Poland and Hungary:

Economic Transition and U.S. Assistance

NSIAD-92-102: Published: May 1, 1992. Publicly Released: May 1, 1992.

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GAO reviewed: (1) economic conditions in Poland and Hungary; and (2) the effectiveness of U.S. assistance to those countries.

GAO found that in response to the rapidly changing political and economic conditions in Poland and Hungary, the United States has developed a short-term, experimental economic assistance approach based on assumptions that: (1) assistance would be required for only a 5-year transitional period; (2) regional rather than country-specific funding allocations would enhance program flexibility; and (3) program planning, implementation, and management authority would be retained at headquarters agencies rather than delegated to U.S. personnel in-country. GAO also found that: (1) although Poland and Hungary have both undertaken such essential economic stabilization efforts as tightening fiscal and monetary policies, devaluing currency, and reducing the growth of debt, the short-term costs of those reforms have been high; (2) foreign trade and investment, considered key factors for restructuring and revitalizing the Polish and Hungarian economies, have not met donors' or the host countries' expectations; (3) despite the benefits of initial U.S. efforts, the effectiveness of future U.S. assistance could be impeded because the program has not been adjusted to reflect changes in the recipients' economic and political conditions; (4) the Department of State's decision to retain program management authority and responsibility created some management problems among the United States and recipient countries; and (5) the U.S. approach to allocating funds in Central and Eastern Europe hinders the host countries' ability to plan their programs.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: State said that it had adopted the recommendation. State has not, however, restructured the program to recognize longer-term needs.

    Recommendation: The Secretary of State should, in consultation with other administration officials, direct that the U.S. assistance program be restructured to recognize the longer-term needs of Poland and Hungary.

    Agency Affected: Department of State

  2. Status: Closed - Not Implemented

    Comments: The Chairman, House Appropriations Subcommittee on Foreign Operations, agreed with the recommendation.

    Recommendation: To enable recipient governments to better plan and prioritize their assistance needs, the Administrator, Agency of International Development, should specify funding targets on a country-specific basis, except for those sectors such as the environment where needs are clearly of a regional nature. The United States should present the funding targets as a planning objective that would depend upon the country's performance, in order to continue encouraging the efficient use of funds and ensure the funds are not seen by the recipient countries as firm commitments.

    Agency Affected: United States Agency for International Development


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