Poland and Hungary

In response to rapidly changing political and economic conditions in Poland and Hungary, the United States developed a short-term, experimental approach to economic assistance that assumed that (1) aid would be needed for only a 5-year transitional period; (2) regional rather than country-specific allocations of funds would enhance program flexibility; and (3) program planning, implementation, and management authority would stay in Washington, D.C., rather than be delegated to U.S. personnel abroad. This approach worked during the program's early phase; however, as circumstances changed and the economic problems facing Poland and Hungary became more fully known, some of the underlying program assumptions proved unrealistic. The U.S. approach now hinders the host countries' planning for and prioritizing of assistance, limits the flow of information between the United States and the host countries, and complicates and may hamper management of the program.

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

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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