networks. 

63 

Support  for  market  restructuring  and  economic  development  constitutes  the  most 
important  part  of  Phare  funding  in  1996.  An  important  part  will  contribute  to 
strengthening the banking  system. Assistance  in the field of  agriculture  continued  to 
build  upon  farm-level  initiatives, but  focused  increasingly  on  marketing,  finance  and 
quality  issues  in  food  processing.  Regarding  the  privatisation  and  restructuring 
process,  the  Phare  programme  is  providing  legal  advice  and  support  to  the 
Privatisation  Agency  and  to  the  newly  created  Ministry  of  Economy  for  policy 
formulation  and institution building. 

In  the  SME  sector,  Phare  is  providing  operational  and  training  support  to  the  six 
Business  Advisory  Centres, which  assist  the business  community  in different  regions 
it  extended  assistance  to  the  Lithuanian  SME 
of  the  country.  In  addition, 
Development Agency, which was established at the end of  1995. The introduction of a 
Phare  SME credit  scheme in  1993 which was renewed  in  1996 also  facilitated  access 
to capital for small and medium-sized  enterprises. 

Phare  assistance will  also be provided  under the  1996 programme  to  further  improve 
the tax  regime  and  treasury  and budgeting  function,  and  increase  the  efficiency  and 
effectiveness  of the customs  administration. 

The  1996  cross-border  cooperation  programme  centred  on  transport  (Klaipeda  oil 
terminal  &  rail/port  interface),  environment  (hazardous  waste  storage),  and  regional 
and  economic  development  (Nida  tourism  development).  Implementation  has  been 
strengthened  with  the  establishment  of the  Programme  Implementation  Unit  in  1996 
and this will remedy the delays experienced in  1994 and  1995. 

Phare achievements 

A  number  of  Phare  programmes  were  completed  in  the  course  of  1996.  Particularly 
important projects  and achievements in this respect were the  following. 

In  the  energy  sector,  Phare  helped  complete  the  analysis  and  recommendations  for 
establishing  an  Energy  Efficiency  Fund,  as well  as pilot  drilling  for  an  underground 
gas storage facility in Vaskai in the northern part of the country. 

As  a  result  of  Phare  assistance  in  the  transport  sector,  a  restructuring  and  business 
plan  for the Lithuanian  railways was completed  and  adopted.  Similarly,  the  Klaipeda 
Port  Master  Plan,  prepared  with  Phare  funding,  is  being  implemented.  Finally, 
construction  works  at  the  Polish-Lithuanian  border  crossing  of  Kalvaria  were 
completed and have been co-financed  by the Lithuanian  government. 

Regarding  privatisation,  Phare  supported  the  establishment  of  the  Lithuanian 
Privatisation  Agency  in  1996. Phare  has  also  provided  considerable  support  for  the 
implementation  of  legislation,  training  of  privatisation  officials,  and  preparatory 
studies for the privatisation of selected state-owned  enterprises. 

In the banking  sector,  Phare  funded  expertise  for  on-site  support  and  supervision  for 
twinning 
the  Bank  of  Lithuania  to  deal  with  the  banking  crisis.  Additional 
programmes with foreign banks were also established, through which a large  majority 
of Lithuanian banks (82 per cent in asset terms) receive major technical  support. 

64 

SME development 

Small and medium-sized  enterprises contribute  enormously  to the development  of the 
private sector  and  economic  growth. Although  Lithuania was  late in recognising this, 
Phare  supported  SME development from the beginning  and has provided  funding  for 
an SME credit line, expertise for policy implementation,  funding  for the  establishment 
of  six  Business  Advisory  Centres  and  support  to  the  launching  and  initial  operations 
of the SME Development  Agency. 

Bank  credit  is  often  a  major  obstacle  for  the  development  of  SMEs.  In  transition 
countries,  banks  tend  to  lend  either  to  large  companies  or  to  invest  in  financial 
that  are  secure  and  carry  minimal 
instruments, 
administration  costs.  As  a result,  SMEs  find  it  difficult  to  borrow,  and  this  hampers 
the development of the private sector. 

i.e.  generally 

transactions 

To remedy this,  Phare has established  a credit  line to support  SMEs. Managed by the 
Central  Bank  and  channelled  through  commercial  banks,  it  provides  credit  at  more 
favourable rates than in the domestic market and is destined  for enterprises  employing 
up  to  200  employees.  Companies  can  borrow  up  to  ECU  125,000  for  long-term 
investments. More than 200 loans have been provided  so far. 

Moreover,  specific  training  related  to the  credit  line  is being  provided  to  the  Central 
Bank,  the  commercial  banks  and  the  SMEs.  The  network  of  Business  Advisory 
Centres has been used for the training of client companies in this respect. 

65 

Poland 

Year in review 

The Polish  economy  has performed  well  since the transition  process began.  In  1996, 
real  GDP  increased  by 6 per  cent  and  thus,  for  the fifth consecutive  year,  the  country 
experienced  strong  economic  growth.  In  1995, real  GDP  for  the  first  time  exceeded 
the  level  recorded  in  1989. Inflation  and  unemployment  remained  relatively  high  but 
are falling,  at  18.6 per cent and  13.6 per cent respectively  at the end of 1996. 

As in previous  years, Poland  made progress  along  the  road  of  economic  reform.  The 
private  sector  now  accounts  for  nearly  60  per  cent  of  GDP  and  62  per  cent  of 
employment.  The  Mass  Privatisation  Programme,  after  a  long  preparatory  period, 
was  finally  launched  in  November  1995  and  became  very  successful  in  1996,  with 
over 26.5 million vouchers taken up by the population  and their  price now trading  on 
the  secondary  market  of  the  Warsaw  Stock  Exchange  at  seven  times  their  original 
value. 

In spite of the international  appreciation  for the Polish shock therapy  approach, 
foreign  direct investment  (FDI) was off to a slow start during the initial  stages of 
transition. FDI inflows  have begun to pick up considerably  since  1994. In  1996, the 
inflow was about  1.8% of GDP. The cumulative FDI inflow  since  1989 reached a 
level of ECU 4.0 billion (source. EBRD), which corresponds to slightly more than 
ECU  100 per inhabitant  (the Polish Government  Agency for Foreign  Investment 
(PAIZ) reports that the FDI inflow  in  1996 alone has reached  more than ECU 4.0 
billion.  The PAIZ estimates that the cumulative inflow  of FDI since  1990 has been 
about ECU  11 billion). 

Poland's  economic  performance  and  the  increasing  confidence  of  international 
investors are also the result  of considerable  improvements  in the Government's  public 
finances  over recent years. Total public debt now stands at 54 per cent of GDP and the 
Central  Government's  budget  deficit  attained  2.9  per  cent  of  GDP  in  1996.  In  April 
1996,  the  Government  adopted  "Package  2000",  a  set  of  medium-term  policy 
guidelines  around  a programme  of  cuts  in personal  and  corporate  income tax,  and,  at 
the  end  of  1996,  the  Government  also  unveiled  plans  to  make  Poland  meet  the 
Maastricht  criteria  for  EMU  by  the  year  2006  by  further  reducing  the  general 
government budget  deficit  and, notably, the high inflation  rate. 

Poland  also  continued  along  the  path  of  pre-accession  and  approximation  to  the 
European  Community's's  'acquis  communautaire'.  In  October  1996,  the  Government 
started an ambitious central government  and civil  service reform  programme,  whereby 
a Committee for European  Integration,  a new Ministry  of State Treasury,  the Ministry 
of  Economy,  and  the  Ministry  of  Internal  Affairs  were  established  as  a  result  of  the 
merger or reorganisation  of a number of ministries and government  agencies.  The new 

66 

Civil  Service  Law,  adopted  by  Parliament  in  August  1996,  was  introduced  and  is 
currently being implemented. These reforms  constituted  important  steps for Poland on 
the  way  towards  good  governance  and  in  fact  constitute  a  prerequisite  for  future 
integration with the European Union. 

As  part  of  the  pre-accession  strategy,  the  Committee  for  European  Integration  was 
established  in  October  1996,  chaired  by  the  Prime  Minister.  This  Committee  has  a 
policy  coordination  and  steering  function  with  decision  making  power  on  EU 
integration  issues  and  foreign  assistance,  including  the  Phare  programme.  In  late 
1996,  the  Committee  prepared  and  the  Government  adopted  a National  Strategy  for 
EU  Integration.  The  Government,  in  1996,  also  issued  a  White  Paper  with  a 
systematic  analysis  of  implied  legal  and  economic  adjustments  in  the  context  of  EU 
integration. In November  1996, the Parliament also adopted the Customs Code. 

Phare 1996 Programme in Poland 

Under its Phare programme  for Poland  in  1996, the European Union  committed  ECU 
203 million.  This was the  second  year  of the Multi-annual  Indicative  Programme  for 
Poland, whose budget  for  1995 to  1999 totals ECU  1.015  billion of grant  funds.  As in 
the  previous  year,  the  main  objective  of  the  1996  programme  was  to  facilitate 
Poland's  gradual  integration  into  the  European  Union  by  providing  funding  for 
approximation  of EU  legislation,  institution  building,  infrastructure  co-financing  and 
continuing  support  for  the process  of  socio-economic  transformation.  In this  respect, 
the  1996 Phare programme continues to contribute to the EU's pre-accession  strategy. 

The  Phare  programme  in  1996  therefore  concentrated  further  on  the  gradual 
integration  of  Poland  from  the  legislative,  physical  and  human  resources  point  of 
view.  A  total  of  ECU  64  million,  or  nearly  32  per  cent  of  the  funds  committed  in 
1996,  were  earmarked  for  the  development  of  the  country's  transport  infrastructure 
within  the  Trans-European  Networks  programme.  These  funds  were  attributed  for 
cofinancing  with 
for 
Reconstruction  and  Development,  and  the  Polish  Government,  notably  for  the 
construction  of the first part  of the A4 Motorway  from  Wroclaw  to Katowice  (part of 
TEN Corridor  3 Berlin-Katowice-Kiev)  and the renovation  of the first part  of the E20 
Railway from  the German border to Warsaw (part of TEN Corridor 2 Berlin-Warsaw-
Minsk-Moscow), including upgrading of border crossings with Germany. 

the  European  Bank 

Investment  Bank, 

the  European 

As  in  previous  years,  ECU  53  million  were  also  committed  for  the  cross-border 
cooperation programme, whereby funds  are provided in a concentrated manner mainly 
for  transport  and  environment  infrastructure  projects  in  eight  regions  on  the  border 
with  Germany  and  the  Baltic  Sea.  In  the  course  of  1996,  further  efforts  were 
undertaken to strengthen the implementation  capacity of the Polish authorities  dealing 
with the cross-border  programme  and this is beginning  to  show results  in terms of an 
accelerating contracting rates in this respect. 

In  1996,  the  Phare  Programme  provided  additional  funding  for  private  sector 
development,  especially  through  continued  support  for  the  Government's  municipal 
and  provincial  privatisation  programme,  the  development  of  SMEs,  regional 
development  of  lagging  regions,  and  agricultural  and  rural  development.  For  the 
latter, as well as for the transport  and environment  sectors, special  funds  were also set 

67 

aside  for  harmonisation  and  implementation  of  the  acquis  communautaire  as part  of 
the Government's pre-accession  strategy. 

Phare achievements 

Several  Phare  programmes  were  successfully  completed  in  the  course  of  1996, 
notably the  following: 

first phase of the public administration reform  programme 
Struder regional development  programme 
customs programme 
mass privatisation  programme 
foreign  investment promotion programme. 

In  addition,  the  first  part  of  the  Phare-financed  environment  programme  was  also 
completed,  as well  as the Bad  Debt  Work  Out programme  and  the Phare  agricultural 
credit  line.  In  general,  these  programmes  were  committed  in  1992,  except  for  the 
agricultural  credit  line,  which  dated  back  to  1990.  Following  a  slow  start,  the  latter 
was  able to provide  more  than  1,000  small  loans  through  co-operating  banks  mainly 
destined  for  farmers  and  agricultural  SMEs  wishing  to  acquire  modern  farming  and 
food  processing  equipment,  thereby  effectively  contributing  to  the  modernisation  of 
the  sector.  In  general,  experience  to  date  indicates  that  most  Phare  programmes 
initiated  in the  early  years  of transition  required  long  gestation  periods,  often  due  to 
the absence of viable delivery mechanisms or because of the need for important policy 
decisions, before  any concrete results became available. 

The  Bad  Debt  Work  Out  project,  funded  by  Phare,  in  consultation  with  the  EBRD, 
was  largely  completed  in  1996  and  has  seen  the  percentage  of  bad  debts  in 
participating  banks  fall  from  53 per  cent  in  1993 to  under  10 per  cent  in  1996.  This 
project  has  been  particularly  effective  in  that  it  not  only  worked  with  the  banks 
concerned  but  also  with  their  debtor  enterprises.  This  project  has 
therefore 
contributed  importantly  to  enterprise  restructuring  in  Poland,  while  preparing  major 
banks for the skills needed in subsequent  privatisation. 

Phare funding  for the environment  in Poland amounted to a cumulative 9.6 per cent of 
total  Phare  funding  for  Poland  in  the period  1990-1996,  i.e.  close  to  the  10 per  cent 
recommended  by  the  European  Parliament.  It  should  however  be  noted  that  these 
figures  do  not  include  energy  saving  measures  or  environmental  projects  funded 
through  the regional  development  programme. The Phare  environment  programme  in 
Poland  contributed  to  the  development  of  the  National  Fund  for  Environmental 
Protection,  i.e.  the  main  investment  instrument  of  the  government  for  funding  of 
environment  projects,  by  the  private  and  public  sector  alike.  Particularly  important 
Phare-financed  projects  in this respect were the Nun Moth  campaign  to eradicate  this 
pest  in forests,  the Geothermia project  in Zakopane,  and waste water treatment  plants 
in  the  Oder  basin.  The  Geothermia  project,  funded  by  Phare  initially  in  1992,  is 
providing  district  heating  to  the  village  of  Zakopane,  and,  when  completed  (with 
World  Bank  funding),  will  provide  heating  to  75,000  people  in the  Zakopane  valley, 
thereby considerably reducing air emission from  traditional coal burning. 

As  mentioned  above,  the  Mass  Privatisation  Programme,  after  a  long  preparatory 

68 

period, was  finally  launched  in November  1995. In this programme,  512  state-owned 
enterprises  were  assigned  to  15  National  Investment  Funds.  Phare  was  one  of  the 
major  donors to this programme  and provided,  as early  as  1992, considerable  support 
by  financing  the  public  awareness  campaign,  training  of  over  5,000  officials, 
preparatory  studies,  and  the  printing  and  distribution  of  the  privatisation  vouchers, 
which can now be exchanged  for share certificates  in the National Investment Funds. 

the  Foreign 

The  promotion  of  foreign  investment  has  also  been  facilitated  since  1993  with  the 
establishment  of 
(PAIZ),  with 
considerable  support  from  the  Phare  programme.  This  Phare  programme  was 
successfully  completed  in  1996,  and  PAIZ,  solely  on  the  basis  of  Government 
support,  continues  to  play  a  major  role  in  the  promotion  of  inward  private  foreign 
investment to Poland. 

Investment  Promotion  Agency 

In  October  1996, the  Government  started  an  ambitious  central  government  and  civil 
service  reform  programme.  The  new  Civil  Service  Law,  adopted  by  Parliament  in 
August  1996,  was  also  introduced  and  is  currently  being  implemented.  The  1992 
Phare-funded  public  administration  reform  programme provided  considerable  support 
in this respect, in particular with preparatory reform  and organisation  studies, training 
programmes  for  civil  servants,  strategic  advice,  and  expertise  for  the  preparation  of 
the public procurement  law, the civil service law, and the organic laws needed  for the 
reorganisation  of  ministerial  departments  and  the  creation  of  new  government 
agencies.  In  addition,  since  several  years,  the  Phare  programme  has  also  provided 
support  for  approximation  of  legislation,  In  November  1996,  the  Polish  Parliament 
adopted  the Customs  Code. In this context, the Phare programme  funded  preparatory 
work  with  training  and  expertise  and  also  funded  a Data  Entry  Management  system 
that should render the customs services more  efficient. 

In  February  1996,  the  Government/Donor  Task  Force  on  Regional  Development  in 
Poland, again with funding  from  the Phare programme, accomplished  its work  and its 
recommendations  were  adopted  by  the  Council  of  Ministers  in December  1996. The 
first  Phare-funded  regional  development  programme  (Struder)  in  Poland  was  also 
successfully  completed. 

As  indicated,  in  the  early  years,  the  Phare  programme  experienced  implementation 
difficulties  in  Poland,  partly  due  to  organisational  problems  in  the  responsible 
ministries  and  lack  of  viable  delivery  mechanisms.  Implementation  in  1995  however 
accelerated  considerably.  In  1996,  performance  was  encouraging,  albeit  at  a  lower 
level  than  in  1995, in  the  sense  that  contracting  slightly  exceeded  commitments  and 
the funding  backlog did not increase. 

69 

Struder: a regional development  programme 

Regional  disparities  in  Poland  are  important  and  unemployment 
is  unevenly 
distributed.  In  1992,  Poland  had  no  regional  policy,  no  legal  framework,  no 
institutions  for regional development.  The Government  requested  funding  by Phare of 
a regional  development  programme  - Struder  - that  subsequently  was slow to start. A 
total  of  ECU  76  million  was  provided  by  Phare  in  1992  for  structural  development 
measures  in  six  provinces  lagging  behind,  i.e.  with  high  unemployment,  high 
agricultural GDP or subject to heavy industrial restructuring. 

The programme was completed in  1996 and provided valuable operational  experience 
to  Polish  municipalities  and  provincial 
of  regional  development  measures 
the 
administrators.  This  programme 
recommendations  of the Task Force on Regional Development  in Poland,  adopted by 
the Council of Ministers in December  1996, and has given an important impetus to the 
Government's  emerging  regional  and  rural  development  policy,  taking  into  account 
important  elements  of  programmes  similar  to  those  financed  by  the  EU  Structural 
Funds. 

is  now  being  continued, 

following 

In concrete terms, the Phare-funded  Struder programme 

•  cofinanced  1,051  SME  investment  projects  through  a  grant  scheme  (ECU  30 
million)  along  with  commercial  bank  loans  and  SME own  resources.  This  created 
ECU  130 million investment and  11,500 jobs in the regions concerned 

•  Cofunded  188 Municipal  Small  Infrastructure  Projects  worth  ECU  18 million  out 

of total project  cost of ECU 36 million in the regions concerned 

•  was  instrumental  in  the  creation  of  Regional  Development  Agencies  and  two 

Regional Investment Companies in Poland 

•  Provided  training  and retraining  schemes  for  the unemployed,  for  local banks  and 

for SME entrepreneurs. 

70 

Romania 

Year in review 

1996 was  an electoral  year  for  Romania.  Municipal  and  local  elections  took  place in 
June  1996,  parliamentary  and  presidential  elections  in  November.  In  all  cases,  a 
centre-right  coalition, composed  mainly of Christian and  Social Democrats, prevailed. 

The new centre-right  government  is composed  of Christian  Democrats  (CDR),  Social 
Democrats  (USD)  and  representatives  of the  Hungarian  minority  (UDMR).  Thirteen 
recognised  minorities  are  each  represented  by  one  deputy  in  the  Chamber.  This  is 
allowed  for  by the  Constitution  and  applies  to  minorities'  political  groups  which  do 
not  attain  the  3  per  cent  threshold.  Emil  Constantinescu  (CDR-Christian  Democrat) 
was  elected  president  on  17  November  1996  in  the  second  round  of  presidential 
elections. 

The  Government  programme  aims  mainly  at  economic  reform  (re-alignment  of 
energy prices, monetary policy, reform  of public utilities, financial  markets, reform  of 
agricultural  support  programmes),  accompanying  social  measures  and  the  fight 
against poverty. 

Gross  domestic  product  increased  by  4.1  per  cent  in  1996,  the  fourth  consecutive 
annual  increase.  Inflation,  after  a  sustained  slowing  down  since  1993,  accelerated 
from  an  average  of  32  per  cent  in  1995  to  approximately  57  per  cent  at  the  end  of 
1996. This was the result  of a very  loose  monetary  policy,  as well  as numerous  tariff 
increases in the run up to the elections. 

The deficit  on the general government  balance,  as a percentage  of nominal  GDP, was 
1.9  per cent in  1994, 2.6 per cent in  1995 and 3.9 per cent  in  1996. The law on public 
finance  provided  for  a  2.9  per  cent  budget  deficit.  The  wider  public  sector  deficit, 
which for instance includes quasi-fiscal  subsidies, was of the order of 8 per cent. 

The  current  account  deficit  increased  sharply  in  1996, reaching  7.3  per  cent  of GDP, 
with  the  trade  deficit  amounting  to  2.5  billion  dollars.  FDI  inflows  have  been 
relatively  small,  in  relation  to  the  size  of  the  country.  In  1996  foreign  reserves 
declined, as foreign  investors maintained  a prudent  stance and domestic investors took 
funds  abroad. 
In  June  1995,  the  government  launched  a  Mass  Privatisation  Programme  targeting 
3,900  companies. This was based  on a procedure which  awarded  vouchers to all adult 
Romanians  above  the  age  of  18.  The  slow  pace  of  privatisation  is  one  of  the  main 
reasons  for  the  low  level  of  foreign  direct  investment  in  the  country.  The  banking 
remains  dominated  by  the  state  banks.  Restructuring  and 
sector,  for  example, 
privatisation are  key priorities of the new government. 

71 

In terms of  foreign  policy, the country's two main objectives  are accession to the EU 
and  NATO.  A  Basic  Treaty  with  Hungary  was  signed  on  16  September  1996.  This 
deals with  minority  issues  and  is an important  step towards  improving  relations  with 
neighbouring  countries.  A  similar  agreement  is  under  negotiation  with  Ukraine 
regarding territorial  differences. 

Phare 1996 Programme in Romania 

A four-year  Multi-Annual  Indicative Programme for Phare assistance to Romania was 
signed  in  September  1996.  Covering  the  period  1996-1999,  it  provides  ECU  440 
million  of  grant  aid  to  Romania.  Infrastructure  for  European  integration  and 
implementation  of  the  'acquis  communautaire'  are  the  key  objectives  in  terms  of 
preparation for  accession. 

Co-operation  will  be  further  enhanced  through  the  participation  of  Romania  in 
Community programmes in conformity  with the decisions of the European Council of 
Copenhagen.  The additional protocol to the Europe Agreement,  which  allows  for  the 
opening  of  the  programmes,  has  already  entered  into  force.  Thus,  the  Association 
Council  is  able  to  decide  the  terms  and  conditions  of  Romania's  participation  in 
particular  programmes,  on  the basis  of  the  country's  priorities.  Work  has  progressed 
satisfactorily  in  view  of  Romania's  participation  in  four  Community  programmes: 
Youth for Europe III, Socrates, Leonardo and Media II. 

In  addition,  a  cross-border  co-operation  programme  with  Hungary  has  been 
approved1.  This  follows  the signature by Romania  and Hungary  of  a Basic  Treaty  on 
16  September  1996.  The  programme  allocates  ECU  10  million  to  Romania  and 
Hungary  (ECU  5  million  each)  for  projects  which  rely  on  cooperation  between 
Romania and Hungary to improve living conditions on both sides of the border. 

Phare achievements 

Although  there have been  some difficulties,  partly  due to organisational  problems  in 
the  responsible  ministries,  implementation  improved  in  1996  when  the  contracting 
rate  more  than  doubled.  The  Phare  Programme  has  made  a positive  contribution  to 
the transition process in Romania and its integration with the EU. 

Phare assistance has been  instrumental  in ensuring  that  the privatisation  process has 
become irreversible, and handled with a significant  level of transparency,  even though 
lack  of  long  term  planning  and  co-ordination  did  not  allow  for  optimum  use  of 
technical  assistance.  Future  programming  should  concentrate  now  on  providing  an 
enabling environment  for the private sector (including  strengthening  of policy making 
capacities). 

Romania  is the only associated country that shares no common borders, either terrestrial or 
maritime, with any of the  15 Member States;  therefore, no Romanian region is eligible for cross-
border programmes between CEECs and Member  States as provided  for  in Commission  Regulation 
(CE) N°  1628/94 of 4/7/1994  for financing  of projects  in accordance with Union's  structural 
policies, in particular Interreg II. 

72 

Impact  of  Phare  has  been"  significant 
in  terms  of  institution-building,  and 
transformation  of  the  role  of  the  state  vis-à-vis  companies.  Slight  concerns  resulting 
from  a  structure  with  split  political  responsibility  for  restructuring  have  still  to  be 
dealt with. 

The Romania Post Privatisation  Fund was set up in  1996. It is an equity  investment 
fund,  providing  venture  capital,  managed  by  a  private  company  and  supervised  by 
EBRD. The fund  has a ten-year  life  at the end of which period  it is supposed  to have 
liquidated  all  investments.  Phare  has  contributed  ECU  10  million  for  technical 
assistance  and  ECU  15  million  for  investment;  the  EBRD,  ECU  25  million  for 
investment. All necessary agreements were signed in October  1996. 

Romania made modest progress in the approximation  of legislation.  Steps have been 
taken  mainly  in  the  areas  of  agriculture,  transport,  competition,  professional 
qualifications,  health  and  safety  at  work  and  environment.  The  overall  current 
situation  should  be  evaluated  and  the  way  ahead  defined,  taking  on  board  the  new 
government priorities. 

In  the  area  of  public  administration  reform,  the  main  areas  of  action  for  Phare 
programmes  have  been  policy  development,  modernisation  and  development  of 
management  capacity,  and  public  service  ethic.  On  all  three  accounts,  there  remains 
much to be done. 

The Phare programme has been a leader in the establishment  of programmes  of active 
employment  measures  throughout  Romania  through  it  highly  successful  PAEM 
programme. 

73 

Programme for Active Employment Measures 

The Programme  for Active Employment  Measures started in  1994 with a total budget 
allocation  of ECU  10 million  and  a duration  of  four  years. The main  objective  of the 
programme  is  to  support  the  government  in  the  development  and  implementation  of 
labour market policy and reform, balancing the local initiative and innovation with the 
design  of  national  policy  guidelines  and  active  employment  measures  with 
institutional  development. 

The programme  is relying  upon  the principles  of decentralised  actions  and  enhanced 
local  partnership.  Examples  of  active  employment  measures 
still  under 
implementation  are:  information  and  documentation  centres,  mediation  centres, 
business  incubators, business  consultancy  centres, centres  for  the promotion  of agro-
tourism, job  clubs,  vocational  training,  entrepreneurial  development  in  schools,  job 
placement  centres, temporary  labour  centres,  employment  services  for  disadvantaged 
people, etc. 
The results to date are 

228 Active Employment Measures operational 
53 local consortia institutionalised  and operational 
49 local development  agents trained 
35,000 clients assisted in the information  centres 
20,000 received counselling in Mediation Centres 
10,500 people were employed  as a result of mediation 
3,100 people attended vocational training courses 
1,500 people attended training in Job Clubs 
1000 people attended entrepreneurial training courses. 

In  Medgidia,  a  less  developed  part  of  Romania,  the  Programme  for  Active 
Employment  Measures  was  instrumental  in  the  setting  up  of  a  Mediation  Centre,  a 
Business  Consultancy  Centre  and  a Vocational  Training  Centre.  The  Foundation  for 
the  Support  of  Disadvantaged  Groups  became  self-sustainable  by  providing  good 
quality  feasibility  studies  for  bank  loan  applications; the Mediation  Centre was  taken 
over  by  the  labour  directorate  in  the  Constanta  county,  who  will  support  the 
operational  costs  above  and  beyond  the  financing  under  the  Programme  for  Active 
Employment Measures.  1,837  people have been assisted, of which 274 were placed in 
jobs in  170 companies. 

In Tirga Neamt, one of the regions  in Romania worst  affected  by unemployment,  the 
Programme  for  Active  Employment  Measures  supported  the establishment  of  several 
community  services. The key of the success was the choice of the services based on a 
survey conducted in the community. The County Directorate took over the operational 
costs of the Mediation Centre only after the first eight months, encouraged by the very 
positive  results  (2,200  people  placed  in  jobs).  The  Vocational  Training  Centre  is 
making  promising  progress  (112  people  trained)  and  the  newspaper  proved  to  be  an 
effective  tool for the delivery of information  to the unemployed. 

74 

Slovakia 

Year in review 

After  its  impressive  macroeconomic  performance  in  1995,  the  Slovak  economy 
continued  to grow  at  almost  7 % in  1996, while  inflation  decelerated  to  5.4  %  at the 
end  of the year.  Growth was fully  generated  by domestic  demand.  Rapidly  rising  real 
wages  and  some  increase  in  employment  pushed  up  private  consumption,  while  real 
investment  grew  by  more  than  30%.  The  external  balance,  on  the  other  hand,  has 
turned  sharply  negative.  Slow export  growth  and  sharply  rising  imports  have  resutled 
in a current  account deficit  of more than  10% of GDP,  compared  to a surplus  of 2.3% 
in  1995.  The  fast  economic  growth  had  a  beneficial  impact  on  unemployment.  The 
unemployment  rate  declined  from  a  peak  of  15.2%  in  January  1995  to  12.8%  in 
December  1996.  Nevertheless,  unemployment  remained  unevenly  spread  over  the 
country, and the proportion of long-term unemployment  was rising. 

The conduct  of  monetary  and  fiscal  policy  has  played  a vital  role  in the  stabilization 
process  in  Slovakia  after  its  independence.  Nevertheless,  in  1996  economic  policy 
became  more  expansionary,  leading  to  higher  domestic  demand  and  the  ensuing 
deficit  on the the current  account. Only in the second  half of the year,  monetary  policy 
was restricted  in an effort  to curb excessive demand growth. 

The  National  Bank  Supervision  Department  has  made  substantial  progress  in 
establishing prudential  regulations  producing  or clarifying  legal  frameworks,  building 
up  its  staff  capacity  and  its  independence,  and  in  developing  a  comprehensive 
information  system.  Phare  has  supported  the  restructuring  of  the  three  largest  state-
owned banks, which represent  more than 60 per cent of total banking assets. 

The  Ministry  of  Finance  is  presently  implementing  a  more  coherent  tax  and 
accounting  reform  programme  including  assistance  to  the  Union  of  Accountants  and 
Chamber of Auditors. 

Phare 1996 Programme in Slovakia 

Programming  discussions  were  held  in the  framework  of the Multi-annual  Indicative 
Programme.  The  programming  of  the  1996  Country  Operational  Programme  was 
delayed  in  part  because  of  institutional  and  staff  changes  (shifting  of  coordination 
responsibilities  from  the  Slovak  Ministry  of  Foreign  Affairs  to  the  Office  of  the 
Government). Under the multi-annual  financial  perspective,  given that it is possible to 
modulate  annual  allocations  on  the  basis  of  needs,  absorption  capacity  and  past 
the  1996 
it  was  eventually  decided 
programme  performance, 
commitment.  Therefore,  in  1996,  Slovakia  only  received  an  allocation  for  Tempus 
(ECU 4.5 million) in support of the educational  sector. 

to  postpone 

75 

Phare achievements 

In  1995 a Council of European Integration was set up as an inter-ministerial  forum  for 
questions  relating  to' integration  issues.  All  newly  prepared  legislation  has  to  be 
examined  as to its compliance with EC legislation  by the Institute  for  Approximation 
of  Legislation,  which  has  been  set  up  in  June  1995  and  integrated  in  1996  into  the 
Office  of  the  Government.  The  Slovak  Government  has  issued  a general  strategy  on 
approximation  of  legislation  on  the  occasion  of  the  Association  Committee  in 
December  1996.  Phare  supports  the  Slovak  Institute  for  Legislative  Approximation, 
through extensive technical  assistance. 

The reconstruction  of the bridge on the Danube, between  the cities of Esztergom  and 
Sturovo  is  a project  (ECU  5 million)  sponsored  by  the  EU  and  the  two  beneficiary 
countries in the framework  of the Conference  of the Pact  on Stability  in Europe. This 
project  is a demonstration of the commitment  of both Hungary and Slovakia to pursue 
good  neighbourly  relations,  as  stated  in  the  Basic  Treaty  on  Good  Neighbourliness 
and Friendly  Cooperation  ratified  on May  15, 1996. The reconstruction  of this bridge 
is particularly  aimed  at  promoting  good  relations  in  questions  relating  to  minorities, 
frontiers and regional  cooperation. 

Today,  the  majority  of  companies  have  been  privatised  either  through  the  voucher 
scheme  or  since  1995  through  MEBO  (Management  Employment  Buy-Out).  Phare 
has supported the restructuring of a wide range of companies. More than 40 individual 
enterprise  studies  provided  assistance  to  a  range  of  ten  industry  sectors,  including 
armaments,  engineering,  metal  products,  chemicals  and  textiles.  The  average  cost  of 
each  project  was  ECU  250,000  for  technical  assistance  in  operational  restructuring, 
production, organisation and the preparation of strategic plans. 

Capital  inflows  have  been  small  compared  with  other  countries  in  the  region.  After 
almost  no  increase  in  foreign  investment  in the first half  of  1995, the  capital  inflows 
expanded  to  a total  amount  of $ 845 million  at the end  of December  1996. The main 
investors, by  country  of  origin,  are  from  Austria,  Germany,  the  Czech  Republic  and 
the  USA.  A  more  positive  sign  is  the  increase  in  the  number  of  enterprises  with 
foreign  capital  participation  to  9,717  companies  in  1996  compared  to  5,100  in  1993. 
These investments  are mainly  directed  towards the retail  trade, industry, banking  and 
insurance. Phare has been  supporting  SNAFID  (Slovak  National  Agency  for  Foreign 
Investment Development), responsible for promoting foreign  investment into  Slovakia 
and  has  made  a  major  contribution  in  attracting  'greenfield*  investment  to  Slovakia. 
Over  the  past  three  years,  the  Slovak  National  Agency  for  Foreign  Investment  has 
been  involved  in  17  projects,  worth  $  144  million  and  providing  jobs  for  6,000 
employees. 

SMEs  are  now  a major  engine  for  growth  in  the  Slovak  Republic  accounting  for  35 
per  cent  of  the  GDP.  SMEs  have  gained  recognition  as  an  important  sector  for  the 
transformation  of  the  economy,  the  development  of  market  mechanisms,  the 
promotion  of enterpreneurship  and  as providers  of  employment.  It is  a key  sector  for 
Phare  support,  which  has  in  the  past  contributed  to  the  development  of  Business 
Support Centres and will in the future  concentrate its funds  on the policy, services and 
regulatory  framework.  Phare has made  an important  contribution  by providing  direct 
assistance to SMEs and establishing institutions to support SMEs. 

76 

instruments 

The  Slovak  Government  decided  in  1993  to  create  an  independent  agency  for  the 
development  of  the  sector.  The  SME  programme  executed  by  the  agency  and  co-
financed  by  the  Slovak  Government  is  now  fully  implemented  with  the  various 
launched,  particularly  the  small  loans  fund,  being  well 
financial 
subscribed.  This  financial  assistance,  together  with  business  counselling  through  a 
network of assistance centres set up with Phare funds,  is seen as providing  a  valuable 
service to  SMEs. In particular,  the  subsidised  loan  scheme  which  combines  a unique 
blend  of  Phare,  government  and  commercial  funding,  has  provided  much-needed 
capital  for  SMEs to expand their operations. The loan  scheme has provided  up to 459 
loans  to  enterprises  employing  on  average  45  people  for  an  average  loan  size  of 
approximately ECU 76,000. 

In  1996 Phare, the Slovak Government and the EBRD signed the agreement setting up 
the  Slovak  Post  Privatisation  Fund,  a restructuring  vehicle  capable  of  bringing  both 
know-how  and  capital  to  medium-sized  Slovak  enterprises.  The  Phare  grant 
contribution  is  in  the  amount  of  ECU  12  million  in  equity  and  ECU  8  million  in 
technical assistance. The Slovak Post Privatisation Fund will provide equity,  effective 
governance  and  management  assistance  to  enterprises  that  are  presently  unable  to 
raise private equity capital. 

The  Policy  Advisory  Unit  assisted  the  Ministry  of  Agriculture  in  reviewing  and 
formulating  agricultural policy  and in the establishment  of working  groups  looking at 
the  adoption  of  the  full  'acquis  communautaire'  (structural  issues,  veterinary  and 
phytosanitary matters, forestry, water management, etc.). 

Phare has also provided  assistance to the continued  modernisation  and  reconstruction 
of  land  registration  and  integrated  cadastral  information  services  in  support  of  the 
restitution  and  land  consolidation  process,  land  market  development,  privatisation  of 
rural  and  urban  areas,  thus  meeting  the  socio-economic  and  environmental  needs  of 
the country. 

The  assistance  also  contributed  to  community  development  taking  into  consideration 
essential  democratic principles, by improving the security  of ownership  rights  related 
to  land  and  its  assets  and  supporting  local  governments  in  their  tasks  related  to  land 
registry  and  mapping.  Phare  has  also  provided  assistance  to  improve  the  availability 
of  geographic  information  systems;  to  develop  digital  and  similar  products  (aerial 
photography  of  6.000  km2  of  Slovak  territory);  to  stimulate  and  support  public, 
governmental  and  private  sector  users,  such  as  local  authorities,  regional  authorities 
(physical planning, environmental protection), banks (land market, mortgaging), etc. 

Other  tangible  contributions  have  been  made  in  the  educational  sector,  where  Phare 
supported  a  short-cycle  higher  education  programme  for  language  teachers  at  the 
pedagogical  faculties  of Slovak universities, involving more than  1,300  students. 

Civil  society  in  Slovakia  plays  a  very  important  role  in  the  process  of  further 
application  of  democratic  principles  in  the  country.  These  principles  can  be  seen  in 
action  in the quantity  and  quality  of existing non-governmental  organisations.  In  this 
respect,  Phare  has  supported  over  300  NGO  projects  through  the  Civic  Society 
Development  Foundation.  The  CSDF  is  currently  one  of  the  largest  and  most 

77 

influential  NGO grant-giving organisations in Slovakia. 

Cross-border  cooperation  with  Austria  experienced  certain  implementation  delays  in 
1996  due  mainly  to  a  change  in  institutional  responsibility  and  staff.  The  institution 
responsible  for  regional  development  and  cross-border  cooperation  up  to  October 
1995, the Centre  for  Strategic  Studies, was replaced  by  a new  Office  for  the  Strategy 
Development  of Society, Science & Technology of Slovakia. 

The  performance  of  the  Phare  Programme,  as  measured 
in  contracting  and 
disbursement  rates,  has  slowly  but  steadily  improved.  By  the  end  of  1996,  the 
contracting rate of the  1990-1994 programmes had reached  a rate of over  80 per cent. 
The  contracting  rate  of  the  1995  programmes  reached  almost  50  per  cent  of  the 
overall allocation by the end of 1996. 

With  a view to rationalising  and streamlining the implementation  of Phare  assistance, 
preparatory  work has been  undertaken  to  set up  a Central  Financial  and  Procurement 
Unit during  1997 to administer the Phare programme  in  Slovakia.  This will  allow  the 
development  of  effective  financial  management  ensuring  appropriate  tendering  and 
accounting procedures to speed up Phare  implementation. 

78 

SME  development 

Since  1991 the Phare programme has supported the SME sector with a total amount of 
ECU 23.4 million  of which  ECU 22 million have been  fully  contracted.  This  support 
has  focused  on  a  range  of  activities  including  policy  research,  advisory  support  to 
SMEs, institution building and financial support to SMEs. 

Policy  and  research  worth  ECU  700,000  has  focused  on  studies,  international 
conferences,  and  research  which  are used  as  a basis  for  the  Ministry  of  Economy  to 
develop a strategy and policy towards SMEs. 

totalling  ECU  5.7  million  has  supported 

the 
Information  and  counselling 
establishment  of  a  network  of  Business  Innovation  Centres  and  Regional  Advisory 
and Information  Centres which provide a range of advisory services directly to SMEs. 
In addition, Phare supports the National Agency for Development  of SMEs which has 
overall responsibility  for promoting  SMEs in Slovakia by co-financing  its  operational 
costs and providing technical assistance (training, expertise and equipment). 

Phare  has  also  initiated  a  number  of  different  financial  instruments  worth  a total  of 
ECU  17 million to support SMEs: 

Guarantee Scheme 
Small loan scheme 
Support loan 
Seed Capital 
Micro Credit 
Technical Assistance 

ECU 3 million 
ECU  1 million 
ECU  10.4 million 
ECU 1.3 million 
ECU 300,000 
ECU  1 million 

The  SME  programme  overall  has  provided  a  catalyst  to  stimulating  the  growth  of 
SMEs  in  Slovakia  and  developing  institutions  to  service  SMEs.  Since  1991,  the 
number  of  SMEs  has  grown  from  201,470  in  1991  to  298,363  in  1995;  they  now 
account for no less than 35 per cent of gross output in the industrial  sector. 

In  particular,  the  subsidised  loan  scheme  which  combines  a  unique  blend  of  Phare, 
government  and commercial  funding,  has provided  much-needed  capital  for  SMEs to 
expand  their  operations.  The  loan  scheme  has  provided  up  to  250  loans  averaging 
ECU 60 000 to  enterprises  employing  on average 45 people. The present  default  rate 
is less than  1  per cent. 

79 

Slovenia 

Year in review 

On  the  economic  front,  activity  began  to  recover  after  the  initial  decline  which  had 
begun  in the  second  half of  1995. However,  for  the first time  since  1993, there was a 
decline in exports in  1996 of around  5 per cent, while  industrial  production  increased 
by  1 per cent. This helped  annual inflation  to fall  to 9.7 per cent from 12.1 per cent in 
1995. In  1996, the rate of unemployment  fell  to  8 per  cent  according  to  international 
measures.  Since independence,  macroeconomic  stability  has been  maintained  through 
tight  monetary  policies,  with  budgets  in  surplus  or  low  deficits.  Preliminary  figures 
for  1996 indicate a small budget deficit  of 0.2 per cent of GDP. 

At  the  microeconomic  level,  the  privatisation  process  based  on  a voucher  scheme  is 
nearing  completion.  However,  medium  term  restructuring  of  key  sectors  of  the 
economy,  including  industry  and  the  financial  sector  still  has  to  be  carried  through. 
Foreign investment flows have been relatively low. 

Slovenia  and  the  European  Union  signed  the  Europe  Agreement  in  June  1996.  The 
final  ratification  of  the  Agreement  by  all  Member  States  is  expected  during  1998. 
Also in June  1996, Slovenia officially  applied for full  EU membership. 

Phare 1996 Programme in Slovenia 

In the  context  of the  pre-accession  strategy,  there  has been  a general  reorientation  of 
Phare assistance  in  Slovenia towards  preparation  of its future  integration  into the EU. 
In  March  1996,  the  European  Commission  agreed  a  Multi-annual  Indicative 
the  period  1996-1999.  The 
Programme  with 
Programme  reflects  the  country's  priorities  as  it  prepares  for  accession  and  has  four 
main  objectives 

the  Slovenian  Government  for 

• 
• 
• 
• 

coordination and monitoring of the Slovenian Government's pre-accession  strategy 
adoption of the 'acquis communautaire' 
support for  continued economic and social  reforms 
infrastructure  integration. 

The  Multi-annual  Indicative  Programme  foresees  an  overall  allocation  of  ECU  100 
million which  is to be  distributed  both to the Phare  national  budget  (ECU  76 million) 
and the cross-border programmes with Austria and Italy (ECU 24 million). 

The Country  Operational  Programme  for  1996  set out the  concrete  measures that  will 
ensure  the  fulfilment  of  the  objectives  set  out  in  the  Multi-annual  Indicative 
Programme. 

80 

The  pre-accession  strategy  programme  (ECU  2.85  million)  provides  financing  for 
additional  local  staff  and  long-term  technical  assistance  that  focuses  on  developing 
institutional  expertise  in  the  coordination  and  monitoring  of  projects.  Practical 
management  tools  are  being  introduced,  such  as  the  European  integration  technical 
support  unit  and  a  translation  unit  at  the  Ministry  of  Foreign  Affairs.  The  1996 
programme  was  also  drawn  up  to  help  design  and  launch  the  National  Plan  for 
Accession,  while  a  national  awareness  campaign  will  enable  the  population  to 
measure the progress towards accession. 

The  programme  to  support  the  adoption  of  the  'acquis  communautaire'  was 
allocated  ECU  5.4  million.  The  Office  for  Legislation  will  act  in  close  cooperation 
with  the  Ministry  of  Foreign  Affairs  in  the  implementation  of  the  project  which 
provides legal and management  expertise to the National Plan for Approximation.  The 
reform  of public administration will prove a particularly complex undertaking because 
of  the  scale  of  the  changes  necessary  and  the  need  to  include  many  different 
ministries. Key reforms, such as a new Civil Service Act, are required. 

socio-economic 
The  1996  programme 
developments  and  strengthen  the  competitiveness  of  the  enterprise  sector  will 
focus on three main areas: 

sustainability  of 

to  promote 

the 

• 
• 
• 

support to public finance  and financial  sector reform  (ECU 3.1 million) 
support to enterprise sector development  (ECU 3.1 million) 
support to human resources and social development  (ECU 2 million). 

supporting 

intra-European  networks  and 

The  programmes 
infrastructure 
integration  are  a response  to  the  relatively  scarce  financial  resources  available.  The 
1996  programme  covers  the  priority  needs  in  technical  assistance  of  the  Ministry  of 
Transport  and  Communication  and  will  focus  on  the  design  of  the  national  transport 
policy.  In  the  pre-accession  context,  the  broader  goal  is  to  prepare  institutions, 
organisations  and  infrastructure  for  eventual  EU membership.  Phare  assistance  in  the 
transport  sector will therefore  be oriented towards three specific  objectives:  assistance 
for  the  elaboration  of  the  national  transport  policy;  approximation  of  legislation, 
regulations  and  standards;  restructuring  the  sector  to  improve  compatibility  with 
European norms. 

Finally,  the  cross-border  cooperation  programme  with  Italy  for  the  period  1995-
1999 concentrates on improvement in transport and cross-border infrastructure  (18 per 
cent), economic development  in border regions  (33 per  cent), environment  protection 
(30  per  cent),  human  resources  development  and  networking  (10  per  cent),  cultural 
cooperation  (4 per  cent)  and programme  management  (5 per  cent). With  Austria  the 
priorities are economic development  (40 per cent), infrastructure  and transport  (25 per 
cent),  environment  (26  per  cent),  human  resources  development  (3  per  cent)  and 
technical assistance (6 per cent). 

Phare achievements 

The  concentration  of  effort  and  funding  has  been  on  restructuring  the  productive 
sector by assisting in the privatisation  and enterprise  restructuring process and the 
rehabilitation  of  the  financial  sector.  ECU  69  million  have  been  allocated  over  this 
period  in  the  process  of  economic  transformation.  Substantial  amounts  were  also 
allocated to the Tempus Programme which  facilitated  the Slovenian research,  science 
and technology  to intensify  cooperation  with  EU universities.  This  is important  for  a 
small  open  society  in which  overall  economic  growth  is export-led  and which has its 
comparative advantage in low labour cost high-tech production lines. 

Phare played  a significant  role  in  supporting  private  sector  development,  including 
the  privatisation  process,  investment  and  export  promotion  and  restructuring.  This 
process continued in 1996. 

Phare allocations for SME development have provided  support to small and medium-
sized  companies  in  the  regions;  technical  assistance  to  the  Ministry  to  support  the 
setting up of guarantee funds  for SMEs; a regional development project  in the  Zasavje 
region,  including  cooperation  between  the  five  main  municipalities  in  the  area. 
Activities  have  now  been  initiated  to  develop  SMEs  in  the  field  of  tourism.  A  pilot 
regional  development  project  in the  area  of  Maribor,  encompassing  assistance  to  the 
Maribor Regional Development  Agency  and to the Maribor  Chamber  of Economy,  is 
ongoing. 

the  organisation  of  tax  reform  which  allowed 

the  Slovene 
Phare  supported 
Government  in  March  1996  to  create  a  unified  tax  administration  as  part  of  the 
Ministry  of Finance. A new  bank  payment  system  is being  supported  as well  as the 
adoption  and introduction  in January  1996 of a customs  code compatible with that  of 
the European Union. 

82 

Privatisation programme 

In  the  context  of  the  above-mentioned  support  to  the  privatisation  process,  Phare 
provided assistance in different  areas, including 

•  Assistance to the National Privatisation  Agency. Initially, assistance was  aimed 
at  the  search  for  foreign  investors.  However,  in  a  move  which  reflected  the 
Government's  preference  for  voucher-based  privatisation,  the  accent  was  then 
placed  on  the  identification  and  assessment  of  the  1,500  firms  covered  by  the 
Government's  voucher  scheme.  This  was  a  major  task  given  the  uncertainty  of 
company registers and existing information  on these firms. 

•  Public  awareness  campaign,  which  proved  invaluable  given  that  the  voucher 
scheme  involved  a  large  part  of  the  Slovenian  public.  This  was  followed  by  a 
shareholder  education  campaign  in which  a series  of nine  television  programmes 
explained  their  rights  and  obligations. The  campaign  also  established  a  telephone 
information  service,  which  dealt  with  over  400  calls  a  day,  and  a  monthly 
newsletter  available  to 640,000  readers. The newsletter  is now  self-financing  and 
provides  a  useful  source  of  information 
to  the  public  on  stock  market 
developments  and privatisation.  The  results  of  opinion  polls  and  the  population's 
increased  use  of privatisation  vouchers  gave  an  accurate  measure  of the  value  of 
the awareness campaign. 

In the restructuring process, Phare has also given support by 

•  helping  define  policy  through  sector  studies  which  have  been  the  basis  for 
concrete  proposals  used  by  the  Government  industrial  development  agency 
(SKLAD) 

• 

financing,  with  the  EBRD,  a  Turn-Around  Management  programme  which 
assisted  companies  to  increase  efficiency  and  ensure  viability  in  a  competitive 
market system 

• 

training local management consultants and tourist  operators 

•  promoting  local  development  initiatives  in  troubled  mining  and  industrial  areas 

most affected  by the restructuring process. 

Phare  financed  a  number  of  sector  studies  (wood,  steel,  textile,  leather,  chemical, 
paper,  machine  tool)  that  provided  a  useful  measure  of  current  practice  and 
performance  in  relation  to  western  standards.  The  studies  became  a basis  for  policy 
formulation  in those sectors  and were used by the  Government  in November  1996 in 
its national strategy for industrial  development. 

83 

Ill  Statistical overview 

In this chapter,  the activity  of the Phare  Programme,  in terms  of  funds  committed,  is 
broken down by country and sector. 

The  majority  of  Phare  programmes  are  of  an  integrated  nature,  i.e.  they  address 
various  complementary  sectors  or  functions.  This  represents  a  specific  difficulty 
when introducing  sector classifications.  Where the programmes  are of a highly mixed 
nature  (as  was  the  case  with  General  Technical  Facilities,  in  the  early  years),  they 
have  been  included  under  'Other'  programmes.  In  the  other  cases,  the  sector 
classification  has  been  carried  out  according  to  the  major  sector  included  in  the 
programme. While this does not always reflect  the true budgetary  importance  of each 
individual  sector  (e.g.  environment  is  underestimated  in  this  classification,  as 
explained  earlier  in this report), it is the best  alternative  available  for  comprehensive 
time series. 

The  funds  allocated  by  country  are  those  committed  under  specific  national 
programmes.  They  underestimate  the  support  received  by  an  individual  country  as 
Phare  addresses  the  needs  of  the  various  partner  countries  via  horizontal  and  multi-
country programmes as well. 

84 

Albania 

Funds allocated  by sector  1990-1996 (ECU million) 

1990-1992 

1993 

1994 

1995 

1996 

Total 

Admin,  reform, public  institutions,  approximation  of laws, consumer  protection 
Agricultural  restructuring 
Civil society  and democratisation 
Critical aid 
Education, training and  research 
Environment and nuclear safety 
Infrastructure (energy, transport,  telecommunications) 
Private sector, financial sector,  integrated regional  measures 
Social development,  employment  and public  health 
Other (Multidisciplinary,  general technical assistance, etc.) 
Total 

0 
15 
0 
60 
1.2 
0 
4.4 
35 
0 
4.4 
120 

1.2 
10 
0 
10 
2.5 
3.3 
0 
42 
6 
0 
75 

4.6 
5 
0 
7 
2.4 
0 
23 
0 
7 
0 
49 

0 
0 
0 
0 
3.5 
0 
34 
43.5 
0 
7 
88 

8.8 
1.7 
0 
0 
4 
1.5 
37 
0 
0 
0 
53 

14.6 
31.7 
0 
77 
13.6 
4.8 
98.4 
120.5 
13 
11.4 
385 

Bosnia and  Herzegovina 

Funds allocated  by sector 1990-1996  (ECU million) 

1990-1992 

1993 

1994 

1995 

1996 

Total 

Admin,  reform, public  institutions,  approximation  of taws, consumer  protection 
Agricultural  restructuring 
Civil society and democratisation 
Critical aid 
Education, training, and research 
Environment  and nuclear safety 
Infrastructure (energy, transport,  telecommunications) 
Private sector, financial sector,  integrated regional  measures 
Social development, employment  and public health 
Other (Multidisciplinary,  general technical assistance, etc.) 
Total 

0 
0 
0 
37.3 
0 
0 
0 
0 
0 
0 
37.3 

0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 

0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 

0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 

9 
0 
0 
125 
1 
0 
0 
3 
0 
2 
140 

9 
0 
0 
162.3 
1 
0 
0 
3 
0 
2 
177.3 

Bulgaria 

Funds allocated  by sector  1990-1996 (ECU  million) 

1990-1992 

1993 

1994 

1995 

1996 

Total 

Admin  reform, public institutions, approximation of laws, consumer protection 
Agricultural  restructuring 
Civil society and democratisation 
Critical aid 
Education, training and  research 
Environment  and nuclear safety 
Infrastructure  (energy, transport,  telecommunications) 
Private sector, financial sector,  integrated  regional  measures 
Social development,  employment  and public  health 
Other (Multidisciplinary,  general technical assistance,  etc.) 
Total 

0 
51 
0 
25 
13 
38.3 
26 
52.5 
17.5 
0 
223.3 

-

16 
0 
0 
0 
17.5 
10.8 
13.9 
11 
14.5 
1.5 
85.2 

1.2 
0 
1.2 
0 
12 
5 
62.6 
3 
0 
0 
85 

2 
5 
0 
0 
21 
7 
48 
0 
0 
0 
83 

2 
0 
1.5 
0 
12 
6 
40 
1 
0 
0 
62.5 

21.2 
56 
2.7 
25 
75.5 
67.1 
190.5 
67.5 
32 
1.5 
539 

* >v 

Czech  Republic 

Funds allocated by sector 1990-1996 (ECU million) 

1990-1992 

1993 

1994 

1995 

1996 

Total 

Admin, reform, public institutions, approximation of laws, consumer protection 
Agricultural  restructuring 
Civil society and democratisation 
Critical aid 
Education, training and  research 
Environment  and nuclear safety 
Infrastructure (energy, transport,  telecommunications) 
Private sector, financial sector,  integrated regional  measures 
Social development, employment  and public  health 
Other (Multidisciplinary, general technical  assistance, etc.) 
Total 

0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 

0 
0 
0 
0 
8 
0 
9 
27 
8 
8 
60 

11 
4.5 
0 
0 
5.5 
0 
25 
0 
14 
0 
60 

7 
0 
0 
0 
8 
0 
91 
1 
2 
1 
110 

0 
0 
0 
0 
7.5 
5 
34 
7.5 
0 
0 
54 

18 
4.5 
0 
0 
29 
5 
159 
35.5 
24 
9 
284 

Estonia 

Funds allocated  by sector 1990-1996 (ECU  million) 

1990-1992 

1993 

1994 

1995 

1996 

Total 

Admin,  reform, public  institutions,  approximation  of laws, consumer  protection 
Agricultural  restructuring 
Civil society  and democratisation 
Critical aid 
Education, training and research 
Environment  and nuclear safety 
Infrastructure  (energy, transport,  telecommunications) 
Private sector, financial sector,  integrated  regional  measures 
Social development,  employment  and public  health 
Other (Multidisciplinary,  general technical  assistance, etc.) 
Total 

0 
0 
0 
0 
1 
0 
0 
0 
0 
9 
10 

0 
0 
0 
0 
1.5 
0 
0 
0 
0 
10.5 
12 

0 
0 
0 
0 
4.5 
2.5 
6 
8 
0 
1.5 
22.5 

2.8 
0 
0 
0 
4.2 
0 
5 
9.1 
2.9 
0 
24 

25.3 
3 
0 
0 
4 
1 
18.3 
9 
0 
1.2 
61.8 

28.1 
3 
0 
0 
15.2 
3.5 
29.3 
26.1 
2.9 
22.2 
130.3 

'X 

FYROM 

Funds allocated  by sector  1990-1996 (ECU  million) 

1990-1992 

1993 

1994 

1995 

1996 

Total 

Admin,  reform,  public  institutions,  approximation  of laws, consumer  protection 
Agricultural  restructuring 
Civil society and democratisation 
Critical aid 
Education, training and research 
Environment  and nuclear safety 
Infrastructure (energy, transport,  telecommunications) 
Private sector, financial sector,  integrated regional  measures 
Social development,  employment  and public  health 
Other (Multidisciplinary, general technical assistance, etc.) 
Total 

0 
0 
0 
10 
0 
0 
0 
0 
0 
0 
10 

0 
0 
0 
25 
0 
0 
0 
0 
0 
0 
25 

2 
0 
0 
23 
0 
0 
0 
0 
0 
0 
25 

0 
0 
0 
25 
0 
0 
0 
0 
0 
0 
25 

4.1 
3.9 
0 
0 
2 
0 
10 
4.8 
0 
0.2 
25 

6.1 
3.9 
0 
83 
2 
0 
10 
4.8 
0 
0.2 
110 

Hungary 

Funds allocated by sector 1990-1996 (ECU million) 

1990-1992 

1993 

1994 

1995 

1996 

Total 

Admin, reform, public institutions, approximation of laws, consumer protection 
Agricultural  restructuring 
Civil society and democratisation 
Critical aid 
Education, training and research 
Environment  and nuclear safety 
Infrastructure (energy, transport,  telecommunications) 
Private sector, financial sector, integrated regional  measures 
Social development, employment and public  health 
Other (Multidisciplinary, general technical assistance, etc.) 
Total 

22.5 
38 
0 
0 
45.5 
47 
8.3 
111.5 
29 
5 
306.8 

1.5 
30.5 
0 
0 
26 
0 
0 
31 
10 
0 
99 

0 
0 
0 
0 
24 
15.5 
29 
16.5 
0 
0 
85 

3 
10 
0 
0 
16 
12 
36 
11 
2 
2 
92 

18.5 
0 
0 
0 
10 
0 
26 
46.5 
0 
0 
101 

45.5 
78.5 
0 
0 
121.5 
74.5 
99.3 
216.5 
41 
7 
683.8 

Latvia 

(SJ 

O- 

Funds allocated  by sector 1990-1996 (ECU  million) 

1990-1992 

1993 

1994 

1995 

1996 

Total 

Admin, reform, public institutions, approximation of laws, consumer protection 
Agricultural  restructuring 
Civil society and democratisation 
Critical aid 
Education, training and research 
Environment  and nuclear safety 
Infrastructure  (energy, transport,  telecommunications) 
Private sector, financial sector, integrated regional  measures 
Social development,  employment  and public  health 
Other (Multidisciplinary, general technical assistance, etc.) 
Total 

0 
0 
0 
0 
1.5 
0 
0 
0 
0 
13.5 
15 

0 
0 
0 
0 
2 
0 
0 
0 
0 
16 
18 

0 
0 
0 
0 
5 
5.5 
0 
14.5 
0 
4.5 
29.5 

* 

1.3 
0 
0 
0 
2 
0 
9.2 
10.8 
9.2 
0 
32.5 

16 
0.8 
0 
0 
3.6 
1.1 
7.1 
6.1 
2.4 
0 
37 

17.3 
0.8 
0 
0 
14.1 
6.6 
16.3 
31.4 
11.6 
34 
132 

Lithuania 

Funds allocated  by sector 1990-1996 (ECU  million) 

1990-1992 

1993 

1994 

1995 

1996 

Total 

Admin,  reform, public  institutions,  approximation  of laws, consumer  protection 
Agricultural  restructuring 
Civil society and  democratisation 
Critical aid 
Education, training and research 
Environment  and nuclear safety 
Infrastructure  (energy, transport,  telecommunications) 
Private sector, financial sector,  integrated  regional  measures 
Social development,  employment  and public  health 
Other (Multidisciplinary,  general technical  assistance, etc.) 
Total 

0 
0 
0 
0 
1.5 
0 
0 
9.5 
0 
9 
20 

0 
0 
0 
0 
2.5 
0 
0 
0 
0 
22.5 
25 

0 
0 
0 
0 
6 
1 
16.5 
14.5 
0 
1 
39 

5.5 
0 
0 
0 
3.5 
0 
19 
9.6 
4.4 
0 
42 

12.8 
4.5 
0.5 
0 
5.7 
2.5 
16.6 
7.7 
2.8 
0 
53 

18.3 
4.5 
0.5 
0 
19.2 
3.5 
52.1 
41.3 
7.2 
32.5 
179 

Poland 

Funds allocated  by sector  1990-1996  (ECU  million) 

1990-1992 

1993 

1994 

1995 

1996 

Total 

Admin,  reform, public  institutions,  approximation  of laws, consumer  protection 
Agricultural  restructuring 
Civil society  and  democratisation 
Critical aid 
Education, training  and  research 
Environment  and nuclear safety 
Infrastructure  (energy, transport,  telecommunications) 
Private sector, financial sector,  integrated  regional  measures 
Social development,  employment  and public  health 
Other (Multidisciplinary,  general technical assistance, etc.) 
Total 

26.7 
135 
0 
0 
59.3 
75 
42.4 
191.2 
45.2 
3 
577.8 

32 
30 
0 
0 
45 
0 
63 
28 
0 
27 
225 

21.5 
2.5 
0 
0 
39 
12 
93.8 
31 
9 
0 
208.8 

2 
13 
0 
0 
37 
22 
91 
9 
0 
0 
174 

0 
14 
0 
0 
30 
5 
117 
37 
0 
0 
203 

82.2 
194.5 
0 
0 
210.3 
114 
407.2 
296.2 
54.2 
30 
1388.5 

Romania 

Funds allocated  by sector  1990-1996 (ECU  million) 

1990-1992 

1993 

1994 

1995 

1996 

Admin,  reform, public  institutions,  approximation  of laws, consumer  protection 
Agricultural  restructuring 
Civil society and  democratisation 
Critical aid 
Education, training and  research 
Environment  and nuclear safety 
Infrastructure  (energy, transport,  telecommunications) 
Private sector, financial sector,  integrated  regional  measures 
Social development,  employment  and public  health 
Other (Multidisciplinary, general technical assistance, etc.) 
Total 

0 
66 
0 
71.8 
23 
5 
9 
45 
40 
42 
301.8 

10 
5 
0 
9.9 
18 
0 
0 
70 
0 
27 
139.9 

9.6 
0 
5 
0 
37 
0 
25 
23.4 
0 
0 
100 

0 
10 
0 
0 
18 
0 
38 
0 
0 
0 
66 

0 
0 
0 
0 
23 
8.4 
75.5 
8 
0 
3.5 
118.4 

Total 

19.6 
81 
5 
81.7 
119 
13.4 
147.5 
146.4 
40 
72.5 
726.1 

Slovakia 

Funds  allocated  by sector  1990-1996 (ECU  million) 

1990-1992 

1993 

1994 

1995 

1996 

Total 

Admin,  reform, public  institutions, approximation of laws, consumer  protection 
Agricultural  restructuring 
Civil society  and democratisation 
Critical aid 
Education, training and  research 
Environment  and nuclear safety 
infrastructure  (energy, transport,  telecommunications) 
Private sector, financial sector,  integrated regional  measures 
Social development,  employment  and public  health 
Other (Multidisciplinary, general technical assistance, etc.) 
Total 

0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 

0 
3 
0 
0 
5 
0 
5 
19 
3 
5 
40 

4 
5 
0 
0 
9 
0 
6.5 
5 
5.5 
5 
40 

5 
2.6 
0.5 
0 
5 
1 
8.2 
18.7 
4.4 
0.6 
46 

0 
0 
0 
0 
4.5 
0 
0 
0 
0 
0 
4.5 

9 
10.6 
0.5 
0 
23.5 
1 
19.7 
42.7 
•12.9 
10.6 
130.5 

Slovenia 

Funds allocated  by sector 1990-1996 (ECU  million) 

1990-1992 

1993 

1994 

1995 

1996 

Total 

Admin,  reform, public  institutions,  approximation  of laws, consumer  protection 
Agricultural  restructuring 
Civil society and democratisation 
Critical aid 
Education, training and research 
Environment  and nuclear safety 
Infrastructure  (energy, transport,  telecommunications) 
Private sector, financial sector,  integrated  regional  measures 
Social development, employment  and public  health 
Other (Multidisciplinary, general technical  assistance, etc.) 
Total 

0 
0 
0 
0 
2.3 
0 
0 
0 
0 
6.7 
9 

0 
0 
0 
0 
3.5 
0 
0 
0 
0 
7.5 
11 

0 
0 
0 
0 
5.5 
0 
6 
12.5 
0 
0 
24 

0 
0 
0 
0 
2.6 
0 
7.4 
3 
4.4 
7.6 
25 

8.3 
0 
0 
0 
1.3 
0 
3.9 
6.6 
2 
0 
22 

8.3 
0 
0 
0 
15.2 
0 
17.3 
22.1 
6.4 
21.8 
91 

vj 

Multi-country  programmes 

Funds allocated  by sector  1990-1996 (ECU  million) 

1990-1992 

1993 

1994 

1995 

1996 

Total 

Admin,  reform,  public  institutions,  approximation  of laws, consumer  protection 
Agricultural  restructuring 
Civil society and democratisation 
Critical aid 
Education, training and research 
Environment  and nuclear  safety 
Infrastructure  (energy, transport,  telecommunications) 
Private sector, financial sector,  integrated regional  measures 
Social development,  employment  and public  health 
Other (Multidisciplinary,  general technical assistance, etc.) 
Total 

12.5 
0 
0 
51 
73.4 
69.5 
35 
33.8 
0 
1.5 
276.7 

10 
0 
0 
0 
20.8 
20 
24 
37.3 
0 
0 
112 

25 
0 
0 
0 
13 
13 
31 
4 
0 
0 
86 

0 
0 
0 
0 
8.5 
20 
70.5 
5 
0 
0 
104 

22 
0 
0 
0 
5 
10 
39 
49 
0 
0.5 
125.5 

69.5 
0 
0 
51 
120.7 
132.5 
199.5 
129.1 
0 
2 
704.2 

Other  programmes 

Funds allocated  by sector 1990-1996 (ECU  million) 

1990-1992 

1993 

1994 

1995 

1996 

Total 

Admin,  reform,  public  institutions,  approximation  of laws, consumer  protection 
Agricultural  restructuring 
Civil society  and  democratisation 
Critical aid 
Education, training and research 
Environment  and nuclear safety 
Infrastructure  (energy, transport,  telecommunications) 
Private sector, financial sector,  integrated  regional  measures 
Social development,  employment  and public  health 
Other (Multidisciplinary, general technical  assistance, etc.) 
Total 

0 
0 
5 
37.7 
7.3 
20 
0 
0 
0 
73.8 
143.8 

0 
0 
10 
0 
9.9 
0 
0 
0 
0 
54.4 
74.3 

7 
0 
10 
0 
7 
23 
2 
21 
6 
43.1 
119.1 

2 
0 
10 
0 
17.8 
20 
0 
106 
20 
67.4 
243.2 

32 
0 
21.7 
0 
12.9 
15 
0 
0 
10.5 
70.1 
162.2 

41 
0 
56.7 
37.7 
54.9 
78 
2 
127 
36.5 
308.8 
742.6 

Czechoslovakia 

Funds allocated  by sector 1990-1996  (ECU  million) 

1990-1992 

1993 

1994 

1995 

1996 

Total 

Admin,  reform, public  institutions,  approximation  of  laws, consumer  protection 
Agricultural  restructuring 
Civil society  and democratisation 
Critical aid 
Education, training and  research 
Environment  and nuclear safety 
Infrastructure  (energy, transport,  telecommunications) 
Private sector, financial sector,  integrated  regional  measures 
Social development,  employment  and public  health 
Other (Multidisciplinary,  general technical assistance, etc.) 
Total 

0 
0 
4 
0 
38 
35 
21 
70 
15 
50 
233 

0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 

0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 

0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 

0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 

0 
0 
4 
0 
38 
35 
21 
70 
15 
50 
233 

Admin, reform, public institutions, 
approximation of laws, consumer 
protection 

Funds allocated by country 1990-1996 
(ECU million) 

KJ 

Albania 
Bosnia and  Herzegovina 
Bulgaria 
Czech  Republic 
Estonia 
FYROM 
Hungary 
Latvia 
Lithuania 
Poland 
Romania 
Slovakia 
Slovenia 
Multi-country  programmes 
Other 
Total 

1990-1992 

1993 

1994 

1995 

1996 

Total 

0 
0 
0 
0 
0 
0 
22.5 
0 
0 
26.7 
0 
0 
0 
12.5 
0 
61.6 

1.2 
0 
16 
0 
0 
0 
1.5 
0 
0 
32 
10 
0 
0 
10 
0 
70.7 

4.6 
0 
1.2 
11 
0 
2 
0 
0 
0 
21.5 
9.6 
4 
0 
25 
7 
85.9 

0 
0 
2 
7 
2.8 
0 
3 
1.3 
5.5 
2 
0 
5 
0 
0 
2 
30.6 

8.8 
9 
2 
0 
25.3 
4.1 
18.5 
16 
12.8 
0 
0 
0 
8.3 
22 
32 
125.2 

14.6 
9 
21.2 
18 
28.1 
6.1 
45.5 
17.3 
18.3 
82.2 
19.6 
9 
8.3 
69.5 
41 
407.7 

Agricultural restructuring 

Funds allocated by country 1990-1996 
(ECU million) 

u; 

r* 

Herzegovina 

Albania 
Bosnia and 
Bulgaria 
Czech Republic 
Estonia 
FYROM 
Hungary 
Latvia 
Lithuania 
Poland 
Romania 
Slovakia 
Slovenia 
Multi-country programmes 
Other 
Total 

1990-1992 

1993 

1994 

1995 

1996 

Total 

15 
0 
51 
0 
0 
0 
38 
0 
0 
135 
66 
0 
0 
0 
0 
305 

10 
0 
0 
0 
0 
0 
30.5 
0 
0 
30 
5 
3 
0 
0 
0 
78.5 

5 
0 
0 
4.5 
0 
0 
0 
0 
0 
2.5 
0 
5 
0 
0 
0 
17 

0 
0 
5 
0 
0 
0 
10 
0 
0 
13 
10 
2.6 
0 
0 
0 
40.6 

1.7 
0 
0 
0 
3 
3.9 
0 
0.8 
4.5 
14 
0 
0 
0 
0 
0 
27.9 

31.7 
0 
56 
4.5 
3 
3.9 
78.5 
0.8 
4.5 
194.5 
81 
10.6 
0 
0 
0 
469 

Civil society and démocratisation 

Funds allocated by country 1990-1996 
(ECU million) 

Albania 
Bosnia and Herzegovina 
Bulgaria 
Czech Republic 
Estonia 
FYROM 
Hungary 
Latvia 
Lithuania 
Poland 
Romania 
Slovakia 
Slovenia 
Multi-country programmes 
Other 
Total 

1990-1992 

1993 

1994 

1995 

1996 

Total 

0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
5 
5 

0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
10 
10 

0 
0 
1.2 
0 
0 
0 
0 
0 
0 
0 
5 
0 
0 
0 
10 
16.2 

0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0.5 
0 
0 
10 
10.5 

0 
0 
1.5 
0 
0 
0 
0 
0 
0.5 
0 
0 
0 
0 
0 
21.7 
23.7 

0 
0 
2.7 
0 
0 
0 
0 
0 
0.5 
0 
5 
0.5 
0 
0 
56.7 
65.4 

Critical aid 

Funds allocated by country 1990-1996 
(ECU million) 

Albania 
Bosnia and Herzegovina 
Bulgaria 
Czech  Republic 
Estonia 
j 
FYROM 
-^  Hungary 

Latvia 
Lithuania 
Poland 
Romania 
Slovakia 
Slovenia 
Multi-country  programmes 
Other 
Total 

1990-1992 

1993 

1994 

1995 

1996 

Total 

60 
37.3 
25 
0 
0 
10 
0 
0 
0 
0 
71.8 
0 
0 
51 
37.7 
292.8 

10 
0 
0 
0 
0 
25 
0 
0 
0 
0 
9.9 
0 
0 
0 
0 
44.9 

7 
0 
0 
0 
0 
23 
0 
0 
0 
0 
0 
0 
0 
0 
0 
30 

0 
0 
0 
0 
0 
25 
0 
0 
0 
0 
0 
0 
0 
0 
0 
25 

0 
125 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
125 

77 
162.3 
25 
0 
0 
83 
0 
0 
0 
0 
81.7 
0 
0 
51 
37.7 
517.7 

Education, training and research 

Funds allocated by country 1990-1996 
(ECU million) 

Albania 
Bosnia and Herzegovina 
Bulgaria 
Czech Republic 
Estonia 
FYROM 
Hungary 
Latvia 
Lithuania 
Poland 
Romania 
Slovakia 
Slovenia 
Multi-country programmes 
Other 
Total 

1990-1992 

1993 

1994 

1995 

1996 

Total 

1.2 
0 
13 
0 
1 
0 
45.5 
1.5 
1.5 
59.3 
23 
0 
2.3 
73.4 
7.3 
229 

2.5 
0 
17.5 
8 
1.5 
0 
26 
2 
2.5 
45 
18 
5 
3.5 
20.8 
9.9 
162.2 

2.4 
0 
12 
5.5 
4.5 
0 
24 
5 
6 
39 
37 
9 
5.5 
13 
7 
169.9 

3.5 
0 
21 
8 
4.2 
0 
16 
2 
3.5 
37 
18 
5 
2.6 
8,5 
17.8 
147.1 

4 
1 
12 
7.5 
4 
2 
10 
3.6 
5.7 
30 
23 
4.5 
1.3 
5 
12.9 
126.4 

13.6 
1 
75.5 
29 
15.2 
2 
121.5 
14.1 
19.2 
210.3 
119 
23.5 
15.2 
120.7 
54.9 
834.7 

Environment and nuclear safety 

Funds allocated by country 1990-1996 
(ECU million) 

Albania 
Bosnia and Herzegovina 
Bulgaria 
Czech Republic 
Estonia 
FYROM 
Hungary 

(-  Latvia 
V^  Lithuania 
nC  Poland 

Romania 
Slovakia 
Slovenia 
Multi-country  programmes 
Other 
Total 

1990-1992 

1993 

1994 

1995 

1996 

Total 

0 
0 
38.3 
0 
0 
0 
47 
0 
0 
75 
5 
0 
0 
69.5 
20 
254.8 

3.3 
0 
10.8 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
20 
0 
34.1 

0 
0 
5 
0 
2.5 
0 
15.5 
5.5 
1 
12 
0 
0 
0 
13 
23 
77.5 

0 
0 
7 
0 
0 
0 
12 
0 
0 
22 
0 
1 
0 
20 
20 
82 

1.5 
0 
6 
5 
1 
0 
0 
1.1 
2.5 
5 
8.4 
0 
0 
10 
15 
55.5 

4.8 
0 
67.1 
5 
3.5 
0 
74.5 
6.6 
3.5 
114 
13.4 
1 
0 
132.5 
78 
503.9 

Infrastructure  (energy, transport, 
telecommunications) 

Funds allocated  by country  1990-1996 
(ECU million) 

Albania 
Bosnia and  Herzegovina 
Bulgaria 
Czech Republic 
Estonia 
FYROM 
Hungary 
Latvia 
Lithuania 
Poland 
Romania 
Slovakia 
Slovenia 
Multi-country  programmes 
Other 
Total 

1990-1992 

1993 

1994 

1995 

1996 

Total 

4.4 
0 
26 
0 
0 
0 
8.3 
0 
0 
42.4 
9 
0 
0 
35 
0 
125.1 

0 
0 
13.9 
9 
0 
0 
0 
0 
0 
63 
0 
5 
0 
24 
0 
114.9 

23 
0 
62.6 
25 
6 
0 
29 
0 
16.5 
93.8 
25 
6.5 
6 
31 
2 
326.4 

34 
0 
48 
91 
5 
0 
36 
9.2 
19 
91 
38 
8.2 
7.4 
70.5 
0 
457.3 

37 
0 
40 
34 
18.3 
10 
26 
7.1 
16.6 
117 
75.5 
0 
3.9 
39 
0 
424.4 

98.4 
0 
190.5 
159 
29.3 
10 
99.3 
16.3 
52.1 
407.2 
147.5 
19.7 
17.3 
199.5 
2 
1448 

Private sector, financial sector, 
integrated regional measures 

Funds allocated by country 1990-1996 
(ECU million) 

1990-1992 

1993 

1994 

1995 

1996 

Total 

Albania 
Bosnia and Herzegovina 
Bulgaria 

"^ 
•)  Czech  Republic 
r)  Estonia 
FYROM 
Hungary 
Latvia 
Lithuania 
Poland 
Romania 
Slovakia 
Slovenia 
Multi-country  programmes 
Other 
Total 

35 
0 
52.5 
0 
0 
0 
111.5 
0 
9.5 
191.2 
45 
0 
0 
33.8 
0 
478.5 

42 
0 
11 
27 
0 
0 
31 
0 
0 
28 
70 
19 
0 
37.3 
0 
265.3 

0 
0 
3 
0 
8 
0 
16.5 
14.5 
14.5 
31 
23.4 
5 
12.5 
4 
21 
153.4 

43.5 
0 
0 
1 
9.1 
0 
11 
10.8 
9.6 
9 
0 
18.7 
3 
5 
106 
226.7 

0 
3 
1 
7.5 
9 
4.8 
46.5 
6.1 
7.7 
37 
8 
0 
6.6 
49 
0 
186.2 

120.5 
3 
67.5 
35.5 
26.1 
4.8 
216.5 
31.4 
41.3 
296.2 
146.4 
42.7 
22.1 
129.1 
127 
1310 

Social development, employment and 
public health 

Funds allocated by country 1990-1996 
(ECU million) 

1990-1992 

1993 

1994 

1995 

1996 

Total 

^ 
""* 
•) 
_^ 

Albania 
Bosnia and  Herzegovina 
Bulgaria 
Czech Republic 
Estonia 
FYROM 
Hungary 
Latvia 
Lithuania 
Poland 
Romania 
Slovakia 
Slovenia 
Multncountry  programmes 
Other 
Total 

0 
0 
17.5 
0 
0 
0 
29 
0 
0 
45.2 
40 
0 
0 
0 
0 
131.7 

6 
0 
14.5 
8 
0 
0 
10 
0 
0 
0 
0 
3 
0 
0 
0 
41.5 

7 
0 
0 
14 
0 
0 
0 
0 
0 
9 
0 
5.5 
0 
0 
6 
41.5 

0 
0 
0 
2 
2.9 
0 
2 
9.2 
4.4 
0 
0 
4.4 
4.4 
0 
20 
49.3 

0 
0 
0 
0 
0 
0 
0 
2.4 
2.8 
0 
0 
0 
2 
0 
10.5 
17.7 

13 
0 
32 
24 
2.9 
0 
41 
11.6 
7.2 
54.2 
40 
12.9 
6.4 
0 
36.5 
281.7 

Other sectors 

Funds allocated by country 1990-1996 
(ECU million) 

1990-1992 

1993 

1994 

1995 

1996 

Total 

V 

Albania 
Bosnia and Herzegovina 
Bulgaria 
Czech Republic 
Estonia 
FYROM 
Hungary 
Latvia 
Lithuania 
Poland 
Romania 
Slovakia 
Slovenia 
Multi-country programmes 
Other 
Total 

4.4 
0 
0 
0 
9 
0 
5 
13.5 
9 
3 
42 
0 
6.7 
1.5 
73.8 
167.9 

0 
0 
1.5 
8 
10.5 
0 
0 
16 
22.5 
27 
27 
5 
7.5 
0 
54.4 
179.4 

0 
0 
0 
0 
1.5 
0 
0 
4.5 
1 
0 
0 
5 
0 
0 
43.1 
55.1 

7 
0 
0 
1 
0 
0 
2 
0 
0 
0 
0 
0.6 
7.6 
0 
67.4 
85.6 

0 
2 
0 
0 
1.2 
0.2 
0 
0 
0 
0 
3.5 
0 
0 
0.5 
70.1 
77.5 

11.4 
2 
1.5 
9 
22.2 
0.2 
7 
34 
32.5 
30 
72.5 
10.6 
21.8 
2 
308.8 
565.5 

ISSN 0254-1475 

COM(98)  178 final 

DOCUMENTS 

EN 

11  17 

Catalogue  number  :  CB-CO-98-178-EN-C 

ISBN  92-78-32355-1 

Office  for Official  Publications of the European Communities 

L-2985 Luxembourg 

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