STATEMENT
on the
REVIEW OF THE TASK FORCE REPORT ON FOREIGN ASSISTANCE
before the
HOUSE COMMITTEE ON FOREIGN AFFAIRS
for the
U.S. Chamber of Commerce

by
William T. Archey

February 28, 1989

Mr. Chairman and members of the Committee, I am
William T. Archey, Vice President, International, U.S. Chamber of
Commerce, and Executive Director of the Center for International
Private Enterprise (CIPE).

I'm delighted to be here today testifying as part of the
pluralism panel, and I want to endorse strongly your efforts to
rewrite the Foreign Assistance Act. As noted in the Task Force's
Report, administration of the foreign assistance program has
become something of a bureaucratic maze as a result of the
endless multiplication of goals, objectives, programs, and
Congressional earmarking.

Although, as I noted, I'm with the U.S. Chamber, I'm here
primarily to represent CIPE. Thanks to the support of this
Committee and the leadership of Chairman Fascell, the U.S.
Chamber set up CIPE in 1983 to support private enterprise and
promote market oriented economic growth throughout the developing
world. As you know, CIPE is funded by Congress through the
National Endowment for Democracy.

2

I really can't endorse strongly enough the Task Force's pluralism recommendation and the expressed linkage between political and economic freedoms. Both of these have a strong relationship to economic growth. Former U.S. Ambassador to Chile, Harry Barnes, put it best a couple of years ago when he addressed Chilean business leaders:

> Democracy is not simply a system of government or a set of political processes. If the government determines who may open what business, who they may hire, where they may buy their supplies, and what prices they may charge for products or services, then there is not economic freedom, whether the government calls itself democratic or not. How likely is it that political freedom can endure, if every area of economic activity is rigidly controlled? . . . Private enterprise needs democracy, and that democracy, just as much, needs private enterprise.

Let me tell you why I feel so strongly about this point by relating some of CIPE's experiences with over 100 programs in 32 countries. By the way, we don't just fund projects; CIPE's staff works with business groups around the world on a very intensive basis. A sampling of our projects is attached.

From working on these projects, we've learned about the realities of political and economic freedoms in the developing world. The most important lesson is that you can't make

3

assumptions about what will work based on the U.S. political
system. This relates directly to the point about economic
freedom: you can't assume that property rights are guaranteed in
most of the developing world. In fact, in many countries,
especially in Latin America, the property rights that exist are
the preserve of the elites. The average person doesn't have any
rights of ownership for his business or home. Freedom to own
property has to be seen as an essential economic right and the
basis for all economic growth.

Let me explain the basis for this rather stark statement.

As Hernando de Soto from the Institute for Liberty and
Democracy in Peru has shown, the average entrepreneur is forced
to operate outside of the law due to an impenetrable wall of red-
tape so dense that it takes up to 289 days to legally register a
small business. For this reason, the "informal sector" accounts
for over 60% of the man-hours worked and some 30% of the GNP.
Let me point out that these informal entrepreneurs are not
criminals. They are legitimate business people who have been
locked out of the legal economy.

Now, I'm not one of those who wants to glorify the informal
sector. There's been a lot of misunderstanding about this issue.
Let me be very clear. The informal sector is a symptom of the
problem, and that problem is the lack of economic freedom.

4

Imagine a situation where you couldn't sign a contract, get a bank loan, or be eligible for insurance. Under these conditions it would be extremely difficult to do business. Well, that is exactly what the informal entrepreneur faces on a day-to-day basis and that's one of the major reasons why economic growth is so low in many countries.

As I noted, Hernando de Soto has documented the lack of economic freedom, property rights, contracts, and other essential business tools. His book, *The Other Path*, has just been released in English after being a best seller in most of Latin America.

This is more than just interesting research, however. Under a grant from CIPE, de Soto's Institute for Liberty and Democracy has put together an action program to dismantle some of the barriers facing the informal entrepreneurs. Let me give you just a few examples of how this has worked. Over the last five years the Institute has:

* Passed a "popular mortgage" bill to create a new credit market for 231,000 informal entrepreneurs with a potential value of $111 million.

* Ended a public transportation strike of the informal transport sector by reducing tariff barriers that prevented individual entrepreneurs from building wealth.

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* Gone into court on behalf of over 50,000 Peruvians who benefited from 21 class action suits to promote access to property rights for the poor.

The point here, and I would emphasize this strongly, is that these kinds of advocacy programs show how building economic and political freedoms for individuals are the genesis of economic growth. As Alan Woods noted in his new report, *Development in the National Interest*:

> The same economic and developmental policies that benefit developing nations as a whole also benefit individuals. At base, development means choice; the greater the range of choice, the greater the degree of development. (p.7)

I couldn't agree more. Only by expanding the individual entrepreneur's range of choices and freedoms to engage in business will broad based economic growth occur. I might add that this goes right to the heart of the Task Force's goal of poverty alleviation as well.

Let me emphasize that this phenomenon is not limited to Peru. Over the last several years, we've been trying to get similar projects going in other countries. Right now, CIPE is supporting informal sector projects in Paraguay, Colombia, Tunisia, and the Philippines.

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The importance of Hernando de Soto's work and its implication for the rest of the developing world is that a large constituency for structural reform does exist. This is an idea that goes against the grain of current development wisdom, which seems to assume that economic reform worsens the plight of the poor. The projects in all these countries clearly show that's not the case. Informal entrepreneurs and the poor, who stand to gain the most, are the constituency for reform. By and large, structural reform is opposed by the business elite.

I think you can see, Mr. Chairman, from these examples why I feel so strongly about the linkages between economic freedom, political freedom, and economic growth.

The second point I'd like to make is that we've found that one of the major barriers to change in the developing world is the lack of viable institutions to represent a free enterprise point of view. Many of the chambers of commerce and trade associations that my staff has worked with over the last several years lack the trained personnel to do the kinds of things that we take for granted in the U.S. In fact, building up the capacity of these business groups has to be part of the pluralism objective.

7

When we started CIPE, one of the first things we did was to
hold some training programs on how to run a chamber. Over the
last several years, we've been putting on these programs all over
the world.

The best results have been in Thailand where provincial
chambers serving small firms registered a 30 percent membership
growth rate and a 26 percent income growth rate. We also have
good results in Latin America as shown by the fact that every $1
CIPE invested generated $7 dollars in new programs, mainly from
local sources.

However, similar programs in South Asia and the Philippines
didn't work. In both cases, we've stopped the programs and are
searching for other approaches. The major difference seems to be
the lack of commitment of the business leadership to including
small firms and supporting their interests.

Another factor to consider, as we've found out in many of
the thirty plus countries that we've dealt with, is that the
bureaucracy and the elites have a tremendous ability to block
change. Manuel Ayau of the Francisco Marroquin University in

8

Guatemala pointed this out in *The Wall Street Journal* last week (Feb. 24, 1989). He noted that:

> Private entrepreneurs can be as opposed to the competitive forces of the free-enterprise system as the most stubborn interventionists. Most are by necessity so entangled and dependent on the webs of government intervention that they don't believe the world can operate without it.

We've also found that, even when there is a desire to change, often there is a lack of knowledge on how to make change happen. That's why so many of the CIPE programs are built around the concept of advocacy.

For example, in the Dominican Republic we've been supporting a very successful program that essentially provides staff support for the members of the legislature. In many developing countries, the elected representatives have no formal staff support at all. This means that they are at the mercy of the executive branch in drafting bills and analyzing the likely economic impact. The program we've been supporting there provides this service to members on a non-partisan basis. It's worked so well that it's now being copied in other countries.

9

However, there is another area where I have to take at least
some exception to the Task Force Report, and that is in the
reference to the fact that "the world is increasingly receptive
to market-oriented policies."

Although undoubtedly some change in receptivity has taken
place, the change has not been to the degree to which we would
like to see it, or to which some would contend. It pains me to
disagree on this point since promoting market oriented reform is
really our bread-and-butter at CIPE. However, it just so happens
that right between the release of your Task Force Report and Alan
Woods' Report, I presided over a conference we sponsored to
explore exactly this subject.

The purpose of the conference was to explore in detail the
extent to which actual market oriented economic reform has taken
place throughout the world. In essence we wanted to separate
fact from fiction, wishful thinking from reality, in this highly
publicized economic reform movement. We gathered together over a
hundred of the leading experts in the economics and politics of
the developing world to help us to get a handle on this subject.
And these weren't all business people. We had academics, public
policy experts, and even a handful of the best AID and World Bank
people with us for the day. I won't go into it in depth, but let
me briefly note some of the findings.

10

* In Africa some reform has taken place in agriculture, but the economies are so controlled that it will take years to put meaningful reform packages into place.

* Trends toward democracy in Latin America are promising, yet economic reforms have been more rhetoric than reality due to "stop and go" implementation.

* East Asia leads the world in economic growth, but in many cases was due to well-planned government direction of the private sector. The greatest threat is the potential for increased protectionism in industrialized countries.

* Reforms in South Asia have had only a marginal impact and face opposition from powerful industrial interests that rely on governmental protection.

Further, participants in the conference noted that worldwide political trends appear to be turning back toward populist leaders, which may cause the push for market reform to weaken even further. On the other hand, many of these populists, like Manley of Jamaica, Bhutto of Pakistan, and Perez of Venezuela, are at least voicing a more market oriented position than they have in the past. It's still too early to tell whether or not they will follow through.

11

Since we knew that your Committee was in the process of
trying to refashion the foreign assistance program, a goal I
fully support as I've already noted, all of the participants were
asked for their recommendations as to what the industrial world
ought to do to promote real market oriented change in place of
all this rhetoric.

Let me just list a small sample of their recommendations.
Others are reported in the attached conference summary. There
was general agreement that the U.S. foreign assistance program
should:

* Channel resources through and directly to private sector organizations, not just from government to government.

* Concentrate on outputs, not just processes for change within the U.S. foreign assistance program.

* Pay more attention to the sequences of long-term policy reform packages. For example, privatization should be preceded by other reforms, especially deregulation, removal of exchange and price controls, and various stabilization measures.

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* Develop expertise on forming constituencies for sound economic policy in developing countries. Large informal sectors and the poor constitute unorganized yet potentially influential constituencies for change.

* Establish a set of conditions for new funds, including U.S. foreign assistance funds and Treasury Department interventions, that are based on market oriented economics.

* Recognize that a complex and iterative relationship exists between political and economic reforms, which are not necessarily sequential processes.

In addition, Mr. Chairman, there are two other recommendations that I personally would want to underscore. First, I agree completely that the foreign assistance program needs to attract talented personnel both as permanent staff and in short-term positions. Provision should be made to bring in business people and others from the private sector with hands-on experience. To do this, the Committee should provide greater flexibility to the agency to hire personnel into mid and upper career positions.

Second, with respect to the issue of tied-aid, the plain facts are that there is a close correlation between capital intensive projects and economic growth in developing countries. The U.S. is not getting its fair share of this business, which is

13

essential to building economic footholds in the markets of the
future. The cause lies in the escalating use by our competitors'
governments of mixed credits and other forms of tied-aid. The
present U.S. response, which neither protects our commercial
interests nor forces the competitors to the negotiating table, is
totally inadequate.

The Chamber's Trade and Aid Coalition is dedicated to
working with Congress and other elements of the foreign aid
constituency to develop a U.S. tied-aid response that has teeth.
Mr. Chairman, we urge your support and that of the Committee in
redressing this situation.

I would conclude by saying that the efforts of the Committee
to reform the U.S. foreign assistance program are essential. The
developing world is running out of time. There may be some
receptivity to economic reform, but progress is nowhere as good
as we'd like. But, Mr. Chairman, what we've learned at CIPE is
that imposing solutions from outside, particularly solutions that
are perceived as impositions, won't work. The key is to work
with local groups, assisting them in shaping policies so that
they become their policies and mobilizing them from within.
Either we find ways to do this and meet the goals that you have
identified, or most of the population of this planet faces an
increasingly difficult future.

VICE PRESIDENT'S REPORT

CIPE was established in response to President Reagan's de-
mocracy initiative as announced in his historic 1982 Westmin-
ster speech in London. The U.S. Chamber's decision to create
CIPE was part of a national effort to engage the private sector
in efforts to strengthen the "infrastructure of democracy," the
president's term for the network of voluntary associations and
institutions that comprise the supporting structures of pluralist
systems. Congress designated CIPE as the business
community's representative in the bipartisan National Endow-
ment for Democracy created to carry out the democracy initia-
tive.

CIPE's goal is to encourage the growth of private enter-
prise principles and organizations that contribute to demo-
cratic development. Democracy requires the development of
institutions based on individual freedom, incentive, initiative,
opportunity, responsibility and voluntary association. Private
enterprise systems both benefit from and provide support for
these same views. By building business organizations com-
mitted to the values of private enterprise and democracy, CIPE
plays a key role in encouraging and sustaining democratic
transitions.

In pursuing this goal, CIPE provides grants to support
programs that pursue some or all of the following objectives:

* Support growing interest in market economics and private enterprise among government leaders and society in general.

* Promote business participation in democratic political and policy processes.

* Increase the base of business talent in the developing world.

* Encourage interest in privatizing state-owned firms and deregulating economic systems.

* Increase public understanding and appreciation of the role of the entrepreneur in economic growth.

* Build independent business organizations.

CIPE's five-year program strategy for the period from
1986 to 1991 is based on the recognition that private enterprise
and market-oriented public policy have become the hope of
governments and peoples in many countries. In creating a
strategy for each region of the developing world, three criteria
were used to set priorities. These criteria were: (1) a country
showed at least some characteristics of a political democracy;
(2) the economic base was sufficient to support a private sector
business community; and (3) the government was inclined
toward, or at least tolerant of, pragmatic economic policies and
private sector growth. Excerpts from CIPE's Program Strat-
egy, offered below, show the approach toward setting priori-
ties and funding projects in major regions of the developing
world.

In Latin America and the Caribbean, economic and
political trends are such that CIPE support is making a real
difference at a critical time. Although the region has seen a

dramatic turn toward democracy and more market-oriented
economic systems, both are still fragile. The future rests on the
ability of private enterprise to create jobs, liberate creative
initiatives of entrepreneurs and generate hard-currency reve-
nues for debt-burdened economies. Over the next several
years, CIPE will concentrate on project development in the
most influential countries, including Argentina, Brazil, Mex-
ico, Venezuela, Colombia and Chile. CIPE also will seek to
develop regional programs in Central America, the Southern
Cone and the Caribbean.

Africa brims with entrepreneurial energy, but sturdy private sector institutions have been slow to develop. The challenges to business communities struggling to survive are enormous. CIPE's goal is to support a broader role for African business groups in setting economic and political directions for their countries. Priorities for CIPE program development include Botswana, Cameroon, the Ivory Coast, Kenya, Nigeria, Senegal and Zimbabwe. Given the magnitude of need, South Africa also will be a high priority country. Although few projects have been funded to date in Africa, the region is seen as an important area for programs over the next several years.

As a region, Asia is home to many deep-rooted traditions — some supportive of private initiative and democracy, others fundamentally opposed to such concepts. Economic growth and modernization, coupled with pressures for democracy in the Philippines, South Korea and Pakistan, have opened opportunities for CIPE involvement. CIPE projects in transitional countries, such as Thailand, also can serve to strengthen and solidify promising trends. And, while democratic political reform may not be forthcoming soon in the People's Republic of China, that country's pro-market economic reforms deserve CIPE support where support is possible.

CIPE activity in North Africa and the Middle East will focus over the next several years on project development in Turkey, Egypt, Tunisia and Jordan. Each of these countries shares some degree of commitment to representative political institutions and an openness to private initiative. CIPE's goal within the region is to encourage development of representative business institutions and to support economic education projects to further sharpen the positive appeal of private enterprise.

In implementing this strategy over the last four years, CIPE has provided support for 80 projects in 28 countries. The programs described in the following pages are those that were active in 1987. My staff and I welcome reactions to these programs. Those interested in additional information are requested to write or call CIPE's offices for copies of the "Program Strategy" and "Proposal Guidelines and Criteria."

WILLIAM T. ARCHEY
VICE PRESIDENT

## ARGENTINA

Argentina's democratically-elected government faces the dual challenge of revitalizing economic growth and restoring confidence in democratic governance. There is considerable debate within Argentina on the type of economic structures and policies that are most likely to serve the needs of the people. Much of the debate, however, is framed in terms of Argentina's statist traditions based on several decades of military rule and governmental control over large sectors of the economy dating back to the 1940s. CIPE's overall goals for Argentina as it approaches presidential elections in 1989 is to support programs that broaden the policy debate to include market-oriented reforms that will strengthen the business sector.

## Center for Studies on Liberty (CESL)

In 1985 CIPE made a grant to CESL, a free market-oriented educational research foundation, to fund a series of seminars entitled "Why Not Try Freedom?". The objective of the seminars was to educate Argentines on the advantages of private property, individual freedoms and limited government as the basis for open-market economy and economic growth. During Part I of the project, 1,143 attendees participated in 15 lectures held in ten cities.

Due to the success of the first program, CIPE gave a second grant to allow CESL to offer two seminars in each of 12 Argentine cities in 1987. The topics discussed at the seminars were the meaning of economics; principles of money and banking; inflation, the gold standard and banking; salaries, causes of unemployment and monetary stability; interest rates; international trade, socialism, fiscal intervention and the concept of social justice; and the psychology and ideology of anti-capitalists. Pre- and post-seminar polls are being conducted to gauge the extent to which new concepts have been assimilated and to adjust teaching methods to improve their effectiveness.

To reinforce the concepts discussed in the seminars, CESL reprinted 3,000 copies of Gottfried Dietze's *In Defense of Property* and distributed them to participants. A total of 1,120 Argentines have participated in CESL's lectures funded under the second CIPE grant, which will conclude in March 1988. Total number of attendees in the participating cities are listed below.

<table><thead><tr><td>LOCATION</td><td># OF PARTICIPANTS</td></tr></thead><tbody><tr><td>Mar del Plata</td><td>114</td></tr><tr><td>San Juan</td><td>120</td></tr><tr><td>Tucuman</td><td>120</td></tr><tr><td>Mendoza</td><td>180</td></tr><tr><td>Corrientes</td><td>84</td></tr><tr><td>Cordoba</td><td>180</td></tr><tr><td>Bariloche</td><td>147</td></tr><tr><td>Olavarria</td><td>35</td></tr><tr><td>Rosario</td><td>95</td></tr><tr><td>La Plata</td><td>45</td></tr><tr><td>TOTAL:</td><td>1,120</td></tr></tbody></table>

As a result of the demand these events have generated, the CESL has used its own funds to respond to numerous requests to repeat the program in additional cities, such as Berazategui, San Isidro, Belgrano, La Matanza and downtown Buenos Aires. Twelve more groups in nine other Argentine cities and in Brazil, El Salvador and Paraguay have requested CESL's lectures, and it is currently raising funds to honor those requests.

1

DOMINICAN REPUBLIC

The Dominican Republic is the only Spanish-speaking
democracy in the Caribbean. In May 1986, President Joaquin
Belaguer's peaceful election and the transfer of power to what
had been the opposition party confirmed nearly 25 years of
democracy. Notwithstanding this strong democratic tradition
and performance, the Dominican Republic is not immune to
the pressures that foreign debt, depressed commodity and
export markets, and economic austerity bring to bear else-
where in Latin America. To overcome these challenges, the
country must have the full participation of its private sector,
whether urban or rural. Furthermore, information is required
on policy options for both the private and public sectors as is
a greater awareness among the general public about the role of
business and its contributions to society as a generator of
wealth and employment.

Economic Orientation Center (COE)

The Economic Orientation Center has initiated a pro-
gram of "Assistance to Congress in Economic Policy Analy-

sis." This economic advisory service guides elected politicians
in their debates on economic and business related issues. By
developing a public awareness of issues, the goal is to contrib-
ute to a more coherent legal framework for private enterprise.

The first year of the project started in August 1986. COE
produced 14 written analyses of proposed economic legisla-
tion or amendments. COE distributed 400 copies of each
analysis in brochure form to Dominican Senators, Congress-
men, congressional staff, media, business and professional
associations, labor unions, universities and government agen-
cies. At the end of the first grant, COE reported that of 14
legislative issues it analyzed, seven had been approved with
COE modifications, and three were still under congressional
consideration. The following chart gives examples of laws or
issues under consideration, their recommendations from COE
and the results of the recommendations.

Due to the achievements of the first grant, CIPE awarded a second year of support to COE for 25 written analyses in 1987-1988. During the September - December 1987 period, COE drafted 11 reports to Congress. Support for the program has come from legislators, public sector officials and the business sector.

<table>
   <thead>
    <tr>
     <td>
      Bill under Consideration
     </td>
     <td>
      COE's Recommendation
     </td>
     <td>
      Results
     </td>
    </tr>
   </thead>
   <tbody>
    <tr>
     <td>
      Amendment to Article I of Law 147 (Taxes on cigarettes).
     </td>
     <td>
      Recommend rejection since the existence of many different special funds coming from specific taxes is not considered convenient.
     </td>
     <td>
      Rejected by Congress.
     </td>
    </tr>
    <tr>
     <td>
      Government requested congressional approval of loan contract signed with the Inter-American Development Bank for the development of agro-industrial projects by the private sector.
     </td>
     <td>
      Recommend approval of contract which will help to considerably expand agribusiness within the private sector.
     </td>
     <td>
      Approved by Congress.
     </td>
    </tr>
    <tr>
     <td>
      National raw materials should be sold in the domestic market at international market prices.
     </td>
     <td>
      Recommend rejection because international prices of exportable Dominican goods do not usually reflect the market's resources. Moreover, they are influenced by main producers' subsidy policies.
     </td>
     <td>
      Rejected by Congress.
     </td>
    </tr>
    <tr>
     <td>
      Modification of the nation's Budget Law so that it would also include the state's autonomous institutions.
     </td>
     <td>
      Recommend approval of bill as a means of controlling the expenses of some of the institutions, public companies and municipalities.
     </td>
     <td>
      House approved but Senate is still considering it and submitting changes based on the center's suggestions.
     </td>
    </tr>
   </tbody>
  </table>

2

MEXICO

Within Mexico, the dominance of the governing Partido Revolucionario Institucional (PRI) over all facets of Mexican life and its highly centralized control of the economy pose unique challenges for the promotion of private enterprise principles. While various business leaders have seized the initiative, after the nationalization of the banking sector in 1982, to promote economic policy alternatives that benefit from the existence and contributions of a strong private sector, these alternatives are still in the minority; few opportunities exist to exert an influence on the government from one election to the next. Moreover, the government legally mandates business associations with the responsibility of serving as company registries and has divided them by sectors, fragmenting the private sector. Thus, business executives have a difficult challenge in projecting their image and developing unity and visibility.

Mexican Employers Confederation
(COPARMEX)

Under a previous grant, COPARMEX, the largest independent business association in Mexico, signed an agreement with CONALEP, the national vocational and technical school, to include the EMPRESA economic education course in its curriculum. EMPRESA teaches the basics of market economics and how to start a business. COPARMEX provides instructors, schedules classes and evaluates participants' performance. COPARMEX also offers the course at each of its 53 business centers throughout Mexico.

Mexican business, labor and government sources have welcomed the project. CIPE provided 50 kits to COPARMEX which were used to teach 297 courses in 1985, reaching an audience of 7,112 students. COPARMEX also produced 15,000 copies of a book entitled *Truths and Myths of Business*, an adaptation of the EMPRESA story, for use as a resource material by students after formal training is concluded. In 1987, COPARMEX taught a total of 1,300 courses to approximately 40,000 students. In 1988, it plans to expand this effort to 2,000 courses for 60,000 students.

COPARMEX's Education Commission continues to meet with groups such as the Parents National Union and the National Confederation of Private Schools, which are also interested in revising Mexico's educational system. The main issue is to encourage the state to permit alternatives to the present state-ordained social science textbooks, which present only a leftist viewpoint and often attack the free enterprise system. This coalition has been successful in postponing the production of a secondary school textbook and is presently proposing alternatives to several primary school textbooks.

To maintain consistency and quality, COPARMEX trains its own instructors. In 1987, two instructor conferences were held on the economy and small business. Instructor-training courses have also discussed computers, exporting, and use of audiovisual systems for instruction. EMPRESA has been effective in changing or reinforcing students' opinions of private enterprise. In a post-test survey of students, excerpts of which are listed on the chart, 98 percent agreed that competition benefits consumers, offering them a choice of quality, price and product variety. COPARMEX estimates that 2,000 new businesses were started by EMPRESA students.

EMPRESA COURSE

"(Enterprise: How the Private Enterprise System Works)"

Response of 7,762 students to EMPRESA test:

Cost:

<table><tr><td>Grant:</td><td>$ 94,418</td></tr><tr><td>Donation of Teaching Materials:</td><td>$2,500</td></tr><tr><td>COPARMEX's Contribution:</td><td>$23,605</td></tr><tr><td>Total Project Cost:</td><td>$120,523</td></tr></table>

<table><tr><td>Number of Participants:</td><td>60,000</td></tr><tr><td>Total Cost Per Participant:</td><td>$2.00</td></tr><tr><td>CIPE and NED Cost Per Participant:</td><td>$1.61</td></tr></table>

Result:

2,000 New Businesses Formed:

Percentage Response

1. Do you think business benefits the community? 98% 2%

2. Is competition good for business? 90% 10%

3. Do you think the creation of free enterprise could be an important factor in Mexico's economic and social development? 85% 5%

4. Would you be interested in creating your own business? 88% 12%

3

Center for Studies in Economics and Education (CEEE)

CEEE, a private sector think tank, has developed a
national economic education program for journalists. This
two-part program was designed to foster a responsible and
open press and ensure that the Mexican public has access to
unbiased, non-partisan facts about current economic issues.
The first phase of the program consisted of 12 seminars for
Mexican journalists on the principles of basic economic the-
ory. The seminars covered such topics as comparative eco-
nomic systems, the benefits of competition, effects of state
intervention, the significance of different economic statistics,
and various economic problems facing Mexico.

CEEE also prepared and distributed opinion/editorial
articles to newspapers throughout the country. Among these
were editorials entitled, "1987: Growth & Inflation," "Savings
and Confidence," "The Spell of Inflation," "Economics, the
Science of Human Action" and "The Function of Govern-
ment." These were prepared and distributed to 39 select
Mexican newspapers on a biweekly basis. As a result of this
program, CEEE was asked to design a 16-week course on
political economy at the University of the Americas, an inter-
national university in Puebla. CIPE is funding this program for
the second consecutive year.

PARAGUAY

Paraguay has been under the rule of General Alfredo
Stroessner since 1954. His administration is notable for its
stability at the expense of political liberty. Some public
discontent with the Stroessner regime has increased, due not
only to his regime's domination of political life, but also to
Paraguay's economic decline in recent years. Yet, despite
Stroessner's age and poor health, it is uncertain how soon he
may pass from political power; in any event, his party's
machinery will continue to exert an influence. However, if a
transition were to occur, it might present an opportunity for
more democratic governance. It is important to educate the
various sectors of Paraguayan society on the future roles they
will play in the country's political and economic growth.

Paraguayan Foundation for Cooperation
and Development

The foundation, created in 1985, promotes the economic and social integration of the informal sector by providing credit and training services. This project seeks to effect a change in specific regulations to foster a stronger private sector, create public consensus regarding the value of individual initiative as a means to achieve economic growth, and initiate institutional integration of the informal and formal sectors.

The introduction to business and government leaders of
the concept of the informal sector and microenterprise as
valuable partners in the economy was achieved through 22
meetings attended by a total of 640 representatives of diverse
public ministries, national and municipal agencies, business
and trade associations, foundations, the Church and media
representatives at which an audiovisual program, developed to
promote the issue was screened.

A partnership between the media and the foundation has been created to educate the public to recognize and accept the value of the informal sector. From January 20 to December 13, 1987, 12 editorials appeared in Asuncion newspapers in support of the foundation's activities, six technical features appeared in the economic supplements of the papers, and 94 general stories were printed.

The foundation persuaded the formal sector to extend
credit or other support to informal sector microentrepreneurs.
For example, the Paraguayan Industrial Union (UIP) created a
marketing support program for small manufacturers. The
Banco Nacional de Fomento (national development bank)
created its own program to extend credit directly to informal
producers; however, implementation of this government-spon-
sored initiative still needs to be monitored. Two private
banking organizations lent substantial sums which were chan-
neled through the foundation's loan program. Finally, two
home loan companies awarded loans to graduates of the
foundation's loan program, accepting as collateral the co-
commitment of other members of a loan "solidarity" group, a
concept introduced to Paraguay by the foundation.

Another major accomplishment of the foundation has
been the government's acceptance of the informal sector and
promise, pending congressional action, of legal status and tax
relief for them. The foundation and the Ministry of Finance
have proposed a law in which a microenterprise would be
clearly defined. The informal sector firm would be subject
only to a single annual tax, equal to three daily minimum
salaries. Currently, this means that a microenterprise of assets
no greater than $3,850 could formalize, subject to $11.50 of tax
annually.

4

## PERU

Peru faces the multiple challenges of debt and economic austerity, a violent domestic insurgency in the "Shining Path" movement, and maintenance of its civilian democracy. The Peruvian private sector has a clear role to play in promoting private enterprise principles that can lead to production, the generation of wealth and peaceful growth as answers to those pressures. Since his inauguration in July 1985, President Alan Garcia has forged populist economic and social policies to the detriment of private property rights and individual economic initiative; foremost among these is nationalization of the banking sectors. While this has alienated the formal business sector, it is clear that Garcia sees the small and informal business sectors as untapped sources of support for his policies without recognizing that they are fierce adherents to free market principles.

## Institute for Liberty and Democracy (ILD)

The Institute for Liberty and Democracy (Instituto Libertad y Democracia) is a private sector think tank established in 1980. ILD has completed extensive research on the informal sector with support from the U.S. Agency for International Development. ILD found that 48 percent of Peru's work force was engaged in informal sector activities because access to the economic system was blocked by layers of regulation. Through a simulation exercise, ILD demonstrated that it takes 289 days to legally register a new small business in Lima as compared to three hours in Tampa, Florida. This cumbersome legal environment has pushed entrepreneurs into the extra-legal or "informal" sector.

In 1987, ILD promoted broad distribution of Hernando de Soto's book *El Otro Sendero* (The Other Path). The book describes how liberalizing the regulatory system and integrating the informals into the formal economy can put Peru on the path to economic recovery. To date, ILD has introduced the book in Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico and Venezuela, where ILD's work has proved to be a model that has great applicability. ILD has also provided technical assistance to groups in other countries that wish to confront the issue of the informal sector.

ILD also continued its ombudsman service and projects to communicate the results of its ongoing research to the public. Of the 13 legislative topics it worked on this year, ILD directly influenced six, including titling of land, access to public information and administrative simplification.

In an effort to reach formal business organizations to explain to them the common interests they have with the informals, ILD formulated and published a "Declaration of Economic Rights" during the 25th Annual Conference of

Entrepreneurs (CADE). This prompted CONFIEP, the largest business confederation in Peru, to join ILD in forming the Formal-Informal Union, a joint organization which promotes economic rights, regulatory simplification and a more open policy process.

## A brief synopsis of ILD's 1988 successes

1. Passage of the "popular mortgage" bill to create a new credit market for 231,000 informals. The potential market is valued at $111 million. Passage of the law clears the way for establishment of a regulatory framework and the implementation of proper market mechanisms; the Formal-Informal Union is the watchdog.

2. Property rights and legal security have been established in principle for 313,000 homes. Registering and gaining title will be a five year project.

3. A potentially disruptive and prolonged public transportation strike was defused through the mediation and negotiation of Hernando de Soto and the ILD. The strike arose when inflation drastically increased the cost of doing business and government would not allow a fare increase. The solution was to reduce tariffs on parts and equipment thereby reducing the cost of business without a fare increase. ILD and de Soto proposed the mechanisms for the dispute's resolution which were acceptable to the FECHOP (informal transport federation), the formal sector, and the government.

4. The size of government has been reduced (deبو-reaucratization) through legislation that eliminates $17 million annually in unnecessary compliance costs for firms and consumers, and reduces the costs of doing business informally by $25 million annually (corruption, loansharking, lack of contracts and insurance).

5. ILD's Popular Defense Office handled 21 "class action suits" benefitting more than 50,000 Peruvians (property titles, cost reduction, and increased access to public services).

6. Creation of the ILD/Bolivia. In 1989, ILD/Bolivia will be working on access to credit for housing, property rights, and deregulation and reduction of the paperwork burden for small business, all with ILD/Peru's guidance.

7. ILD provided technical assistance in drafting a small business law to liberalize the economy in Colombia, including a one-stop business licensing system and implementation of other ILD policy recommendations (grantee: Cauca Valley Foundation/Cali, Colombia).

As the above accomplishments for 1988 show, ILD achieved substantial gains internationally and in Peru, including passage of new legislation, start-up of an ILD in Bolivia, and new mechanisms for change in Peru.

5

PHILIPPINES

The Philippines recently celebrated the second anni-
versary of its dramatic transition to democracy. During that
time, the achievements in rebuilding defunct political institu-
tions have been promising: the nation created a constitution,
elected a national congress, and carried out a nationwide round
of local elections with what most observers agree was relative
fairness (albeit marred by violence). On the economic side,
initiatives taken to revive the economy by decreasing stifling
government intervention are also beginning to show some
positive results.

Despite the brighter economic picture, however, there remain serious obstacles to the desired goal of national economic recovery, making the Philippines a key recipient of assistance from CIPE. During the past two years, there have been two serious cabinet shakeups and five increasingly violent coup attempts. Military reform has shown little success and private investment in the rural areas is still awaited, leaving the country vulnerable to the unresolved problem of regional insurgencies threatening progress towards economic recovery.

The government's strategy for countering these insur-
gencies is a plan of economic justice and recovery which
includes breaking the monopolies and cartels created by the
Marcos "crony" network, stimulating regional economic growth
and creating a new investment code to stimulate foreign and
domestic investment. In support of these key elements of
economic reform, the business community has taken a consis-
tently vocal and pro-active role. While there have been
setbacks and disappointment, the potential for the business
community to make its views known has never been greater.

Philippine Chamber of Commerce and
Industry (PCCI)

In 1986, CIPE began a partnership with PCCI to build a chamber of commerce network throughout the country. The initial goal was to develop secretariats and programs for fifteen provincial chambers of commerce over a period of eighteen months. The assumption was that self-sustaining model chambers could be established within a six-month period. This proved to be overly ambitious, and PCCI has revised its strategy to concentrate on a targeted group of five chambers to become viable self-sustaining organizations and models for other organizations in the regions.

Project activites covered five areas in 1987:

1. The establishment of five model chambers of commerce in the provinces.

2. The development of a spokesman training program.

3. The reorientation and expansion of PCCI publications.

4. The establishment of a PCCI radio and "biznet" program.

5. Conducting an opinion poll of business issues.

The five targeted chambers got off to a good start,
successfully carrying out the spokesman training, polling and
radio biznet programs. However, the chambers fell short in
expanding their membership base sufficiently to become vi-
able self-financing organizations. As a result, CIPE faculty
visited the Philippines in December 1987 to offer a three-day
seminar on organization management for 40 members and
staff of the model chambers of commerce and PCCI at the
Asian Institute of Management.

CIPE has provided a second grant for 1988 to PCCI for a year-long program that will concentrate on membership development for the five model chambers. By the end of 1988, PCCI hopes to have established these model chambers as viable self-financing organizations. Once this has been accomplished, similar efforts will be undertaken in other regions of the country. In late 1987, PCCI also requested assistance from CIPE to host a conference on the informal sector in the Philippines, the results of which would be used in developing programs for the regional chambers. The idea of holding such a conference in the Philippines was inspired by the International Conference on the Informal Sector which CIPE hosted in Washington, D.C. in October 1987.

6

## THAILAND

Thailand has made commendable progress in building durable democratic political and economic institutions since the termination of its absolute monarchy in 1932. Although it has experienced a number of coups d'état, the 1978 constitution restored the right of participation, and Thailand currently enjoys the longest period of constitutional rule in its history. Political consensus of the four key sectors -- the military, the bureaucracy, the political parties and business -- has steadily evolved. The representative assembly is exerting more influence on the policy-making process. The formation of provincial level consultative committees, composed of the public and private sectors, promises to herald the beginning of grass roots involvement of the private sector in shaping public policy in one of the fastest growing economies in Asia. Thailand is now being referred to as the "next NIC," and this is an opportune time to develop and nurture the capability of the business community to voice the concerns of the private sector effectively.

## Institute for Management Education in Thailand

The objective of the CIPE project is to build a strong network of provincial chambers of commerce and to buttress their capability to represent the private sector's position in the public/private sector dialogue through the consultative committees. The Institute for Management Education in Thailand (IMET) carried out the following program activities during the year:

1. A middle-management training program for a select group of provincial chamber of commerce paid administrative staff.

2. A training program for volunteers to increase their sense of responsibility and participation in chamber activities.

3. A consultation program to provide advice and technical assistance to provincial chambers of commerce.

The first training program for volunteers was held in November 1986 and the second training program was held for paid staff in March 1987. The volunteer program was so well received that the participants requested IMET to repeat the program. IMET, without requesting additional funds from CIPE, agreed to hold two additional programs. One was held in July 1987 and the second in November 1987, with 25 and 26 provincial chambers participating respectively.

IMET's final report includes quantitative and qualitative profiles of individual chamber programs and membership dues, as well as a comprehensive comparative summary of each of the 18 provincial chambers. Significant changes are recorded in membership, number of permanent staff members and income for the 18 chambers as the following chart indicates.

<table><thead><tr><th></th><th>1986</th><th>1987</th><th>Increase</th></tr></thead><tbody><tr><td>Membership numbers</td><td>3,226</td><td>4,218</td><td>30.8%</td></tr><tr><td>Numbers of paid staff</td><td>42</td><td>50</td><td>19%</td></tr><tr><td>Income (in millions of Baht)</td><td>4.08</td><td>5.13</td><td>25.75</td></tr></tbody></table>

Although the provincial chambers' activities remained similar to those targeted prior to the IMET programs, significant improvement was noted in the quality and quantity of these activities and services for members. The greatest improvements were seen in broadening the scope of these activities beyond the local urban community to include the outlying districts.

IMET concludes in its report that the overall performance of the 18 provincial chambers has improved and produced satisfactory results. Increasingly, their work has gained public attention and governmental recognition. IMET is earning a track record as an effective liaison with the private sector and administrator of private sector programs. As an example, the Ministry of Commerce requested the aid of IMET's project director to organize a business management seminar for 72 provincial government officials on how to work with the business sector.

The Inter-Provincial Chamber of Commerce of Thailand (IPCT), a by-product of the IMET training program, is the coordinating center for all the provincial chambers. Although it is a new organization, it continues to be a major force in directing the development of the provincial chambers. IMET expects that within a year or two the IPCT will become the administrative organization for the chamber development/training programs.

7

Institutes for Organization Management

Throughout the Third World, the relative shortage and weakness of private sector institutions is a key constraint on both economic and political development. Increasingly, leaders in the developing world are coming to recognize that private enterprise must be encouraged to work independently of government. The most effective means of accomplishing this is through private sector programs that are not subject to governmental control or sanction. Indeed, it is for this reason that the National Endowment for Democracy Act of 1984 incorporated private sector institution building as one of its major goals.

In 1984, the U.S. Chamber's Center for Leadership Development (CLD) began adapting the Chamber's ongoing U.S.-based management development program, the Institutes for Organization Management, to meet the needs of staff executives of foreign business organizations. Most chambers and trade associations in the developing world need strengthening to fulfill their multiple roles in business advocacy, community development, small business promotion, stimulating foreign trade and government relations. For example, expanding the membership base is key to expanding an organization's size and clout with government. Internal management functions in areas such as finance and personnel are vital to effective functioning of organizations that must use scarce resources carefully. Additionally, techniques of program development in areas such as government relations, small business development, entrepreneurial education and community betterment, are extremely valuable to organizations that are seeking to increase their role in society.

The Institutes for Organization Management program has four specific objectives: developing management skills and technical expertise, developing chamber and trade association programs, building national business federations and reinforcing the concept of professional organization management. The major elements of the program are as follows:

1. Latin American Institute for Organization Management -- 1987 marked the third year of the Latin American Institute (ILGO), boasting 78 participants from every Spanish-speaking country in Latin America. Seventeen of the original 30 participants graduated from the cumulative three-year course held annually at the Central American Institute for Business Administration (INCAE) in Alajuela, Costa Rica.

In a survey CLD conducted to quantify the effects of the institute, participants reported increases in membership ranging from 30 percent to 120 percent, with the majority of increases being in the range of 40 percent. Organizational budget increases ranged between 20 to 50 percent as a result of new members' dues and income derived from new programs. The same survey showed that with a healthy 7.3 to 1 return on investment, CIPE has leveraged funds in the region to develop 101 new programs, as the chart on page 24 indicates, that would not have been implemented without ILGO. Of these new programs, only 4 percent of the total cost was funded by CIPE. See chart on page 24.

2. The South Asian Institute for Organization Management (SAIOM) - The second annual South Asian Institute for Organizational Management (SAIOM) was held in Lahore, Pakistan, at the University of Management Sciences from November 27 to December 3, 1987. Over fifty executives from chambers of commerce and associations from Bangladesh, India, Nepal, Pakistan and Sri Lanka participated in a tri-level program. The program did much to upgrade the professional skills of a number of chamber of commerce professionals from throughout the region. However, it was concluded that the SAIOM board had not marshalled the level of support from the leaders of chambers necessary to ensure the continuity of the program beyond the period of CIPE funding. Moreover, the cost of the program was prohibitively high. It was therefore recommended that the program as currently organized be terminated and that other approaches, such as alternative programs on a country-by-country basis in the South Asian region, be explored.

8

[L]

DEC 9 1988

LAW OFFICES OF

ROSS, DIXON & MASBACK

COLUMBIA SQUARE

555 THIRTEENTH STREET, N. W.

WASHINGTON, D. C. 20004-1109

(202) 662-2000

CABLE ADDRESS "RDMDC"

TELEX 887278

TELECOPIER (202) 638-4010

STUART PHILIP ROSS
GARY V. DIXON
HAROLD E. MASBACK, III
WALLACE A. CHRISTENSEN
JOHN R. GERSTEIN
CATHY A. SIMON
DAVID M. GISCHE
RICHARD A. SIMPSON
LEE LEVINE
SEAN M. HANIFIN
PETER G. THOMPSON

OF COUNSEL
ELIZABETH SARAH GERE

WRITER'S DIRECT DIAL

(202) 662-2001

JOHN C. BEITER
CATHY J. BURDETTE
GREGORY C. C. BURTON
MARY HELEN CARLSON
RUTH A. ERNST
BARBARA E. ETKIND*
JOHN M. FITZPATRICK
JAMES E. GROSSBERG
WILLIAM D. HOPKINS
ELIZABETH C. KOCH
ROBERT A. KOSIK
KEVIN M. LACROIX
SANDRA LORD

LEWIS K. LOSS
ERIC N. MILLER
LOIS B. OSLER
ROBERT M. POZIN
REBECCA L. ROSS
ANDREW L. SHAPIRO
DANIEL J. STANDISH
PAMELA B. STUART
MICHAEL D. SULLIVAN
LONA L. TRIPLETT*
ELLEN M. VOLLINGER
SUSAN A. YASHAR
NANCY L. ZISK

* NOT ADMITTED IN D. C.

December 8, 1988

The Honorable Henry A. Kissinger
Center for Strategic and International Studies
1800 K Street, N.W., Suite 1021
Washington, D.C. 20006

Dear Dr. Kissinger:

As counsel to the Board of the National Endowment for
Democracy, I wanted to bring an attendance provision in the
Endowment's by-laws to your attention, a copy of which is
attached. The provision states that members who miss three
consecutive meetings, of which they have been duly notified,
forfeit membership on the Board.

There are, of course, circumstances which arise from
time to time that prevent members from attending meetings.
And, given the composition of the Endowment Board, we are
dealing with extremely busy people with many demands on their
time.

For these reasons, the by-laws provision contains a
mechanism whereby directors who have missed three consecutive
meetings due to extenuating circumstances may bring those
circumstances to the attention of the Board. Of course, while
recognizing that such circumstances may arise, the intention of
the by-laws provision is to encourage regular attendance by
Board members.

I know you are planning to attend the January 19th
Board meeting. However, in keeping with standard procedure, I
must bring this matter to your attention in case unforeseen
circumstances arise to prevent you from attending, since that

"The Democratic Revolution"

A Conference Sponsored by the
NATIONAL ENDOWMENT FOR DEMOCRACY

(All panel sessions will be held in the
Rayburn House Office Building, Room 2172)

## Tentative Schedule of Events

SUNDAY, APRIL 30

6:00 - 8:00 p.m. **Orientation Dinner**
The Madison Hotel

MONDAY, MAY 1

8:30 a.m. **Welcoming Remarks**

9:00 a.m. **Panel on Eastern Europe and the Soviet Union**

Vladimir Bukovsky, the Soviet Union

Janos Kis, Hungary

Jacek Kuron, Poland

Vilem Precan, Czechoslovakia

10:45 a.m. **Africa Panel**

-12:15 p.m.

Bona Malwal, Editor-in-Chief, **_The Sudan Times_**

Nthato Motlana, SOWETO Civic
Association, South Africa

Jacques Mariel Nzouankeu, Center for
the Study and Research of Pluralistic
Democracy in the Third World, Senegal

General Olusegun Obasanjo, former head
of state, Nigeria

12:15 p.m.
- 2:00
**Special Luncheon Session Featuring**
**Speeches by Leading Democrats from the**
**Hemisphere, RAYBURN B 338**

Leopold Berlanger, Haitian
International Institute for Research
and Development

Roberto Brenes, The National Civic
Crusade for Panama

Violeta Chamorro, La Prensa, Nicaragua

Armando Valladares, International
Coalition for Human Rights in Cuba

2:15 p.m.
- 3:45
**Latin America Panel**

H.E. Eugenia Charles, the Prime
Minister of Dominica

Hernando de Soto, Institute for
Liberty and Democracy, Peru

Patricia Guillermo de Chea, Center for
Political Studies, Guatemala

Monica Jimenez de Barros, Crusade for
Citizen Participation, Chile

Representative from Brazil (tentative)

4:00 p.m.
- 5:30
**Asia Panel**

Liang Heng, Editor-in-Chief, The
Chinese Intellectual

M.R. Masani, The Leslie Sawhny
Programme, India

Dette Pascual, KABATID, the Philippines

Aydin Yalcin, Editor-in-Chief, Yeni
Forum, Turkey

6:00 p.m.
- 8:00
**Reception at the State Department in**
**honor of the conference**

TUESDAY, MAY 2

8:30 a.m. <u>Opening Remarks</u>

9:00 a.m. -
Noon

The Idea of Democracy

Milovan Djilas, Yugoslavia

Leszek Kolakowski, the United Kingdom

Octavio Paz, Mexico

Jean-Francois Revel, France

Noon

<u>Award Luncheon</u>, The Hyatt Regency Hotel
on Capitol Hill

Evening

<u>Concluding Dinner</u>, The International Club

NATIONAL DEMOCRATIC INSTITUTE
FOR INTERNATIONAL AFFAIRS

Suite 605, 1717 Massachusetts Avenue, N.W. Washington, D.C. 20036 (202) 328-3136 • Telex 5106015068 NDIIA

[L]

Chairman

Walter F. Mondale

Vice Chair

Madeleine K. Albright

Secretary

Rachelle Horowitz

Treasurer

Peter G. Kelly

President

J. Brian Atwood

Board of Directors

Elizabeth F. Bagley
James B. Booe
John C. Culver
John P. Dunfey
Thomas F. Eagleton
Geraldine A. Ferraro
Maurice Ferré
Arvonne Fraser
Marifé Hernandez
John T. Joyce
Penn Kemble
Elliott F. Kulick
John Lewis
Leon Lynch
Lewis Manilow
Kenneth F. Melley
Julius Michaelson
Mark A. Siegel
Michael Steed
William Thomas
Esteban Torres
Frank A. Weil
Marvin F. Weissberg

Senior Advisory Committee

Michael D. Barnes
John Brademas
Bill Bradley
Richard F. Celeste
Mario M. Cuomo
Richard N. Gardner
Madeleine M. Kunin
Daniel Patrick Moynihan
Edmund S. Muskie
Charles S. Robb
Stephen J. Solarz
Cyrus Vance
Anne Wexler
Andrew J. Young

Chairman Emeritus

Charles T. Manatt

Executive Vice President

Kenneth D. Wollack

Senior Consultant

Patricia J. Keefer

FEB 13 1989

February 10, 1989

I am enclosing the report of a 55-member international delegation to last October's historic presidential plebiscite in Chile.

The observer mission, sponsored by NDI was led by former governor and presidential candidate Bruce Babbitt; Peter Dailey, former ambassador to Ireland and President Reagan's special envoy to NATO countries; and former presidents Adolfo Suarez of Spain and Misael Pastrana of Colombia. The delegation included former heads of state, parliamentarians, political party leaders and election experts from 21 countries and a bipartisan U.S. contingent.

In addition to the findings of the delegation, the report details NDI's involvement in the struggle for democracy in Chile, culminating with the victory in the plebiscite of forces advocating free elections.

We hope you will take the time to review the report and we would welcome your comments.

conducting nonpartisan international programs to help maintain and strengthen democratic institutions

8

January 30, 1989

FEB 03 1989

MEMORANDUM

TO:      Members of the Board of Directors

FROM:    Carl Gershman

RE:      March Meeting Date

As was discussed at the January Board meeting, we have been checking with your offices to find the best date for our next quarterly meeting. The meeting has now been set, as originally planned, for Friday, March 17th, beginning with continental breakfast at 8:30 a.m. Although this is the best date in terms of attendance, there are still a number of members who are unable to attend. If it is at all possible for those members to adjust their schedules, it would be greatly appreciated.

1101 Fifteenth Street, N.W., Suite 203, Washington, D.C. 20005

(202) 293-9072

BOARD OF
DIRECTORS

William E. Brock III

Chairman

Charles T. Manatt

Vice Chairman

LeGree Daniels

Secretary

Jay Van Andel

Treasurer

Polly Baca

Zbigniew Brzezinski

Frank J. Fahrenkopf, Jr.

Dante B. Fascell

Orrin G. Hatch

Lane Kirkland

Henry A. Kissinger

John Richardson

Olin Robison

Albert Shanker

Sally Shelton-Colby

Charles H. Smith, Jr.

Eddie N. Williams

Carl Gershman

President

1615 H Street, N.W.
Washington, D.C.
20062
(202) 463-5901
TELEX: 277559-CIPE UR
TELEFAX: 202-463-5836

January 24, 1989

Dr. Henry A. Kissinger
CSIS
1800 K Street, N.W.
Washington, D.C. 20006

JAN 27 1989

Dear Dr. Kissinger:

I would like to invite you to a reception on Capitol Hill, co-sponsored by Senator Bill Bradley and Representative Dick Cheney, to celebrate the release of Hernando de Soto's work, *The Other Path*. The event will take place on February 7 from 5:00-7:30 p.m. at the Madison Building of the Library of Congress in the Montpelier Room on the 6th floor.

In January this year, the English language version of Mr. de Soto's book, *The Other Path* was released in the United States by Harper and Row. The English version will make de Soto's work accessible to a larger audience in the United States and other English-speaking countries. Circulation of the English version will enhance the work's policy significance since it will be of great interest to U.S. decision-makers and officials in other parts of the world, especially in developing countries.

The Center for International Private Enterprise, an affiliate of the U.S. Chamber of Commerce, has been one of the principal sponsors of Hernando de Soto's work over the last five years. Interest in his work continues to grow as seen in the recent *Fortune* article which is enclosed for your review.

To respond, or if you have any questions or need additional information, please call John Sullivan of the CIPE staff at (202) 463-5901. The staff will be pleased to assist you.

I look forward to hearing from you and hope that you will be able to participate in this vital event.

Enclosure

THE WORLD

HOW TO MAKE POOR
COUNTRIES RICH

Hernando de Soto is pushing a new idea: Legalize the underground economy. Entrepreneurs now working off the books could then make the Third World strong.

by **Jeremy Main**

THE underground economy, also called the informal, invisible, or black economy, is regarded around the world as a refuge of drug traffickers, smugglers, and tax evaders. Now a new view is taking hold: At least in the Third World, the underground economy is mainly good, not bad. It embodies the entrepreneurial energy of ordinary people striving in admirable ways to break out of poverty. It comprises thousands of craftsmen, storekeepers, truck and bus drivers, and food vendors whose operations would be perfectly legal in

the U.S. but whose governments force them to ply their trades illegally. The underground economy is part of the solution, not the problem.

If this entrepreneurial spirit were legalized and nurtured rather than fettered and suppressed, goes the argument, a burst of competitive energy would be released. Living standards, which have been dropping in much of the Third World, would start rising. International trade would increase, and developing countries could service their huge and debilitating external debts more easily.

The champion of this new idea is Hernando de Soto, 47, an ebullient Peruvian economist and businessman. He argues that in order to realize their full economic potential, inhabitants of the underground economy need such basic things as titles to land and homes, the right to go into business, and the ability to borrow money and enforce contracts. Son of a diplomat who once chose exile from the country, de Soto studied in Canada, the U.S., and Switzerland. He is fluent in English and French in addition to Spanish.

De Soto earned a graduate degree in in-

REPORTER ASSOCIATE Sarah Smith

De Soto: Most of those houses on the hill were built illegally.

FARRAR, STRAUS AND GIROUX

HOW TO UNLEASH THE
UNDERGROUND

Sharply reduce the tangle of regulations that forces entrepreneurs underground—and encourages bribes.

Legalize businesses already underground to enable them to enforce contracts in court.

Open government rulemaking to public scrutiny.

Give squatters on public land titles to their homes so they can borrow against the equity to invest in small businesses.

international economics and law at the University of Geneva and eventually became a managing director of Universal Engineering Corp., a Swiss consulting firm. In 1979 he returned to Peru to manage a placer gold mine, but found himself more interested in the informal economy. The next year he established the Institute of Liberty and Democracy.

Though he is hardly the first to study the underground economy, no one has delved into it more thoroughly or heralded its possibilities more enthusiastically. His book, called *The Other

Path to contrast with the Maoist revolutionary group known as the Shining Path that has murdered thousands of Peruvians in recent years, has been a best-seller in Latin America since it was published in 1986. It has already stirred controversy among leading economists, and an English translation will appear in the U.S. soon.

De Soto devotes most of his attention to Peru, where what he prefers to call the informal economy adds 29% to official GNP. But he says the same conditions of overwhelming bureaucracy, regulation, and favoritism exist in various degrees in much of Latin America and Africa. In Argentina, according to Marcos Victorica of the Institute of Contemporary Studies, an economic research organization, the unreported, informal economy last year produced $50.4 billion, vs. the official GNP of some $70 billion. It is more upscale than Peru's, including most of Argentina's professional and managerial classes. In Kenya the lethal minibuses called *matatus* that cruise around Nairobi are the most colorful expression of the unofficial economy, which the ministry of planning says contributes about 35% to the country's GNP.

*continued*

JANUARY 16, 1989 FORTUNE 101

A retired Lima policeman (standing) rebuilds bicycles beyond the reach of the tax man.

VIRGILIO ARMANDO SÁNCHEZ

Because he challenges conventional economic thinking, de Soto has plenty of critics among economists. Jaime Mezzera, a Latin American specialist with the International Labor Organization, thinks de Soto exaggerates both the size and potential of the underground economy. He concedes that it creates jobs cheaply, but he believes it adds no more than about 15% to any Latin American nation's GNP. Unless the formal sector grows too, he says, the informal part won't have a market for its goods.

A harsher critic is Rudiger Dornbusch, professor of economics at MIT, who worries that de Soto is encouraging tax evasion. Says Dornbusch: "Economic stability is being destroyed by a dramatic decline in revenues." Tax collection in Peru, he says, fell from 14% of official GNP in 1984 to 7% in 1987. De Soto responds that since ordinary Peruvians are shut out of the legal economy, they have no choice but to scratch out a living underground: "These are people using illegal means to achieve legal objectives."

FOR ALL the criticism, de Soto has set imaginations aflame. Pedro-Pablo Kuczynski, a managing director of First Boston Corp. in New York and a former Peruvian cabinet minister, believes de Soto overstates his case but is pushing the most interesting economic idea to come out of Latin America in years. Adds James Fox, an economist at the U.S. Agency for International Development (AID): "What's exciting about de Soto is that he makes you think outside the boxes of traditional development economics."

Richard Nixon, Ronald Reagan, and Bill Bradley have all picked up de Soto's themes in speeches or writings. AID underwrites much of de Soto's budget, and with the

Center for International Private Enterprise, an affiliate of the U.S. Chamber of Commerce, sponsored a worldwide conference last year on informal economies. Research organizations similar to de Soto's have been established or are planned in half a dozen Latin American countries and Kenya. Says de Soto: "We've become a movement."

In Peru novelist Mario Vargas Llosa is running for President on a platform based largely on de Soto's ideas. In an eloquent introduction to de Soto's book, Vargas Llosa wrote: "The informal economy is the people's spontaneous and creative response to the state's incapacity to satisfy the basic needs of the impoverished masses. The people have often shown more daring, effort, imagination, and dedication to the country than their legal competitors."

For an idea of what Latin American entrepreneurs confront, take a look at the New York City taxi system. To own a cab in New York, you need a license from the

city, known as a medallion. No new ones have been issued in the past 51 years, so newcomers have to buy one of the 11,787 existing medallions that trade for around $140,000 each. As a result, the city doesn't have enough cabs. An informal fleet of some 40,000 limousines and so-called gypsy cabs—often inadequately insured and unsafe—has sprung up. Now imagine that the entire U.S. economy works like New York's cab system. That's the economy of Peru and most of the Third World.

De Soto argues that Peru has never escaped the weight of mercantilism established more than 400 years ago by Spanish colonizers to control all economic activity. Though the country now has a socialist government, he points out that much of the economy remains in the hands of a privileged few who can use connections or bribes to cut through the bureaucracy.

TO ILLUMINATE the problems, four student researchers from de Soto's institute set up a small garment workshop and then went dutifully from government office to government office collecting all the required permits and signatures. They vowed to pay no bribes unless absolutely blocked. Working full time, it took them 289 days and two bribes to get the new business approved. Later they went to New York to get authorization to open a similar business. It took four hours and no bribes.

No one in Peru, of course, would do what the researchers did. Real Peruvian entrepreneurs would use whatever influence they had and pay lots of bribes. Or, more commonly, they would just go into business

An underground guitarmaker crafts instruments in the privacy of his Buenos Aires home.

DIEGO GOLDBERG-SIGMA

102 FORTUNE JANUARY 16, 1989

THE WORLD

illegally. De Soto and staffers at his insti-
tute discovered that food retailing in the
city is dominated by some 90,000 illegal
street vendors. Most bus and taxi transpor-
tation in Lima is informal. The government
never bothered to develop a system because
of its grandiose plan—never carried out—
to build a subway.

ALTHOUGH they often win some recognition from the authorities through bribery or negotiation, underground businesses have no access to the courts and cannot enforce business contracts. Unless they have spent years haggling with bureaucrats, they have no title to their property and can't get mortgages or insurance. They stay small to escape official attention and so never achieve

In order to buy or build a house accord-
ing to the law, a person would have to
spend a decade waiting for the government
to complete the paperwork. As a result, de
Soto estimates, nearly half the people of
Lima—a city of about six million—live in
illegal housing. These homes are created in
a remarkable fashion. While the govern-
ment looks the other way, thousands of
settlers swoop down on the edge of the
growing city, usually on vacant public
land, to create so-called young towns. The
invaders are well organized and thorough.
Planning begins with meetings of neigh-
bors, families, or regional groups who need
the housing. They often hire politicians, la-
bor leaders, or professors to help them
plan. On the day of the invasion, they ar-
rive in trucks and buses accompanied by

illegal workers, homeowners, and entrepre-
neurs. Peru's socialist President, Alan
García, decided last year to nationalize the
banks that were still private—about a fifth
of the country's total—on the ground that
they weren't providing credit for the com-
mon people. De Soto seized the opportuni-
ty to point out that Peru's nationalized
banks weren't making loans to poor people
either. The real problem, he argued, was
lack of collateral because so many people
had no title to their homes.

García dropped the nationalization plan and adopted de Soto's idea of a streamlined system for registering homes built by squatters. The registration can be used to back a small loan. García signed the law in July, and de Soto expects the credit to begin flowing this year. Small as they may be, the loans could do wonders for an impoverished economy. As little as $800 could give a furniture maker some working capital.

CAPITALISM IS STILL a tainted
word in Latin America, and de
Soto is careful to avoid it. Inhabit-
ants of the underground tend to
blame their troubles on foreign exploiters
and equate capitalism with the mercantilist
privileges they see all around them and
have rightly come to hate. They have never
experienced a true free-market economy
that encourages risk taking and enterprise
regardless of class.

De Soto and other advocates of reform have taken center stage. Their task is to demonstrate conclusively that small-scale free enterprise can create jobs and prosperity even amid the ruins created by uncontrolled inflation. They have opened up a new way of thinking about solutions for the Third World. Robert Litan, a senior fellow at the Brookings Institution, argues that "development economists have been missing the boat by concentrating only on capital, technology, and labor."

As for the Dornbusch argument that he
is glorifying tax evasion, de Soto replies
that nothing would make his constituents
happier than switching to the right side of
the law. They operate illegally not by
choice but because regulations—and some-
times taxes—are so oppressive. If they
could enter a legal free market, they would
gladly do so and kick off the restraints that
now restrict their growth. "Small is *not*
beautiful," says de Soto, and nobody knows
that better than those who have been kept
small against their will.

S
T
E
P
H
O
N
G

Underground buses: Most of the colorful vehicles that lumber through Nairobi are unofficial.

the economies of scale that lead to higher
productivity. While underground entrepre-
neurs evade all the taxes they can, bribes
can exceed what they would pay legally.
The problem is that, unlike taxes, bribes
support no government services.

Even if the underground economy were
legalized, it would still be tangled in bureau-
cracy. De Soto claims the Peruvian govern-
ment produces an average of 27,400 new
laws and regulations a year. Only 360 are
passed by Parliament. The rest are produced
by bureaucrats and politicians, in alliance
with privileged businessmen, and without
accountability, public participation, or even
the knowledge of most of the people affected.

temporary kitchens and security guards to
keep order. Elected leaders walk around
laying out streets and property lines with
powdered chalk.

The settlers quickly put up crude shelters of straw matting. Gradually the shelters become more solid, and some evolve eventually into elaborate houses with basic conveniences. De Soto calculates that between 1960 and 1985 informal housing worth $8.3 billion went up in Lima. The trouble is, the homesteaders have no title to their homes.

Appalled by this kind of irrationality, de
Soto has moved beyond research and writ-
ing into advocating reforms that will help

106 FORTUNE JANUARY 16, 1989

CIPE

January 10, 1989

Dr. Henry A. Kissinger
CSIS
1800 K Street, N.W.
Suite 400
Washington, D.C. 20006

JAN 27 1989

Dear Dr. Kissinger:

Several years ago, the Center for International Private Enterprise began supporting the work of Hernando de Soto and his Institute for Liberty and Democracy in Peru to find practical ways of creating broad based economic growth in the face of statist economic policies that prevent the developing world from reaching its true economic potential.

Mr. de Soto has synthesized his work in Peru with the informal sector and has published the findings in *El otro sendero (The Other Path)* in 1987. It has become a Latin American best seller, influencing public policy throughout the region.

I am pleased to be able to provide the enclosed presentation copy of *The Other Path*, which was just recently published in English by Harper and Row, for your review.

Using Peru as a laboratory, *The Other Path* charts a vast underground economy that accounts for over 60% of employment and a third of the country's GNP. The informal sector, as this underground society is known, is not a discontented work-force. It is an impatient entrepreneurial movement, repressed by massive legal barriers that strangle its enormous growth potential.

As the enclosed *Fortune* article notes, encouraging the growth of the informal entrepreneur can raise living standards, increase international trade, and help developing countries service their debilitating external debts more easily.

*The Other Path* is a stimulating treatise on the problems of Third World development and provides a whole new perspective along with obvious strategies for generating economic growth and democratic development.

Enclosures

THE WORLD

# HOW TO MAKE POOR COUNTRIES RICH

by **Jeremy Main**

## HOW TO UNLEASH THE UNDERGROUND

* Sharply reduce the tangle of regulations that forces entrepreneurs underground—and encourages bribes.

* Legalize businesses already underground to enable them to enforce contracts in court.

* Open government rulemaking to public scrutiny.

* Give squatters on public land titles to their homes so they can borrow against the equity to invest in small businesses.

Though he is hardly the first to study the underground economy, no one has delved into it more thoroughly or heralded its possibilities more enthusiastically. His book, called *The Other*

*continued*

JANUARY 16, 1989 FORTUNE 101

TO ILLUMINATE the problems, four student researchers from de Soto's institute set up a small garden workshop and then went dutifully from government office to government office collecting all the required permits and signatures. They vowed to pay no bribes unless absolutely blocked. Working full time, it took them 289 days and two bribes to get the new business approved. Later they went to New York to get authorization to open a similar business. It took four hours and no bribes.

FEDERICO GORDO-CHICUA

102 FORTUNE JANUARY 16, 1989

THE WORLD

CAPITALISM IS STILL a tainted
word in Latin America, and de
Soto is careful to avoid it. Inhabit-
antants of the underground tend to
blame their troubles on foreign exploiters
and equate capitalism with the mercantilist
privileges they see all around them and
have rightly come to hate. They have never
experienced a true free-market economy
that encourages risk taking and enterprise
regardless of class.

As for the Dornbusch argument that he
is glorifying tax evasion, de Soto replies
that nothing would make his constituents
happier than switching to the right side of
the law. They operate illegally not by
choice but because regulations—and some-
times taxes—are so oppressive. If they
could enter a legal free market, they would
gladly do so and kick off the restraints that
now restrict their growth. "Small is *not*
beautiful," says de Soto, and nobody knows
that better than those who have been kept
small against their will.
F

STEVE JACKSON

106 FORTUNE JANUARY 16, 1989

© 1969 Andersen

raphy. We can help create a
cohesive environment in which
information flows quickly and
easily. Decisions can be made
more intelligently. And your

left coast will know what your
right coast is doing.

All of which are just sound
business principles.
Simply restated.

ANDERSEN
CONSULTING

ARTHUR ANDERSEN & CO.

Where we go from here.™

ISBN 0-06-016020-9

$22.95

A revolutionary analysis of the Third World—a number-one bestseller throughout Latin America.

*The Other Path* can fundamentally alter the way we perceive the so-called underdeveloped countries of the Third World, and in particular how their internal economies and political alliances actually function.

*The Other Path* uses Lima, Peru, as a case study and describes in absorbing detail the surprising and revolutionary world of the so-called informals, black marketeers who work outside the law. These "informals" represent 60 percent of the Peruvian economy; for example, 95 percent of the public transportation in Lima is owned and operated by private companies. The reason for this underground economy is the enormous complexity of Peru's legal machinery: Hundreds of new regulations are passed each week and no private entrepreneur can hope to deal with the bureaucracy. Through detailed field studies, *The Other Path* calculates the enormous economic effects of laws regulating such diverse matters as housing construction, the establishment of industries, public transport, and trade.

For many readers, however, the greatest contribution of *The Other Path* is its political analysis. De Soto provides evidence to support his theory that Latin America is nearing the end of a stage in its history similar to the one experienced by European nations when mercantilist regimes dominated the continent between the fifteenth and nineteenth centuries. He argues that Peru is already undergoing a revolutionary and irreversible process of transformation.

HERNANDO DE SOTO is a Peruvian entrepreneur, born in Arequipa in 1941. He completed his postgraduate studies at the Institut Universitaire des Hautes Etudes in Geneva, Switzerland. He has worked as an economist for the General Agreement on Tariffs and Trade (GATT) and as managing director of Peru's Central Reserve Bank. He is currently president of the Instituto Libertad y Democracia (ILD), director of several Peruvian companies, and a member of the United Nations Committee for Development Planning.

Jacket design by Diana Coe

Jacket painting by Fernando de Szyzslo

Harper & Row, Publishers

10 East 53rd Street

New York, N.Y. 10022

0189N

STATEMENT OF SPEAKER JIM WRIGHT

On the Opening of the 101st Congress

January 3, 1989

This is an historic moment.

Two hundred years ago, in 1789, the first Congress met in New York to face the daunting task of beginning to build a nation under the revolutionary new concept of representative self-government.

On this opening day of the 101st Congress, we can reflect that their audacious undertaking became a beacon for other people throughout the world who also yearn to breathe free.

In 1789, ours was the only constitutional democracy on earth. Today there are 60 of us -- and the tide of history is running in our favor.

After 70 years of Marxist trial and error, the verdict is clear: the Communist ideology, and the totalitarian regimes installed to enforce it, have failed.

We see instead the emergence of democratic movements in the most unexpected places -- in Asia, in Eastern Europe, even an irresistible clamor for more personal freedom in mainland China and in the Soviet Union itself.

We may be witnessing the end of one historical era and the beginning of another.

The past 40 years have been dominated by a titanic military competition between the two super powers.

2

That bipolar world is giving way to a new reality in which the competition, every bit as fateful and intense, is increasingly economic rather than military, and in which there are not two but three emerging aggregations of power -- one in a rapidly developing Asia, another in an ever-more integrated Europe, and the other here in the Western Hemisphere.

Just as the members of the first Congress faced a new world of challenges and uncertainties, so do we.

The House of Representatives, both then and now, has been the most sensitive barometer of the public need and the most malleable instrument of the public will. It is closer to the people than any other instrumentality of government, and that is the way it was intended.

The House did not exactly hit the ground running, those 200 years ago. It took nine meetings over a 29-day period in 1789 just to achieve a quorum. But once established, the House in the first Congress initiated significant legislation dealing with internal development and foreign trade, with roads and rivers and domestic industry and with the world at large.

Its members had a hand in writing the most important declaration of individual political liberties in history -- the Bill of Rights.

This was "the people's House", and that it has been ever since. Contrary to certain misconceptions, this supposedly staid institution is the scene of continual change and constant turnover. A majority of the members here in the chamber today

3

were not here at the beginning of this decade. Only about one-
fifth of our membership has served for more than 15 years.

In this, as in our essential character, this House
reflects the nation -- ever changing, ever moving and growing,
struggling often uncomfortably and sometimes awkwardly to
accommodate itself to the tidal onrush of events.

Let us resolve that in the 101st Congress we shall be
equal to the challenge and worthy of the opportunity.

In 17 days George Herbert Walker Bush will be
inaugurated as the 41st President of the United States. I know
that I speak for us all, Democrats and Republicans alike, in
wishing for him success in his mighty endeavor, health and
happiness at his hearthside, the vision to see the right, the
courage to stand for the right, and the ability to achieve it,
the understanding and cooperation of his fellow creatures, and
the finest blessings of all that come only from God.

In a nation where free men and women think for
themselves, unanimity is never possible. It probably isn't even
desirable. But when we let the larger things that unite us
transcend the lesser concerns that divide us, we can achieve the
basic unity essential in dealing with foreign lands.

Today I pledge to President-elect Bush the earnest and
unstinting cooperation of the leadership of this House in seeking
true bipartisanship in every area of our nation's foreign policy.

Let us honestly and gratefully acknowledge the
leadership of the Reagan administration in improving relations

4

with the Soviet Union, in helping to abate the crisis in the
Persian Gulf, and in encouraging the growth and sustenance of
political freedom in countries throughout the world.

Because President-elect Bush has served in this House,
I am encouraged that he will exhibit appreciation for the
constitutional responsibilities of the Congress and will seek
avenues of cooperation between our executive and legislative
branches.

And just as there is need for such cooperation between
branches of our government, there also is a need for greater
consultation and cooperation between the two political parties in
the House of Representatives. The minority has an important and
constructive role to play in the legislative process, and I am
eager to encourage that role.

Certainly, we will not be able to agree on everything.
But let us emphasize those broad goals on which we do agree, and
work together to achieve them.

Our nation struggles to overcome three deficits: the
budget deficit, the trade deficit, and the social deficit caused
by the widening gap between rich and poor and the growing
inaccessibility at affordable prices of such necessities as
housing, higher education, and health care.

We cannot expect to vanquish these evils entirely in
the 101st Congress, but if we have the will we can make
significant progress against all three deficits. Both of our
political parties are publicly committed to doing so.

[illegible]

ADDENDUM TO JIM WRIGHT SPEECH

(on page 5, following the 6th paragraph)

...our joint commitment, which I now invite.

To profess love for democracy but disdain for politics
is to pretend to honor the product while despising the process
that creates the product. Politics is as necessary to the
functioning of a free society as water is to the flow of a river.
It doesn't have to be filthy and corrupted, and neither does the
river. We have the wisdom, if we have the will, to keep them
both clean.

We have the responsibility as well to make certain that
every citizen's vote counts equally in our Presidential
elections. We can help to insure this by a Uniform Poll Closing
law, such as the House passed in the last Congress and upon which
I respectfully request the help and cooperation of the other body
in this Congress.

...By working together, we can steadily reduce ...

5

By working together, we can help our new President fulfill his promise of "a kindler, gentler America."

We in the House leadership are eager to help him attain the goals of wider access for all Americans to education, to child care, to affordable housing and to a cleaner environment.

Today we offer to our new president, and to our old friend Jack Kemp in his new Cabinet role, the sincere cooperation of the House leadership in reviving the vitality of our decaying inner-cities through the creative dynamics of enterprise zones.

Working together, we can remove the scourge of drugs from our streets and from our schools. We have made significant progress in this bipartisan goal. Let us work together now for full funding, to make our pledge a reality.

Working together, we can pass a Clean Air bill this year. Let us make that one of our objectives.

By working together, we can clean up the murky areas of campaign financing, broaden the base of small individual contributors and reduce the influence of special interests in our electoral process. This deserves our joint commitment, which I now invite.

By working together, we can steadily reduce and eventually eliminate the annual budget deficits that threaten our economic future. We must, and we shall.

Both Democrats and Republicans made contributions last year to landmark trade legislation. Let us not abandon that effort until America attains the objective of a revived

6

industrial base fed by enhanced productivity and renewed
competitiveness.

We can even lift the standards of our own institutional
self-expectations. To this end, Republican Leader Bob Michel and
I have agreed that we will appoint within the next few days a
bipartisan task force to review the current Standards of Official
Conduct for members, last revised 12 years ago, and to recommend
such improvements and updating as seem warranted in light of
current conditions.

This is going to be a very busy and productive year in
the 101st Congress. I am determined that, so far as the Speaker
can influence the schedule, we shall perform our work on time.
As we did last year, the House will pass our regular
appropriations bills before we leave for the August recess.

In order to make this possible, we intend to pass the
budget resolution by April 15. For this to happen, the
authorizing committees must submit a summary of their plans for
new authorizations before the end of February.

To facilitate this timetable, we need to receive the
budget recommendations from the new Administration not later than
February 20, if at all possible.

In view of these time constraints and the size and
scope of the tasks that confront us, I am today asking all of the
House committees to make every effort to complete all of their
organizational work by the end of January.

7

Today I shall take the oath of office for the 18th time
as a member of this House. Some of you will take it for the
first time.

In 1941, when Sam Rayburn was sworn in for his second
term as Speaker, he said:

"The House of Representatives has been my life and my love for this more than a quarter of a century. I love its traditions; I love its precedents: I love its dignity; I glory in the power of the House of Representatives. As your Speaker and presiding officer it shall be my highest hope and my unswerving aim to preserve, protect and defend the rights, prerogatives, and the power of the House of Representatives."

As I look around the chamber and see the new members,
their families and special friends who have traveled far to be
here today, I rejoice in the sense of commitment that pervades
this occasion.

However long each of us has been here or may be here,
there can be no higher calling in earthly labor than to
participate in glorifying and sustaining the longest running
democracy that has ever endured to serve and bless mankind in the
history of the human race.

## Responses to KPN Questions

In the view of many Eastern European experts with whom the Endowment is in regular consultation, the Endowment has developed an excellent program in Eastern Europe in general, and in Poland in particular. The only negative point raised is that our limited funds do not enable us to support all of the worthy requests for assistance that we receive, and those that we do support are frequently funded at inadequate levels.

In September 1988, the Endowment awarded a grant of $10,000 to the Polish American Congress for the publication and distribution in Poland of Janusz Zawodny's *Death in the Forest: The Story of the Katyn Massacre*. The grant will be used to help Dr. Zawodny update the book by including additions of new primary and secondary source materials, revising the footnotes and bibliography, and preparing an introduction for the Polish reader. The grant will also support administrative assistance; the finished product will be a considerably expanded version of the present text.

As Mr. Ruszczysnski correctly points out, costs for such work are significantly higher in the West than in Poland. Even so, Dr. Zawodny is obviously doing a great deal with a minimal grant.

-- The vast bulk of Endowment funds allocated for programs in Poland reach groups in the country. The only funds that do not directly do so were awarded to three publications, *Uncensored Poland News Bulletin*, *Zeszyty Literackie*, and the Katyn book, as well as a $4,000 grant toward an exhibition on independent culture in Poland organized in cooperation with NOWA Publishers, one of the largest independent publishing houses in Poland. In 1988, only 3.5 percent of Endowment grant funds for programs in Poland were awarded for such initiatives. While it may be argued that all Endowment funds allocated for Polish projects should reach groups in the country, it is the view of the Endowment Board, as expressed in its Statement of Principles and Objectives, that:

> It is also important that worthy products of the unofficial (or "second") culture of closed societies be widely recognized in open societies, for the sustainability of an independent public opinion depends in large measure on the resonance and support it receives in free countries. Moreover, recognition abroad tends to provide "underground" scholars and artists, as well as human rights activists and political dissidents, with some protection against government repression. It is vital that the struggle of these brave people for intellectual liberty and human rights not be ignored, and that they know they have the support of democrats throughout the world.

The publications listed above have received strong recommendations from both prominent members of the opposition inside Poland and outside experts for continued support.

-- All Endowment grants are monitored and audited according to standard procedures. We require grantees to submit quarterly progress reports, both programmatic and financial, as well as a final evaluation of the program's success. Independent audits are frequently required as well. The Endowment thus has a variety of procedures in place to monitor whether grant funds are used for the purposes intended.

In the case of Polish grants, the grantees themselves exercise a rigorous self-imposed system of monitoring and usually require acknowledgements to be published in the Polish underground press. As an extra safeguard, grantees are encouraged to have their books available for on-site inspection.

-- All Endowment grants are awarded by the Board of Directors on the basis of our grant guidelines and selection criteria, a copy of which is enclosed. In addition, the Endowment has established careful evaluation procedures regarding renewals. The suggestion of "leftist" bias is unfounded. It is true that most of the Polish grants have gone to Solidarity or groups affiliated with Solidarity, but it is not proper to characterize Solidarity as "leftist."

-- With regard to the KPN proposal to the Endowment, we regret that Mr. Ruszczysnki received conflicting information regarding the status of his proposal. The proposal was before the Endowment Board at its September meeting. It has since been referred to the National Republican Institute for International Affairs, a core grantee of the Endowment, which works with like-minded parties abroad. He may wish to contact directly Rob Henderson at the National Republican Institute regarding the current status of the proposal.

(202) 293-9072

# Grant Guidelines and Selection Criteria

## Guidelines

The following grant guidelines indicate the minimal standards required of all grant applications to be considered qualified for further evaluation in the selection process.

1. The proposed program, project or activity must be consistent with the six Endowment purposes as listed in the Endowment Articles of Incorporation and the National Endowment for Democracy Act.

The six purposes are:

(a) to encourage free and democratic institutions throughout the world through private sector initiatives, including activities which promote the individual rights and freedoms (including internationally recognized human rights) which are essential to the functioning of democratic institutions;

(b) to facilitate exchanges between United States private sector groups (especially the two major American political parties, labor, and business) and democratic groups abroad;

(c) to promote United States nongovernmental participation (especially through the two major American political parties, labor, business, and other private sector groups) in democratic training programs and democratic institution-building abroad;

(d) to strengthen democratic electoral processes abroad through timely measures in cooperation with indigenous democratic forces;

(e) to support the participation of the two major American political parties, labor, business, and other United States private sector groups in fostering cooperation with those abroad dedicated to the cultural values, institutions, and organizations of democratic pluralism; and

(f) to encourage the establishment and growth of democratic development in a manner consistent both with the broad concerns of United States national interests and with the specific requirements of the democratic groups in other countries which are aided by programs funded by the Endowment.

2. The proposing organization must provide the following required information as part of its grant application:

(a) Organizational background and biographical data on key staff and directors in the U.S. and abroad;

(b) Project description, clearly defined objectives (susceptible to assessment), realistic time frame, and anticipated results;

(c) Justification of the project in terms of the Endowment's statement of purposes (specifically, what practical impact will achievement of the project's goals have in reference to the Endowment's stated purposes);

(d) Description of any counterpart support, whether monetary or in-kind, domestic or foreign, anticipated by the applicant;

(e) A detailed budget, including a breakdown and explanation of all anticipated expenses;

(f) Methods of internal evaluation (related to project objectives) to be used by project managers;

(g) Names and addresses of all other funding organizations to which the proposal has been submitted or will be submitted.

3. The proposing organization must be able to show that it is a responsible, credible organization or group that has a serious and demonstrable commitment to democratic values. (Various factors may be considered in this regard: recognized democratic orientation; established professional reputation; proven ability to perform; organization has charter, board of directors, regular audits, etc.)

-2-

4. The proposing organization must be willing to comply with all provisions of the NED Act as well as all provisions of current and subsequent agreements between the U.S. Information Agency and the Endowment.

5. The proposing organization must agree not to use grant funds for the purpose of educating, training, or informing U.S. audiences of any U.S. political party's policy or practice, or candidate for office. (This condition does not exclude making grants or expenditures for the purpose of educating, training or informing audiences of other countries on the institutions and values of democracy that may incidentally educate, train, or inform American participants.)

6. The proposing organization must agree that no Endowment funds will be used for lobbying or propaganda which is directed at influencing public policy decisions of the government of the United States or of any state or locality thereof.

7. The proposing organization must agree that there shall be no expenditure of Endowment funds for the purpose of supporting physical violence by individuals, groups or governments.

8. The proposing organization may not employ any person engaged in intelligence activity on behalf of the United States government or any other government.

9. The Endowment will not normally reimburse grantees for expenses incurred prior to the signing of a grant agreement with the Endowment.

10. Each grant made by the Endowment will be an independent action implying no future commitment on the Endowment's part to a project or program.

11. The Endowment may, from time to time, fund feasibility studies. Applications for grants in this category should include, but not be limited to, the following:

a. scope, method and objective of the study;

b. calendar;

c. proposed administration of the study; and

d. detailed budget.

The funding of a feasibility study by the Endowment does not imply support for any project growing out of the study. It does, however, imply interest by the Endowment in the area under study and a willingness to entertain a project proposal growing out of the study.

-3-

## Selection Criteria

The following selection criteria indicate factors to be considered in determining the relative merit of a particular proposal.

### The grant application:

1. proposes a program that will make a concrete contribution to assisting foreign individuals or groups who are working for democratic ends and who need the Endowment's assistance.

2. proposes a program, project or activity which is consistent with current Endowment program priorities and contributes to overall program balance and effectiveness.

3. proposes an activity which meets an especially urgent need.

4. does not overlap with what others are doing well.

5. proposes a program which will encourage an intellectual climate which is favorable to the growth of democratic institutions.

6. proposes a program which is not only culturally or intellectually appealing, but which will affect the education and the awareness of communities and/or the less privileged members of a society.

7. originates from an organization within a particular country representing the group whose needs are to be addressed.

8. appears to be well thought out, avoiding imprudent activities and possibilities for negative repercussions.

9. takes into consideration not only what objectively could be significant to a certain society, but how the cultural traditions and values of that society will react to the project.

10. incorporates an analysis of the problem of democracy in the area in question and the method by which the proposed program will have a constructive impact on the problem.

11. proposes a program that will enhance our understanding of what really helps in aiding democracy.

-4-

12. creatively enlists support of foreign democratic organizations.

13. encourages democratic solutions and peaceful resolution of conflict in situations otherwise fraught with violence.

14. proposes a program, project or activity that is clearly relevant to Endowment program objectives and not better funded by other government or private organizations. (Proposing organizations will be referred to other funding organizations where substantial overlap exists.)

15. proposes a program or strategy which is appropriate to the circumstances in the country concerned.

16. proposes (a) a program which can be expected to have a multiplier effect, hence having an impact broader than that of the specific project itself; or (b) establishes a model which could be readily replicated in other countries or institutions.

17. proposes appropriate, qualified staff who have a demonstrated ability to administer programs capably so as to accomplish stated goals and objectives.

18. proposes an appropriate ratio of administrative to program funds.

19. is responsive to Endowment suggestions with regard to program revisions.

20. proposes a realistic budget which is consistent with Endowment perceptions of project value and is performed within a stated and realistic time frame.

21. proposes a program that has, as one of its principal aspects, a major impact on the role of women and/or minorities.

-5-

Chairman's Message

The National Endowment for Democracy was founded upon the belief that the world's greatest democracy should help others who share our democratic values and are striving to build free and democratic societies. When the Endowment was established five years ago, some people questioned its purpose and potential. But this, our fifth annual report to the United States Congress, demonstrates, we believe, that we have now built a program as bold and far-reaching as it is essential to our nation's security. With enthusiastic backing from democrats around the world and broad bipartisan support in this country, the National Endowment for Democracy has truly come of age.

Today the Endowment is an established institution with a worldwide grants program. The programs it has supported have differed from country to country, depending upon the nature of the situation and the level of democratic development. In authoritarian countries such as Haiti, Chile and Paraguay, the Endowment has helped those working for a peaceful democratic transition. In newly established democracies such as Argentina, the Philippines and Guatemala, the Endowment has helped those working to strengthen the institutional infrastructure of democracy. In the Communist societies of Eastern Europe and the Soviet Union, the Endowment has supported independent groups working for greater openness and for the revival of civil society. Even in conflict-ridden countries such as South Africa and Nicaragua, the Endowment has been able to aid those working peacefully to make democracy possible when the violence ends.

It makes sense to help our democratic friends. It serves our interests, because democracy is the prerequisite for a world of peace and prosperity. And it serves our ideals.

The Endowment owes its success to the dedicated efforts of many people, foremost among whom are the courageous individuals abroad whom we have been honored to support. For them, democracy is not something to be taken for granted. It is a precious ideal whose value is enhanced by the very precariousness of its existence in some countries, or by its denial by force in many others.

- 1 -

The Endowment has also been greatly assisted by Members of Congress from both parties, members of the U.S. Advisory Commission on Public Diplomacy and the United States Information Agency, the Agency for International Development and the State Department, among others. And I would be remiss in not noting the important contributions of the members of the Endowment Board, with whom it has been a true pleasure to work, and that of our dedicated and capable staff.

Though still a young organization, the Endowment has already proven its worth and should be funded at a level commensurate with its far-reaching mission. It is potentially the most effective instrument we have for advancing our ideals in the world. It is cost-effective, activist, engaged. It not only provides concrete assistance to democrats on the frontlines of political struggle, but sends a message of solidarity and democratic commitment. It gains goodwill for our country even as it assists our friends and thereby advances our own interests as well. It's an organization that is making a real contribution to a better world -- one in which all Americans can take pride.

William E. Brock III
Chairman of the Board

President's Report

The 1988 Annual Report of the National Endowment for
Democracy marks a milestone in the history of the
organization. From where we stand today, we can look
back upon five years of building an institution that has
the proud, unambiguous purpose of advancing democracy
throughout the world.

During these first five years, the Endowment has
established a durable foundation that is at once
conceptually, programmatically and procedurally sound.
Conceptually, the Endowment's work has been based upon
the view, set forth in 1984 in our Statement of
Principles and Objectives, that "the existence of
autonomous economic, political, social and cultural
institutions" -- in a word, civil society -- "is the
foundation of the democratic process and the best
guarantor of individual rights and freedoms."

Programmatically, we have acted upon this idea by
contributing to the development, and in some cases the
very survival, of a wide array of free institutions
devoted to the values of democracy: trade unions,
business associations and political parties (work carried
out through our core grantees in these fields,
respectively, the Free Trade Union Institute, the Center
for International Private Enterprise, and the National
Democratic and the National Republican Institutes for
International Affairs), as well as civic organizations of
women and youth, public policy institutes, cooperatives,
and a variety of free communications media, including
newspapers, journals, books, videos and films.

Procedurally, in addition to establishing high
standards for the careful selection, monitoring and
evaluation of grants, the Endowment has adhered to three
basic operating principles: grants are open to public
scrutiny, programs are responsive to the needs and
initiatives of democrats abroad, and the approach is
consistent, not veering to the left or to the right but
holding faithfully to a democratic course.

Ultimately, the effectiveness of the Endowment
derives from the existence abroad of people who are
passionately and courageously devoted to democracy.

-3-

These people, with whom the Endowment has established
bonds of solidarity and cooperation, are part of a
worldwide democratic movement whose impact is already
being felt in the following countries:

* Poland, Czechoslovakia, Hungary and elsewhere in Eastern Europe and even the Soviet Union itself, where there has been an extraordinary growth of independent publishing and democratic social and political action;

* Chile, where a majority of the 7.2 million voters in the plebiscite of October 5, 1988, rejected the proposal to extend General Augusto Pinochet's rule until 1997, thereby opening the way for a peaceful transition to democracy;

* Nicaragua, where the labor, business and political groups comprising the nonviolent civic opposition, along with independent media representatives, human rights monitors, youth activists and many others, have refused to succumb to fear, repression and economic deterioration in their continuing struggle for democratic freedoms;

* South Africa, where black and white democrats, undaunted by the new wave of repression, are working together to replace apartheid with a democratic system;

* The Philippines, where trade unionists, business leaders, women civic activists and high school students are struggling to secure their new democracy; and

* South Korea and Pakistan, two vital Asian nations, where popular movements for political change have led to unprecedented gains for pluralism and democratic participation.

The report that follows lists many other countries in Africa, Asia, Latin America, and Eastern Europe where Endowment grants are assisting those working for democracy. Some of the efforts described here have been especially innovative, representing original approaches to extending democracy. Others give fresh insight into the development of democratic processes, or offer a method of change that can be adapted in comparable circumstances by movements in other countries.

- 4 -

[cc]

Among the areas of work that deserve special mention
are the following:

**Achieving peaceful transitions from authoritarianism to democracy:** Endowment grantees have been active in a number of countries which have experienced or are undergoing a peaceful transition to democratically-elected civilian governments.

These include Guatemala in 1985, the Philippines in 1986, South Korea in 1987, and Chile and Pakistan in 1988. While each situation is unique, and while the decisive actions must naturally be taken by internal actors, it is possible to draw certain generalizations about the kinds of assistance that can encourage a transition process. These include strengthening organizations or groups devoted to building a consensus for peaceful transition, both within the opposition and between the opposition and moderate elements in the government; assisting efforts to broaden citizen awareness of the issues and participation in the transition process; supporting independent mechanisms to monitor the electoral process to ensure the integrity of the vote; and enhancing international support for a successful transition by observing electoral processes and encouraging regular contacts with democrats abroad.

**Establishing civil society within totalitarian systems:** An historic process of change is now underway involving the creation of enclaves of independent civil society within totalitarian systems. The process is most advanced in Poland where Solidarity continues to survive as a powerful underground structure seven years after the declaration of martial law, and where a wide variety of independent cultural activities -- including newspapers, journals, book publishing, videos, social and educational institutions and intellectual clubs -- and an informal private sector have produced a radical deviation from the classic totalitarian model. This same process is advancing elsewhere in Eastern Europe, most notably in Hungary and Yugoslavia. Even in the Soviet Union, where fifty percent of young people now belong to some 30,000 "informal groups," the same process can be observed. While it is difficult to see where this process will lead, one cannot escape the conclusion that Communism is declining ideologically and economically, and that the emergence of independent movements in this part of the world represents an historic opportunity for democratic advance.

- 5 -

*Empowering the poor through the "informal sector":* The path-breaking analysis of the informal sector in Peru by Hernando de Soto has opened up new vistas for economic and political change. De Soto has offered an alternative to both the status quo of statist mercantilism, which protects the established economic groups and excludes the poor, and radical movements which hope to use the poor as an agent of revolution toward an even more centralized and overbearing state. That alternative is a more open economic and political system able to assimilate the entrepreneurial energy of the poor by being responsive to their need for property rights, credit and legal guarantees. The empowerment and inclusion of the popular classes through greater opportunity is a precondition for broadening and consolidating new democracies in many developing countries.

*Strengthening institutional pluralism in developing countries:* The possibility for stable democratic development is closely related to the existence of a vigorous social pluralism consisting of voluntary associations, democratic interest groups and independent media. Such institutions, which include free trade unions, business associations and political parties as well as educational and civic organizations, provide channels for citizen participation and a check on the unwarranted extension of government power. The recent development of women's organizations committed to popular civic education and the nurturing of democratic values and practices represents an innovative approach to broadening and deepening the commitment to democracy among rank-and-file citizens.

*The promotion of democratic culture:* Democracy depends not only on the existence of democratic institutions but on the commitment to democratic ideas and values. Organizations devoted to spreading democratic culture today operate in a more favorable climate than in the past, owing to the decline of utopian ideologies and the development of a more pragmatic, nonideological temperament in the Third World. The emergence of democratic intellectual movements in the developing world, and increasingly within the Communist world as well, augurs well for the future of democracy.

The gains that democracy has made during the last decade are part of a long-term historic trend toward more open, pluralistic societies. Significantly, the trend

- 6 -

toward greater openness is evident both in countries that have undergone far-reaching economic changes, such as South Korea and Taiwan, and in countries that have been unable to assimilate the scientific and technological revolutions, such as those in the Communist world. The process of democratization would appear to be inexorable.

A word of caution is in order, however. The challenges and obstacles confronting democracy in the period ahead are formidable. Latin America, the region of greatest recent advance, faces intensifying and interrelated crises of debt, economic stagnation, inflation and violence related to guerrilla warfare and the drug trade. In many developing countries, the very scientific and technological revolution that has produced pressures to adapt and modernize could lead to a period of upheaval and instability that might reverse the trend toward greater openness. In the Communist world, the failure of reform -- a strong possibility in the absence of a more far-reaching political and economic opening than is now contemplated -- could produce a return to orthodoxy and the reassertion of the party's undisputed power.

Even if setbacks do occur, however, it is still appropriate to retain a sense of historic optimism about the future of democracy. Because of the gains of recent years, future democratic advances will begin from a higher plateau. New institutions have been established, once dormant social groups have been mobilized, new aspirations have taken hold, and new ideas -- chiefly the idea that legitimacy derives from a popular mandate -- have now spread to distant regions of the world previously untouched by the democratic revolution.

It is inspiring to consider that we have reached this point of hopefulness about the future of democracy as we near the end of a century that has seen the rise of Communism and Fascism, two world wars, genocide, terrorism and an assortment of upheavals that one might think would threaten the very survival of civilization. Instead, humanity is emerging from the throes of a protracted crisis in a more democratic condition than ever before in history, and with the reasonable possibility that political and economic freedom will continue to advance. This is not cause for complacency, only for a degree of confidence that our efforts to help people around the world realize their full democratic potential will ultimately bear fruit.

- 7 -

conjunction with the Department of Mass
Communications at the University of Nigeria, Nsukka.

$ 16,450

SENEGAL

JOINT CENTER FOR POLITICAL STUDIES, INC., to assist the Center for the Study and Research of Pluralistic Democracy in the Third World (CERDET), a private nonpartisan organization established in 1985. CERDET will hold seminars on civic and political education, publish a journal on democracy in the Third World and conduct research on pluralistic democratic processes.

$ 44,000

SOUTH AFRICA

CENTER FOR INTERNATIONAL PRIVATE ENTERPRISE (CIPE), to assist the Southern Africa Black Taxi Association (SABTA) in expanding and enhancing its communications infrastructure. This will improve its ability to communicate with its regional offices, service members promptly and deal effectively with the government. SABTA represents the interests of 45,000 black entrepreneurs in South Africa.

$ 32,000

Funding of the following programs in South Africa was made possible by a grant from the U.S. Agency for International Development (AID).

FREE TRADE UNION INSTITUTE (FTUI), to enable the African-American Labor Center, the Center for Foreign Policy Options and the Afro-Asian Institute of Histadrut to continue a series of month-long training courses in Israel on "The Role of Peoples' Organizations in Community and Nation Building." Each course brings together twenty black community and trade union leaders from various geographical areas of South Africa for intensive training in program development, cooperatives, trade unionism and community organization.

$200,000

- 10 -

**JOINT CENTER FOR POLITICAL STUDIES, INC.**, to assist the Ugandan *Financial Times*, an independent newspaper focusing on economic and political issues, in purchasing a desktop publishing system to improve the quality of the newspaper and allow for increased circulation and advertising. The *Financial Times* reports regularly on human rights problems, corruption and the need for a democratic constitution for Uganda.
$ 22,000

## REGIONAL

**FREE TRADE UNION INSTITUTE (FTUI)**, to assist the regional office of the African-American Labor Center in the Ivory Coast in administering projects in both Anglophone and Francophone Africa. In addition to overseeing project implementation, the regional office assists in the production of a newsletter of the Organization of Trade Unions of West Africa.
$178,000

**FREE TRADE UNION INSTITUTE (FTUI)**, to enable the African-American Labor Center (AALC) to conduct senior trade union leadership seminars in the United States for participants from Anglophone and Francophone Africa. Participants will engage in three weeks of intensive study including courses in comparative industrial relations, history of the American trade union movement, collective bargaining and international economics. The AALC will also continue to develop model trade union courses for use in worker education programs.
$150,000

**FREE TRADE UNION INSTITUTE (FTUI)**, to support regional trade union federation activity. The Southern Africa Trade Union Coordinating Council will continue education and research activities for the establishment of a women's wing within the organization. The Organization of Trade Unions of West Africa will conduct regional workshops and publish economic trend reports. The Organization of Central African Workers will work to strengthen ties among its member countries. And the African American

- 12 -

Labor Center will initiate an African labor history project.

$110,500

**FREE TRADE UNION INSTITUTE (FTUI)**, to assist democratic elements in the labor movements of Nigeria and Zambia. The Industrial Relations Bureau, an education and research institution of democratic trade unionists, and the Senior Staff Consultative Association of Nigeria, an organization of white-collar professional employees, will conduct education programs to strengthen the Nigerian labor movement. In Zambia, the Zambia Congress of Trade Unions will continue cooperative and credit union programs for rank-and-file union members.

$110,000

**FREE TRADE UNION INSTITUTE (FTUI)**, to enable the African-American Labor Center and Force Ouvriere to assist democratic elements in the labor movements of the Ivory Coast, Guinea, Cameroon, Burkina Faso, Gabon, Mali, Chad, Niger, Zaire and Mauritania. Activities include worker education programs, specialized seminars on such topics as collective bargaining and safety and health and the provision of technical advice and material assistance to union organizations.

$108,285

**FREE TRADE UNION INSTITUTE (FTUI)**, to enable the Organization of African Trade Union Unity (OATUU) to establish a Women's Department within the federation, which will expand opportunities for African women to play leadership roles in the trade union movements of the continent.

$ 20,700

**FREE TRADE UNION INSTITUTE (FTUI)**, to assist the African-American Labor Center in establishing a trade union news publication at its regional headquarters in the Ivory Coast. The publication will present labor's perspective on political, economic and trade union news and their impact on the African trade union movement.

$ 20,000

- 13 -

ASIAN PROGRAMS

AFGHANISTAN

AFGHANISTAN RELIEF COMMITTEE, to support two Pakistan-
based Afghan publishing organizations. The Writers
Union of Free Afghanistan (WUFA) publishes a
quarterly journal in Pashto/Dari directed at educated
Afghans inside and outside Afghanistan. WUFA also
produces translations of books and articles by
foreign authors about the Soviet system for
distribution inside Afghanistan. The Afghan
Information Centre (AIC) publishes a monthly
English-language bulletin on events inside
Afghanistan which is an important source of
information for the Western press. The AIC will also
publish works of its founder, Dr. Sayd B. Majrooh,
who was assassinated in February 1988.
$ 45,000

**AMERICAN FRIENDS OF AFGHANISTAN**, to assist the Cultural Council of the Afghan Resistance (CCAR). Activities include publication of CCAR's quarterly magazine, surveys of Afghan public opinion, production and distribution of audio cassettes and expansion of its documentation center. The program encourages Afghans to think about specific issues that will affect the political future of their country.

$ 65,000

INDIA

JAMES F. BYRNES INTERNATIONAL CENTER OF THE UNIVERSITY OF SOUTH CAROLINA, to enable the Leslie Sawhny Programme of Bombay to continue training programs in citizenship, political organization and the principles of democracy for current and potential leaders in Indian civic and political life.

$ 33,000

- 15 -

## PAKISTAN

### NATIONAL DEMOCRATIC INSTITUTE FOR INTERNATIONAL AFFAIRS

(NDIIA), to support a technical mission to Pakistan to analyze the legal and administrative procedures for the November 1988 National Assembly elections and the political environment surrounding the elections. In addition, NDIIA organized a bipartisan and international observer delegation to the elections. Delegates reviewed election law and administration, polling site security, fraud prevention measures and ballot collection and counting procedures.

$136,383

## PEOPLE'S REPUBLIC OF CHINA

### CENTER FOR INTERNATIONAL PRIVATE ENTERPRISE (CIPE), to

cosponsor with the Shanghai Federation of Industry and Commerce (SFIC) a "Management Development Seminar" in October 1988 which focused on upgrading the management of several large business federations and improving their ability to advocate policy changes to the Chinese government. The SFIC is one of the most influential members of the All China Federation of Industry and Commerce, a non-governmental organization founded in 1953 by representatives of industrial and commercial sectors.

$23,702

### CHINA PERSPECTIVE, INC., for continued publication of

The Chinese Intellectual, a Chinese-language quarterly magazine dedicated to promoting open discussion of democratic values and institutions and of issues important to the future of China. Originally aimed at Chinese students and scholars in the West, the magazine has developed a significant circulation and distribution network in China. An intellectual center has now been opened in Beijing, where China Perspective convenes discussion groups.

$130,000

- 16 -

## THE PHILIPPINES

**FREE TRADE UNION INSTITUTE (FTUI)**, to strengthen the Trade Union Congress of the Philippines (TUCP) and its urban and rural affiliated unions. The TUCP supports a media relations and communications program, voter awareness and civic action campaigns on topical issues and training in democratic ideology and technical organizational skills for workers. The TUCP will continue to develop policies contributing to national democratic development and workers' welfare.
$500,000

**FRIENDS OF NAMFREL IN AMERICA**, to assist Kabatid, a new nonpartisan Philippine women's organization established to provide civic education and promote citizen participation in the democratic process. Kabatid will strengthen its organizational base and internal structure, conduct regional meetings to organize additional chapters and provide leadership training and undertake public information activities such as Citizens' Public Information Forums on national issues.
$ 55,000

**YMCA OF THE USA - INTERNATIONAL DIVISION**, to support the YMCA of the Philippines' Youth in Democracy Project. Over 30,000 high school students throughout the country will participate in seminars on democratic procedures leading up to a National Youth Congress. The program seeks to develop an enhanced understanding of the democratic process in young people through democratic leadership training.
$ 45,000

## SOUTH KOREA

**FREE TRADE UNION INSTITUTE (FTUI)**, to assist the Federation of Korean Trade Unions (FKTU) and its affiliates in developing an autonomous, democratic trade union movement. The FKTU will convene forums on the national and provincial levels to develop new strategies and promote the concept of unity to newly-organized unions. It will also undertake a public affairs media campaign to inform the public and influence policymakers on the adoption of legislation favorable to workers.
$ 75,240

- 17 -

## THAILAND

**CENTER FOR INTERNATIONAL PRIVATE ENTERPRISE (CIPE),** to enable the Institute for Management Education for Thailand to develop an economic education program for secondary school students. In cooperation with the Thai Ministry of Education, curriculum and teaching materials will be designed and local business leaders trained to teach the program in community schools.

$131,000

**CENTER FOR INTERNATIONAL PRIVATE ENTERPRISE (CIPE),** to assist the Institute for Management Education for Thailand, in cooperation with the Inter-Provincial Chambers of Commerce of Thailand, in training provincial chambers of commerce staff. Seminars and workshops will be held on effective organization to develop skills necessary to carry out operations of provincial chambers.

$ 87,000

## TURKEY

**AMERICAN FRIENDS OF TURKEY FOUNDATION,** to support activities of the FORUM Corporation of Ankara: publication of the Turkish-language periodical *Yeni Forum* featuring articles on politics, economics, history, literature, and cultural affairs; a paperback book publishing program; and conferences bringing together regular contributors and youth leaders to discuss democratic themes and current events.

$ 50,000

## VIETNAM

**INSTITUTE FOR DEMOCRACY IN VIETNAM,** to publish and distribute within Vietnam the magazine *Vietnam Moi?* (A New Vietnam?) which covers Vietnamese politics and culture as well as developments in other Communist countries and the West. A book by Doan Quoc Sy, the best known Vietnamese author in the West, will also be published for distribution inside Vietnam.

$ 40,000

- 18 -

**QUE ME**, for the continued publication and distribution within Vietnam of the Vietnamese-language magazine *Que Me*. The magazine, which focuses on the struggle for democracy, includes news from Vietnam and on the international situation and its relation to Vietnam, critical analyses of the politics and ideology of the Vietnamese Communist Party, human rights reports and dissident literature.

$ 35,000

## REGIONAL

**AMERICAN FRIENDS OF TURKEY FOUNDATION**, to enable representatives of the Forum Corporation of Ankara, Turkey to participate in a joint Egyptian-Turkish seminar on political modernization and democratic development held in Cairo in May 1988. The seminar explored the applicability of the Turkish experience to the development of democracy in Egypt; conference proceedings will be published in Turkish and English.

$ 11,766

**FREE TRADE UNION INSTITUTE (FTUI)**, to support emerging free trade unions in the new island nations of the South Pacific. Assistance will be used to sponsor Asian and Pacific unionists at regional seminars and conferences, provide support for reviewing and expanding membership services and conduct labor education workshops.

$295,000

**FREE TRADE UNION INSTITUTE (FTUI)**, to work with the ASEAN Trade Union Council and selected unions in countries where no AFL-CIO representative resides. In Cyprus, seminars on democracy are conducted and organizational and technical assistance provided. In Lebanon, educational programs and the provision of media resources help Lebanese unions increase their visibility. In Pakistan, the All-Pakistan Federation of Labor, the All-Pakistan Federation of Trade Unions and the Pakistan National Federation of Trade Unions will sponsor trade union seminars on the national, regional and local levels. And in Taiwan, the Chinese Federation of Labor will train union leaders and conduct seminars on collective bargaining.

$151,225

- 19 -

**FREE TRADE UNION INSTITUTE (FTUI)**, to support activities of the International Trade Secretariats in Asia and the South Pacific, specifically the Public Service International in conjunction with the American Federation of State, County, and Municipal Employees and the International Federation of Technical Workers with the Service Employees International Union. Asian and Pacific unionists will be sponsored at international congresses and conferences of their respective unions, humanitarian assistance and emergency relief will be given to members and labor education programs will be conducted.
$ 60,000

**FREE TRADE UNION INSTITUTE (FTUI)**, to enable the Asian-American Free Labor Institute to produce a video on "The Role of Trade Unions in a Democratic Society." The video, which will be translated into Korean, Thai and Chinese (Mandarin), will be used in labor training programs throughout the region.
$ 20,000

- 20 -

EUROPEAN PROGRAMS

CZECHOSLOVAKIA

CHARTA SEVENTY-SEVEN FOUNDATION, to expand its program of technical assistance to independent cultural and human rights groups in Czechoslovakia. The Foundation is named after the movement established in Prague in 1977 which demanded that the Czechoslovak government respect the basic human rights guaranteed by the constitution and reaffirmed in the Helsinki Accords.

$ 20,000

CZECHOSLOVAK SOCIETY OF ARTS AND SCIENCES, to support cultural and scholarly activities and independent publishing in Czechoslovakia. The Documentation Center for the Promotion of Independent Czechoslovak Literature maintains an archive of samizdat literature and assists independent scholars and writers in Czechoslovakia. The Jan Hus Educational Foundation provides support to educational and cultural groups in Czechoslovakia. The Jan Palach Information Research Trust sends books and periodicals to Czechoslovakia and assists samizdat publishers. Support is also provided to Sixty-Eight Publishers, a Canadian publishing house which, since its founding in 1972, has published almost 200 titles in Czech and Slovak. At least half of each print-run is delivered to readers in Czechoslovakia.

$125,000

CZECHOSLOVAK SOCIETY OF ARTS AND SCIENCES, to assist two Czech-language journals. Rozmluvy (Colloquium), a journal of political and cultural ideas, contains articles by Western and emigre writers, banned works from the 1948-1968 and pre-war periods and reprints of Czech and Slovak samizdat; it is distributed in Czechoslovakia and Poland. Paternoster serves as an independent forum for the artistic and cultural expression of Czechoslovakia's younger, post-Prague Spring generation; it includes Czech samizdat and works by Western authors.

$ 22,000

- 21 -

its research capacity. Established in 1986 with NDIIA support, the SDGL is affiliated with the Social Democratic and Labour Party.

$ 52,500

(NDIIA), to sponsor training faculty for a series of party-building workshops organized by the Social Democratic Group Limited (SDGL). The workshops addressed media and public relations, policy development, voter education and registration, leadership development, communications and constituency building.

$ 44,890

POLAND

FREE TRADE UNION INSTITUTE (FTUI), to administer funds specially appropriated by the U.S. Congress to provide assistance to the independent Polish trade union Solidarity for disseminating information, sustaining union activists and maintaining its administrative infrastructure.

$1,000,000

FREE TRADE UNION INSTITUTE (FTUI), to support the independent Polish trade union movement. The Brussels-based Coordinating Office of Solidarnosc Abroad assists union activities in Poland and disseminates information to the West on worker rights violations in Poland. The New York-based Institute for Democracy in Eastern Europe produces and distributes materials on worker and human rights issues.

$375,000

FREEDOM HOUSE, to enable the Information Centre for Polish Affairs to publish *Uncensored Poland News Bulletin*. This London-based biweekly contains documents, first-hand reports and summaries of events in Poland for use by opposition groups in Eastern Europe and media, scholars and researchers throughout the world.

$ 27,500

- 23 -

**POLISH AMERICAN CONGRESS CHARITABLE FOUNDATION, INC.,**
for a multi-part project to support the Polish democratic movement. Monetary and material assistance is given to families of former and current political prisoners; independent cultural activities are supported through the Committees for Education, Culture, Scholarship and Health; assistance is provided to the Polish Helsinki Watch Committee which monitors and reports on violations of the Helsinki Accords in Poland; the Paris-based POLCUL Foundation makes awards to independent activists in Poland to help sustain their work and contributions to independent culture; and support is given to the Polish-language quarterly *Literary Notebooks* (Zeszyty Literackie), an intellectual and literary journal distributed in Poland.
$249,000

**POLISH AMERICAN CONGRESS CHARITABLE FOUNDATION, INC.,**
to assist the Independent Polish Agency (IPA) of Lund, Sweden in supporting independent democratic groups, particularly the independent press, in Poland. IPA sends publications, photographs, audio- and videotapes and equipment into Poland.
$ 42,000

**POLISH AMERICAN CONGRESS CHARITABLE FOUNDATION, INC.,**
to support projects providing a better understanding of key events in Poland's history. A Polish translation of Janusz K. Zawodny's *Death in a Forest: The Story of the Katyn Forest Massacre* will be published and distributed in Poland. Support will also be given to an exhibition of independent Polish culture organized in cooperation with NOWA publishers, one of the largest publishing houses in Poland, to be shown in universities, libraries and Polish-American cultural centers in the United States.
$ 14,000

## PORTUGAL

**FREE TRADE UNION INSTITUTE (FTUI),** to support organizational and research activities of the General Union of Workers (UGT). The principal democratic labor federation in Portugal, the UGT is comprised of white-collar workers in the public sector,

- 24 -

SPAIN

FREE TRADE UNION INSTITUTE (FTUI), to support the
democratic education program of the Basque Federation
of Workers, the largest democratic trade union
organization in the Basque region of Spain. Trade
union staff and shop stewards will receive intensive
training in basic union skills and democratic
values.

$131,690

SOVIET UNION

AMERICAN FRIENDS OF FREE SPEECH ABROAD, to enable the
Russian-language publisher Atheneum Press to initiate
a program leading to the establishment of an academic
bookstore in Moscow specializing in Western
publications on Soviet affairs. In cooperation with
a twelve member Scientific Council comprised of
Soviet and Western specialists, Atheneum will produce
fifteen books as a guarantee for the venture to
proceed. Sales will assist the Foundation for Aid to
Young Authors.

$ 52,500

AMERICAN FRIENDS OF FREE SPEECH ABROAD, to assist the
Russian-language literary journal *Syntaxaxis*,
edited and published in Paris by Andrei Sinyavsky.
In ten years of publication, *Syntaxaxis* has
established a reputation in the East and West for
incisive commentary on the Soviet Union. Its editors
have intensified their focus on reform-minded Soviet
intellectuals, providing translations of relevant
Western commentaries on the reform movement in the
USSR as well as Soviet samizdat.

$ 30,000

AMERICAN LATVIAN ASSOCIATION, to support independent
democratic groups in Latvia working to promote human
rights and independent culture. Information about
Latvian history and culture, Western democratic
processes and democratic movements in Soviet bloc
countries will be provided, and assistance will be
given to independent publishing and video production.

$ 27,500

- 26 -

**AMERICANS FOR HUMAN RIGHTS IN THE UKRAINE**, to assist Ukrainian human rights activists and support attempts by independent Ukrainian groups in the Soviet Union to revive and develop an independent culture. Material assistance will be given to various groups which organize discussions on historical, philosophical and literary subjects.
$ 20,000

**CENTER FOR DEMOCRACY**, to provide technical assistance to independent publishers in the Soviet Union in the form of computers, printers and Russian-language manuals and software developed by the Center. The Center will also translate and publish materials from the Soviet Union and continue its activities in defense of human rights.
$125,000

**CENTER FOR DEMOCRACY**, to translate into English, publish and distribute the *Information Bulletin Glasnost*, an independent journal published in Moscow by Soviet human rights activists. The journal provides a forum for open discussion of political, economic, social and environmental issues.
$ 25,000

**CENTER FOR DEMOCRACY**, to assist the Crimean Tatar movement for human and national rights in the USSR by compiling a bibliography of the extensive literature on the situation of the Crimean Tatars in the USSR and producing a major study of the Crimean Tatar movement for human and national rights. The study and related documents will be published in the Russian and Tatar languages for distribution in the USSR.
$ 20,000

**CENTER FOR DEMOCRACY**, to distribute videocassettes to various areas of the Soviet Union, including the Baltic Republics, the Ukraine and Moscow.
$ 20,000

**CHALIDZE PUBLICATIONS, INC.**, to publish and distribute the Russian-language journal *Internal Contradictions in the USSR*, which presents Soviet readers with a broad range of democratic thought. The journal is published and edited by Soviet emigre Valery Chalidze, a noted author and human rights activist.
$ 15,000

- 27 -

**FREEDOM HOUSE**, to assist Atheneum Press, a Paris-based Russian-language publishing house, in continuing to publish the series *Minuvsheye* (The Past, A Historical Almanac) and books on Russian cultural life from 1900 to the present. *Minuvsheye* includes articles by Western scholars and also by Soviet scholars who have conducted independent and unofficial research writing under pseudonyms.
$ 55,000

**FREEDOM OF COMMUNICATIONS** (FoC), to continue efforts to improve postal communications between the Soviet Union and the West by reporting on Soviet compliance with international postal regulations, publicizing Soviet violations and publishing advice to mailers. FoC conducts test mailings to determine the nature and extent of Soviet efforts to interfere with communications.
$ 40,000

**JOINT BALTIC AMERICAN NATIONAL COMMITTEE**, to assist the Relief Centre for Estonian Prisoners of Conscience in the USSR, based in Sweden. The Centre provides support for human rights activists and the independent press in Soviet Estonia to help strengthen democratic ideas and independent culture.
$ 27,500

**PROBLEMS OF EASTERN EUROPE**, to publish the Russian-language quarterly journal *Problems of Eastern Europe* which contains analyses of current developments in Eastern Europe, with particular emphasis on the experiences of dissidents and democratic reformers. A Russian translation of Zdenek Mlynar's *Nightfrost in Prague* will also be published and distributed in the Soviet Union.
$ 30,500

**TIME AND WE PUBLISHING HOUSE, INC.**, to publish the Russian-language bimonthly *Time and We*, a journal of Soviet politics, culture, history and religion. The editors will increase its print-run to reach a wider readership in the Soviet Union.
$ 25,000

- 28 -

**TWENTIETH CENTURY HUMAN RIGHTS RESEARCH FOUNDATION,**
to assist human rights activists and independent
groups in the Soviet Union in strengthening and
sustaining an independent Ukrainian culture.

$ 20,000

**WORLD WITHOUT WAR COUNCIL OF NORTHERN CALIFORNIA,** to
assist the VISA Project, which works to facilitate
visits between family members from the USSR and the
United States by encouraging public pressure on the
Soviets to liberalize travel policies. Potential
travelers and hosts are given information on visa
procedures and advised on difficulties they may
encounter in the Soviet bureaucracy. VISA represen-
tatives have travelled to Moscow to raise the issue
of family visits at human rights forums.

$ 20,000

YUGOSLAVIA

**FREEDOM HOUSE,** to enable the Committee to Aid
Democratic Dissidents in Yugoslavia to continue
publishing its *Bulletin*. Distributed in
Yugoslavia and the West, the *Bulletin* publicizes
activities of and repressions against independent
intellectuals and dissidents. It is the only
English-language publication that systematically
covers current independent democratic trends
throughout Yugoslavia.

$ 5,000

**INSTITUTE FOR DEMOCRACY IN EASTERN EUROPE (IDEE),** for
the continued publication and increased distribution
of the monthly newspaper *Nasa Rec* (Our Word).
Published in London, the Serbo-Croat paper publishes
statements, discussions, petitions and protests of
Yugoslav dissidents and civil rights activists.

$ 15,000

REGIONAL

**FREE TRADE UNION INSTITUTE (FTUI),** to conduct exchange
programs for foreign trade unionists. FTUI will also
organize regional forums for trade unionists to

- 29 -

exchange views and experiences and coordinate
activities.

$ 25,000

**FREEDOM HOUSE**, to assist efforts of the London-based East European Cultural Foundation (EECF) to coordinate independent democratic activity in Eastern Europe. EECF is working to expand and consolidate independent channels of communication linking democratic individuals and groups in East Germany, Poland, Hungary and Czechoslovakia in order to formulate a common agenda on issues affecting all East European countries.

$ 32,000

**INSTITUTE FOR DEMOCRACY IN EASTERN EUROPE**, to support a broad range of independent publications in Eastern Europe. In Czechoslovakia, assistance will be provided to publications which maintain the independent spirit of Czech and Slovak culture and intellectual thought, provide timely reporting on human rights violations and discuss and analyze current events; in Hungary, support will enable new publishing initiatives to be established and facilitate the distribution of publications in the country; and in Poland, independent publishing houses and self-education and human rights groups will receive support through the Fund for Independent Publishing.

$195,500

**KESTON COLLEGE, USA**, to enable Keston College in the United Kingdom to expand its program encouraging religious freedom, human rights and freedom of expression in closed societies. Keston College conducts research on freedom of religion in the Soviet Bloc and publicizes cases of persecution through its publications.

$ 50,000

- 30 -

## LATIN AMERICAN PROGRAMS

### ARGENTINA

**AMERICAN COUNCIL OF YOUNG POLITICAL LEADERS (ACYPL),** to assist the leadership training program of the Rio de la Plata University Foundation. The program brings regional youth leaders to Buenos Aires to examine Argentina's federal structure and meet with key political, labor, business, media and education leaders.

$ 30,000

**CENTER FOR INTERNATIONAL PRIVATE ENTERPRISE (CIPE),** to assist the Mediterranean Foundation in its congressional advisory program for national and provincial legislators. Consulting teams will study economic legislation and distribute analyses to legislators, public opinion makers, business associations and advocacy groups throughout Argentina.

$140,100

**CENTER FOR INTERNATIONAL PRIVATE ENTERPRISE (CIPE),** to enable the Center for Studies on Liberty to expand throughout Argentina its "Why Not Try Freedom?" seminars, which promote private sector alternatives to statism. The seminars focus on the advantages of private property, individual freedom and limited government as the basis of a free market economy.

$ 74,860

**CENTER FOR INTERNATIONAL PRIVATE ENTERPRISE (CIPE),** to enable the Argentine-based Institute for Contemporary Studies (IDEC) to sponsor an "Understanding Politics" seminar. IDEC is working to increase participation in public policy campaigns by exposing selected groups of Argentines to techniques for building a strong, open political infrastructure.

$ 66,350

**DELPHI INTERNATIONAL,** to continue to assist Conciencia, a nonpartisan Argentine women's civic movement which, since its establishment in 1982, has

- 31 -

**FREE TRADE UNION INSTITUTE (FTUI)**, to provide institutional support to the Democratic Workers' Central (CDT), the embattled democratic trade union federation. The CDT sponsors seminars on democratic education and trade union skills and conducts a range of educational, publicity and organizational activities in support of a democratic transition.

$106,000

**NATIONAL DEMOCRATIC INSTITUTE FOR INTERNATIONAL AFFAIRS**

(NDIIA), to assist civic education and voter registration programs in the pursuit of free elections and a peaceful democratic transition. Democratic groups received assistance in gaining media access to urge voter registration and participation as a means of achieving fair electoral processes.

$275,000

(NDIIA), to sponsor a multi-party international observer delegation to the October 1988 presidential plebiscite. The delegation included former heads of state, political party leaders, parliamentarians and election experts from thirty countries; a report was issued following the plebiscite.

$ 91,933

(NDIIA), to send specialists to Chile, at the request of the Campaign for Free Elections, to participate in a series of technical seminars on voter registration and electoral processes.

$ 47,832

**NATIONAL REPUBLICAN INSTITUTE FOR INTERNATIONAL AFFAIRS**

(NRIIA), to conduct follow-up activities to nationwide public opinion surveys which supplied vital statistics on voter preferences prior to the October 1988 plebiscite. Activities included the publication of working papers and the convening of seminars to discuss survey findings. (The surveys were also carried out in 1988 with $257,755 in FY 1987 funds.)

$ 50,144

- 33 -

**NRECA INTERNATIONAL FOUNDATION**, to assist the Chilean National Cooperative Confederation in conducting "Democracy and Development" seminars for community leaders in rural towns. The seminars use cooperatives as models of democratic development for preparing rural Chile for a return to democracy.

$ 20,000

Funding of the following programs in Chile was made possible by a special Congressional appropriation of U.S. Agency for International Development (AID) economic support funds for the promotion of democratic activities there leading to a transition to democracy.

**DELPHI INTERNATIONAL**, to assist the Foundation for Neighborhood and Community Action (AVEC) in providing organizational support and technical assistance to community groups working to increase political participation among the urban poor. AVEC works with democratically-oriented community leaders in slum districts and squatter settlements in major Chilean urban areas.

$ 99,000

**DELPHI INTERNATIONAL**, to assist the leading independent daily newspaper *La Epoca* in purchasing supplies and equipment necessary for its continued publication.

$ 50,000

**DELPHI INTERNATIONAL**, to enable the Center for Youth Development to provide identity card photographs required for voter registration to impoverished Chileans who otherwise could not register to vote.

$ 26,000

**FREE TRADE UNION INSTITUTE (FTUI)**, to strengthen the political participation of the Democratic Workers' Central, the ICFTU Liaison Committee of the National Workers' Command and other democratic workers organizations. Voter registration programs were conducted prior to the plebiscite.

$135,000

- 34 -

**FREEDOM HOUSE**, to assist Editorial Andante, a
Santiago-based publishing house, in producing
citizenship manuals and other materials designed to
assist ordinary citizens in understanding their
fundamental political rights and responsibilities,
and to encourage informed political participation.

$ 95,000

**GEORGETOWN UNIVERSITY**, to cosponsor a seminar with
the Institute of Political Science of the Catholic
University of Chile on the process of peaceful
democratic transition in Chile. The seminar, held in
Santiago, focused on conditions for establishing a
stable democracy.

$ 25,000

**NATIONAL DEMOCRATIC INSTITUTE FOR INTERNATIONAL AFFAIRS (NDIIA)**, for a project to encourage voter participation and free elections through activities including: public opinion polls conducted by the Latin American Faculty of Social Sciences; publicity, in cooperation with groups working for free and fair elections; and monitoring of the registration and voting process conducted by the Committee of Personalities.

$515,000

**NATIONAL REPUBLICAN INSTITUTE FOR INTERNATIONAL AFFAIRS (NRIIA)**, to conduct a political training conference in cooperation with the International Policy Forum and Diego Portales University. The conference sought to assist Chilean business leaders and students in organizing effectively to participate in national politics.

$ 55,000

## COLOMBIA

**CENTER FOR INTERNATIONAL PRIVATE ENTERPRISE (CIPE)**, to
enable the Colombian Institute for Superior Studies
in Administration to expand its Center for
Entrepreneurial Development to reach a broader group
of students, teachers and the community. The program
seeks to make entrepreneurship an attractive career
goal for students of all ages as a means of

- 35 -

stimulating new business formation and economic
growth. (The program was carried out in 1988 with
previous year funds.)

$ 59,800

**CENTER FOR INTERNATIONAL PRIVATE ENTERPRISE (CIPE),**
to commission a technical analysis of the strengths
and weaknesses in management, communications and
services of the Colombian Association of Popular
Industrialists, Colombia's national business
membership association of small and medium
enterprises. The analysis will include
recommendations to improve the association's
operations and ability to promote a greater
understanding of democracy and free markets.

$ 18,750

**NATIONAL REPUBLICAN INSTITUTE FOR INTERNATIONAL AFFAIRS (NRIIA),**
to assist the Simon Bolivar Foundation in
establishing an Inter-American Forum for exchanges
and the dissemination of information among moderate
and conservative democratic parties in Latin America
on such topics as communications, organization,
public opinion surveys and the role of political
parties in consolidating and strengthening Latin
American democratic development.

$ 40,000

**RESEARCH FOUNDATION OF THE STATE UNIVERSITY OF NEW YORK,** to assist the University of Los Andes in the
second phase of its two-year project on Colombian
democracy. Activities will include national sectoral
forums to bring together a diverse range of political
and civic leaders to discuss the problems confronting
Colombia's democratic institutions and an
international conference on democracy in the Andean
region.

$ 56,000

**RESOURCES FOR ACTION, INC.,** to assist Conciencia, a
private, nonpartisan women's organization established
in 1987, in providing democratic civic education in
Colombia. Conciencia will upgrade its information
center on democracy, conduct training and leadership
programs, design a media campaign to enhance citizen
awareness of civic responsibility and establish
additional chapters.

$ 45,000

- 36 -

## COSTA RICA

(NDIIA), to produce a video on Costa Rica's democratic experience which will include footage of NDIIA's June 1988 conference on Costa Rican democracy and interviews with Latin American political leaders. The video will be used as a civic education tool in Latin America.

$ 19,900

### NATIONAL REPUBLICAN INSTITUTE FOR INTERNATIONAL AFFAIRS

(NRIIA), to assist the Association for the Defense of Liberty and Democracy in Costa Rica (APDLD), a moderate political and educational foundation. The APDLD will continue its program of grassroots education, public opinion polls, research and publications.

$145,000

## CUBA

### CUBAN AMERICAN NATIONAL FOUNDATION, to enable the

International Coalition for Human Rights in Cuba (ICHRC) to continue disseminating information about human rights violations in Cuba and bringing international public opinion to bear on that country in order to increase pressures for internal liberalization. The Coalition will expand its network of citizen committees in Europe and Latin America, increase its publications and enhance the coordination of committee activities.

$110,000

International Coalition for Human Rights in Cuba (ICHRC) to cover expenses related to its "Work Commission on Human Rights." In March 1988 the United Nations Human Rights Commission mandated that a U.N. delegation visit Cuba to investigate human rights. In response, the ICHRC formed the work commission, compiled extensive evidence of human rights abuses and organized an international delegation to travel to Cuba to document the status of human rights.

$ 30,000

- 37 -

## GRENADA

(NRIIA), to enable the Grenada Civic Awareness Organization to increase its membership and expand its scope of work. The program will focus on civic education for students and the general public through lectures, an essay contest, radio programs, public forums and community development projects.

$ 50,000

## GUATEMALA

### DELPHI INTERNATIONAL, to enable the Center for

Political Studies (CEDEP) to convene a national conference of Guatemalan women's associations to assess the status of formal and informal democratic civic education in Guatemala, identify existing resources and provide general guidelines for the promotion of democratic values. CEDEP will also sponsor a regional civic education conference for representatives of women's organizations in Central America and the Caribbean.

$ 22,000

(NRIIA), to assist the legislative information program of the Center for Economic and Social Studies. Public forums on policy issues of importance to the Congress will be held and videotaped for local television, and legislative analyses will be produced.

$ 70,000

### ROOSEVELT CENTER FOR AMERICAN POLICY STUDIES, to

support the National Reconciliation Commission of Guatemala, a nongovernmental institution created in September 1987 in compliance with the Esquipulas II peace accords. The Commission will establish an institutional framework for a permanent dialogue on democracy among all sectors of Guatemalan society.

$ 22,000

provide additional assistance to the Research and Social Studies Association (ASIES) for its fourth

- 39 -

"Seminar on National Reality." The seminar will
examine Guatemala's evolution toward democracy and
the international experience of other transitional
situations.

$ 6,000

HAITI

AMERICA'S DEVELOPMENT FOUNDATION, to assist the Haitian
International Institute for Research and Development
(IHRED) in promoting democratic values and processes
and encouraging cooperation and dialogue among
private sector groups committed to democracy in
Haiti. The program consists of a series of national
and regional forums in major cities throughout Haiti.

$110,000

FREE TRADE UNION INSTITUTE (FTUI), to assist the
Workers Federation of Trade Unions in launching a
major recruitment campaign throughout Haiti.
Training seminars on political awareness will be held
for new and existing unions and related educational
materials produced.

$ 70,000

MEXICO

CENTER FOR INTERNATIONAL PRIVATE ENTERPRISE (CIPE), to
enable the Mexican Employers' Confederation
(COPARMEX) to continue its "EMPRESA" project, an
educational program which teaches the basic
principles of private enterprise to Mexican youth and
workers through the official school system and
COPARMEX affiliates.

$ 78,700

NATIONAL REPUBLICAN INSTITUTE FOR INTERNATIONAL AFFAIRS
(NRIIA), to assist the Democracy, Solidarity and
Social Peace Association in informing and educating
Mexican society on a wide array of political and
social topics. Activities include a leadership
training program for elected officials, civic
education activities and research.

$110,000

- 40 -

NICARAGUA

**AMERICA'S DEVELOPMENT FOUNDATION**, to assist the Center for Democratic Training with the preliminary and first phases of a four-stage project designed to improve communications within the organizations of the Nicaraguan democratic opposition and to promote regional solidarity for the nonviolent struggle for democracy in Nicaragua. At a July 1988 workshop, representatives of a broad cross-section of Nicaraguan democratic sectors assessed the strengths and weaknesses of the democratic opposition. Workshops were then held for mid-level representatives of the democratic civic opposition aimed at generating further dialogue and preparing organizations for the increased coordination needed to achieve common political objectives.

$ 64,360

**ASOCIACION PRO-DEMOCRACIA (APD)**, to restructure its program of training and civic education for a broadly based collection of democratic political, civic and economic groups in Nicaragua. APD will establish a new Central American organization to assist the Nicaraguan democratic opposition and help it forge links with other democratic civic groups throughout the region.

$ 25,753

**CENTER FOR INTERNATIONAL PRIVATE ENTERPRISE (CIPE)**, for support to representatives of the private sector to enable them to advocate their economic views and provide the public with economic information.

$ 96,551

**DELPHI INTERNATIONAL**, to assist independent Nicaraguan print media by purchasing and shipping needed supplies and equipment.

$ 27,500

**DELPHI INTERNATIONAL**, for a Nicaraguan independent media program. In addition to support for independent print media, assistance will enable independent radio stations to obtain spare parts and equipment needed to continue or resume operations.

$ 64,900

- 41 -

**DELPHI INTERNATIONAL**, to support a training program for Nicaraguan youth. A series of forums will be convened on issues pertaining to the democratic development of Nicaragua and on youth leadership skills for a broad democratic political and social spectrum of young people.
$ 33,000

**DELPHI INTERNATIONAL**, to support public outreach and educational activities through the coordinated efforts of a broad spectrum of the democratic civic opposition.
$ 22,000

**FREEDOM HOUSE**, to assist Costa Rican representatives of the Nicaraguan Permanent Commission on Human Rights (CPDH). CPDH produces reports on citizen complaints and human rights violations which are translated into four languages and distributed internationally.
$ 53,000

**FREE TRADE UNION INSTITUTE (FTUI)**, to support independent labor and campesino efforts in Nicaragua. Activities have included vocational training programs, technical assistance, provision of fertilizer and seed, and community service work and publications.
$200,000

**NATIONAL DEMOCRATIC INSTITUTE FOR INTERNATIONAL AFFAIRS (NDIIA)**, to conduct a two-phase training program to assist Nicaragua's democratic political opposition in preparation for municipal elections. In September 1988, a technical team travelled to Nicaragua to assess the impact of Nicaragua's new electoral law and the organizational capabilities and needs of the civic opposition. A subsequent seminar on municipal elections will be held in Managua for the democratic opposition.
$ 70,178

**NATIONAL REPUBLICAN INSTITUTE FOR INTERNATIONAL AFFAIRS (NRIIA)**, to enable independent political institutes to undertake civic education projects. Courses will be offered in job skill development, integrated with a curriculum on democratic principles, for members of the civic opposition and youth leaders.
$150,000

- 42 -

(NDIIA), to assist in the establishment of the Center for Democratic Studies, a nonpartisan institute that will work with democratic parties and civic institutions to promote Paraguayan democratic development. The program will focus on civic education, electoral reform and preparation for monitoring the 1990 municipal elections.

$ 32,904

THE UNIVERSITY OF MIAMI'S INSTITUTE OF INTERAMERICAN STUDIES

, to assist the Paraguayan Institute for
International and Geopolitical Studies, a nonprofit
public policy institute, in maintaining its
Democratic Study and Research Center. The Center
provides an institutional framework for conferences,
seminars, training courses, publications and
research, all designed to strengthen democratic
values.

$ 44,000

PERU

CAPACITAS INTERNATIONAL, to enable the Peruvian women's
organization Conciencia to promote the political
participation of women. A private nonpartisan civic
movement established in 1987, Conciencia is working
to implement its democratic civic education program,
create additional chapters throughout Peru and
strengthen its internal structure.

$ 35,000

CAPACITAS INTERNATIONAL, to assist the Peruvian
Center for International Studies (CEPEI), a private
nonpartisan research center. CEPEI conducts seminars
and publishes related papers on the role of the
military in a democratic Peru.

$ 33,000

to enable the Institute for Liberty and Democracy
(ILD) to continue its work advocating deregulation,
simplification of rule-making and access to the
political system. Established in 1980, ILD informs
the public of regulations and economic issues through
cost-benefit analyses and media programs that allow
for airing grievances and proposing solutions. ILD

- 44 -

will form a new "guild" of formal and informal sector
entrepreneurs to act as a representative business
association advocating ILD policies and servicing
similar groups in Latin America.

$240,000

**FREE TRADE UNION INSTITUTE (FTUI)**, to assist the Peruvian Confederation of Workers (CTP), an independent organization of labor unions. Activities will include expansion of political education courses, a campaign to promote equitable social-economic policies and a public outreach program.

$ 20,000

URUGUAY

**DELPHI INTERNATIONAL**, to enable Encuentro, an Uruguayan women's civic organization, to conduct activities leading up to Uruguay's November 1989 presidential elections, including a mass media campaign on democratic principles, civic leadership training, political forums, youth civic education workshops and the preparation of materials on democratic issues.

$ 30,000

REGIONAL

**CENTER FOR INTERNATIONAL PRIVATE ENTERPRISE (CIPE)**, to assist the Center for Leadership Development with its Latin American Institute for Organization Management. This training program is conducted for private sector voluntary organizations on such topics as developing management skills and technical expertise, designing voluntary business organization programs and building national business federations and regional cooperation.

$273,410

**CENTER FOR INTERNATIONAL PRIVATE ENTERPRISE (CIPE)**, to sponsor with the U.S. Information Agency and the U.S. Chamber of Commerce a series of satellite programs on trends toward market economics, broadcast via WorldNet in 1988. Programs explored market

- 45 -

economic trends, economic policies, democratic governance and the private sector's role in economic policy.

$ 65,580

**DELPHI INTERNATIONAL**, to enable Conciencia in Argentina to conduct follow-up activities to its 1987 "Latin American Meeting on Civic Education and Participation," which focused on developing strategies to establish and consolidate Latin American women's civic organizations. Conciencia serves as a center for the exchange of information among similar women's organizations throughout Latin America, and will provide technical assistance to such groups in Brazil, Peru and Bolivia.

$ 31,100

**FREE TRADE UNION INSTITUTE (FTUI)**, to sponsor continued U.S.-Latin American labor leader exchanges to strengthen fraternal relationships through discussions of inter-American political, economic and social issues. Participants will share experiences with union members, government representatives and other decision-makers.

$236,000

**FREE TRADE UNION INSTITUTE (FTUI)**, to assist nonpartisan committees on political education of democratic labor federations in Guatemala, Honduras, Panama and the Dominican Republic. The committees are working to raise the political consciousness of union members through educational conferences, training seminars and public forums.

$197,540

**FREE TRADE UNION INSTITUTE (FTUI)**, to enable U.S. trade unions to work with affiliated International Trade Secretariats on educational activities in Latin America and the Caribbean. The Services Employees International Union and the Bricklayers and Allied Craftsmen will broaden relationships with regional secretariats; special emphasis will be given to programs with democratic unions in Brazil, El Salvador and the Dominican Republic.

$110,000

- 46 -

**FREE TRADE UNION INSTITUTE (FTUI)**, to orient trade unionists in Latin America and the Caribbean to modern political ideologies, familiarize them with economic trends and provide materials for rank-and-file education programs. Research projects will also be undertaken.

$ 70,000

**FREE TRADE UNION INSTITUTE (FTUI)**, to assist the Labor Watch Program of the Inter-American Committee on Human and Trade Union Rights (CIDHS). CIDHS monitors the status of human and trade union rights in Latin America and the Caribbean, publishes a human rights bulletin and conducts seminars.

$ 45,000

**FREE TRADE UNION INSTITUTE (FTUI)**, to support activities of Force Ouvriere (FO), the democratic French labor confederation, in strengthening democratic trade unionism in the French-speaking Caribbean. FO provides labor training and union organization services.

$ 40,000

**FREEDOM HOUSE**, to assist Libro Libre, an association of distinguished Central Americans based in Costa Rica, in continuing to disseminate democratic thought in Central America. Through the publication of books and magazines and the organization of seminars and lectures, Libro Libre encourages the development of democratic ideas throughout the region.

$228,800

**NATIONAL DEMOCRATIC INSTITUTE FOR INTERNATIONAL AFFAIRS (NDIIA)**, to conduct a pilot project examining key issues on civil-military relations in Latin America. NDIIA will hold a seminar in the Dominican Republic to examine the Argentine experience and mechanisms to ensure civilian control over the military.

Pariticipants will include Argentine political leaders, defense ministry officials, academicians and experts from other countries.

$ 85,785

- 47 -

(NRIIA), to support outreach activities of the Caribbean Democrat Union (CDU), an organization of eight center-right political parties from English-speaking countries in the Caribbean. The CDU convenes seminars to promote democratic values and political development and participation, publishes a monthly newsletter and is developing a library.

$200,000

(NRIIA), to assist the Central American Training Academy. The Academy coordinates activities between conservative foundations in Central America dedicated to integrating and strengthening democratic political dialogue in the region.

$125,000

- 48 -

MULTIREGIONAL PROGRAMS

**AMERICAN COUNCIL OF YOUNG POLITICAL LEADERS**, to conduct a Democracy Conference and U.S. Election Study Tour for over 150 delegates from forty-six countries. The tour is designed to provide participants with a comprehensive, in-depth understanding of the U.S. political system and familiarize them with the electoral process. NED assistance enabled delegates from the Caribbean, Indonesia, India, the Philippines and Poland to participate.
$ 30,000

**CENTER FOR INTERNATIONAL PRIVATE ENTERPRISE (CIPE)**, for continued publication and international distribution of English, Spanish and French editions of the quarterly *Journal of Economic Growth*. The *Journal* advocates free market/limited government principles and includes information on international business conditions, country economic performance and economic growth indicators.
$225,594

**CENTER FOR INTERNATIONAL PRIVATE ENTERPRISE (CIPE)**, to monitor and evaluate the progress and results of CIPE grants and develop new projects.
$ 90,000

**COMMITTEE FOR A COMMUNITY OF DEMOCRACIES (CCD)**, to expand its international network of pro-democracy private citizen groups and to prepare for its December 1988 All-Democracies Conference. CCD is engaged in an ongoing effort to promote greater cooperation and cohesion among democratic countries in order to strengthen democracy worldwide.
$ 50,000

**FREEDOM HOUSE**, to continue and expand the "Exchange" program, a network of democratic opinion leaders in the developing and developed world launched in 1984 with Endowment support. The network now consists of over 400 individuals in fifty countries who circulate materials from "Exchange" mailings and share with others on the circuit writings on democratic themes.
$100,000

- 49 -

**FREE TRADE UNION INSTITUTE (FTUI)**, to support the American Federation of Teachers' project on "Teachers Under Dictatorship." The Federation will monitor and publish studies of restrictions on teachers and teachers' organizations in South Africa, Poland, Nicaragua and Chile in promoting education free from ideological and political control. These studies will serve as the basis for a broader study of teacher rights and academic freedom around the world.

$ 25,000

**FREE TRADE UNION INSTITUTE (FTUI)**, to assist INTERCO Press, an international editorial features distribution service of the AFL-CIO. INTERCO Press will circulate editorial features written by key democratic leaders and intellectuals throughout the world to newspaper editors, especially in Asia, Africa, Latin America and the Caribbean.

$ 25,000

**FREE TRADE UNION INSTITUTE (FTUI)**, for a special program fund enabling it to meet urgent requests for assistance and supplement existing programs as necessary.

$ 22,246

**NATIONAL DEMOCRATIC INSTITUTE FOR INTERNATIONAL AFFAIRS (NDIIA)**, for program development in the areas of: party-building workshops, electoral systems and election observation, civic education and research and conferences.

$ 86,000

**NATIONAL DEMOCRATIC INSTITUTE FOR INTERNATIONAL AFFAIRS (NDIIA)**, to establish the International Institute for Women Political Leaders, a nonpartisan international organization which aims to enhance women's roles in political parties and other democratic institutions.

$ 92,117

**NATIONAL REPUBLICAN INSTITUTE FOR INTERNATIONAL AFFAIRS (NRIIA)**, for research and program development efforts. Democratic development activities will include the sponsorship of forums, publication of materials and academic research.

$100,000

- 50 -

Deloitte
Haskins + Sells

Suite 350
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2505
(202) 879-5600
ITT Telex: 4995732

INDEPENDENT AUDITORS' REPORT

National Endowment for Democracy:

We have audited the accompanying balance sheets of the National Endowment for Democracy (the Endowment) as of September 30, 1988 and 1987 and the related statements of revenues and expenses and changes in fund balance and of cash flows for the years then ended. These financial statements are the responsibility of the Endowment's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the financial position of the Endowment at September 30, 1988 and 1987 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.

December 2, 1988

STATEMENTS OF REVENUES AND EXPENSES AND CHANGES IN FUND BALANCE
FOR THE YEARS ENDED SEPTEMBER 30, 1988 AND 1987

<table><thead><tr><th></th><th>NOTES</th><th>1988</th><th>1987</th></tr></thead><tbody><tr><td colspan="4"><strong>REVENUES</strong></td></tr><tr><td>Grant revenue</td><td>1,2</td><td>$20,316,673</td><td>$15,208,640</td></tr><tr><td>Contributions</td><td></td><td>31,800</td><td>99,050</td></tr><tr><td>Total revenues</td><td></td><td>20,348,473</td><td>15,307,690</td></tr><tr><td colspan="4"><strong>EXPENSES</strong></td></tr><tr><td>Program grants</td><td>1,2</td><td>18,977,840</td><td>13,901,599</td></tr><tr><td>Salaries, wages and benefits</td><td>10</td><td>821,154</td><td>697,807</td></tr><tr><td>Professional fees</td><td></td><td>58,602</td><td>80,633</td></tr><tr><td>Occupancy</td><td></td><td>121,923</td><td>101,436</td></tr><tr><td>Consultants</td><td></td><td>65,163</td><td>58,390</td></tr><tr><td>Communications</td><td></td><td>92,773</td><td>111,211</td></tr><tr><td>Travel and transportation</td><td></td><td>72,434</td><td>82,417</td></tr><tr><td>Supplies and equipment</td><td></td><td>29,406</td><td>25,286</td></tr><tr><td>Insurance</td><td></td><td>21,627</td><td>28,068</td></tr><tr><td>Depreciation and amortization</td><td>2</td><td>55,597</td><td>27,460</td></tr><tr><td>Conference and meetings</td><td></td><td>22,516</td><td>28,039</td></tr><tr><td>Other</td><td>2</td><td>11,303</td><td>4,366</td></tr><tr><td>Total expenses</td><td></td><td>20,350,338</td><td>15,146,712</td></tr><tr><td>EXCESS (DEFICIENCY) OF REVENUES<br>OVER EXPENSES</td><td></td><td>(1,865)</td><td>160,978</td></tr><tr><td>FUND BALANCE, BEGINNING<br>OF YEAR</td><td></td><td>199,278</td><td>38,300</td></tr><tr><td>FUND BALANCE, END OF YEAR</td><td></td><td>$ 197,413</td><td>$ 199,278</td></tr></tbody></table>

See notes to financial statements.

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STATEMENTS OF CASH FLOWS

<table><thead><tr><th></th><th>1988</th><th>1987</th></tr></thead><tbody><tr><td colspan="3"><strong>CASH FLOWS FROM OPERATING ACTIVITIES:</strong></td></tr><tr><td>Excess (deficiency) of support and revenue over expenses</td><td>$ (1,865)</td><td>$ 160,978</td></tr><tr><td colspan="3">Adjustments to reconcile excess (deficiency) of support and revenue over expenses to net cash provided by operating activities:</td></tr><tr><td style="padding-left: 20px;">Depreciation and amortization</td><td>55,597</td><td>27,460</td></tr><tr><td style="padding-left: 20px;">Changes in assets and liabilities:</td><td></td><td></td></tr><tr><td style="padding-left: 40px;">Grants receivable</td><td>2,203,395</td><td>1,085,785</td></tr><tr><td style="padding-left: 40px;">Prepaid and other assets</td><td>1,282</td><td>10</td></tr><tr><td style="padding-left: 40px;">Accounts payable</td><td>1,500</td><td>26,651</td></tr><tr><td style="padding-left: 40px;">Grants payable</td><td>195,410</td><td>(2,929,317)</td></tr><tr><td style="padding-left: 40px;">Deferred grant revenue</td><td>(940,895)</td><td>1,402,452</td></tr><tr><td><strong>Net cash provided by (used in) operating activities</strong></td><td><strong>1,514,424</strong></td><td><strong>(225,981)</strong></td></tr><tr><td colspan="3"><strong>CASH FLOWS FROM INVESTING ACTIVITIES:</strong></td></tr><tr><td style="padding-left: 20px;">Purchase of property</td><td>(81,440)</td><td>(73,496)</td></tr><tr><td style="padding-left: 20px;">Disposal of property</td><td>11,409</td><td></td></tr><tr><td><strong>Net cash used in investing activities</strong></td><td><strong>(70,031)</strong></td><td><strong>(73,496)</strong></td></tr><tr><td colspan="3"><strong>CASH FLOWS FROM FINANCING ACTIVITIES:</strong></td></tr><tr><td style="padding-left: 20px;">Principal payments under capital lease obligation</td><td>(27,511)</td><td>(9,331)</td></tr><tr><td><strong>Net cash used in financing activities</strong></td><td><strong>(27,511)</strong></td><td><strong>(9,331)</strong></td></tr><tr><td><strong>Net change in cash</strong></td><td><strong>1,416,882</strong></td><td><strong>(308,808)</strong></td></tr><tr><td><strong>CASH AT BEGINNING OF YEAR</strong></td><td><strong>30,714</strong></td><td><strong>339,522</strong></td></tr><tr><td><strong>CASH AT END OF YEAR</strong></td><td><strong>$1,447,596</strong></td><td><strong>$ 30,714</strong></td></tr></tbody></table>

Supplemental Disclosure

During the year ended September 30, 1987, capital lease obligations of $110,219 were incurred when the Endowment entered into lease agreements for office equipment.

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NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1988 AND 1987

1. ORGANIZATION

The National Endowment for Democracy (the Endowment) is a private not-for-profit corporation headquartered in Washington, D.C. The Endowment was established coincident to a grant awarded by the United States Information Agency (USIA) as mandated by the National Endowment for Democracy Act (the Act) of the United States Congress. The purpose of the Endowment is to encourage free and democratic institutions throughout the world through activities which promote individual rights and freedoms. The Endowment awards grants to organizations with programs consistent with its objectives.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

**Accrual Accounting** - The accounts of the Endowment are maintained and the financial statements have been prepared on the accrual basis of accounting. The Endowment reports to the U.S. Government on the basis of obligations incurred and cash expenditures made.

**Revenue Recognition** - Grants received from government agencies specify the periods in which monies are to be expended. Revenues from government grants are recognized as earned in the year in which the granting organization indicates the funds are intended for use, provided the Endowment incurs valid obligations which are in accordance with the purposes set forth in the grant agreement.

**Program Grants** - The Endowment records as expense the full amount of a program grant at the time an agreement is signed committing funds to the grantee.

**Property and Equipment** - Property and equipment are carried at cost and are depreciated or amortized on the straight-line method over their estimated service lives or the terms of the lease, as applicable, ranging from 3 to 10 years.

**Grant Receivable/Payable** - At the time a grant agreement is signed, a payable to the grantee and a corresponding receivable from USIA or United States Agency for International Development (USAID) is recorded. As the Endowment draws on its letter of credit drawn on the USIA and USAID and payments are made to the grantee, the receivable and payable accounts are decreased accordingly.

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